GST on Professional Services: Rates, Applicability and Calculation

Since the introduction of the Goods and Services Tax (GST), the way professional services are taxed in India has seen major changes. People working as chartered accountants, company secretaries, lawyers, consultants, architects, engineers, and management advisors need to understand how GST affects the way they raise bills. This article looks at various aspects of GST on professional services, including how it applies, what the current rates are, who needs to register, what paperwork is needed, and how GST is calculated under the latest rules.

Applicability of GST on Professional Services

GST system treats professional services as "taxable services." This means professionals must register for GST and charge GST on their services once they exceed a certain turnover limit. In most states, this limit is ₹20 lakh. In special category states the limit is lower at ₹10 lakh. The limit is checked in terms of aggregate turnover i.e.,  calculated by adding up all taxable and exempt supplies made across India under one PAN, and not separately for each state.

Sometimes, GST registration is needed even if the turnover is below these limits. This happens when a professional supplies services across states, offers online services, acts as a casual taxable person, works as a non-resident taxable person, or is liable under the reverse charge mechanism. 

For example, a photographer from Delhi conducted a photoshoot in Mumbai (interstate supply) and provided online editing services to clients abroad (OIDAR). He hired an unregistered assistant for one of his projects, making him liable under reverse charge. Even though his earnings were low, these activities required him to register for GST.

Professionals can also choose to register voluntarily, even if they are not required to. Voluntary registration can help them operate more efficiently and claim Input Tax Credit (ITC) on their purchases. Some services, like healthcare provided by clinical establishments and education services from recognised institutions, are exempt from GST and do not attract any tax. 

GST Rates Applicable on Professional Services

Professional services are usually taxed at 18% under GST. For intra-state supplies, this is separated into 9% CGST and 9% SGST. An 18% IGST is applicable for interstate supply.

The professional services falling under the 18% tax slab are:

A GST-registered professional can claim input tax credit (ITC) on business expenses and must charge GST on client invoices. If their annual revenue is up to ₹50 lakh, they can choose the Composition Scheme, paying 6% GST with simpler returns. However, under this scheme, they cannot claim ITC or separately collect GST from clients.

GST Registration for Professional Services

The GST portal offers a simple online registration process: 

1. Create a Temporary Reference Number (TRN) under the “New Registration” section by providing your email address, PAN, and mobile number.
2. Complete Part B of Form GST REG-01 by entering the business information, primary location, services provided, and bank account information.
3. Upload the required supporting files.
4. Use the Digital Signature Certificate (DSC) for businesses and Limited Liability Partnerships (LLPs), or an OTP based on Aadhaar for individuals and sole proprietorships, for confirming the application.
5. A Goods and Services Tax Identification Number (GSTIN) is generated following a successful submission. Following document verification, the final registration certificate is issued.

Failure to register can lead to penalties, prosecution, and demand notices.

Documents Required for GST Registration

These are the necessary documents for GST registration:

• The company's or individual's PAN card.
• Proof of the business, such as a Certificate of Incorporation, Partnership Deed, or Certificate of Practice.
• Passport size photograph of the proprietor, directors, partners, or authorised signatories.
• Documents for proof of the authorised signatory's identity and address (driving license, passport, voter ID, or Aadhaar card)
• Proof of the primary place of business, such as a rent agreement, property tax receipt, electricity bill, or No-Objection Certificate (NOC) from the property owner.
• Bank account information, such as a recent bank statement or cancelled cheque.
• Digital Signature Certificates (DSCs) for LLPs and businesses. Individuals and proprietorships can finish the registration process by using the Aadhaar OTP verification.

Calculation of GST on Professional Services

The GST calculation process is straightforward: 

1. Determine the professional service taxable value (V). This covers all fees and incidentals that are billed to the client, with the exception of GST.
2. Use the relevant GST rate (R). 
3. Use the formula T=V×R/100 to calculate the tax amount (T).
4. Lastly, to calculate the total invoice amount, add the tax amount T to the taxable value V. 

The GST has improved the consistency and transparency of professional service taxes in India. Service providers must know when GST registration is necessary, and be aware of the applicable tax rates, timely complete the registration process, keep accurate records, and correctly compute GST in order to comply with the tax laws.