Today's 2010-11 Union Budget has not directly affected law firms although it could have knock-on effects in several practice areas and save individual junior lawyers almost 30 per cent of tax.

Finance Minister Pranab Mukherjee's Budget emphasised infrastructure, affordable housing and education but did not increase service tax on law firms, has given additional time to implement the new Goods and Services Tax (GST), and has promised continuing disinvestments and private sector bank licences.

Economic Laws Practice (ELP) managing partner Rohan Shah said in a post-budget teleconference: "It is a Budget which effectively has drawn strong support from the capital markets, based on what the speech was saying."

But he added: "If we look to the text of the Budget we discover detail, and in some cases there is devil in the detail."

Unlike last year's surprise budget which levied a service tax on law firms and set out the limited liability partnership (LLP) tax position, Indian lawyers were to a large part not directly affected by this year's Budget.

The service tax, which law firms have had to pay since last year's Budget, remained unchanged at 10 per cent and individual practitioners are still exempt from the tax.

"There has been no change for law firms," ELP partner Rohit Jain told Legally India.

Lawyers' personal tax bill
Chartered accountancy firm NPV & Associates partner Poorvi Chitalia said that for law firms nothing had substantially changed with the Budget except that income tax slabs had been raised, which would save individual lawyers some money on their tax bills.

Chitalia said: "The individual lawyers having taxable income equal to or above Rs 800,000 [Rs 8 lakhs] will save Rs. 50,000 compared to the previous financial year."

On a taxable income of Rs 9 lakhs per year, which is roughly equivalent to Rs 1 lakh of professional fees per month after deducting expenses, a lawyer would pay around 124,000 of tax annually under the new regime, compared to Rs 174,000 in the previous year.

All additional income above this amount would be taxed at 30 per cent, as was the case last year.

Some changes were made that could provide a knock-on effect on law firms' practices, however.

Goods and Services Tax (GST)
In the Budget the Finance Minister has also expressed an intention that the GST and the Direct Tax Code would be rolled out by a deadline of 1 April 2011.

Law firms have been ramping up their capacity in the indirect tax field in the past year in anticipation of the advent of the GST.

ELP's Shah said that it would take a year of optimisation for companies to truly take part in the GST and new code, calling them "complete game changers" in the field. "Pretty much all of our learning of indirect taxes will just be issues of the past," he noted.

Recent J Sagar Associates (JSA) hire and indirect tax adviser Jogendra Singh agreed that there would be a lot of work that would need to be done in preparation.

Banking
The Budget also expressed the intention for the Reserve Bank of India (RBI) to issue additional banking licences to private sector banks.

Phoenix Legal banking partner Sawant Singh welcomed the move. "RBI’s move […] will come as breath of fresh air to foreign banks whose licenses have been pending with the RBI."

State-owned banks would be recapitalised with Rs 16,500 crore ($3.5bn) of taxpayer money to maintain tier 1 capital adequacy ratios of 8 per cent.

Singh commented that this may not result in a lot of work for law firms as this would be likely to be handled internally by the banks.

The Finance Minister also announced the creation of a super regulator dubbed the "Financial Stability & Development Council", which will aim to prevent future financial crisis by coordinating the different financial regulators. [Added after reader comment -Ed]

Capital markets
The Finance Minster also said that the Government would ramp up its plans for disinvestment, looking to shed another Rs 40,000 crore ($8.6bn) through disinvestments of state-owned companies.

In light of the recent underwhelming disinvestments of Rural Electrification Corporation and NTPC, one capital markets partner said: "I think it is definitely good to hear that the Government will continue, which means that there is going to be a fair amount of deals coming in the market."

However, the partner added that the ambitious Government plans could also adversely affect private fundraisings. "The feeling we have got in the last couple of months is that the markets have been fairly choppy and with the Government transactions there will be an impact on the liquidity in the market… We still have to wait to see how that will unfold."

Industry leaders have largely welcomed the Budget.

Click here for lawyers' predictions on the budget yesterday.