The Government is reportedly re-examining the 2011 Finance Bill’s proposal to charge service tax on an accruals basis, which would force law firms to pay service tax as soon as they bill a client rather than when the cash is actually received.

The Hindu Business Line reported that “official sources” said: “We have received many representations on this new rule. We will take a relook and act accordingly.”

The paper reported that many associations such as the Federation of Indian Chambers of Commerce and Industry (FICCI) had petitioned that the “point of taxation rule” should not be introduced.

The 2011 Budget would hit lawyers on the point of taxation rule as well as extending the unpopular service tax on legal services to sole practitioner litigators and law firms advising individuals.

Under the new rules law firm associates may also have to charge service tax to their own law firms.