Government of India Union Budget 2009-10

Lawyers have threatened legal action over the Government's new service tax as Delhi litigators are going on strike over the issue today.

It turns out not all lawyers are against being charged service tax...

The Bar Council of India for one has come out in favour of the tax change that was introduced in Monday's budget, which meant that for the first time ever, Indian lawyers will be deemed to provide a service - something that clients will no doubt applaud after years of being palmed off with mere professional advice.

BCI chairman SNP Sinha told the Business Standard he thought it was a great idea that law firms would finally be taxed.

"The government of India has taken a wise decision by imposing tax," he said. "In the wake of the recently passed Limited Liability Partnership Act, foreign law firms are making (back-door) entry through joint ventures and collaboration. Thus they are justified in imposing tax."

Perhaps crucially, the tax change will not affect individual practitioners or those rendering services to - sorry, advising - individuals.

Unsurprisingly, the Society of Indian Law Firms (SILF) was not happy. The body's president Lalit Bhasin told the daily paper: "It is a (retrograde) step.

"Instead of helping, strengthening and promoting Indian law firms, the government is trying to substantially weaken them, and they are facing the threat of entry of foreign firms in the country."

Thanks to islandexpress who first tweeted the Business Standard article.

Today's Budget has introduced measures to give greater certainty to advance tax rulings to avoid litigation, which has been cautiously welcomed by Indian tax lawyers as appealing particularly to foreign investors.

This year's Union Budget has paved the way for law firm partnerships to convert to limited liability partnerships (LLPs).

The 2009-10 Union Budget has extended service tax to lawyers, which could directly increase legal bills to clients and result in downward pressure on fees.