Budget 2022: Lawyers seek tax benefits, push for legal reforms

There’s been a paradigm shift in the way lawyers and the justice delivery system have functioned over the past two years because of the pandemic and this has highlighted some aspects that legal practitioners hope will be considered in the upcoming budget.

The expectations range from a benevolent fund for lawyers to boosting the judicial infrastructure, and from tax benefits for legal practitioners to legal reforms for boosting the overall economy. Here’s what experts told Moneycontrol they hope and expect the Union Budget to consider.

Tax benefits

Like most salaried people and business owners, professionals too are concerned over what the government has in store for them in terms of tax benefits. While it’s not feasible or likely to make specific provisions for lawyers, the presumptive tax benefit in the Income Tax Act for service providers covers law practitioners as well.

For most small-scale practitioners, the pandemic years have been tumultuous and many of them faced hardships trying to make a living.

“Remote working in law practice has contributed to increased costs borne by practising lawyers and have added unforeseen expenses,” said Manish Mishra, a partner at J Sagar & Associates.

These increased costs need to be factored in. To ensure that legal professionals are not discouraged from continuing their practice, the “entry of lawyers in mainstream virtual law practice may be incentivised by providing some subsidies and perhaps standard deductions.”

The pandemic has highlighted the need for a relook at the presumptive tax provision to extend a helping hand to legal practitioners, said Abhishek A Rastogi, a partner at Khaitan & Co.

The Rs 50 lakh income ceiling set for service providers “needs to be increased, keeping in mind inflation over the period of time, compliance costs and extension to the larger base,” Rastogi said.

Amit Singhania, a partner at Shardul Amarchand Mangaldas, was of the view that the ceiling can be pushed to at least Rs 1 crore.

The goods and services tax mechanism applicable to law firms could also be reformed, experts said.

“Law firms covered under the reverse-charge mechanism for GST suffer input tax credit costs and this highlights the need for a GST refund mechanism which would remove tax cascading,” said Rastogi who specialises in tax-related law.

Weighing in on the tax levied on limited liability partnership firms, which is the model adopted by many law firms, Singhania said a reduction of the tax rate to 25 percent could benefit such firms, taking into account mounting costs.

“The budget this time can look at creating a benevolent fund or some benefit schemes like pension or gratuity schemes for lawyers, keeping in mind the hardships faced by the lawyers, especially during the pandemic,” Mishra said.

Push for judicial infrastructure

There is a dire need to modernise court systems, boost infrastructure and make adjudicating systems tech-compliant. A substantial budgetary allocation for the law and justice department could play a vital role in facilitating this, experts said.

“Boosting and bettering infrastructure is one of the factors that can help in improving the adjudication system,” said Nirav Shah of DSK Legal.

“Implementation of reforms in court management is an absolute necessity for increased efficiency and speed of case disposal,” said Mohit Saraf, founding partner at Saraf & Partners.

The litigation community also feels the absence of a GST appellate forum. Even five years after GST came into force, it is a gap that needs to be filled quickly.

“The absence of an appellate forum is essentially creating practical difficulty for assessees, adding to ever-mounting pendency and contributing to the burden on high courts and the Supreme Court,” Mishra said, stressing the need for this forum.

Mishra said that the ever-rising caseload is likely to turn into a problem of a large magnitude in the near future and acting now and acting fast to set up an appellate body is a must. The legislative framework for the appellate body exists, but the intent to set up the tribunal has to come from the government.

Singhania and Suraj Malik of Burgeon Law are batting for more efficient alternative dispute resolution mechanisms to be considered and given a push by the government in the hope of reducing the case backlog in the courts and to move towards faster dispute resolution for commercial and corporate cases.

Legal reforms

The budget this time is expected to usher in an era of multi-year growth cycle through increased capital expenditure. For attractive investments, Saraf said, there is a pre-requisite for ensuring ease of doing business, which can be achieved only with some legal and policy reforms.

Saraf said the exercise of removing old laws needs to continue but must be coupled with ensuring that existing laws are modernised and made relevant.

“Merely reorganising legislation together will not solve the issue as it requires both substantive and procedural modernisation, especially in terms of implementation and enforcement,” he said.

Supplementing Saraf’s view, Malik said implementation and enforcement of laws also need to be done in a modern manner and for this, the adjudicating system needs an overhaul to step away from old procedures and processes and to adopt technologically adept systems.