The 18 per cent GST on temporary staffing services — often an input cost for firms — will create an anomaly after the recent cut in levies on several output goods from 18 per cent and 12 per cent to 5 per cent, Indian Staffing Federation (ISF) President Lohit Bhatia said on Thursday. Flagging the GST inversion, Bhatia urged that the rate be cut to 5 per cent, adding that ISF has raised the issue with the authorities.
In 2024-25, 72 lakh workers were employed through tripartite contracts with flexi-staffing firms and client companies across sectors, the ISF said in a new report. The flexi-staffing industry generated Rs 1.9 lakh crore in revenue and paid Rs 34,000 crore in GST, according to the report.
“After GST 2.0, many product categories and industries have seen rates reduced from 18 per cent and 12 per cent to 5 per cent. We are a big input because we provide them with human capital. Earlier, they would set off the input against the output. Now, their output has much lower GST, but they still have 18 per cent GST on human capital,” Bhatia said in a media briefing.
While companies can claim input tax credit (ITC) on third-party hiring expenses, the rate inversion can strain cash flows and disincentivise firms from using flexi-staffing services. “This will create an unnecessary anomaly, where instead of generating more formal jobs, it could push employment back towards informal or gig work, which is a very dangerous precedent,” Bhatia said, insisting that providing employment is a “merit service”.
He said the ISF has raised this issue with the Union Finance Ministry and some state governments.
Staffing companies hire workers and deploy them as flexi staff to meet client needs, typically for six to 12 months. They manage salaries and social benefits, while the workers are placed with client firms on fixed-term tripartite contracts.
Tripartite or flexi work is treated as formal employment and makes up 1.3 per cent (72 lakh) of total employment in India, compared with 2.9 per cent in China and Japan and 2.7 per cent in France. The ISF projects this share would rise to 1.6 per cent by 2026-27.
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Nearly 55 per cent of India’s flexi workforce is concentrated in Maharashtra, Karnataka, Uttar Pradesh, Tamil Nadu, and Telangana, the ISF report said. Logistics, BFSI, and manufacturing are the top three sectors for formal contract staffing, together accounting for about 38 per cent of the total workforce, according to the report.
Of the 57 crore people in India’s workforce, 83.5 per cent are in informal employment, 2.2 per cent in gig work, 0.2 per cent are apprentices, and only 14 per cent in formal employment, the report said.
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