Ahead of budget, ISF suggests FM to reduce GST for staffing industry to 5% - A2Z Taxcorp LLP

Ahead of the Union Budget, the Indian Staffing Federation (ISF) has urged the Finance Ministry to reduce GST on staffing services from 18 per cent to 5 per cent, classify them as “merit services,” and introduce a women-specific slab under Section 80JJAA of the Income Tax Act.

The staffing and manpower outsourcing industry, a key driver of formal employment, currently faces a high GST burden that discourages formalisation, particularly in labour-intensive sectors such as manufacturing. According to ISF, the high tax rate incentivises informal hiring, constrains women’s workforce participation, and weakens retention of migrant workers due to limited support for housing, food, and security at worksites.

Reducing GST would lower compliance costs, encourage formal hiring, and align with the government’s employment formalisation objectives, the Federation said.

ISF highlighted that nearly 85 per cent of India’s workforce—over 500 million people—remains outside formal employment. This widespread informality perpetuates low productivity and economic vulnerability, limiting inclusive growth. Despite having a young population, with about 65 per cent under the age of 35, India’s employment ecosystem remains misaligned with its demographic potential.

The Federation cautioned that without making labour formalisation a central budget priority, India risks underutilising its demographic dividend.

ISF also flagged limitations in Section 80JJAA, which offers a 30 per cent tax deduction on additional employee costs for three assessment years to promote formal job creation. The eligibility thresholds — such as the ₹25,000 monthly wage cap and the minimum employment period of 240 days (150 days for select sectors) — have remained unchanged since 2016, reducing their effectiveness amid rising wages and inflation. This particularly limits incentives for higher-wage formal women hires.

Together, the proposed reforms aim to reduce the cost of formal employment, promote gender-inclusive hiring, and improve safety and retention for migrant and women workers, in line with government goals.

Source from: https://www.thehindubusinessline.com/economy/ahead-of-budget-isf-suggests-fm-to-reduce-gst-for-staffing-industry-to-5/article70525560.ece