GST on Manpower Supply Services: Rates, Exemptions and Compliance

GST on Manpower Supply Services

GST on manpower supply services in India is generally levied at 18%, as the supply of manpower is treated as a taxable supply of services under Section 7 of the CGST Act, 2017. Businesses and manpower agencies providing workforce services whether temporary or permanent are required to comply with GST provisions, including registration, invoicing, and tax payment, unless a specific exemption applies.

Manpower supply services under GST refer to the provision of human labour or workforce support by an agency to a business or organization. Agencies supplying manpower are required to charge GST on such services and remit the tax to the government. These services commonly support businesses with temporary, contractual, or project-based workforce requirements and fall squarely within the ambit of GST.

GST on Manpower Supply: Rates and Exemptions

Generally, GST on manpower supply services is levied at 18% under the GST law, unless the service qualifies for a specific exemption. However, GST exemption for government manpower applies in specific cases: when services are provided to the central government, state government, union territory, local authority, or other governmental bodies under functions assigned to panchayats or municipalities, as per Notification No. 12/2017, Central Tax (Rate) dated June 28, 2017, entry no.3.

Conditions for GST Exemption for Government Manpower

The GST exemption for manpower supply is strictly conditional and applies only in limited government-related scenarios. The following conditions must be met for exemption:

• The service is a pure service (excluding work contract or composite supplies involving goods), e.g., security guard, housekeeping, clerical staff, data entry operators.
• The manpower directly supports the core functions of the government department, fulfilling essential duties mandated by law.
• Manpower supplied for commercial activities by the government is not exempt.

Special GST Considerations: Secondment of Employees

Is there any GST implication if a foreign holding company sends its technical and other staff to their subsidiaries in India?

Apart from domestic manpower supply, GST implications also arise in cross-border employee secondment arrangements, particularly involving multinational groups.

It’s a normal business practice for multinational companies to send technical and other staff/employees to work in their subsidiaries in different countries. The purpose could be training, project execution or knowledge transfer. Prior to the judgement of Northern Operating Systems (NOS) case delivered by the Apex Court, it was a settled position that such secondment arrangements of the employees from overseas entity to Indian company shall be covered under employer-employee relationship via judgements like Nissin Brake etc. However, this NOS judgement has opened a Pandora box for all the big multinationals. The judgement concluded that such secondment of employees will be treated as import of manpower supply services by the Indian company from its parent/holding company.

Under the GST Laws, the place of supply for manpower supply services is generally the location where the services are received. In these cases of dispatch of employees by foreign company to Indian Company the location of supplier is outside India, and the services are being rendered in India and in this case place of supply would be India.

Nevertheless, it is important to analyze the facts of each arrangement to understand the applicability of the judgement. The industry is facing hue and cry on the matter and various multinationals having such arrangements receiving notices by the GST authorities. In this series of tax alerts on manpower, our focus is to keep our readers updated on the developments and technicalities of these cases and support them in analyzing their arrangements.