Ahead of the Union Budget FY27, the Indian Staffing Federation has urged the Finance Ministry to reduce GST on staffing services to 5 per cent from 18 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 the Federation, the high tax rate incentives informal hiring, constrains women’s participation in workforce and weakens retention of migrant workers due to limited support for housing, food and security of worksites.
Reducing GST would lower compliance costs, encourage formal hiring, and align with the government’s employment formalisation objectives, the Federation said. It highlighted that nearly 85 per cent of India’s workforce – over 50 crore – are outside formal employment. This perpetuates low productivity and economic vulnerability, limiting inclusive growth.
WORKFORCE PRIORITY
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.
ISP 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 Rs. 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.
The proposed reforms aim to reduce the cost of formal employment, promote gender-inclusive higher, and improve safety and retention for migrant and women workers, in line with government goals.
Source:
Share this content: