As the Union Budget approaches, the Indian Staffing Federation (ISF) has recommended that the Finance Ministry (FM) reduce the GST rate on staffing services from 18% to 5%. It has classified these services as ‘merit services’ and introduced women specific slab U/S 80JJAA of the IT Act.
At present, there is a high GST limitation on the staffing and manpower outsourcing industry, a driver of formal employment. It counters formalisation in labour-intensive sectors such as manufacturing. As per ISF, the high tax rate incentivises informal hiring, constrains women’s workforce participation, and cuts retention of migrant workers due to limited support for housing, food, and security at worksites.
The decrease in GST shall reduce compliance costs, motivate formal hiring, and align with the employment formalisation objectives of the government, the Federation mentioned.
ISF cited that approximately 85% of the workforce in India, which is more than 500 million people, remains outside of formal employment. Such widespread informality leads to low productivity and economic vulnerability, which restricts inclusive growth.
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India’s employment ecosystem remains misaligned with its demographic potential, even after having a young population with nearly 65% under the age of 35.
The Federation warned that India risks underutilising its demographic dividend without making labour formalisation a central budget priority.
ISF exhibits limitations in Section 80JJAA, which offers a 30% tax deduction on additional employee costs for three assessment years to facilitate 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, decreasing their effectiveness amid increasing wages and inflation. It restricts incentives for higher-wage formal women hires.
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Overall, the proposed amendments have the motive to lower the cost of formal employment, promote gender-inclusive hiring, and improve safety and retention for migrant and women workers, in line with government objectives.
