Is the Staffing Agency Margin Taxable?

The governing rule: GST is on the whole invoice, not the margin

Manpower supply and staffing services are taxed under GST at 18% under SAC 9985. The GST is charged on the full taxable value of the supply, meaning the total amount you bill the client, not only the difference between what you bill and what you pay your workers. So if your invoice is made up of wages, statutory contributions (EPF, ESI and the like) and your service fee, GST at 18% is computed on all of it together. The single most common costing error staffing owners make is assuming they can charge GST on their margin alone. Under the value-of-supply provisions of the CGST Act, the transaction value (the price billed) is what carries the tax.

The exception that usually applies: reverse charge on security services

Security services are a common line of business for manpower firms, and they carry a specific exception to who pays. For security services supplied by a person other than a body corporate to a registered recipient, GST is payable by the recipient under the Reverse Charge Mechanism (Notification No. 13/2017-Central Tax (Rate), as amended by Notification No. 29/2018-Central Tax (Rate), effective 01 January 2019). Note what this changes and what it does not: it changes who deposits the GST (the client, not the agency), but the value on which GST is computed is still the full billed value, not the margin. General manpower supply is not under reverse charge by default, so for ordinary staffing the agency charges and deposits the GST itself.

Your margin, income tax and Section 194C TDS

Your margin is your service fee, which is the earnings of your agency and forms part of your taxable business income for income-tax purposes. On top of that, when a client pays a contractor for the supply of labour, the client deducts TDS under Section 194C of the Income-tax Act, 1961 (1% where the payee is an individual or HUF, 2% otherwise), subject to the applicable thresholds. This TDS is not an extra tax on your margin: it is deducted from the payment, credited to you, and adjusted against your own income-tax liability. You can see the credit in Form 26AS.

The action step: bill on the full value with a compliant invoice

Raise a compliant tax invoice that shows the GSTIN of both supplier and recipient, the invoice number and date, the description of service (SAC 9985), the billing period, and the tax split: CGST plus SGST for an intra-state supply, or IGST for an inter-state supply, at 18%. Compute the 18% on the full taxable value of the supply. Where you are supplying security services to a registered recipient as a non-body-corporate, treat the supply under reverse charge and do not collect the GST yourself. Input tax credit is available to the recipient under the Section 16 conditions, and the recipient reconciles that credit through GSTR-2B and the TDS through Form 26AS.

Illustrative example

Illustrative example (figures are illustrative only). Suppose you deploy workers for a client and your invoice is made up of wages and statutory contributions of Rs 2,00,000 plus your service fee (margin) of Rs 20,000, giving a taxable value of Rs 2,20,000. GST at 18% is computed on the whole Rs 2,20,000, which is Rs 39,600, so the invoice totals Rs 2,59,600. The GST is not computed on the Rs 20,000 margin alone. The 18% applies to the full value regardless of how thin or thick your margin is.

Where this varies, and what to verify

GST registration thresholds and other state-level registrations that a manpower firm typically also holds (professional tax where the state levies it, and shops and establishment registration for its own office) vary by state, so confirm them against your state's notified rule. Whether a particular contract is 'security services' (potentially under reverse charge) or general manpower supply depends on the facts of the engagement. Confirm the current GST rate, and the TDS rates and thresholds, are unchanged before you invoice, and confirm the valuation treatment of any pass-through component with a tax advisor for your specific contract.

Key points

• GST at 18% (SAC 9985) applies to the full billed value of a manpower supply, not to your margin alone.
• You cannot lawfully invoice GST on the service fee (margin) by itself; wages, statutory contributions and your fee together form the taxable value.
• Security services supplied by a non-body-corporate to a registered recipient fall under reverse charge (recipient deposits the GST), effective 01 January 2019; general manpower supply is not under reverse charge by default.
• Under reverse charge the value taxed is still the full billed value; only who deposits the GST changes.
• The client deducts TDS under Section 194C (1% for individual/HUF, 2% otherwise) on the payment; it is credited to you and adjusted against your income tax, visible in Form 26AS.
• The recipient can claim input tax credit under Section 16 conditions and reconciles it via GSTR-2B.
• Confirm the current 18% rate, TDS rates and thresholds, and state-level registrations before invoicing.

Related questions

Check for your state

• GST registration thresholds and state-level registrations a manpower firm typically also holds (professional tax where levied, shops and establishment registration) vary by state; verify against the state's notified rule.
• The current GST rate (18%), and the Section 194C TDS rates and thresholds, should be confirmed as unchanged before invoicing.
• Whether a specific supply is 'security services' (potentially reverse charge) or general manpower supply depends on the facts of the contract.
• The valuation treatment of any reimbursable or pass-through component for a specific contract should be confirmed with a tax advisor.
• The page states income tax applies to the margin as business income at a general level; specific income-tax computation, deductions and rates for the agency are outside this grounding pack and should be confirmed with a tax advisor.