GST on Manpower Services: Rate, RCM & ITC Rules (2026)

Updated: 3 June 2026 | CGST Act 2017 | SAC 9983 / 9985 | Notification 13/2017-CT(Rate)

Manpower supply, staffing, and labour contractor services attract 18% GST (SAC 9983/9985). Body corporate agencies charge forward 18%; individual or proprietor contractors to registered recipients trigger RCM where the business pays 18% directly to the government. ITC is available for operational manpower but blocked if used for construction of immovable property under Section 17(5).

18%

GST on all manpower supply and staffing services (SAC 9983/9985)
Forward charge for body corporates | RCM when supplier is non-body-corporate individual or firm

GST Rate Table — Manpower & Labour Services

Service	SAC	GST Rate	Mechanism	ITC?
Manpower supply (body corporate agency)	998512	18%	Forward Charge	Yes
Labour supply by proprietor / individual	998512	18%	RCM on registered recipient	Yes (post RCM payment)
Temporary / contractual staffing	998513	18%	Forward Charge	Yes
Placement / recruitment agency fees	998511	18%	Forward Charge	Yes
Payroll processing / outsourcing	998311	18%	Forward Charge	Yes
Manpower for construction (immovable property)	998512	18%	Forward / RCM	Blocked — Sec 17(5)
Manpower supply to SEZ unit	998512	0% (Zero-rated)	Under LUT or IGST refund	N/A (zero-rated)
Executive search / headhunting	998511	18%	Forward Charge	Yes

Forward Charge vs RCM — Deciding the Right Mechanism

The key determinant is the legal form of the supplier, not their size or turnover. A body corporate (Private Limited Company, Public Limited Company, One Person Company, or LLP) supplying manpower must collect and pay 18% GST under forward charge. Any other entity — sole proprietorship, partnership firm, HUF, or individual — supplying manpower to a registered recipient triggers RCM on the recipient.

If the recipient is also unregistered (e.g., a small unregistered shop hiring a labour contractor), RCM technically does not apply under Notification 13/2017. However, once the recipient crosses the registration threshold, the obligation kicks in. Both parties must maintain clear documentation of the supplier's entity type to determine the correct mechanism.

ITC Rules and Section 17(5) Trap

Section 17(5)(b)(ii) blocks ITC on manpower services used for construction of an immovable property. This is a common audit issue — companies building their own factory or warehouse and hiring contract labour cannot claim ITC on those invoices. But the same company hiring daily-wage labour for machine maintenance or production can claim ITC. Maintain separate cost centres and invoice records for construction vs. operational manpower to protect ITC claims during GST audits.

Frequently Asked Questions

What is the GST rate on manpower supply and staffing services in India?

Manpower supply, staffing, and labour supply services in India attract 18% GST under SAC 9983 (Other professional, technical and business services) or SAC 9985 (Support services). This flat 18% rate applies to recruitment agencies, temporary staffing firms, contract staffing companies, payroll outsourcing service providers, and executive search firms. The rate has been 18% since the inception of GST in July 2017 and there have been no reductions announced. The 18% comprises 9% CGST + 9% SGST for intra-state supplies or 18% IGST for inter-state supplies. Businesses procuring these services can claim full Input Tax Credit (ITC) against their output GST liability, provided the manpower is engaged in taxable business activities. Manpower supply agencies must register for GST once their turnover crosses ₹20 lakh per annum.

Does GST apply on labour contractor services supplied to factories?

Yes, labour contractor services supplied to factories and manufacturing units attract 18% GST. A labour contractor who supplies workers (for loading, unloading, assembly, packing, machine operation) to a factory is making a "supply of services" and must charge 18% GST on his invoice. The SAC is typically 998512 (Manpower supply services) or 9985. The factory (recipient) is entitled to claim full ITC on the 18% GST paid to the labour contractor, provided: (a) the workers are used in manufacturing taxable goods, (b) the invoice is in the factory's GSTIN name, and (c) the contractor has filed returns and the credit appears in GSTR-2B. A critical blocked-credit trap: if labour is used for construction or installation of immovable property (Section 17(5)(c)/(d)), ITC is blocked. Labour for machinery maintenance or production line is fully eligible.

What is RCM on manpower services and when does it apply?

Reverse Charge Mechanism (RCM) on manpower services applies when a non-body-corporate entity supplies manpower to a registered recipient. Under Notification 13/2017-CT(Rate) (as amended), if an individual, proprietorship, or partnership firm provides labour/manpower supply services, the registered recipient must pay 18% GST under RCM. For example, if a sole proprietor labour contractor supplies workers to a registered company, the company must self-invoice and pay 18% RCM in GSTR-3B. However, there is an important distinction: if the service is manpower supply by a body corporate (Pvt Ltd, LLP, etc.), it falls under forward charge — the agency collects 18% GST and deposits it. RCM compliance requires paying from cash ledger (not ITC), and then the paid RCM can be claimed back as ITC in the same period. Failure to comply attracts penalties and interest at 18% per annum.

Is ITC available on manpower services? What about Section 17(5) blocked credits?

ITC on manpower services is generally available under Section 16 of the CGST Act. Businesses can claim credit on GST paid for staffing, recruitment, and contract labour used in taxable business operations. However, Section 17(5) of the CGST Act blocks ITC in specific circumstances: (a) ITC is blocked on manpower or works contract services used for construction of immovable property (buildings, civil structures), even if used for business. (b) ITC is blocked on manpower services used for personal consumption. (c) ITC is blocked if the final output is an exempt supply. In contrast, ITC is fully allowed when manpower services are used for: manufacturing taxable goods, providing taxable services, office administration (security, housekeeping, front desk), warehouse operations, and IT/BPO services. Always segregate construction-related manpower invoices from operational manpower invoices to maximize ITC claims.

What GST applies on manpower supply to Special Economic Zones (SEZ)?

Manpower supply services provided to a SEZ developer or SEZ unit are zero-rated supplies under Section 16 of the IGST Act, 2017. The supplier (staffing agency) can either (a) supply under a Letter of Undertaking (LUT) without paying GST, charging zero GST on the invoice, or (b) pay 18% IGST and claim a refund. The SEZ recipient does not pay GST on zero-rated inward supplies. The staffing agency opting for LUT route must furnish a bond/LUT before supplying. Zero-rating applies to all SEZ services regardless of whether workers are on-site in the SEZ or working remotely for SEZ operations. Payroll processing fees charged separately to SEZ units are also zero-rated. The GST refund route takes 2-3 months, so most agencies prefer the LUT route to avoid working capital blockage.

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