Quick Answer
Manpower supply, staffing and labour contractor services attract 18% GST under SAC 9985 / 9983. A body-corporate agency (Pvt Ltd, LLP, OPC) charges the 18% under forward charge. When the supplier is a proprietor, partnership firm or individual supplying to a registered recipient, the recipient self-pays 18% under RCM (Notification 13/2017-CT(R)). ITC is available for operations but blocked when labour is used to construct immovable property.
Agency (company/LLP) 18%
Proprietor / firm 18% RCM
Construction labour ITC blocked
Supply to SEZ Zero-rated
At a glance
GST Rate for Manpower & Labour — Decision Table
Every common manpower and staffing scenario, with the SAC code, who deposits the GST and whether Input Tax Credit is available.
| Service | SAC | Rate | Who Pays | ITC |
|---|---|---|---|---|
| Manpower supply — body-corporate agency | 998512 | 18% | Agency (forward) | Yes |
| Labour supply — proprietor / firm / individual | 998512 | 18% | Recipient (RCM) | Yes* |
| Temporary / contract staffing | 998513 | 18% | Agency (forward) | Yes |
| Placement / recruitment agency fee | 998511 | 18% | Agency (forward) | Yes |
| Payroll processing / outsourcing | 998311 | 18% | Agency (forward) | Yes |
| Manpower for construction (immovable property) | 998512 | 18% | Forward / RCM | Blocked · 17(5) |
| Manpower supply to SEZ unit / developer | 998512 | Zero-rated | LUT / IGST refund | — |
| Executive search / headhunting | 998511 | 18% | Agency (forward) | Yes |
* Recipient claims the RCM 18% back as ITC only after paying it in cash. The 18% rate was retained under the GST 2.0 structure effective 22 September 2025. Confirm on the official GST portal before invoicing.
The core question
Forward Charge or Reverse Charge?
The rate is always 18%. What changes is who deposits it — and that turns on the legal form of the supplier, not its size or turnover.
18%
Forward charge — agency pays
- Supplier is a company, LLP or OPC (body corporate)
- Agency adds 18% on its invoice
- Agency collects & deposits the GST
- Recipient claims normal ITC from GSTR-2B
- Standard B2B staffing arrangement
vs
18%
Reverse charge (RCM) — you pay
- Supplier is a proprietor, firm, HUF or individual
- Recipient is GST-registered
- Recipient self-invoices & pays 18% in cash
- Then claims it back as ITC (if eligible)
- Applies even if the supplier is unregistered
RCM is not optional
If a proprietor or partnership labour contractor supplies you manpower, RCM is mandatory — you must self-pay the 18% in cash (not from ITC) in your GSTR-3B. Ignoring it invites tax, interest at 18% p.a. and penalty. Always record the supplier's entity type on file to fix the correct mechanism.
Not sure if your labour contractor triggers RCM?
Get My RCM Position →Step by step
How RCM on Manpower Works
Proprietor contractorSupplies workers, bills without GST
→
You self-invoiceRaise an RCM self-invoice
→
Pay 18% in cashDeposit RCM in GSTR-3B from cash ledger
→
Claim ITCTake the paid RCM back as credit (if eligible)
Worked example
How GST Adds Up — ₹1,00,000 Bill
18% Agency (forward charge)
Manpower value₹1,00,000
GST @ 18% (on invoice)₹18,000
Recipient pays₹1,18,000
18% Proprietor (RCM)
Manpower value₹1,00,000
GST @ 18% (self-paid, cash)₹18,000
Cash outflow + ITC back₹18,000
Under forward charge the agency shows 18% on the bill; under RCM the contractor bills ₹1,00,000 only and you deposit the ₹18,000 yourself, then reclaim it as ITC where the manpower is used for taxable business.
Running a staffing agency or hiring contract labour? Get your invoicing & RCM set up right.
Get Staffing GST Advice →Credit rules
ITC on Manpower — the Section 17(5) Trap
ITC on manpower is available under Section 16 when the workers serve a taxable business activity. But Section 17(5) blocks it in specific cases — the biggest being labour used to construct immovable property.
| Use of manpower | ITC? | Reason |
|---|---|---|
| Machine operation / production line | Yes | Used for taxable manufacture — Sec 16 |
| Housekeeping, security, front-desk, admin | Yes | Business support for taxable operations |
| Warehouse / loading / logistics | Yes | Business use — ITC eligible |
| Labour to build own factory / warehouse | Blocked | Sec 17(5)(c)/(d) — construction of immovable property |
| Manpower for personal / staff-welfare use | Blocked | Not for business — Sec 17(5) |
| Manpower used only for exempt supplies | No | Attributable to exempt output |
Keep construction-labour invoices in a separate cost centre from operational manpower to defend ITC in audit.
ITC is safe when
- Manpower runs your production, service or admin operations
- Invoice carries your correct GSTIN
- Supplier filed returns and credit shows in GSTR-2B
- You paid within 180 days of the invoice
ITC is at risk when
- Labour is engaged to build or civil-works a property
- Manpower supports an exempt line of business
- Invoices mix construction and operations together
- RCM was due but never self-paid in cash
Want your manpower invoices reviewed for maximum safe ITC?
Talk to a GST Expert →Special cases
SEZ Supply, LUT & Registration
Manpower supplied to a SEZ unit or developer is a zero-rated supply under Section 16 of the IGST Act. The agency can either supply under a Letter of Undertaking (LUT) without charging GST, or pay 18% IGST and claim a refund — most prefer LUT to avoid working-capital blockage.
- A manpower agency must register for GST once aggregate turnover crosses ₹20 lakh (₹10 lakh in special-category states).
- Inter-state manpower supply and supply through an e-commerce operator can require registration regardless of turnover.
- The composition scheme is generally not suited to manpower agencies making inter-state or SEZ supplies.
- GST registration (GSTIN)
- Correct SAC classification (9985/9983)
- Forward vs RCM determination per supplier
- RCM self-invoice & cash payment
- GSTR-1 (outward supplies)
- GSTR-3B (RCM + ITC)
- ITC reconciliation with GSTR-2B
- LUT filing for SEZ / export supply
- Construction-labour cost centre segregation
- Records of supplier entity type
TaxClue Insight
The number is simple — it is 18% almost everywhere. The costly mistakes are structural: missing RCM on a proprietor contractor, or claiming ITC on construction labour. Get the mechanism and the 17(5) split right and manpower GST becomes routine.
Government sourcesRates & notifications: gst.gov.in · CBIC rate finder: cbic-gst.gov.in · RCM on services: Notification 13/2017-CT(R) (as amended) · Blocked credits: Section 17(5), CGST Act 2017 · Zero-rated SEZ supply: Section 16, IGST Act 2017
People also ask
Frequently Asked Questions
Rate & SAC
What is the GST rate on manpower supply and staffing services?
Manpower supply, staffing and labour supply services attract 18% GST under SAC 9985 (support services) or SAC 9983 (professional, technical and business services). This applies to recruitment agencies, temporary and contract staffing firms, payroll outsourcing and executive search. The 18% is 9% CGST + 9% SGST intra-state, or 18% IGST inter-state, and was retained under the GST 2.0 structure effective 22 September 2025.
Did GST 2.0 change the rate on manpower or labour services?
No. The GST 2.0 rationalisation effective 22 September 2025 restructured goods and some services into a two-slab system, but manpower supply, staffing and labour contractor services remain at 18% under SAC 9985/9983. There has been no rate cut for these services.
What is the SAC code for manpower and labour supply?
The main codes are 998511 (executive/retained search and placement), 998512 (permanent placement/manpower supply), 998513 (contract staffing) and 998514 (temporary staffing). Payroll processing is 998311. All these carry 18% GST. Use the code that matches the exact nature of your service on the invoice.
Is GST applicable on labour contractor services to factories?
Yes. A labour contractor who supplies workers to a factory (loading, packing, assembly, machine operation) makes a supply of service taxable at 18% under SAC 9985/998512. The factory can claim full ITC where the labour is used to manufacture taxable goods, the invoice is in the factory GSTIN and the credit appears in GSTR-2B. ITC is blocked only if the labour is used to construct immovable property.
Reverse Charge (RCM)
When does RCM apply on manpower services?
RCM applies when a non-body-corporate supplier — a proprietor, partnership firm, HUF or individual — supplies manpower/security-type services to a GST-registered recipient, under Notification 13/2017-CT(R). The registered recipient then self-pays 18% GST directly to the government instead of the supplier collecting it. If the supplier is a company or LLP, it is forward charge and the agency collects the 18%.
Who pays GST on manpower services under RCM?
The recipient. Under RCM the GST-registered business raises a self-invoice and deposits the 18% GST from its electronic cash ledger in GSTR-3B — it cannot pay RCM using ITC. The supplier bills without adding GST. The recipient can then claim the paid RCM back as ITC in the same period if the manpower is used for taxable business.
Does RCM apply if a company or LLP supplies the manpower?
No. When the supplier is a body corporate — Private Limited, Public Limited, OPC or LLP — the transaction is under forward charge: the agency charges 18% on its invoice and deposits it. RCM is triggered only when the supplier is a proprietor, firm, HUF or individual. Always record the supplier entity type to fix the right mechanism.
Can RCM on manpower be paid using input tax credit?
No. RCM liability must always be discharged in cash from the electronic cash ledger; it cannot be set off against ITC. Once you have paid the RCM in cash and reported it in GSTR-3B, you may claim that same amount back as ITC in the same return, provided the manpower is used for taxable business and no Section 17(5) block applies.
ITC
Is ITC available on manpower and staffing services?
Generally yes, under Section 16. Businesses can claim ITC on GST paid for staffing, recruitment and contract labour used in taxable operations — production, services, warehousing, housekeeping, security and admin. ITC is blocked under Section 17(5) when the manpower is used to construct immovable property, for personal consumption, or wholly for exempt supplies.
Why is ITC blocked on construction labour?
Section 17(5)(c)/(d) blocks ITC on goods and services — including manpower and works-contract labour — used for construction of an immovable property, even when it is for business. So a company that hires contract labour to build its own factory or warehouse cannot claim that ITC. Labour hired for machine maintenance or the production line, by contrast, is fully eligible. Keep the two sets of invoices in separate cost centres.
Can a factory claim ITC on labour used for machine maintenance?
Yes. Manpower used to operate or maintain plant and machinery for taxable manufacturing is a normal input service and ITC is fully available, subject to a valid invoice, the credit showing in GSTR-2B and payment within 180 days. The block applies only to labour used to construct immovable property, not to production or maintenance labour.
Registration & Special Cases
When must a manpower or staffing agency register for GST?
A manpower agency supplies a service, so registration is mandatory once aggregate turnover crosses ₹20 lakh in a financial year (₹10 lakh in special-category states). Agencies making inter-state supplies, or supplying through an e-commerce operator, may need to register regardless of turnover.
What GST applies on manpower supplied to an SEZ unit?
Manpower supplied to an SEZ developer or unit is a zero-rated supply under Section 16 of the IGST Act. The agency can supply under a Letter of Undertaking (LUT) without charging GST, or pay 18% IGST and claim a refund. Most agencies use the LUT route to avoid blocking working capital, since refunds can take a couple of months.
Is GST charged on the salary/wages component or only the agency fee?
For a manpower-supply contract, 18% GST is charged on the full contract value — including the wages, PF, ESI and the agency margin — because the agency is supplying the service of providing manpower. GST is limited to only the service fee/commission when the arrangement is a pure agent or a genuine reimbursement that meets the pure-agent conditions, which is rare for staffing contracts.
Is there GST on payroll processing and outsourcing?
Yes. Payroll processing and HR-outsourcing services are taxable at 18% (SAC 998311) under forward charge, and the client can claim ITC where the service supports its taxable business. This is distinct from manpower supply — payroll processing is a back-office service and does not by itself involve placing workers under the client's supervision.
How is security agency service taxed under GST?
Security services (supply of security personnel) are taxed at 18%, and — like manpower — attract RCM when supplied by a non-body-corporate to a registered recipient. See our dedicated guide on GST on security services for the specific RCM notification and ITC treatment.
If you would rather not do it yourself
Related TaxClue services
GST RegistrationRegister your staffing agency with the right SAC and get your GSTIN online.See the service →GST Return FilingMonthly GSTR-1 & 3B with RCM self-invoicing and ITC handled for you.See the service →Reverse Charge AdvisoryNail the forward-vs-RCM call on every labour contractor you use.See the service →ITC ReconciliationMaximise safe ITC and avoid Section 17(5) construction-labour errors.See the service →
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