GST Applicability & Tax Rates on Human Resources and Recruitment Services

Introduction

Goods and Services Tax (GST), introduced in India on July 1, 2017, is a comprehensive indirect tax that has replaced many indirect taxes in the country. It is levied on the supply of goods and services. The Human Resources (HR) and Recruitment sector, being a significant part of the service industry, falls within the ambit of GST. This article explores the applicability of GST on HR and recruitment services, including tax rates, compliance obligations, and specific issues faced by the sector.

1. Understanding HR and Recruitment Services Under GST

Under GST, HR and recruitment services are classified as professional and business support services. These typically include:

• Manpower supply services

• Recruitment and placement services

• Temporary staffing services

• Payroll management services

• HR consulting services

These services are generally considered as "supply of services" under the CGST Act, 2017, and are liable to GST.

2. GST Applicability on Various HR Services

a) Recruitment and Placement Services

Recruitment agencies and consultants who assist in hiring candidates for employers are required to charge GST on their services. The GST is applicable even if the recruitment is on a contractual or permanent basis.

Example: A recruitment agency helps a company hire a software engineer. The agency charges a fee for its services. This fee is subject to GST.

b) Manpower Supply Services

When employees are supplied to another business for a fee or consideration, it is considered a manpower supply service, and GST is applicable.

Note: If there is an employer-employee relationship between the person deployed and the recipient, such services are not taxable under GST.

c) Payroll Processing and HR Consulting

Payroll outsourcing, employee background verification, HR advisory, training & development services are all subject to GST, as they are considered business support services.

3. GST Rates Applicable

As per the current GST rate structure:

All the above services are taxed at 18% GST (9% CGST + 9% SGST or 18% IGST).

4. Input Tax Credit (ITC)

Businesses availing HR and recruitment services can claim Input Tax Credit (ITC) on GST paid, provided:

• The services are used in the course of or for furtherance of business.

• The supplier issues a proper tax invoice.

• The recipient is not restricted under Section 17(5) of the CGST Act (e.g., for personal use or employee benefits in certain cases).

5. Place of Supply and Registration Implications

• For B2B services, the place of supply is usually the location of the recipient. IGST is charged for inter-state transactions, while CGST and SGST apply for intra-state supplies.

• If recruitment agencies operate in multiple states, they may require separate GST registrations in each state where they have offices or operations.

6. Special Considerations

Reverse Charge Mechanism (RCM)

In general, HR and recruitment services are not under Reverse Charge Mechanism, except in specific cases (e.g., services provided by a GTA or unregistered supplier under certain conditions).

Employee vs. Service Provider

It's crucial to differentiate between employees (who are not subject to GST) and service providers (who are). Services provided by an employee to the employer in the course of employment are not considered as supply under GST.

Conclusion

Human Resource and Recruitment services are fully taxable under GST, with a standard rate of 18%. Service providers must comply with registration, invoicing, and return filing obligations. Businesses availing these services can benefit from input tax credit, making it a neutral tax in B2B contexts. Proper classification, documentation, and understanding of employer-employee relationships are key to avoiding compliance issues in this domain.

Aradhna Singh
Ca Intern