GST on Manpower Supply Services in 2026: Rate, SAC, Salary Reimbursement, RCM and Government Exemptions

Factories, warehouses, hospitals, hotels, offices and government departments in India rely on staffing agencies for helpers, loaders, housekeeping crews, data-entry operators, drivers and nurses. On a manpower bill most of the money is the workers' wages and statutory contributions, and the agency's margin is small — which is exactly why GST on these contracts is so often miscalculated. This guide gives the 2026 position on GST on manpower supply services: the rate and SAC codes, what the tax is charged on, why salaries are not pure-agent reimbursements, where reverse charge does and does not apply, the government and school exemptions, TDS, and worked examples in rupees. It was checked against the rate and exemption notifications and advance rulings in October 2026.

Quick answer

Manpower supply is taxed at 18% (heading 9985; SAC 998513 contract staffing, 998519 other labour supply). The agency charges GST itself — there is no general reverse charge on manpower. GST applies to the whole bill, including wages, PF, ESI and bonus, not just the service charge, because deployed workers are the agency's own employees and salaries do not qualify as pure-agent costs.

• Reverse charge applies only to security guards from a non-corporate agency, since 1 January 2019

• Pure services to government and local bodies for panchayat or municipal functions are exempt — PSUs are not covered since 1 January 2022

• Housekeeping, cleaning and security staff for schools up to Class 12 are exempt

• Government clients deduct 2% (1% CGST + 1% SGST, or 2% IGST) TDS on contracts above ₹2.5 lakh

What counts as manpower supply under GST

The services classification groups labour supply in group 99851, "employment services including personnel search, referral service and labour supply", under heading 9985 (support services). The codes that matter to staffing agencies are:

The test is what the client is buying. If the agency places its own people at the client's site, under the client's day-to-day direction, to do whatever work the client allots, it is supplying manpower. If the agency undertakes to deliver a defined result — clean a building to a standard, run a canteen, maintain machines — with its own supervisors deciding who does what, the service is classified by that result: cleaning services, catering, repair and maintenance, or security. Most of these other services also carry 18%, but the classification decides which exemptions and reverse-charge entries can apply, so match the SAC to the contract.

All the codes in group 99851 fall under item (iii) of serial 23 of Notification 11/2017-Central Tax (Rate): "support services other than (i) and (ii) above", at 9% central tax plus 9% state tax, 18% in total. The GST 2.0 rate changes of 22 September 2025, made by Notification 15/2025-CT(Rate), did not touch serial 23, and the services exemption amendments in Notification 16/2025 did not add anything for labour supply.

What the GST is charged on: the whole bill

Section 15 of the CGST Act taxes the transaction value — everything the client pays for the supply. A typical manpower invoice is built from the bottom up: each worker's wages, overtime, the employer's PF and ESI contributions, bonus, leave and gratuity provisions, uniform costs, and the agency's service charge, often a percentage of wages. GST at 18% applies to the total.

The common argument is that wages and contributions are "reimbursements" fixed by law or by the client, and only the service charge is the agency's income. The law does not accept that. The deployed workers are the agency's employees: it hires them, it is their employer under labour and social security law, it registers them under EPF and ESI, and it is liable to pay them whether or not the client pays the agency. Paying them is the agency's own cost of supplying the service, so it forms part of the value.

GST on a ₹3,00,000 monthly manpower bill

₹2,40,000

Workers' wages

taxable

₹36,000

Employer PF and ESI, bonus

taxable

₹24,000

Agency service charge

taxable

₹54,000

GST at 18% on ₹3,00,000

not ₹4,320 on the charge alone

Why salaries are not pure-agent costs

Rule 33 of the CGST Rules excludes from the taxable value expenditure a supplier incurs "as a pure agent of the recipient", but only if every condition is met. The supplier must make the payment to a third party on the recipient's authorisation; the payment must be shown separately on the invoice; the procurement must be in addition to the supplier's own services; and the supplier must not hold title to, or use for its own interest, what it procures, and must recover only the actual amount.

Salaries fail these tests. The workers' services are not procured for the client from a third party — they are the very service the agency is supplying. The agency uses that labour to perform its own contract, and the obligation to pay wages is its own, owed under its own employment relationship. In Prodip Nandi (Order 13/WBAAR/2021-22, 8 October 2021), the West Bengal Authority for Advance Ruling looked at exactly this arrangement: the client authorised the agency to pay wages, the agency showed them separately, and the contract fixed salaries at minimum-wage levels. The authority still held that the agency was not a pure agent, because it maintained the wage register, had the employment relationship and remained legally liable to pay the workers. Telangana's authority reached the same conclusion in 2021 (Bhagyalakhsmi Devamma Vangimallu) for an amount a hospital paid towards wages, EPF and ESI, holding that section 15 allows no deduction for them. Advance rulings bind only the applicants, but they show how officers read the law.

The position is different where the workers are genuinely the client's employees. If a company keeps staff on its own payroll and pays a payroll bureau a fee to compute and disburse salaries from the company's funds, the bureau is supplying a payroll processing service; the salaries are the company's own payments to its own employees, and only the bureau's fee is taxable. Services by an employee to the employer in the course of employment are outside GST altogether under Schedule III of the CGST Act. The test is who the employer is — on paper and in practice.

Reverse charge: only for security personnel

Unlike the old service tax regime, which split tax on manpower supply between the provider and certain business recipients, GST has no reverse-charge entry for manpower supply in general. Notification 13/2017-CT(Rate), which lists the services on which the recipient pays, includes "security services (services provided by way of supply of security personnel)" at serial 14, and nothing for other labour. A registered staffing agency therefore charges 18% on its own invoice for helpers, housekeeping, drivers, operators and nursing staff, whatever its legal form, and the client takes credit through GSTR-2B.

The security entry applies from 1 January 2019 when guards are supplied by a person other than a body corporate — a proprietor, partnership firm, HUF, trust or society — to a registered person, with carve-outs for composition taxpayers and government bodies registered only for TDS. It covers guards, gunmen and supervisors only. An agency that supplies both guards and housekeeping staff on one contract must split the bill: the guards may be under reverse charge, while the housekeeping crew is always under forward charge. Our GST on security services guide covers the guard rules in detail.

One more special rule applies to platforms. Under Notification 17/2017-CT(Rate), the e-commerce operator pays the tax on house-keeping services such as plumbing and carpentry booked through it, unless the person providing them is liable to register; such supplies carry 5% (no input tax credit) under serial 23(ii) of the rate notification. That entry is about home-services apps, not staffing contracts.

Who pays GST on a manpower bill?

Step 1

Guards supplied?

if yes, see the security RCM rules

Step 2

Booked through a home-services app by an unregistered worker?

app pays 5% (no input tax credit)

Step 3

Client exempt?

school up to Class 12, or govt for 243G/243W functions

Step 4

Agency charges 18%

client claims ITC

Government, local body and school exemptions

Pure services to government for panchayat and municipal functions. Entry 3 of Notification 12/2017-CT(Rate) exempts pure services — services without goods, excluding works contracts — provided to the Central Government, a State Government, a Union territory or a local authority "by way of any activity in relation to any function entrusted to a Panchayat under article 243G" or "to a Municipality under article 243W" of the Constitution. The Eleventh and Twelfth Schedules list those functions, and they include public health, sanitation, conservancy and solid waste management, water supply, roads and bridges, and burial grounds. Sanitation workers, sweepers and waste-collection staff supplied to a municipal corporation are the classic exempt case. Entry 3A extends the exemption to composite supplies where goods are not more than 25% of the value, which covers, for example, a cleaning contract where the agency supplies brooms and bags as a small part of the price.

Three limits trip agencies up. First, the recipient must itself be a government, Union territory or local authority. The words "Governmental authority" and "Government Entity" were removed from entries 3 and 3A from 1 January 2022 by Notification 16/2021-CT(Rate), so staff supplied to a government company, a public-sector undertaking, a development authority set up as a company, or a board are taxable. Second, the function must be a 243G or 243W function. Data-entry operators supplied to a state tax department or drivers supplied to a central ministry are not doing panchayat or municipal work, so their supply is taxable at 18%. Third, a contract that is mostly goods falls outside 3A.

Schools. Entry 66(b)(iii) exempts "security or cleaning or house-keeping services performed in" an educational institution, but its proviso limits this to institutions providing pre-school education and education up to higher secondary school or equivalent. A housekeeping crew at a state-board school is exempt; the same crew at an engineering college is taxable.

Exempt clients who are not exempt for this. Hospitals, charitable trusts and housing societies are often exempt on their own supplies, but that does not exempt what they buy. A registered hospital pays 18% on nursing aides from an agency and, because its own healthcare services are exempt, most of that tax becomes a cost under the credit-apportionment rules.

TDS on government contracts

Government departments, local authorities, governmental agencies and notified public-sector bodies that are registered as tax deductors deduct GST TDS under section 51 when the total value of a contract exceeds ₹2.5 lakh. The rate is 2% (1% CGST + 1% SGST, or 2% IGST) of the taxable value, excluding the GST itself. TDS applies only to taxable supplies, so an exempt sanitation contract with a municipality attracts none. On a taxable contract — drivers for a state transport department, for instance — the agency charges 18%, the department deducts TDS and files GSTR-7, and the agency accepts the credit in its cash ledger and uses it to pay tax. Reconcile the TDS credits monthly; a mismatch usually means the department used the wrong GSTIN or value. Our TDS under GST guide explains the process.

Worked examples in rupees

A warehouse in Bhiwandi. A registered logistics company takes 25 loaders from a staffing agency organised as a partnership firm. The monthly bill is ₹4,50,000: wages ₹3,60,000, employer PF and ESI ₹54,000 and service charge ₹36,000. There is no reverse charge for loaders, so the agency charges 18% on ₹4,50,000 — ₹81,000, split ₹40,500 CGST and ₹40,500 SGST. The client pays ₹5,31,000 and claims ₹81,000 as credit. If the agency had charged GST only on the ₹36,000 service charge — ₹6,480 — it would owe the remaining ₹74,520 with interest at 18% a year.

A municipal corporation. A proprietorship agency supplies 120 sanitation workers to a municipal corporation for ₹18,00,000 a month, with brooms and bags making up about 3% of the price. Solid waste management and sanitation are municipal functions under article 243W, the recipient is a local authority, and goods are well under 25% of the value. The supply is exempt under entries 3 and 3A. No GST is charged and no TDS is deducted. The agency reports the value as exempt and reverses credit on common costs.

A state-owned power company. The same agency supplies 40 helpers to a power distribution company owned by the state government for ₹6,00,000 a month. The recipient is a government company, not a government or local authority, so entry 3 does not apply after 1 January 2022. The agency charges ₹1,08,000 GST. If the company is a notified TDS deductor, it deducts 2% (1% CGST + 1% SGST, or 2% IGST) of ₹6,00,000 — ₹12,000 — and pays the balance.

A CBSE school. A cleaning agency supplies ten housekeeping staff to a private CBSE school for ₹2,20,000 a month. The service is performed in an institution teaching up to Class 12, so it is exempt under entry 66(b)(iii). The same agency's ₹3,00,000 contract with a nearby degree college carries ₹54,000 GST.

Work out GST on a manpower bill

Sales (Add GST)Purchase (Remove GST)Price Comparison

AmountGST Rate

0%3% (Gold / silver)5%18% (Standard)40% (Sin / luxury)

Transaction Type

Intra-state (CGST + SGST)Inter-state (IGST)

Base Amount (Before GST)₹4,50,000.00

CGST (9%)₹40,500.00

SGST (9%)₹40,500.00

Total GST (18%)₹81,000.00

Total Amount (Including GST)₹5,31,000.00

Open the full GST Calculator (PDF, save, compare)

Registration, composition and compliance for agencies

A staffing agency must register once aggregate turnover crosses ₹20 lakh, or ₹10 lakh in special category states that use the lower limit. Exempt government and school contracts count towards aggregate turnover even though they carry no tax. An agency with offices in several states needs a registration in each state from which it supplies; the GSTIN on the invoice should be the one for the office that manages the contract.

Small agencies can consider the composition scheme for service providers under section 10(2A), at 6% of turnover up to ₹50 lakh. It rarely suits manpower businesses: business clients cannot claim credit on a composition agency's bill and will prefer a regular supplier, and composition agencies cannot make inter-state supplies.

Agencies must also hold a contract labour licence where the law requires one. Since 21 November 2025, the Occupational Safety, Health and Working Conditions Code has replaced the Contract Labour Act, and its contract labour provisions apply to contractors engaging 50 or more contract workers. The licence is separate from GST, but officers and clients often ask for it alongside the GSTIN.

Invoices should show SAC 998513 or 998519, the client's GSTIN, the place of supply, the full taxable value and the tax. Where a contract mixes taxable and exempt elements — guards under reverse charge and housekeeping under forward charge, or exempt sanitation and taxable office staff for the same municipality — raise separate invoices or separate lines with the correct treatment for each.

Checks on every manpower contract

0/7

• Is it labour supply, or a result-based service (cleaning, catering, maintenance, security)?
• GST on the full bill — wages, PF, ESI, bonus and service charge
• Guards in the team? Apply the security reverse-charge test to that part only
• Client a government or local body doing a 243G/243W function? Entry 3 or 3A may apply
• Client a PSU, government company or board? Taxable since 1 January 2022
• School up to Class 12? Housekeeping and security exempt under 66(b)(iii)
• TDS deducted by a government client reconciled in the cash ledger

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Common mistakes and how they are fixed

Taxing only the service charge. This is the most expensive error, because the tax gap is usually 85–90% of the correct liability. Officers compare GSTR-3B values with the agency's wage registers and EPF filings. Correct it by paying the difference with interest through DRC-03 and issuing supplementary invoices so clients can claim credit.

Applying the security reverse charge to all staff. Some proprietorship agencies stopped charging GST to all registered clients in 2019, including on housekeeping and helpers. Only guards are covered. The agency owes the tax on the rest.

Claiming the government exemption for PSUs. Exemptions granted before 2022 to governmental authorities ended on 1 January 2022. Review your client list for government companies, boards and authorities that are not themselves local authorities.

Treating every government contract as exempt. The function test matters as much as the recipient test. Office staff, IT operators and drivers for most departments are taxable.

Official links

• Notification 11/2017-CT(R) — updated consolidated copySerial 23; SAC 99851 codes
• Notification 12/2017-CT(R) — updated consolidated copyEntries 3, 3A and 66(b)(iii)
• Notifications 15–17/2025-CT(R) (GST 2.0)Rates from 22 September 2025
• Notification 13/2017-CT(R)Reverse-charge list
• Rule 33, CGST RulesPure agent
• West Bengal AAR — Prodip NandiWages part of taxable value

What to do next

If you run an agency, list every contract by client type — business, school, government or local body, PSU — and set the GST treatment for each before the next billing cycle; the invoice generator handles the tax split and the salary slip generator helps keep wage records consistent with your bills. If you buy manpower, check that the GST on your invoices is on the full bill and claim the credit through GSTR-2B. For guards, see GST on security services; for government deductions, see TDS under GST.

This is general information, not legal or tax advice — confirm on the official source or with a professional.

Frequently asked questions

What is the GST rate on manpower supply services?

Manpower supply is taxed at 18% — 9% CGST plus 9% SGST, or 18% IGST — under heading 9985, serial 23(iii) of Notification 11/2017-CT(Rate). It covers contract staffing, temporary staffing, payrolling and other labour supply. GST 2.0 on 22 September 2025 did not change the rate. The tax is on the full bill, including the workers' wages, PF and ESI.

Is RCM applicable on manpower supply under GST?

Not in general. Notification 13/2017-CT(Rate) has no reverse-charge entry for manpower supply, so a registered agency charges 18% on its own invoice. The one exception is security personnel: guards supplied by a non-corporate agency to a registered client have been under reverse charge since 1 January 2019. The old service tax partial reverse charge on manpower did not continue under GST.

What is the SAC code for manpower supply?

Manpower services are in group 99851. Contract staffing is 998513, temporary staffing 998514, long-term staffing or payrolling 998515, temporary-to-permanent placement 998516, co-employment staffing 998517 and other employment and labour supply 998519. Permanent placement and executive search are 998512 and 998511. All carry 18%.

Can a manpower agency exclude salaries as pure-agent reimbursement?

Generally no. Rule 33 of the CGST Rules needs the agency to pay a third party on the client's behalf for something the agency does not use or own. Deployed workers are the agency's own employees, and paying them is the agency's own liability. The West Bengal Authority for Advance Ruling (Prodip Nandi, 2021) and other authorities have held that wages, PF and ESI form part of the taxable value.

Is manpower supply to government exempt from GST?

Only in specific cases. Entry 3 of Notification 12/2017-CT(Rate) exempts pure services to the Central or a State Government, a Union territory or a local authority for functions entrusted to panchayats or municipalities under articles 243G and 243W — for example, sanitation workers supplied to a municipal corporation. Since 1 January 2022 the exemption no longer covers governmental authorities or government entities such as PSUs.

Is housekeeping and cleaning staff supplied to a school exempt?

Yes, if the school teaches up to higher secondary. Entry 66(b)(iii) of Notification 12/2017-CT(Rate) exempts security, cleaning and house-keeping services performed in an educational institution providing pre-school or school education up to higher secondary. Housekeeping staff supplied to colleges, coaching institutes and universities are taxed at 18%.

Sources & verification

Figures on this page were checked against the sources below when it was last reviewed on 11 October 2026. Each rate and limit is stored once with its own official source and review date, and official update channels are monitored daily so changes are picked up. How we verify

1. 1.Notification No. 11/2017–Central Tax (Rate), updated consolidated version (Telangana State Tax copy) — Telangana Commercial Taxes Department · accessed 11 October 2026
2. 2.Notifications No. 15/2025, 16/2025 and 17/2025–Central Tax (Rate), 17 September 2025 (Gazette) — Ministry of Finance (Gazette of India) · accessed 11 October 2026
3. 3.Notification No. 12/2017–Central Tax (Rate), updated consolidated version (Telangana State Tax copy) — Telangana Commercial Taxes Department · accessed 11 October 2026
4. 4.Notification No. 13/2017–Central Tax (Rate) — reverse charge on services — CBIC · accessed 11 October 2026
5. 5.Rule 33 — CGST Rules, 2017 (value of supply in case of pure agent) — CBIC · accessed 11 October 2026
6. 6.West Bengal AAR — Prodip Nandi, Order 13/WBAAR/2021-22 dated 8 October 2021 — West Bengal Authority for Advance Ruling (GST Council website) · accessed 11 October 2026
7. 7.Notification No. 17/2017–Central Tax (Rate) — updated version — GST Council · accessed 11 October 2026
8. 8.Taxscan — AAR weekly round-up (Telangana AAR on manpower to hospital) — Taxscan · accessed 11 October 2026