GST on Manpower & Staffing — 18% on Total Billing, RCM on Security

GST ON TOTAL BILLING (Not just margin): CLEAR ANSWER: GST is on the TOTAL amount billed by your agency to the client. NOT just your margin/commission. LEGAL BASIS: Section 15(1): Value of supply = 'the price actually paid or payable for the supply'. Your supply: manpower service. Price paid by client: total invoice amount (wages + PF/ESI + margin). The entire amount is CONSIDERATION for your service. You cannot bifurcate into 'reimbursable wages' and 'taxable margin'. EXAMPLE: Your billing: Worker salary component: ₹8,00,000. PF (employer 12%): ₹96,000. ESI (employer 3.25%): ₹26,000. Bonus provision: ₹67,000. Agency margin: ₹2,00,000. Total invoice: ₹11,89,000. GST: 18% × ₹11,89,000 = ₹2,14,020. NOT: 18% × ₹2,00,000 (margin) = ₹36,000. WHY THE 'MARGIN ONLY' ARGUMENT FAILS: (a) Workers are YOUR employees (agency's payroll). You pay them salary as their employer. This salary is YOUR COST of providing the service. Just like a restaurant: food cost is included in taxable value (not just profit margin). (b) You are NOT a 'pure agent' because: You have employment relationship with workers. You issue appointment letters, manage HR. Workers' services are used BY YOU (to provide manpower service). You mark up/manage/control the engagement. Pure agent: pays third party on client's behalf — you PAY YOURSELF (your own employees). (c) Section 15(2) explicitly includes: All taxes/duties (PF/ESI are statutory levies → included). Incidental expenses (uniform, training → included). Interest/penalties (late fee → included). WHAT ABOUT 'COST-TO-COST' RECOVERY? Some agencies claim: 'We recover exact salary cost — no margin'. Still taxable at 18% on full amount. Case: Concentrated India (AAR) — even at-cost recovery = supply. Reason: You're providing a SERVICE (manpower supply). The fact that you make zero margin doesn't mean no supply. Related party rule (Rule 28): even between group companies at cost → taxable. CAN YOU REDUCE TAXABLE VALUE LEGALLY? (a) If client DIRECTLY pays workers (not through you): You bill only margin: 18% × margin = lower GST. But: labour law complications (who is employer?). If client pays workers: client may be deemed employer (PF/ESI liability). Most clients DON'T want this (that's why they hire staffing agency). (b) Restructure as OUTSOURCING (deliverable-based): Instead of 'supplying 10 workers' → 'providing facility management service'. Value: based on output/deliverable (may be lower than per-head billing). But: this is commercial restructuring — genuine only if substance matches. Don't just change invoice label — substance must change. (c) Composition scheme: NOT available for staffing (service provider). YOUR CLIENT'S POSITION: Client pays ₹11,89,000 + GST ₹2,14,020 = ₹14,03,020. Client's ITC: ₹2,14,020 available (manpower is business input — not blocked). Net cost to client: ₹11,89,000 (ITC recovered). So: the 18% is effectively a CASH FLOW issue (not permanent cost) for registered clients.

RCM vs FORWARD CHARGE — MANPOWER SERVICES — COMPLETE GUIDE: RULE: RCM for manpower services is LIMITED. Only SECURITY SERVICES from NON-BODY-CORPORATE suppliers trigger RCM. DECISION MATRIX: | Service Type | Supplier Type | Charge Mechanism | |---|---|---| | Security guards | Company (Pvt Ltd/Ltd/LLP/OPC) | Forward charge — supplier charges 18% | | Security guards | Proprietorship | RCM — recipient pays 18% | | Security guards | Partnership firm | RCM — recipient pays 18% | | Security guards | Individual | RCM — recipient pays 18% | | Security guards | HUF | RCM — recipient pays 18% | | Housekeeping staff | ANY (company or not) | Forward charge — ALWAYS | | Drivers | ANY | Forward charge — ALWAYS | | IT staffing | ANY | Forward charge — ALWAYS | | Factory workers | ANY | Forward charge — ALWAYS | | Office staff | ANY | Forward charge — ALWAYS | | Construction labour | ANY | Forward charge — ALWAYS | KEY INSIGHT: ONLY 'security services' have RCM notification. ALL other manpower supply: forward charge regardless of supplier type. WHAT QUALIFIES AS 'SECURITY SERVICES'? Notification 13/2017 Entry 1: 'Security services (services provided by way of supply of security personnel)'. Includes: Armed security guards. Unarmed security guards. Bouncers. Security supervisors. Access control personnel. CCTV monitoring personnel (if part of security guard supply). Patrol services (manned patrolling). Does NOT include (even if 'security' related): Electronic surveillance system installation: IT/technical service (not security personnel supply). CCTV camera installation: goods + installation service. Alarm system monitoring (automated, no personnel): technical service. Cybersecurity consulting: IT service. Fire safety equipment supply: goods supply. These are NOT 'supply of security personnel' → no RCM. HOW TO VERIFY SUPPLIER TYPE: Before applying RCM: (1) Check supplier's PAN type: Company PAN starts with 'A' in 4th character (e.g., AABCX1234X). Individual/proprietor: 'P' (e.g., ABCPD1234X). (2) Check GSTIN: 15th character for entity type. Companies: registered as 'Regular' with company PAN. (3) Ask supplier: Are you body corporate (company/LLP/OPC)? Get declaration (recommended). (4) If unsure: apply RCM (conservative — you pay and claim ITC). BODY CORPORATE INCLUDES: Private Limited Company. Public Limited Company. LLP (Limited Liability Partnership). OPC (One Person Company). Section 8 Company (not-for-profit). Foreign company (Indian branch). Government company. PSU (Public Sector Undertaking). BODY CORPORATE DOES NOT INCLUDE: Proprietorship (individual running business). Partnership firm (not LLP). Hindu Undivided Family (HUF). Association of Persons (AOP). Trust (unless registered as company). Society (unless registered as Section 8 company). MIXED SERVICES (Security + Housekeeping): Contract includes: security guards + housekeeping staff (combined facility management): If SINGLE composite supply: What is the principal supply? If SECURITY is principal (majority of workers are guards): RCM on full amount (if non-body-corporate supplier). If HOUSEKEEPING/general is principal: Forward charge on full amount. If SEPARATE supplies (itemized invoice): Security component: RCM (if applicable). Housekeeping component: forward charge. RECOMMENDATION: For mixed contracts with non-body-corporate: Separate invoicing (security separate from others). Avoids dispute on composite supply classification. Security invoice: RCM. Other services invoice: forward charge. RECIPIENT COMPLIANCE FOR RCM: (1) Receive invoice from security supplier (without GST or marked 'RCM'). (2) Self-assess: 18% × invoice value. (3) Report in GSTR-3B Table 3.1(d). (4) Pay through CASH LEDGER (cannot use ITC for RCM payment). (5) Claim ITC: Table 4(A)(3) — same period. (6) GSTR-2B: auto-populated (if supplier files GSTR-1 with RCM marking). (7) Net: zero (pay ₹X, claim ₹X ITC — cash flow neutral).

SECONDMENT / DEPUTATION — GST ON COST RECOVERY: SHORT ANSWER: YES — you must charge 18% GST on salary cost recovery from subsidiary. LEGAL BASIS: Northern Operating Systems Pvt Ltd v. Commissioner (Supreme Court, 2022): FACTS: Foreign parent seconded employees to Indian subsidiary. Indian subsidiary paid foreign parent (cost-to-cost salary recovery). HELD: This is 'supply of manpower' by foreign parent to Indian subsidiary. Taxable under GST (was service tax pre-GST). Even though: (a) No profit/margin charged. (b) Employees work exclusively for subsidiary. (c) It's intra-group arrangement. The SUPPLY is: 'making available human resources' = manpower service. APPLYING TO YOUR SITUATION: Your company (parent/HQ) → Subsidiary: Parent seconds employees to subsidiary. Parent charges subsidiary: salary + PF + benefits (at cost). This IS a supply of service: SAC 998519 (manpower supply). Rate: 18% GST. VALUATION (Rule 28 — Related Parties): Since parent-subsidiary = related persons: Value: Open Market Value (OMV) of similar service. If no OMV: value = cost + 10% (Rule 30). If cost-to-cost (no margin): Technically should apply OMV or cost + 10%. Practically: most companies apply cost + 10% as safe harbor. Or: if genuinely arm's length cost recovery: argue it's OMV (what you'd charge third party). EXAMPLE: Employee salary (CTC): ₹25,00,000/year. PF/ESI (employer): ₹2,50,000/year. Total cost: ₹27,50,000. If at cost: GST value = ₹27,50,000. GST: 18% × ₹27,50,000 = ₹4,95,000. If cost + 10% (safer): GST value = ₹30,25,000. GST: 18% × ₹30,25,000 = ₹5,44,500. Subsidiary pays: ₹27,50,000 + ₹4,95,000 = ₹32,45,000 (at cost model). Subsidiary ITC: ₹4,95,000 (available — business input). Net cost to subsidiary: ₹27,50,000 (same as before — ITC offsets GST). WHEN IS IT NOT SUPPLY (Schedule III)? If seconded employee BECOMES subsidiary's employee: Subsidiary issues appointment letter. Subsidiary is employer (PF/ESI in subsidiary's name). Employee is on subsidiary's payroll. Parent has NO ongoing employment relationship. In this case: it's a TRANSFER of employment (not secondment). No ongoing 'supply' by parent. One-time transfer: not a recurring manpower service. BUT: if parent retains control, issues salary, recovers from subsidiary monthly → secondment → supply. KEY DISTINCTION: (a) Employee on PARENT'S payroll (parent pays, recovers from subsidiary): SUPPLY of manpower → 18% GST on recovery. (b) Employee on SUBSIDIARY'S payroll (subsidiary pays directly): EMPLOYMENT → Schedule III → no GST. (c) Employee on BOTH payrolls (dual employment/split arrangement): Determine: who is the PRIMARY employer? If parent: supply by parent to subsidiary (18%). If subsidiary: employment (no GST). CROSS-BORDER SECONDMENT: Foreign parent (USA) seconds expat to Indian subsidiary: IMPORT of service by Indian subsidiary. Indian subsidiary: pays 18% IGST under RCM (reverse charge — import of service). Claims ITC: immediately. Foreign parent: no Indian GST registration needed (reverse charge handles it). Indian subsidiary: self-assesses, pays, claims. Indian subsidiary seconds employee to foreign subsidiary: EXPORT of service (if conditions met). Zero-rated: under LUT. Conditions: recipient abroad, payment in forex, etc. DOCUMENTATION REQUIRED: (1) Secondment/deputation agreement (detailing terms). (2) Monthly invoice: parent → subsidiary (showing salary cost + GST). (3) GSTR-1 reporting (parent reports as outward supply). (4) GSTR-3B: subsidiary claims ITC. (5) If cross-border: LUT for export / RCM for import. COMMON MISTAKE: Companies 'allocating' salary costs via journal entries (debit subsidiary, credit parent): This is NOT invoicing. GST requires: proper tax invoice. Without invoice: no ITC for subsidiary. Journal entry ≠ tax invoice. Always: raise formal tax invoice for secondment cost recovery.

DIRECTOR SERVICES — GST TREATMENT: CLASSIFICATION: Notification 13/2017, Entry 6: 'Services supplied by a DIRECTOR of a company or body corporate to the said company or body corporate': RCM — company (recipient) pays 18%. BUT: This applies only to directors providing services IN CAPACITY AS DIRECTOR (not as employee). EXECUTIVE DIRECTOR (Whole-time/Managing Director): Executive director = EMPLOYEE of company. Salary: Schedule III exclusion (employment — NOT supply). No GST on: Monthly salary. Annual bonus. Perquisites (car, house, medical). Stock options / ESOPs. Gratuity / PF. ALL employment-related payments: NOT supply. NO RCM. WHY: Executive director is on company's payroll. Has employment contract. Subject to company's control and direction. This IS employment (Schedule III — activities not treated as supply). NON-EXECUTIVE / INDEPENDENT DIRECTOR: Not an employee (no full-time employment). Attends board meetings. Provides oversight/governance. Receives: Sitting fees (per board meeting attended). Commission (linked to profit/performance). Professional fees (for specific advisory). These are NOT employment — they're SERVICES by director to company. GST: 18% under RCM (company pays). MECHANICS: Independent director invoices: Sitting fees for Q1: ₹3,00,000 (no GST charged — RCM). Company's obligation: Self-assess: 18% × ₹3,00,000 = ₹54,000. Pay: ₹54,000 through cash ledger. Claim: ₹54,000 ITC (immediately). Report: GSTR-3B Table 3.1(d) + 4(A)(3). DIRECTOR AS PROFESSIONAL (Consultant): Director who also provides consulting services to company: Example: Director is a CA and provides tax consulting beyond board role. If consulting is SEPARATE from directorship (separate contract): Could be: professional service (forward charge by CA). Or: still 'director to company' — RCM. CBIC Circular 140/10/2020: If payment is for service rendered IN CAPACITY AS DIRECTOR: RCM. If payment is for PROFESSIONAL/CONSULTANCY service (separate engagement): Check if also happens to be director (but service is independent). If services are inseparable from director role: RCM. Practical: most payments to independent directors = RCM (hard to separate). DIRECTOR BELOW ₹20L THRESHOLD: Independent director earning sitting fees < ₹20 lakh: Does RCM still apply? YES — threshold exemption does NOT apply to RCM supplies. Company must pay RCM regardless of director's total income. Director need not register (their supply is under RCM — they don't collect). But: company's RCM obligation exists always. COMMISSION TO DIRECTORS: Profit-linked commission (Section 197, Companies Act): To executive director: part of salary → NOT supply (Schedule III). To non-executive director: SERVICE → 18% RCM. Annual commission payment: time of supply = invoice/payment date (earlier). If director doesn't invoice (common): Company should self-invoice or maintain record of payment date. Pay RCM in the month of payment to director. MULTIPLE DIRECTORSHIPS: Director sits on boards of 5 companies: Each company: pays RCM on its own sitting fees independently. Director's total sitting fee income (across companies): If > ₹20L: should register? Technically yes (aggregate turnover > threshold). But: since ALL supplies are under RCM: registration has limited utility. Still recommended: for compliance and if any forward-charge supply exists. NOMINEE DIRECTORS (Government nominee on PSU board): Government nominee director on PSU board: Sitting fees: still 18% RCM (PSU is recipient body corporate). Government nominee receiving fee in personal capacity: RCM by PSU. If fee goes to government (not personal): May be government service → separate exemption analysis. But: typically nominee retains sitting fee → RCM applies. DIRECTOR IN FOREIGN COMPANY: Indian person is director of foreign company: Indian director → Foreign company: services outside India. If payment in forex + recipient abroad: EXPORT (zero-rated). Director provides governance to foreign company: Export of service. File: LUT + export invoices. Foreign person is director of Indian company: Import of service → RCM (IGST 18%). Indian company: pays IGST under RCM + claims ITC. Payment to foreign director: also TDS 10% under Section 195 (Income Tax — separate).