Whalesbook
GST Reduction Plea
The ISF's core request centers on a significant reduction in Goods and Services Tax (GST) for staffing services, proposing a drop from the current 18% to 5%. This move, according to the Federation, is crucial to combat the pervasive informality plaguing India's labor market, which affects over 85% of the workforce. The staffing and manpower outsourcing industry argues that the high tax burden currently incentivizes informal hiring, particularly in labor-intensive sectors like manufacturing, thereby undermining formal employment objectives.
Addressing Workforce Informality
The Federation highlighted that nearly 85% of India’s workforce, exceeding 500 million people, remains outside formal employment. This widespread informality perpetuates low productivity and economic vulnerability, significantly limiting inclusive growth. Despite India's young demographic profile, with approximately 65% of its population under 35, the employment ecosystem remains misaligned with its potential. ISF cautions that without making labor formalization a central budget priority, the nation risks failing to harness its demographic dividend effectively.
Tax Deduction Reform Needs
ISF also flagged limitations in Section 80JJAA of the Income Tax Act. This section offers a 30% tax deduction on additional employee costs for three assessment years to promote formal job creation. However, eligibility thresholds, such as the ₹25,000 monthly wage cap and the minimum employment period of 240 days (150 for select sectors), have remained unchanged since 2016. Their effectiveness is diminished by rising wages and inflation, particularly limiting incentives for higher-wage formal women hires.
Economic Growth Potential
Together, the proposed reforms aim to reduce the cost of formal employment, foster gender-inclusive hiring practices, and improve safety and retention for migrant and women workers. By lowering compliance costs and encouraging formalization, the ISF believes these changes would align with the government's goals for economic growth and social equity.