An interpretation by the revenue tax authorities that manpower corporations don’t share an “employer-employee” relationship with the folks they outsource, as a floor to disclaim tax advantages to an organization, has left the staffing providers business nervous.

The Bengaluru-based staffing agency has now filed an attraction towards the evaluation order of the I-T division.

In a latest order, disallowing deductions below Part 80JJAA of the I-T Act, 1961, the authorities held that the manpower service supplier solely had a compelled/authorized “employer-employee relationship” because it complied with statutory deductions like PF, ESI, gratuity, and so forth., however didn’t train management over its workers.

Beneath Part 80JJAA, on each new job added, a particular deduction is allowed on the employer’s revenue for computing tax, topic to fulfilling sure circumstances. Staffing corporations, which add hundreds of jobs within the wage brackets the regulation stipulates, are one of many huge beneficiaries of this provision.

Within the case of this staffing firm, the I-T authorities held that the “manpower employed/employed by the assessee firm” didn’t work for it, however for its prospects.

This evaluation order comes months after the I-T authorities carried out a survey on Quess Corp in reference to the corporate’s claims below the identical provision.

Within the newest case, the assessing officer has contended that the primary objective of introducing the part was to generate employment. However on this case, the corporate solely provides manpower to its consumer to step into jobs created there, however doesn’t create jobs by itself.

An e-mail despatched to the income-tax authorities looking for remark didn’t elicit a response until press time Tuesday.

The interpretation strikes on the core of labour regulation rules and the way the staffing business works, mentioned the finance head at a manpower firm. “The tax authorities agree that the staffing corporations are authorized employers on the subject of statutory compliances. They’re speaking of a distinct idea known as financial employer on the subject of deductions to disclaim the tax incentives,” he mentioned.

“Such provisions within the regulation have been meant to propel formal job creation on the entry degree, thus encouraging the work performed by outsourcing corporations on this regard will improve formalisation and jobs with social safety schemes,” mentioned Suchita Dutta, govt director on the Indian Staffing Federation in an e-mail response to ET.

Currently, a big a part of the formal workforce addition has come from service suppliers just like the staffing corporations, she mentioned, urging the federal government to encourage the sector in order that extra folks would shift into the formal workforce. The federation represents 98 manpower corporations which collectively make use of about 1.2 million folks.

The regulation offers for tax breaks to corporations for 3 years on every new job added with a month-to-month wage cap of Rs 25,000. The worker towards whom the deduction is claimed, nonetheless, ought to have labored for no less than 240 days throughout the 12 months in that organisation.



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