GST for recruitment agencies in India: a practical guide

Every recruitment agency owner reaches the same moment. The desk is working, the fees are coming in, and then a question arrives that has nothing to do with recruiting: how does GST apply to what you do. It is not the part of the business anyone got into it for, but it is the part that decides whether your invoices get paid cleanly and whether you sleep well before a filing date.

This guide is a plain walk through the pieces that matter for a recruitment agency: whether GST applies, when you must register, what rate to charge, what a proper invoice looks like, and how input tax credit works for you and for your clients. One thing to say clearly at the start, and again later: this is general information to help you understand the shape of it. Tax law has details and exceptions that depend on your exact situation, so the specifics must be confirmed with a chartered accountant before you act.

Does GST apply to what you do

Yes. When you place a candidate and raise a fee, that fee is payment for a service, and recruitment and manpower supply services are taxable under GST. The rate is 18%. This holds whether you charge a percentage of the candidate’s annual salary, a flat placement fee, or a retainer on a mandate. The label on the fee does not change the treatment. If the substance is that you supplied a recruitment service and got paid for it, GST is in the picture.

This applies to the ordinary independent recruiter and the boutique agency the same way it applies to a large firm. The rate does not scale with your size. What changes with size is whether you have crossed the point where you must register, which is the next thing to get straight.

When you have to register

You do not need GST registration from the day you send your first invoice. There is a turnover threshold, and below it registration is not compulsory for most service providers.

For services, the common threshold is Rs 20 lakh of turnover in a financial year. In the special-category states, that threshold is Rs 10 lakh. Turnover here means your fee income, the value of the services you supply, not the salaries of the people you place. If your billing crosses the threshold that applies to you, registration is generally required, and you should not wait for a notice to act on it.

A few points worth holding in mind. The threshold is measured across the financial year, so a strong second half can push you over even if the first half was quiet. There are also situations, such as certain inter-state supplies or specific business structures, where registration can be required earlier or on a different basis. This is exactly the kind of edge that a chartered accountant is for. Tell your CA your billing pattern and your client mix, and let them tell you where you stand.

Many agency owners choose to register before they are strictly required, once they can see the threshold coming. The reason is practical: a registered agency can issue a tax invoice that a registered client can claim credit on, which makes your fee effectively cheaper for that client. More on that below.

What rate to charge, and how it splits

The rate is 18%. That number does not change based on where your client sits. What changes is how the 18% is composed, and that depends on the place of supply.

When you and your client are in the same state, the supply is intra-state, and the 18% is charged as two halves: CGST and SGST, nine percent each. When your client is in a different state, the supply is inter-state, and the 18% is charged as a single IGST line. The client pays the same total either way. The split only decides which government the tax flows to and how it appears on your invoice.

This is why place of supply is not a technicality you can ignore. Get it wrong, and your invoice charges the wrong kind of tax, which creates a mess for your client’s credit claim and, eventually, for you. For a service like recruitment, the place of supply generally follows the location of the registered client you are billing, but the rules have specifics, so confirm how they apply to your arrangements with your CA rather than assuming.

What a proper tax invoice looks like

Your invoice is not just a request for money. Once you are registered, it is a tax document, and its correctness decides whether your client can claim credit and whether your own records hold up. A recruitment agency invoice done properly carries a set of things that a plain quotation does not.

• Your GSTIN. Your registration number, on every invoice.
• The client’s GSTIN. Where the client is registered, their number goes on the invoice too. This is what ties your invoice to their credit claim.
• The SAC. The Services Accounting Code for the service you supplied. Recruitment and manpower supply services have their SAC, and putting it on the invoice is part of a proper tax invoice.
• The taxable value. Your fee, before tax.
• The tax. The rate and the amount, shown as CGST and SGST for an intra-state supply, or as IGST for an inter-state one.
• The place of supply. Which decides the split above.
• A serial invoice number and date. Sequential, so your records are traceable.

None of this is hard once your invoice template is set up correctly. The mistake agencies make is not complexity, it is inconsistency: a template that is right on one invoice and missing the SAC on the next, or a client GSTIN typed wrong. Because your clients depend on these fields to claim credit, an error is not just your problem, it becomes a conversation with a client’s accounts team weeks later. Set the template once, correctly, and reuse it.

Input tax credit, the part your clients care about

Here is the piece that turns GST from a cost into a selling point. A GST-registered client can generally claim input tax credit on the GST you charge them, as long as your invoice is proper and the service is used for their business. In effect, the 18% you add is not a real cost to that client, because they recover it against their own output tax. Your fee, for a registered client, is your fee.

This matters when you are negotiating with a client who is comparing you to an unregistered recruiter. On paper the unregistered recruiter looks cheaper because there is no tax line. But the registered client cannot claim credit on an invoice that is not a proper tax invoice, so the apparent saving is smaller than it looks, and it comes with a supplier who is not set up cleanly. Being registered and invoicing correctly is a mark of a serious agency, and clients with proper accounts notice.

Input tax credit runs the other way too. You pay GST on some of your own business costs: a job board subscription, your recruiting software, professional services. Where those costs are used for your business and the supplier gives you a proper tax invoice with your GSTIN on it, you can generally claim credit on that GST against the tax you collect. So keep the tax invoices for what you buy, and make sure your GSTIN is on them. Again, the exact eligibility has conditions, and your CA is the person to confirm what you can and cannot claim.

Filing, records and the rhythm of it

Registration brings returns. You file periodically, reporting the supplies you made, the tax you collected, and the credit you are claiming. The rhythm of it is not dramatic, but it is unforgiving of missing records. A due date passes whether or not your invoices are in order.

The way to stay calm about filing is to keep the records as you go, not at the deadline. Every invoice numbered in sequence, every client GSTIN captured when you take the mandate, every purchase tax invoice filed. When your billing lives in one place and each fee is recorded against the client and the mandate it came from, pulling together what a return needs is a short task instead of a weekend of reconstruction. This is one of the quiet reasons to run your submissions, fees and clients in a single workspace rather than across a folder of spreadsheets: when the filing date comes, the numbers are already sitting where you can read them. A tool like RecruiterDesk keeps your clients, mandates and submissions together, so the billing story behind a return is not scattered.

Do not treat filing as the accountant’s problem alone. The accountant works from your records. If your records are clean, their job is quick and your bill is smaller. If they are a mess, you pay for the time it takes to untangle them, and you carry the risk of an error.

The line to remember

GST for a recruitment agency is not complicated once the shape of it is clear: recruitment services attract 18%, you register when your fee income crosses the threshold that applies to you, you issue a proper tax invoice with your GSTIN, the SAC and the place of supply, and your registered clients claim credit on it while you claim credit on your own business costs. The rest is discipline: the same correct template every time, records kept as you go, and returns filed on the date.

What this guide cannot do is replace a chartered accountant. Thresholds, place of supply, credit eligibility and the specifics of your business structure all have detail that a general article should not pretend to settle for you. Treat this as the map that helps you ask your CA the right questions, and let them confirm how each piece applies to you. Get that relationship right early, keep your invoicing clean, and GST becomes a routine part of running the desk rather than the thing you dread every filing season.