Budget 2024: Staffing industry, HR leaders eye tax reductions, skill development boosts

HR leaders call for skilling initiatives focussed on sectors facing dearth of talent.

The staffing industry and human resources (HR) leaders expect many tax breaks and increased investment on skill development from the full budget for fiscal year 2025. Finance minister Nirmala Sitharaman is expected to present it later this month.

Currently, Goods and Services Tax (GST) on employment services in India is 18 percent, applicable on a broad range of services, like executive search and recruitment services, permanent placement services, and contract staffing services.

According to Suchita Dutta, Executive Director of Indian Staffing Federation (ISF), employment-related services must be considered under ‘merit services’ with a 5 percent GST.

“By lowering the GST on employment services to 5 percent, it will create more jobs and increase youth employment, bringing more workers into the tax system.  Furthermore, organised staffing companies will provide PF and ESI benefits to the workers coming into the formal employment ambit,” Dutta told Moneycontrol.

According to the Employees' Provident Fund (EPF) and Miscellaneous Provision Act, the employer shall pay the contribution within 15 days of the close of every month, failing which appropriate action will be taken by the commissioner.

However, experts say that, in the staffing industry, payments are made based on inputs from the principal employer. In certain cases, there are instances of delayed remittances of statutory payments from the principal employer.

“As these delays are not directly attributable to the staffing companies, we urge the government to consider having this clause waived off, especially for the staffing service providers,” said Nagesh Bailur, Chief Financial Officer of Randstad India.

From a compensation and incentives point of view, Bailur proposed reducing the monthly PF contribution from 12 percent to 5 percent to increase employees' disposable income.

Industry experts say the current economic climate, with rising inflation, increasing costs of everyday essentials, and potential recessionary threats throw a wrench into the long-term financial planning for salaried workers. Salary increases, meant to improve their standing, often get overshadowed by inflation, leaving little room for saving or investing for the future.

Budget 2023 made several changes to the new personal tax regime. It raised the basic exemption limit from Rs 2.5 lakh to Rs 3 lakh and the surcharge on those earning over Rs 5 crore was reduced from 37 percent to 25 percent.

“The middle class is seeking significant tax relief or benefits in the 2024-25 budget. Key areas of concern include the reassessment of House Rent Allowance (HRA) to align with steep rental trends, increased standard deductions, and more exemptions under the new tax regime,” said Neeti Sharma, CEO of TeamLease Digital.

Therefore, Sharma said the introduction of measures to increase disposable income through tax exemptions and the enhancement of schemes such as 80C, 80D, 80EEA or a revival of the Old Pension Scheme could help alleviate financial burdens.

In the Interim Budget 2024 presented on February 1, Finance Minister Nirmala Sitharaman said that the Central government's Skill India Mission has trained 1.4 crore youth and upskilled 54 lakh youth.

In September 2023, the government also unveiled the Skill India Digital Platform to bring all skilling initiatives under a single umbrella and provide skill development and entrepreneurial support to people.

More than 264 skilling courses from 42,623 centres from across the country will be available under the platform, which will also provide opportunities for job exchange, apprenticeship, and entrepreneurship.

Adding to this, HR leaders call for skilling initiatives focused on sectors facing a dearth of talent.

“There should be far more investment in skilling the workforce, so that we have a ready-to-deploy workforce, especially on the manufacturing side. Today, most companies are still grappling to find the right skill sets and the right person for the right job. This needs to be given impetus, and investments in education and skilling have to increase significantly,” said Jacob Jacob, group chief human resources officer at Malabar Group.

In addition, he said the Apprenticeship Act needs to be re-evaluated in its entirety from an industry readiness perspective.

Similarly, Indrani Chatterjee, Group CHRO at Allcargo Group, said the government’s continued focus on skill development should continue with this fiscal as well as policy support so that sectors such as logistics and supply chain, which has the potential to create millions of jobs, can play a more enabling role in the economic growth.

Additionally, staffing firms said tax reforms should allow companies to leverage the improved tax benefits to attract and retain talent by offering a more appealing financial package.

“For start-ups, ESOPs are key to attracting and incentivising talent. These should not be taxed on exercise as recipients do not have ready cash in their hands at that point. The taxation should be on the final sale of shares,” said Ranaq Sen, Head of People of WorkIndia.