With the job pie shrinking globally, the trend of temporary staffing is fast catching up. In India, more and more companies are fulfilling their professional needs with temp staffing, saving on salary bills as well as the trouble of going through a selection process.
At present, there are about 50 organised temp staffing companies covering about seven lakh people, catering to all sectors, especially IT and manufacturing.
But, these companies say they are facing an ‘identity’ problem, which stems from “lack of clarity in the definition of their work” under the Income Tax Act, especially pertaining to tax deduction at source (TDS).
“The services rendered by staffing companies, which in most cases is supply of labour, would qualify for TDS at 2 per cent under Section 194C of the Act. However, the tax authorities insist on 10 per cent deduction, the rate applicable to companies that render professional services. So, to avoid trouble, the deducting companies are resorting to 10 per cent, causing serious cash flow issues to staffing companies’, Mr Ravi Vishwanath, CFO, Teamlease Services, told Business Line.
Teamlease, under the aegis of the Indian Staffing Federation, has taken up the matter with Central Board of Direct Taxes, seeking an amendment in this year’s Budget. “We are awaiting a response,” said Mr Vishwanath.
The temp staffing companies want Section 194C to include ‘supply of manpower’ to put at rest the ‘ambiguity’ leading to TDS under Sections 194C (contractors or sub-contractors liable to 2 per cent TDS) versus 194J (professional ore technical services liable to 10 per cent TDS).
“Staffing companies merely provide manpower at low margins and should be clearly categorised under 194C,” adds Mr Viswanath, claiming that staffing companies operate on wafer-thin gross margins (5 to 7 per cent) and net margins are even smaller.
“It is similar to advertising companies, where a bulk of the revenue is pass-through. Therefore, even a 2 per cent withholding on the gross impacts the working capital of staffing companies. The problem is further aggravated when tax authorities ask the deducting companies to deduct tax at 10 per cent,” Mr Viswanath adds.