GST on Wages Paid to Outsourced Staff During COVID-19 Lockdown: Kerala AAR Ruling Explained
Interim Wage Payments Count as Manpower Supply Services
Ruling Highlights Tax Clarity for Employers and Outsourcing Agencies
By Our Legal Correspondent
New Delhi: January 09, 2026:
The COVID-19 pandemic disrupted workplaces across India, forcing companies and government institutions to rely heavily on outsourced staff. Many organizations continued paying wages to outsourced workers during the lockdown, treating them as “on duty” despite restrictions.
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In a landmark ruling, the Kerala Authority for Advance Rulings (AAR) held that such payments are subject to GST, as they form part of manpower supply services. The case involved the Kerala State Ex-Servicemen League (KSESL), which supplied manpower to the Vikram Sarabhai Space Centre (VSSC). During the lockdown, VSSC reimbursed wages to outsourced staff, prompting KSESL to seek clarity on GST applicability.
Case Background
- Applicant: Kerala State Ex-Servicemen League (KSESL), a charitable society registered under the Travancore-Cochin Societies Registration Act, 1955.
- Service Recipient: Vikram Sarabhai Space Centre (VSSC), a government research institution.
- Issue: Whether interim wage payments made to outsourced staff during lockdown attract GST.
- AAR’s Decision: Payments are taxable as part of manpower recruitment and supply services under the Central GST Act, 2017.
AAR’ s Observations
The AAR made several key points:
- Nature of Service: Supply of manpower is a taxable service under GST.
- Interim Wages: Payments made during lockdown, even if staff were not physically working, are part of contractual consideration.
- No Exemption: GST law does not provide exemptions for wages reimbursed under manpower contracts.
- On Duty Treatment: Since staff were treated as “on duty,” wages paid are considered part of taxable supply.
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Why This Ruling Matters
- Legal Clarity: Confirms that GST applies to wage reimbursements under manpower contracts.
- Employer Responsibility: Organizations must account for GST even if payments were made during extraordinary circumstances like lockdowns.
- Compliance Burden: Outsourcing agencies must ensure proper invoicing and GST filings for such payments.
- Precedent Value: Sets a benchmark for similar disputes across India.
Impact on Businesses and Agencies
- Government Institutions: Must pay GST on reimbursements to outsourcing agencies.
- Private Companies: Liable to include GST in wage payments to outsourced staff.
- Outsourcing Agencies: Required to collect and remit GST, increasing compliance costs.
- Employees: No direct impact, as GST is borne by employers and agencies, not workers.
Expert Opinions
- Tax Analysts: Say the ruling reinforces GST’s broad scope, covering all manpower supply services.
- Legal Experts: Note that extraordinary circumstances like COVID-19 do not exempt contractual payments from GST.
- Industry Leaders: Warn that the ruling increases costs for organizations dependent on outsourced staff.
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Broader Context
- GST was introduced in 2017 to unify India’s indirect tax regime.
- Manpower supply services are explicitly taxable under GST.
- During COVID-19, many organizations faced confusion over whether interim wage payments were taxable.
- The Kerala AAR ruling provides clarity, though businesses may still seek relief through policy changes.
Conclusion
The Kerala AAR’s ruling that GST applies to wages paid to outsourced staff treated as “on duty” during COVID-19 lockdown is a landmark clarification. It underscores that contractual payments, even in extraordinary circumstances, fall within the ambit of GST.
For businesses and government agencies, the ruling highlights the importance of compliance and accurate invoicing. While employees remain unaffected, outsourcing agencies and employers must bear the tax burden, reinforcing GST’s role as a comprehensive indirect tax system.
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