The index, based on a survey of nearly 400 firms, showed new orders rose at fasters pace in four months and companies stepped up hiring to meet this demand.
The services sector contributes approximately 65% to the overall Indian economy, but does not have any gauge to indicate the level of activity apart from the quarterly GDP numbers.
The increase in payroll numbers was the strongest since June 2011. The increase in hiring activity was also matched by the manufacturing sector, leading to the size of the private sector workforce increasing at the fastest pace for 12 months.
The service sector jobs index rose to 51.1 in June from 50.5 in May.
However, inflation continued to be a concern in the services sector as well with input prices rising sharply in June. The data indicated that service providers were able to pass on the rise in input costs —output prices have increased in the services sector in each month since November 2010.
The RBI unexpectedly kept key interest rates on hold at its meeting last month, as it warned of lingering inflationary pressures. The RBI has earlier cut the repo rate, the rate at which it lends to banks, by 0.5% in April.
The composite PMI, comprising manufacturing and services companies, rose to 55.7 in June up from 55.3 in May.