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The changes in the pattern of passenger transportation services are leading a path for cab aggregators like Ola and Uber. With the shift of customers from traditional to radio (subscription-based) taxi services, the cab aggregator industry has witnessed significant growth within the last few years. The extent of services and comfort provided by the new subscription-based models used by drivers in the cab industry is in high demand compared to other modes of travel.
The cab aggregator industry in India offers a cost-effective and affordable travel model. Companies like Ola and Uber have revolutionized transportation by providing convenient, tech-driven cab rides. Essentially, cab aggregators are platforms that connect passengers through a mobile application or website.
The onset of the cab aggregator industry in India has been rising since 2010. Currently, the cab aggregator industry is considered the most appealing market, and it is erroneously expanding to deliver new transportation solutions in India. The trending market size of the online cab aggregator industry is expected to grow at a CAGR of around 12.93% during the FY 2021-25.
Different types of cab aggregator business models exist that typically include components for platform development, driver partnership, and ride matching. Consider the following different types of cab aggregator models prevalent in India:
In a traditional cab aggregation model, cab drivers use cab aggregators to provide passenger transportation services. The traditional cab aggregator fundamentally drives a relationship between the drivers and aggregator operators to provide transportation services to its customers.
A new subscription-based cab aggregator model for drivers continuously evolves in Ola, Uber, and Rapido. The key players in the industry have also started implementing subscription-based plans for auto-rikshaws and bike drivers. This model is designed to reduce the burden and optimize drivers’ earnings in the cab aggregator industry.
Under the Goods and Services Tax (GST) framework, the cab aggregator industry is subject to specific rules. Section 9 (5) of the CGST Act stipulates that cab drivers are prohibited from paying GST directly to the government. Instead, only the e-commerce operators, such as cab aggregators, are authorized to make the GST payments. This means that while cab drivers provide the services, the responsibility for handling GST payments lies solely with the cab aggregators.
Referring to the Karnataka AAR ruling, the electronic commerce operator (ECO) that provides transportation services (via radio-taxi, motor cabs, and maxi cabs) is the only entity held responsible for paying GST taxes in India.
The GST paid by the company is generally passed on to cab consumers. Hence, the invoicing by Ola and Uber under which the companies are held liable for the payment of exclusive taxes are as provided below:
GST regulations in India have significantly impacted many sectors, including the cab aggregator industry. The following is the impact of GST on drivers in the cab aggregator industry:
The cab aggregator industry drivers are not required for individual GST Registration. The GST Act of 2017 requires cab aggregators to register and collect GST on behalf of industry drivers.
The GST Council clarified the payment of 5% GST by the cab aggregators. The 5% tax rate is charged from the fares of the passengers taking the ride through the cab aggregator platform.
Input Tax Credit (ITC) claims on cab services are yet another positive impact of GST on the drivers engaged in the cab aggregator industry. Generally, companies like Uber and Meru enjoy input tax credit claims on purchases made to provide cab services to their customers.
Service providers paying 5% of the output GST are not eligible to claim ITC (Input Tax Credit). For example, Uber is not forced to pay ITC claims on the GST charged if it pays telephone bills for the telecom services.
Service providers or cab aggregators are free to claim ITC on the GST paid at a rate of around 12%. For example, Uber can claim GST on telephone bills if it pays an output GST at a rate of around 12%.
The drivers in the cab aggregator industry are authorized to maintain proper records of their earnings and expenses, which ultimately add to the compliant handling of bulk GST.
The imposition of GST has significantly impacted drivers’ earnings in the cab aggregator industry. The rise in the total fare charged by passengers ultimately reduces the demand for rides, negatively affecting the drivers.
The reverse charge mechanism applies to the recipient of goods and services where the radio taxi companies are liable to pay GST under the reserved charge.
The reduction in the tax rates is beneficial for cab drivers in the cab aggregator industry. The following are the benefits enjoyed by the cab drivers:
As we find the positive side of GST on cab aggregators like Ola and Uber, a negative side also impacts the drivers. The following are the negative impacts of GST on the drivers in the cab aggregator industry:
The GST (Goods and Services Tax) charged on the services provided by the drivers in the cab aggregator industry has significantly dropped from 6% to 5 % after the successful implementation of the GST Act. Implementing GST has resulted in chaos in the lease and EMI payments made within the cab industry. However, the government must acknowledge the disruptions by implementing GST on the cab aggregator industry.
The GST rate for cab aggregator service is around 5%. However, the service provider can opt for a GST rate of around 12% and benefit from full input tax credit.
Yes, GST at a rate of 5% is applicable on the pickup charges paid by the driver or the owner (i.e., driver allowance).
Yes, GST is also applicable to taxis.
The service tax defines an aggregator as someone who owes or manages a web-based software application connecting local customers with the service providers.
If the ITC (Input Tax Credit) is not availed of, a 5% GST is charged on the aggregate transportation.
The transportation of goods by road (except the services of a goods transportation or courier agency) is exempt from GST.
An individual who receives freight services is authorized to pay GST on transportation charges.
Yes, GST applies to the taxi hire charges.
Section 9 (5) of the CGST Act specifies that cab drivers are not required to have a GST number as they are not entitled to the payment of GST on cab services. Hence, cab aggregators like Ola and Uber authorized to pay GST must mandatorily register their GST numbers.
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