Goods and Services Tax (GST) implementation in 2017 has transformed the taxation of India’s cab industry. It introduced specific GST rates and compliance requirements for different passenger transport services. The sector has witnessed significant developments, particularly with the emergence of subscription-based models.
This article explains the impact of GST on the cab industry, including GST rate structure, section 9(5), ECO aspect, recent regulatory developments, different AAR rulings, and ITC aspects.
GST framework for cab services
According to Notification No. 11/2017-Central Tax (Rate), passenger transport services are classified under Heading 9964, with specific provisions for different cab services. The notification establishes clear distinctions between various service categories:
Entry 8(ii) covers passenger transport by an air-conditioned contract carriage other than a motor cab, air-conditioned stage carriage, and radio taxi, attracting 5% GST without Input Tax Credit (ITC).
Entry 8(vi) specifically addresses passenger transport by motorcar, where the cost of fuel is included in the consideration charged by the service recipient. This service also attracts 5% GST without ITC.
GST rates on cab services
The GST rates for cab services vary significantly based on the type of service and operational model:
Service type
GST rate
Conditions
Non-AC Contract Carriage
0%
Exempted under notification 12/2017
AC Contract Carriage/Radio Taxi
5%
Without ITC or 12% with ITC
Ride Aggregators (Traditional Model)
5%
Paid by aggregator u/s 9(5)
Auto Rickshaw/E-rickshaw
0%
Exempted under notification 12/2017
Chauffeur Services
18%
Full commercial rate
Impact of Section 9(5) and Electronic Commerce Operators (ECO)
Section 9(5) of the CGST Act 2017 places specific tax obligations on Electronic Commerce Operators (ECO) for notified services, including passenger transportation. Under this provision, ECOs are treated as suppliers and must pay GST on behalf of actual service providers.
Traditional aggregator model vs. subscription model
The traditional commission-based model operates under clear GST liability structures where aggregators collect and remit 5% GST on passenger fares. However, the emergence of subscription-based models has created significant regulatory uncertainty.
Traditional model characteristics
Aggregator collects payment from passengers
5% GST liability under Section 9(5)
Additional GST on commission paid to drivers
Clear ECO status and obligations
Subscription model features
Drivers pay fixed subscription fees to the platform
Passengers pay drivers directly (cash/UPI)
Platform claims to merely “connect” rather than facilitate
Disputed GST liability under Section 9(5)
Recent regulatory developments and council changes
October 2022 GST Council decisions
While the 48th GST Council meeting in December 2022 addressed various sector issues, it didn’t make any specific changes to cab service classifications. The Council focused primarily on rate adjustments for other sectors and compliance simplifications.
However, the transport sector did receive attention in the 47th GST Council meeting (June 2022), which recommended reducing GST on certain transport services:
Ropeway transport: Reduced from 18% to 5%
Goods carriage renting with fuel: Specific rate adjustments
Various exemptions for foreign tour components
Authority for Advance Ruling (AAR) decisions
The AAR has issued conflicting rulings on subscription models, creating regulatory uncertainty:
1. Namma Yatri AAR ruling – September 2023
Outcome: The AAR ruled that the ECO operating under a subscription model is not liable for collecting GST on passenger transportation services.
Reasoning: The platform merely acts as a facilitator connecting drivers and passengers without providing transportation service. Since the service is not provided “through” the ECO, section 9(5) GST liability does not apply.
Impact: This ruling created a precedent supporting subscription models where the ECO charges drivers a subscription fee but does not collect fares from passengers.
2. Rapido AAR ruling – July 2024
Outcome: The AAR held that the ECO must pay GST on passenger transportation services even under the subscription model.
Reasoning: The platform provides essential communication infrastructure and actively facilitates the service; thus, the service is deemed to be provided “through” the ECO, attracting GST under Section 9(5).
Impact: This ruling contradicted the Namma Yatri decision, creating ambiguity and regulatory uncertainty for subscription-based aggregators.
3. Uber AAR ruling – November 2024
Outcome: The AAR reaffirmed that Uber is liable to collect and pay 5% GST on passenger transportation services even under a subscription model.
Reasoning: Similar to Rapido, Uber’s platform was considered to be actively involved in providing the service, and thus, GST under section 9(5) applies.
Impact: This further complicated the regulatory landscape, highlighting inconsistent interpretations of GST liability on subscription models.
Input Tax Credit (ITC) Implications
ITC for Cab Operators
Cab operators can claim ITC on business-related expenses under specific conditions:
Electronic Commerce Operators face different ITC treatment based on their operational model:
Section 9(5) Services: Tax must be paid in cash, and no ITC benefit is allowed
Commission Services: Regular ITC rules apply
Subscription Fees: 18% GST with full ITC eligibility
Cab business compliance and registration requirements
ECO registration obligations
Electronic Commerce Operators must comply with specific registration and filing requirements:
Mandatory requirements:
GST registration, regardless of turnover
Monthly GSTR-3B filing for section 9(5) services
Separate reporting in Table 3.1.1 for notified services
TCS compliance under section 52 (where applicable)
The GST framework for cab services continues to evolve, with recent developments in subscription-based models creating significant regulatory uncertainty. Resolving these issues will significantly impact India’s rapidly growing ride-hailing sector’s competitive dynamics, revenues, and operational structures.
Frequently Asked Questions
What is the GST rate for taxi services?
Most taxi services (including those booked through apps like Ola and Uber) attract 5% GST.
Non-AC contract carriages, stage carriages, and metered auto rickshaws/e-rickshaws are exempt from GST.
AC contract carriages (when booked offline, not through aggregators): 5% GST (without ITC) or 12% (with ITC), depending on the operator’s choice.
Rent-a-cab (with driver): 5% or 12% GST, depending on whether the operator avails ITC.
Do cab aggregators (Ola and Uber) charge GST?
Yes, cab aggregators such as Ola and Uber must charge and collect 5% GST on the fare for rides booked through their platforms, regardless of whether the cab is AC or non-AC. However, auto rickshaw rides booked through aggregators are typically exempt from GST.
Can cab operators claim Input Tax Credit (ITC)?
Yes, cab operators can claim ITC on GST paid for business-related expenses such as vehicle purchase, maintenance, and fuel, but only if they are registered under GST and the service is used for further taxable supplies.
How is GST calculated on a cab bill?
GST is calculated as a percentage of the total fare. For example, if the fare is Rs.100 and GST is 5%, the GST amount is Rs.5, making the total bill Rs.105.
Can businesses claim ITC on cab services used for employees?
Generally, businesses cannot claim ITC on GST paid for cab services used for employee commuting or pick-up/drop-off unless it is a statutory obligation (i.e., required by law).
About the Author
AJ
Manager - Content
As a qualified Chartered Accountant with extensive expertise in accounting, finance, taxes, and audit, I specialise in simplifying complex regulations for a broader audience. Well-versed in tax laws across India and the GCC region, I have a keen interest in the evolving finance ecosystem. Passionate about learning, I enjoy engaging in conversations, exploring new cultures through travel, and unwinding with music.. Read more
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