GST Impact on Cabs: Understanding the GST on Taxi Services

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:

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.

The key services notified under Section 9(5) of CGST Act include passenger transportation by radio taxis, motor cabs, and motorcycles.

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:

Eligible ITC Claims:

• Vehicle purchases and maintenance
• Fuel costs (where applicable)
• Business equipment and services
• Insurance and registration fees

Restricted ITC:

• Personal use of vehicles
• Employee transportation (with statutory exceptions)
• Services not related to business operations

ITC treatment for ECO

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.