Impact of GST on Cabs & Taxi Services

Taxis are a lifeline for daily commuters residing in metropolitan cities. Whether yellow-and-black Premier Padmini in Mumbai or yellow Ambassadors in Kolkata, or Radio taxis, like Ola, Uber, etc., they all provide essential transportation services.

 

However, the main impact of the Goods and Services Tax (GST) regime is on the radio taxis that you book using a mobile application. 

 

To delve deeper to understand what these radio taxis are and how the GST on cab services is impacting the industry and commuters, read on.  

Definition of a Radio Taxi

The Finance Act, 1994 defines a radio taxi as a cab that operates through radio signals. In other words, you can call a helpline number or use a mobile app to communicate with the operator and book a taxi for you. 

 

The operator then communicates it to the nearest chauffeur to you using radio signals. The chauffeur then reaches you with a taxi at the specified location and time. Radio taxis are generally managed by a corporation which uses GPS technology to locate nearby cabs. 

 

Due to the high demand for public transport, radio taxi services are gaining a strong foothold in metro cities. In fact, radio taxis have become ubiquitous in Indian metros and are expected to reach a market share of over ₹60 Billion by 2024.  

Applicability of Service Tax on Cabs

Before the introduction of the new indirect taxation regime in 2017, service tax, with a 60% abatement, was applicable on the following: 

 

• A contact carriage

• A radio taxi

• A bus

Note that the effective service tax was 6%, which was applicable on radio taxis and AC buses but not metered taxis.

Impact of GST on Cabs 

The GST on taxi services will only impact radio taxis, as was the case with service tax. The metered taxis and auto-rickshaws (including Ola and Uber Autos) have been placed outside of the GST regime. 

 

In place of a 6% service tax, a 5% GST rate on cab services (without ITC) is now applicable. Check the following table to see how GST has impacted the cost of your travel through these radio taxis:

So, the fares that you have to pay for the radio taxi services have come down after the implementation of GST on cab services.

Reverse Charge Mechanism

The pre-GST indirect tax regime had a partial reverse charge mechanism (RCM). Here, the service provider and receiver were liable to pay 50% each in case the service provider was not availing abatement. If that is not the case, the recipient has to pay 100% of the tax.  

 

In 2019, the GST Council decided to bring the renting of radio taxis under the RCM of the GST. So, generally, the supplier of a service pays tax on the supply. However, the RCM mandates that the body corporate (or the recipient of service) is liable to pay tax.

GST Calculation for a Cab Ride 

When you book a taxi, cab service corporations like Ola and Uber connect you with their drivers. Here, drivers are providing services to the corporation. So, Ola, Uber, etc., are considered recipients of services, whereas drivers are service providers.

 

These corporations provide them with a share of the total fare for their services. For instance, the corporation pays the driver ₹200 as a share of the fare and ₹10 to the government as GST on Ola rides. 

 

The company charges GST on the fare for providing services to passengers. As the company pays the GST for taxi services based on the reverse charge mechanism, they can claim input tax credit. 

 

Here’s how they adjust it with their output tax liability. 

Input Tax Credit  

By availing ITC on GST on cab services, the claimant can avoid cascading of taxes. Here is how it works: 

1. For Service Providers

The Central Board of Indirect Taxes and Customs (CBIC) allows the service providers to choose between these two options:

 

• Option 1: Pay 5% GST and Not Claim ITC The service providers can choose to pay the taxi service GST rate of 5% as output cost and not claim ITC.  

• Option 2: Pay 12% GST and Claim ITC The cab aggregator companies can also choose to pay a taxi GST rate of 12% and avail an input tax credit.

2. For Service Receivers 

The service receivers cannot claim ITC on availing taxi services, as it is disallowed under Section 17 (5) of the CGST Act. For example, if you book a cab to travel in your city, you are not liable to claim input tax credit.

Leasing of Cars for Cab Services 

Before the various GST Acts were enacted, leased cars were charged a 14% Value Added Tax (VAT) along with a 15% Service Tax. However, under the current GST regime, a mid-sized sedan on lease is taxed at a GST rate of 28% with an additional 15% cess charges.

 

According to the Lease Plan Ltd., the charges that drivers have to pay for vehicles on lease under the GST are:

The implementation of the GST has benefitted the passengers as the fares have come down as compared to the pre-GST regime. However, drivers and cab aggregators have to pay higher monthly lease rentals on cars. 

 

So, the government could rejig the taxi service GST rate on the lease, which would benefit the drivers and cab service provider companies. 

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