Understanding GST implications on cab services in India

People of metro cities always find it hard to travel from one place to another because of the high population and busy schedule. Most of the big cities are dependent on cab services to commute. So, the facility of cab services is like a boon nowadays. In this article we are going to discuss GST impact on cab services. Before that it is important to understand types of cab and taxi

GST defines a radio taxi as a taxi including a radio cab that is in two-way radio communication with a central office and can be tracked via global positioning system (GPS) or General Pocket Radio Service (GPRS). Cab aggregators such as Ola and Uber fall under this category.

Now let us understand what difference GST has made on cab services and its result

Service Tax Era- Service tax rate was 6% on cab service. On site service tax with a 60% abatement is imposed on following vehicles-

• A contract carriage

• A radio taxi

• A stage carriage-bus

In simple words we can conclude that service tax was levied on radio taxies and AC buses but not a regular metered taxi.

Impact of GST-

The same is applicable under GST. Here GST would not apply on metered cabs or auto rickshaws.

For better understanding see the below example-

So, it is clearly visible that GST has lowered the travel cost.

How is GST collected?

There may be two types of cab services available

Individual Taxi- In this case the cab operator is required to get registered if his income exceeds the limit and he is liable to pay tax in that case.

APP based cab aggregators- Companies providing cab services through digital platforms such as ola and uber (Known as ECO-E commerce operators), are required to register under GST and pay taxes based on their turnover. They follow a reverse charge mechanism where the liability is on recipient to pay taxes.

In this case drivers are service providers and cab service corporates are service receivers. The government has notified services by way of transportation of passengers by a radio taxi, motor cab, and motorcycle under reverse charge (where service receivers are liable to pay tax).

Reverse Charge Mechanism (RCM)

1. Firstly, let us see about GST payable on cab services through Ola and Uber which is covered under section9(5) of CGST act. This section states that E- commerce operators (like Ola and Uber) are required to collect and pay GST to the government not the service provider.

Cab drivers are not required to collect and pay GST.

Let us take a practical scenario to understand this clearly

Someone books an OLA cab through an app. Then after providing service to the customer OLA will pay the driver his portion of fare say,100 Rs. Then it will make a GST deposit of 5 Rs to the government.

2.Now discuss when service is rendered by non-body corporates to body corporates

Basically, provisions of RCM require body corporate to discharge GST liability. It wants to shift the burden from low-income individuals to big corporates. So, this provision will apply if all the following conditions are fulfilled-

• Service provider/cab operator is non body corporate. (it can be an individual, HUF or partnership firm)

• Service receiver is a body corporate (It can be a Private limited co. Or corporate set under separate statute)

• Service provider is unregistered or charging 5% without availing ITC benefit. So, we can conclude that RCM provisions are not applicable in following situations-

• Cab operator (who is providing driving service) is body corporate.

• Service receiver is not a body corporate

• Cab operator is paying 12% GST with or without availing ITC.

Input Tax Credit

There are two options available for service provider-

Option 1- Pay 5% GST and do not claim ITC- In this option person is allowed to take input tax credit of only GST paid on cab service taken in the course of business. In simple words ITC is not available for other inputs like Telephone expenses, rent or advertisements.

Option 2- Pay 12% GST and claim ITC- In this option person is allowed to take input tax credit on all inputs subject to some restrictions.

ITC by service receiver-GST paid on rent a cab service is disallowed under section 17(5). Therefore, GST paid cannot be taken as input tax credit.

Example

Option 1 -X ltd., a corporate Enters into an agreement with A ltd. For providing cab services. A ltd. Does not own cars and enters into agreement with PQR. So, in this case-

• PQR will charge GST from A ltd. (5%)

• A ltd will charge GST from X ltd. (5%)

In this case A Ltd can claim ITC because inward and outward supplies are of the same line. However, A Ltd will not be able to take credit for any other service like telephone bills.

Option 2- A Ltd can take credit for all services if it pays 12% GST on outward supplies. ITC on transport or cab services provided to employees

ITC can be claimed on transport or cab service provided to employees for business purposes, like travel for office meetings. IT cannot be claimed for service provided for personal use, like if employees commute from home to do their work. It is important for companies to ensure that they are following the correct procedures and maintaining correct records when claiming ITC on such services.

ITC on transport or cab services provided to non-employees (clients or vendors)

The same condition will apply here that ITC will not be allowed for personal use. It will be available only for business purposes.

ITC on purchase of vehicle- Generally section 17(5) provides that ITC will not be available for Motor vehicle & other conveyances. But there are some exceptions to these which states that ITC will be available if the purchased car is used for taxable supply of transportation of passengers. It is to be noted here that the person who opted to pay GST @5% cannot take such input. Only a person paying GST @12% can take such inputs.

When Ola and Uber provide services to companies

There are three parties involved in this case

1. Corporates

2. Cab aggregators (Ola)

3. Cab drivers

Cab aggregators take services from cab drivers and provide it to corporates. Cab aggregators pay fees to cab drivers and then get reimbursement from corporates by issuing debit notes (GSt is charged @5%). They also collect commission by issuing commission invoices (GST is charged @18%). If we see from ITC perspective, then we can understand that ITC is not available on debit notes.

Place of Supply

If a cab service is being provided to a registered person, then place of supply will be the place of registration of that person. But if it is provided to an unregistered person then the place of supply will be the place from where that person is starting his journey.

Have a look on the below table

When location of supplier and place of supply are in same state then CGST and SGST is charged. When it is in different states then IGST is charged.

Leasing of cars for cab services

Cab aggregators may buy cars and can give it on lease to drivers for Transporation of passengers booked through their app. The driver will pay initial deposit and monthly rental to cab aggregators. Before the GST act was enacted, leased cars were charged @14% VAT along with 15% service tax. Under current GST regime, a mid-sized car is leased @28% along with 15% cess charges.

Related Sections