Analyzing GST Implications on Subscription-Based Models by Cab Aggregators
Analyzing GST Implications on Subscription-Based Models by Cab Aggregators
Understanding Traditional Aggregation Model Vs Subscription-Based Model 6 Legal Provisions Interpretations –A Closer Look 6 GST Implications and Considerations 7 Conclusion and Recommendations 8 Contents
Introduction
The evolution of passenger transportation services facilitated by aggregators like Ola and Uber has been a blend of innovation and challenges. Amid efforts to address persistent issues such as ride cancellations and payment delays, a new model is emerging, which is, Subscription-based Models for Drivers.
Recently, key players in the industry have begun implementing subscription-based plans for auto-rickshaw drivers. While this move holds potential to lessen the burden and optimize earnings of the drivers, it also raises pertinent questions regarding its GST implications. This is due to the shift in revenue dynamics and payment structures compared to the traditional model.
This article discusses the GST implications on the subscription based models introduced by the prominent players in the cab aggregator industry.
Understanding Traditional Aggregation Model Vs Subscription-Based Model
In the traditional cab aggregation model, cab drivers use the aggregator’s platforms to provide passenger transportation services, with the aggregators primarily facilitating and coordinating transportation for customers. Fundamentally, the contractual relationship between drivers and aggregators operates on a principleto-principle basis, where drivers offer transportation services to the aggregator’s customers through the aggregator’s platform. This traditional model operated on a commission-based revenue model, where the aggregator retained a portion of the fare for each ride as commission and transferred the remainder to driver partners.
Under the new subscription model, the aggregator ceases to function as an ‘aggregator’; instead, they will now only charge a per-day or per-week fee/ subscription from the auto driver partners to get listed/discovered by customers on their platforms looking to book a ride. Thus, the aggregator’s role will be limited to connecting customers with auto drivers, with no responsibility for the provision of transportation services. Whereas, the auto drivers will be formally responsible for providing transportation services to customers, who will be liable to make payments directly to the auto driver rather than to the aggregator. Furthermore, auto drivers are not required to report their individual supplies to the aggregators, nor they are obligated to make payments to the aggregators for each supply made to connected customers.
Legal Provisions Interpretations –A Closer Look
Under the GST framework, the responsibility for paying taxes on passenger transportation services via radio-taxis, motorcabs, maxicabs, etc. lies with the Electronic Commerce Operator (ECO), when such services are supplied through it.
It should be noted that the above taxability arises only when the supplies are supplied ‘through’ ECO.
Below are the relevant GST provisions outlining this liability for your reference.
Section 2(45) of the CGST Act
‘Electronic commerce operator’ means any person who owns operates or manages digital or electronic facility or platform for electronic commerce.
Section 9(5) of the CGST Act
6 Analyzing GST Implications on Subscription-Based Models by Cab Aggregators
specify categories of services the tax on intra-State supplies of which shall be paid by the electronic commerce operator if such services are supplied through it, and all the provisions of this Act shall apply to such electronic commerce operator as if he is the supplier liable for paying the tax in relation to the supply of such services.
In exercise of the powers conferred by sub-section (5) of section 9 of the Central Goods and Services Tax Act, 2017 (12 of 2017), the Central Government, on the categories of services, the tax on intra-State supplies shall be paid by the electronic commerce operator—
(i) services by way of transportation of passengers by a radio-taxi, motorcab, maxicab, motor cycle, or any other motor vehicle except omnibus
Reference in this regard can be drawn from the Karnataka AAR ruling in case of Juspay Technologies (P.) Ltd. (‘Namma Yatri’ app) wherein it was held that Applicant merely connects auto drivers and passengers, and their role ends on such connection. They do not collect consideration and have no control over the actual provision of service by service providers, and neither do they take responsibility for the operation and completion of the ride. Although, the
said supply of services is not made through the electronic commerce operator but is independent. Therefore, the applicant does not satisfy the conditions of section 9(5) for the discharge of tax liability by the electronic commerce operator. Thus, the applicant is not the person liable for the discharge of tax liability under section 9(5).
In this case, the AAR focussed on the term ‘through’, and interpreted that the word ‘through’ implies that the supply should be initiated, carried on and concluded by
GST Implications and Considerations
for GST liabilities.
In the traditional aggregator model, the aggregator is liable to pay GST on passenger transportation services, and when cab services are provided through aggregators, GST is paid by the aggregators themselves. Additionally, GST is separately chargeable on the commission payable by the ECO to the drivers.
However, under the new subscription model, the passenger transportation services are not provided ‘through’ ECO and ECO is only linking the auto drivers and the customers for which the ECO is charging subscription fee from the auto drivers. Thus, ECO is liable to pay GST only on the subscription fee chargeable from the auto drivers.
7 Analyzing GST Implications on Subscription-Based Models by Cab Aggregators
Furthermore, passenger transportation services provided by auto rickshaws, including e-rickshaws, are exempted from GST. However, this exemption is not2 applicable when such services are supplied through an ECO on which such ECO is liable to pay GST under Section 9(5). Therefore, passenger transportation fee charged by the ECO from customers is subject to GST under the traditional subscription model.
Conclusion and Recommendations
The new subscription based model appears to be a win-win situation for all parties
drivers directly receive consideration for their services from customers, and the
GST burden on the ultimate customer.
However, it’s important to acknowledge the potential for future litigations and potential disruptions by GST authorities, given that this shift could lead to
and tax liabilities, can attract scrutiny from tax authorities. Therefore, it becomes imperative for aggregators to understand their GST liabilities and ensure compliance with the relevant provisions to avoid any legal issues in the future.
8
GST
Subscription-Based Models by Cab Aggregators
Analyzing
Implications on
About Us
Our Journey
Founded
Evolution
1972
From a small family business to a leading technology-oriented Publishing/Product company
Expansion Launch of Taxmann Advisory for personalized consulting solutions
Our Vision
Aim
Achieve perfection, skill, and accuracy in all endeavour
Growth
Evolution into a company with strong independent divisions: Research & Editorial, Production, Sales & Marketing, and Technology
Future
Continuously providing practical solutions through Taxmann Advisory
Our Strength
Core Editorial and Research Division Team
Over 200 motivated legal professionals (Lawyers, Chartered Accountants, Company Secretaries)
Expertise
Monitoring and processing developments in judicial, administrative, and legislative fields with unparalleled skill and accuracy
Impact
Helping businesses navigate complex tax and regulatory requirements with ease
Taxmann Today
Legacy
Innovation Commitment
Over 60 years of domain knowledge and trust
Technology-driven solutions for modern challenges
Ensuring perfection, skill, and accuracy in every solution provided
Our Core Domain Areas
Income Tax
Corporate Tax Advisory
Trusts & NGO Consultancy
TDS Advisory
Global Mobility Services
Personal Taxation
Training
Due Diligence
Foreign Exchange
Management Laws
Due Dilligence
Advisory Services
Assistance in compounding of offences
Transactions Services
Investment outside India
Tax Advisory
High-quality advice for all your Income-tax, GST, FEMA, and UAE Corporate Tax queries
From a distinguished panel of experts
Your Partners for Frictionless Advice
Contact Us
Taxmann Delhi
59/32, New Rohtak Road, New Delhi – 110005
Phone: +91-11-45562222
Email: sales@taxmann.com
Taxmann Mumbai
35, Bodke Building, Ground Floor, M.G. Road, Opp. Mulund Railway Station, Mulund (W), Mumbai – 400080
Phone : +91-022-25934806/07/09
Email: sales.mumbai@taxmann.com
Taxmann Ahmedabad
7, Abhinav Arcade, Ground Floor, Pritam Nagar Paldi, Ahmedabad – 380007
Phone: +91-079-26589600/02/03
Email: sales.ahmedabad@taxmann.com
Taxmann Hyderabad
4-1-369-Indralok Commercial Complex Shop No. 15/1 –Ground Floor, Reddy Hostel
Lane Abids, Hyderabad – 500001
Phone: +91-9391041461
Email: sales.hyderabad@taxmann.com
Taxmann Pune
Office No. 14, First Floor, Prestige Point, 283 Shukrwar Peth, Opp. Chinchechi Talim, Nr. BSNL Office, Bajirao Road, Pune-411002
Phone: 9822411811
Email: sales.pune@taxmann.com
www.taxmann.com
