GST on Cab and Taxi Services: In India, there are several different types of taxis. Basic cabs are available for hailing on the road (available in cities like Kolkata & Mumbai). Other cities (such as Bangalore and Hyderabad) rely solely on radio taxis such as Ola and Uber. Taxis aren’t merely four-wheeled motor vehicles on four wheels.
In rural and semi-urban areas, you also have transportation like bullock carts, vegetable carts, and other vehicles that are considered taxis but operate in the unorganised sector and have never paid any taxes. The radio taxis, which you hire through an app or phone, will be the most affected by the GST on cabs. In this article, let’s understand the impact of GST on Rental Vehicles such as taxies and cabs. Read on to find out more.
- What is Radio Taxi?
- Service Tax on Cab & Taxi
- Impact of GST on Cabs and Taxis
- GST on Cab & Taxi | Reverse Charge Mechanism
- How Does Reverse Charge Mechanism Work?
- Impact of GST on Cabs & Taxies – Input Tax Credit
- FAQ’s on GST Rate on Taxi Services
What is Radio Taxi?
Before understanding the impact of GST on Cab and Taxies, let’s understand what is radio taxi and how GST impact that.
The GST defines a radio taxi as a taxi, including a radio cab, that is in two-way radio communication with a central control office and can be tracked via the Global Positioning System (GPS) or the General Packet Radio Service (GPRS). Cab aggregators such as Ola and Uber fall into this category.
Service Tax on Cab & Taxi
On-site service tax with a 60% abatement is imposed on the following vehicles:
- A contact carriage (horse carriage)
- A radio taxi.
- “A stage carriage” – bus
It means that service tax is levied on radio taxis and AC buses but not on regular metered taxis such as Kolkata’s yellow cabs. The effective service tax was 6%.
Impact of GST on Cabs and Taxis
The same will be applicable under GST, with radio cabs and air-conditioned buses subject to service tax. GST would not apply to metered cabs or auto rickshaws (including e-rickshaws like Ola Auto). Without the ITC, the GST rate will be 5%. On the fare charged to the passenger, Uber will collect 5% GST.
|Details||Before GST Imposed||
After GST Imposed
|Service Tax @ 6%||34.20||–|
|GST @ 5%||–||28.50|
|Total to Pay||604.50||598.50|
As a result, we notice that cab fares are decreasing. Passengers received discounts and preferential prices as a result of the perks.
GST on Cab & Taxi | Reverse Charge Mechanism
Radio taxi firms are required to pay GST under reverse charge, according to the reverse charge notification. Rent-a-cab services previously used a partial reverse charge method. If the service providers (drivers) did not take advantage of the abatement, the service receivers (rent-a-cab services) were required to pay 50% under RCM. The service provider was responsible for 50% of the costs.
However, if a service provider receives an abatement, the service receiver is responsible for paying the full amount of service tax due on the abated value. The full onus is on the service recipient, i.e. Ola, to avoid such ambiguity and problems under GST.
How Does Reverse Charge Mechanism Work?
Ola Cabs hires drivers to transport passengers in their automobiles. Ola’s chauffeur/driving services are provided by drivers. Ola is the service receiver, and drivers are paid a percentage of the fare received from passengers.
A driver will be paid Rs. 100 as a portion of the fare. Ola will pay the driver Rs. 100 and make a Rs. 5 deposit with the government. Ola would collect GST on the fare after providing the service to the passenger. On a reverse charge basis, Ola pays GST on the services of its drivers.
Ola can claim the ITC on RCM taxes paid and deduct it from the output taxes owed. The reverse charge’s goal is to bring this unorganised sector under the tax net. It also shifts the cost of tax compliance from low-income individuals (drivers) to huge corporations (Ola) with sufficient resources.
Impact of GST on Cabs & Taxies – Input Tax Credit
For Service Providers
Option 1: Pay 5% and not claim ITC
They have the option of not claiming ITC for taxes paid on specific inputs. Then they only have to pay a 5% output GST. Uber, for example, will not be able to claim any ITC on the GST levied for telecom services if it pays the phone bill.
Option 2: Pay 12% and claim ITC
If they pay 12 percent GST, cab aggregators can claim ITC for the tax paid on cab services provided on various inputs. If Uber pays output GST at 12%, it can collect GST on the phone bill in the scenario above.
For Service Receivers
If a business uses cab services, it is not eligible for an ITC. For example, If an organisation pays for cab services for employees to attend a convention, it will be unable to claim an ITC on the 5% GST on the taxi bill.
FAQ’s on GST Rate on Taxi Services
What is rent a cab service under GST?
Cab services are subject to a 5% GST. Although, service providers can choose to pay GST at the lower rate of 12% and receive a full input tax credit.
Do taxi drivers have to pay GST?
Yes, one will have to pay GST if he or she owns a taxi. For that one will have to register for goods and services tax if you drive a taxi (GST). However, If the taxi driver is an employee, then, he or she is not required to register for GST.
Can we take GST input on rent a cab?
The ITC on cab rentals is specifically prohibited under Section 17(5) of the GST Act. As a result, every taxpayer renting a cab for a certain amount of time and paying GST on the rental charges is subject to the GST. GST paid on rental changes will not be an eligible ITC in this case.