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GST on Cab and Taxi Services

Introduction

As per the GST Act, Cab services are taxable services. When services are provided via cab aggregators like Ola or uber then also GST is chargeable.

However, metered taxi and auto rickshaws are exempt from GST including Ola Auto.

In this article, we will try to cover every point related to GST on taxi and cab services including cases when cab service is provided as part of tour package.

GST Rate

There are two options with the service provider regarding GST Rate

Option – 1: Pay GST at a rate of 5%. In this option, the person is allowed to take input tax credit of only GST paid on cab services taken from other persons. Any other GST paid cannot be taken as input tax credit and will simply lapse.

Example – ABC Ltd, a cab service provider, enters into an agreement with XYL Ltd, a corporate entity. ABC Ltd. doesn’t have its own cars, so they take cars from MNR. In the given case MNR will charge GST at the rate of 5% from ABC Ltd. and ABC Ltd. will charge GST at the rate of 5% to XYL Ltd. and ABC Ltd. will take credit of GST paid to MNR because the service provider is in the same line of business but ABC Ltd. will not be able to take credit of GST paid on telephone bill.

Option – 2: Pay GST at the rate of 12%. In this option, the person is allowed to take input tax credit of all input goods and services subject to general restrictions on the use of input tax credit.

Example – In the example given above, ABC Ltd. can take credit of GST paid on telephone bill if they pay GST at the rate of 12% on outward supply of service.

There can be a case when the customer is charged based on fuel plus service charges. In that case, GST is to be charged at a rate of 18% on service charges. No GST is applicable on fuel part in that case.

Case in which GST is payable on Reverse Charge by Service Receiver

A person who is not a body corporate and opted to pay GST at rate of 5% is not required to pay GST on providing services to a body corporate. Such body corporate has to pay GST on reverse charge basis on such services. (This rule is applicable from 1st October 2019)

For example: An individual is registered in GST and provides services to a private limited company. He is not required to charge GST in the invoice. He just charge amount for services and mention that “GST payable on Reverse charge basis” in the invoice.

Place of Supply for Rent a Cab

Place of supply for services provided to a registered person is the place of such registered person, i.e. place of the recipient. For example – A cab service provider registered in Delhi gives service to a person registered in Rajasthan in the state of Gujarat. The place of supply in such case will be Rajasthan even when the service is provided in Gujarat.

If car rental services are provided to the unregistered person, then the place of supply will be the location where the passenger embarks on the conveyance for a continuous journey, i.e. the state/UT where the passenger starts his journey.

If the right to passage is given for future use and the starting point is not known at the time of issue of the right to passage, the place of supply of such service will be location of the recipient if the address is available on record. If such an address is not available, then the location of the service provider is place of supply.

Location of Cab service provider Registration status of service recipient Location of Cab service receiver Location Where journey starts  Place of supply for the agent GST to be charged by the service provider
Gujarat Registered Gujarat Rajasthan Gujarat CGST + SGST
Gujarat Registered Rajasthan Gujarat Rajasthan IGST
Gujarat Unregistered Rajasthan Rajasthan Rajasthan IGST
Gujarat Unregistered Not known Rajasthan Rajasthan IGST
Gujarat Unregistered USA Rajasthan Rajasthan IGST

GST on Ola, Uber and drivers operating through them

GST is payable on cab services provided through Ola or uber.

Such service is covered under Section 9(5) of CGST Act. Section 9(5) states that the e-commerce operator (Ola, uber) is required to collect and pay GST to the government rather than the person who is providing cab service.

Therefore, cab drivers are not required to collect and pay GST.

Also, such drivers are not required to get registered even if the turnover is more than the specified limits. So, if a person is operating five cars through uber and has a turnover of Rs. 25 lakh then also he is not required to register.

If a driver is registered then also he is not required to collect GST for service provides via Ola.

ITC by service receiver

GST paid on rent a cab service is specifically disallowed under Section 17(5) of CGST act. Therefore, such GST paid cannot be taken as input tax credit. However, if the service receiver is also cab services provider then he can take input credit of such GST.

Corporate Service by OLA and Uber

Ola & Uber also provide cab services to corporate entities. In this case, Cab aggregators take services from cab drivers and provide it to corporate.

Cab aggregators will give fees to cab drivers and later they will reimburse it from the corporate vide issuing debit note.

Further, cab aggregators will collect commission by issuing commission invoice to corporate for providing technology aggregation services to them.

Cab aggregator will charge GST at the rate of 5% on reimbursement debit note and 18% will be charged on commission invoice.

The corporate cannot take ITC of GST paid on reimbursement debit note but they can take credit of invoice issued for commission charges for the use of Technology aggregation services of cab aggregator.

Let us understand this with an example:

Ola, a cab aggregator, has entered into an agreement to provide service to reliance industries. Ola doesn’t have its own cabs; they use aggregation technology platform by which M/s. Akash cars is able to provide cab service to Reliance Industries on behalf of Ola. The transaction will be done as follows:

Ola to M/s. Akash cars Debit note by Ola to Reliance Commission Invoice by Ola to Reliance
Trip charges 1,000 GST @ 5% 50 Total  1,050 Ola will pay 1,000 to M/s. Akash cars and pay GST to the government.     Trip charges 1000 GST @ 5% 50 Total  1,050 Ola will get reimbursement of charges from Reliance. No ITC will be available to Reliance.   Commission 200 GST @ 18% 36 Total   236 Ola will charge a commission from Reliance for using aggregation services of ola. Reliance can claim ITC of GST on the commission charged. 

Services by Tour Operators and Tour Agents           

Tour operator may provide a bundle package to its customers. For example – A tour operator gives a package of Rs. 50,000 to a person which includes hotel, cab and entertainment park tickets. Now the question is which GST rate is to be applied.

There can be four situations in this case as below

1) Tour operator sells a package and charges a flat fee –  In this case, GST rate applicable on tour package will be applicable on total charges. For example – A tour operator gives a package of Rs. 20,000 which include hotel, cab etc. then GST rate applicable on tour package is chargeable on Rs. 20,000.

2) Tour operators sells a package and charge separately for all services – In this case GST rate as applicable on services is applicable on individual services. For example – The tour operator charges Rs. 10,000 for hotels, Rs. 5,000 for cab and Rs. 3,000 for entertainment park tickets. The GST rate as applicable on the hotel is chargeable on Rs. 10,000, GST rate applicable on the cab is applicable on Rs. 3,000 and so on.

3) Tour operator sells a package and acts as pure agent for some service – In this case, GST rate applicable as per point no. 1 and 2 above. And for service for which he is acting as pure agent will be shown as reimbursement. For example, a tour operator gives a package of Rs. 30K to a client. Tour operator doesn’t include cab service in this package. On demand by the client, he contacts a cab driver and driver told him charges or Rs. 8K. The tour operator charges this Rs. 8k from the client. In this case, he is acting as a pure agent and thus he need not charge GST on such Rs. 8k. Also, he is not entitled to Input tax credit for such service. There are certain conditions to be considered as a pure agent as below

  • The payment made by the pure agent on behalf of the recipient of supply has been separately indicated in the invoice issued by the pure agent to the recipient of service.
  • The supplies procured by the pure agent from the third party as a pure agent of the recipient of supply are in addition to the services he supplies on his own account.
  • The person does not use for his own interest such goods or services so procured.
  • He receives only the actual amount incurred to procure such goods or services in addition to the amount received for supply he provides on his own account.

4) If the tour operator is giving tour package services on a commission basis to the passenger – Some tour operator books all services on behalf of passenger and charges commission for such services. GST will be leviable at the rate of 18% on such commission.

Tour operator can take input tax credit for GST paid on cab services other than in case of a pure agent.

ITC on Car Purchased by Cab Owner

Input tax credit on cars purchased is specifically prohibited under section 17(5) of CGST Act. But it is available if the purchased car is used for taxable supply of transportation of passengers. Thus, ITC on car is available for cab owners in the month of purchase.

Also, note that persons opted to pay GST at rate of 5% cannot take such input. Only persons opted to pay GST at rate of 12% can take such input.

In case of service provided via Ola or Uber and car is purchased then taking ITC on car is not possible as the driver is not required to pay GST as discussed earlier.

GST on Lease paid by the driver

Ola & Uber, cab aggregators are providing leasing of car services to its drivers. Cab aggregator buys a car and gives it to the driver on lease to use it for transportation of passengers on Ola & Uber app.

The driver will pay minimum initial deposits and daily/monthly rent to the cab aggregators. This leasing program is covered under GST. Therefore, such GST is payable on such lease amount.

For example, Ola will buy a car and pay GST on that car. Ola gives it to the driver on lease. Ola will collect daily/monthly rent with GST from drivers. Ola will get the ITC of GST paid on a car purchased as it is used for transportation of passengers.        

FAQ

What is GST rate on cab services?

GST rate on cab services is 5%. Although, service provider can opt to pay GST at rate of 12% and take benefit of availing full input tax credit.

Is RCM applicable on cab services?

A person who is not a body corporate and opted to pay GST at rate of 5% is not required to pay GST on providing services to a body corporate. Such body corporate has to pay GST on reverse charge basis on such services.

Can a person take ITC of GST paid on cab services?

A registered person cannot take ITC of GST paid on cab services. It is specifically disallowed under Section 17(5) of CGST Act.

Is GST applicable on Ola, Uber?

Yes, GST is payable at rate of 5% on ola and uber rides.

About Prateek Agarwal

Prateek Agarwal is a Practicing Chartered Accountant from Jaipur and been in practice for more than 7 years. He writes mainly about GST and Finance.


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