Overview
The Goods and Services Tax (GST) in India impacts ride-hailing services significantly, depending on whether they operate under traditional commission-based models or the newer subscription-based models. Understanding the flow of input and output GST in these models is crucial for aggregators to manage financial liabilities and compliance effectively. Here, we analyze both models to illustrate how GST is applied and the resulting financial implications.
Traditional Commission-Based Model
In the traditional model, cab aggregators like Ola and Uber collect fares from passengers and pay a portion to the drivers, retaining a commission. The GST implications are straightforward: the service of transport provided through the platform is subject to GST, which the aggregator collects and remits to the government.
Table 1: GST Flow in Traditional Model
| Component | Description | GST Impact |
|---|---|---|
| Fare Collected | Total fare paid by the customer. | Output GST collected from customer. |
| Commission | Percentage of fare kept by the aggregator. | Input GST on expenses; Output GST on commission. |
| Payment to Driver | Fare minus commission paid to the driver. | No GST charged to driver (service provider to customer). |
Example:
- Fare Collected: ₹100 (includes GST @ 5%)
- Commission (20%): ₹20 (GST on commission @ 18% = ₹3.60)
- Payment to Driver: ₹80
The aggregator must remit GST on the commission earned while the GST on the fare (minus commission) effectively passes through to the driver as part of his income, although he does not directly interact with the GST component.
Subscription-Based Model
In the subscription model, drivers pay a fixed fee to be listed on the aggregator’s platform, and customers pay the drivers directly. The aggregator does not handle the fare and thus, the GST treatment focuses on the subscription fees.
Table 2: GST Flow in Subscription Model
| Component | Description | GST Impact |
|---|---|---|
| Subscription Fee | Fee paid by drivers for platform listing. | Output GST collected from drivers on fee. |
| Fare Collected | Fare paid directly by the customer to the driver. | No GST collected by the aggregator; driver’s service is GST-exempt. |
Example:
- Subscription Fee: ₹300 per week (GST @ 18% = ₹54)
- Fare Collected by Driver: ₹1000 per week (No GST collected, as auto-rickshaw transportation is exempt)
Here, the aggregator is responsible for the GST on the subscription fee only. The benefit is that drivers may claim GST credits on the subscription fee against any GST they may have to pay on other inputs related to their service, although typically, their service remains exempt from GST.
Analytical Insights
Input Tax Credit (ITC) Utilization:
- Traditional Model: Aggregators can claim ITC on GST paid on services and goods used to facilitate the commission-based service (e.g., software licenses, office supplies). However, the tax on commissions can be high, impacting cash flows.
- Subscription Model: Aggregators collect GST only on the subscription fee, which is generally lower than commission-based earnings, potentially reducing overall GST liability. Drivers do not have significant ITCs to claim due to the exemption on their services.
Output Tax Liability:
- Traditional Model: Includes GST on full fare value, which can be substantial but is passed through to the driver.
- Subscription Model: Limited to the subscription fee, resulting in lower overall GST payments to the government.
Conclusion
The shift to a subscription-based model can simplify the GST process for aggregators by limiting their GST liabilities to the fees they charge drivers. For drivers, the direct transaction with customers under the exemption for transportation keeps the process straightforward without additional GST burdens. This model benefits all parties by reducing the complexity of GST calculations and potential cash flow issues related to tax payments. However, aggregators must be aware of compliance requirements and ensure accurate GST collection and remittance based on their business model.
