GST Ambiguity for Ride-Hailing as New Levy Hits Food Delivery

The Indian business landscape is witnessing significant shifts and ongoing regulatory questions, with the GST Council recently recommending an 18 per cent levy on local food delivery services, while ride-hailing applications continue to seek clarity on Goods and Services Tax (GST) applicability for passengers under their evolving subscription models. 

New GST Levy for Food Delivery Services

The GST Council, at its 56th meeting, recommended an 18 per cent levy on local delivery services facilitated by e-commerce operators (ECOs) such as Zomato and Swiggy. This new tax is in addition to the existing 5 per cent GST already collected by these aggregators on behalf of restaurants. It is widely expected that this additional cost will be passed on to users of food aggregator apps. Zomato and Swiggy, however, argue that contractually, the delivery service is provided by their delivery partners directly to customers, rather than by the platforms themselves.

Persistent GST Ambiguity for Ride-Hailing Apps

In contrast, ride-hailing apps like Uber, Rapido, and Ola continue to await official clarification on whether GST applies to passengers under their subscription models. In this model, drivers pay a periodic fee either daily or weekly for platform access, a fee that is subject to an 18 per cent GST. Unlike the traditional commission-based model, where a 5 per cent GST is applied to rides, the subscription model typically sees passengers settling fares directly with drivers in cash or via UPI, without a 5 per cent GST being levied on the passenger.

This shift to the subscription model has gained considerable traction. Uber, for instance, adopted this model for auto-rickshaw rides in February this year, following in the footsteps of rivals such as Namma Yatri, Rapido, and Ola. The subscription model is designed to attract more drivers by offering fixed fees instead of commissions, which can consume up to 30 per cent of a driver's daily earnings. For passengers, this often translates to cheaper fares, as the 5 per cent GST is not levied on them. Namma Yatri, developed by Juspay Technologies in partnership with Bengaluru's Auto Rickshaw Drivers' Union (ARDU), pioneered this approach, launching for autos in September 2023 and expanding to cabs in April 2024. Rapido introduced similar subscription plans for cab drivers in December 2023 and for autos in February 2024, with Ola following suit in April 2024 for autos across several major cities, and extending to cabs in June.

Despite the widespread adoption of this model, legal ambiguity regarding the 5 per cent GST liability persists, with arguments that apps are still providing a service to passengers. This uncertainty is further highlighted by conflicting rulings from the Karnataka bench of the Authority for Advanced Ruling (AAR). In November 2024, the AAR ruled that Uber remained liable to collect and pay 5 per cent GST under the subscription model, even when it does not directly collect payment from passengers. However, an earlier ruling in September 2023 by the same bench stated that Namma Yatri was not required to collect GST from passengers, based on the premise that it merely connects drivers to passengers without direct involvement in the transport service. Uber, a significant player in the four-wheeler segment, has not yet adopted the subscription model for cabs, though this could change soon, given intensifying competition and the lack of clear GST guidance.