The ride‑hailing landscape in India is facing a growing crisis, not from market forces or competition but from conflicting interpretations of GST that continue to cloud their operations. App based mobility platforms are now warning that this GST ambiguity is stalling both innovation and fresh funding in the sector.
Changing Business Models
At the centre of the issue is the interpretation of Section 9(5) of the Central GST Act, which taxes services rendered "through" digital platforms. Traditional players, like Uber and Ola, operated on a commission model, deducting a percentage per ride and collecting 5% GST. However, several platforms are now operating on a software‑as‑a‑service (SaaS) subscription model, where drivers pay a flat periodic fee to the platform for access to technology, while passengers pay fares directly to drivers, without any GST being levied on each transaction.
This shift in business model and revenue for the ride-hailing platforms has sparked a critical debate. Do the platforms provide transportation services under GST law, or merely offer access to a technology platform as a software? The inconsistency in how this question has been addressed by different Advance Ruling Authorities has only amplified the uncertainty. In Karnataka, platforms like Namma Yatri and Myn secured rulings that held they were not liable to collect GST on the transaction amounts of the rides offered through their subscription-based setup.
In contrast, other platforms such as Uber and Rapido, operating under nearly identical subscription models, were held liable by tax authorities to continue collecting GST on the transaction values. This inconsistency of computing GST and collecting GST has created confusion across the sector, with similar businesses having contradictory tax treatment.
Further complicating matters are reports that one of the favourable rulings may be recalled due to alleged suppression of material facts. If this happens, it could set a precedent for re-examination of other rulings and undermine the already fragile confidence in the advance ruling system.
Judicial Intervention and Policy Paralysis
As the ambiguity persists, the affected platforms have sought relief through the courts. The Karnataka High Court has taken cognizance of the issue and directed the Central Board of Indirect Taxes and Customs (CBIC) to take appropriate steps to address the issue. In addition, the matter was placed before the GST Council for deliberation. However, a clear resolution has remained elusive due to a lack of consensus among stakeholders.
Meanwhile, platforms continue to adopt varying tax positions depending on their interpretations of the law and the rulings they have obtained. This has resulted in an uneven landscape where passengers using some platforms pay GST on their rides, while others do not. The inconsistency affects consumer transparency, creates pricing distortions in the market, and puts compliant players at a potential disadvantage.
The Cost of Uncertainty
For the industry, the cost of this uncertainty is significant. Plans for new product rollouts, platform upgrades, and expansion into new markets could slow down. With legal ambiguity and retrospective tax risk, companies can have a serious rethink on their investment plans. The absence of a unified tax position has also raised concerns for the exchequer. Fragmented compliance, varying interpretations, and potential future litigation are contributing to revenue leakage for the government and overall administrative inefficiency.
While the sector grapples with compliance challenges, the government too is facing its own set of risks. The inconsistency in tax application is likely contributing to revenue leakage. Without a common tax framework, platforms can exploit legal ambiguity to adopt positions favourable to them - some legitimately, others questionably. This undermines the principle of tax neutrality and complicates enforcement. The current framework also imposes a higher compliance burden on tax authorities, who must interpret similar cases differently, depending on which ARA ruling a platform is operating under.
A Call for Clarity and Consistency
Unless the GST Council or the courts clearly define the scope of “services provided through a digital platform” under Section 9(5), the uncertainty is likely to persist. A consistent framework that keeps pace with evolving business models is essential to ensure fairness across platforms, protect driver livelihoods, and safeguard government revenues.
Until then, India’s ride-hailing sector remains stuck in a regulatory traffic jam — even as the rest of the digital economy speeds ahead.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
