On 28th February, 2015, the Finance Minister of India, Mr. Arun Jaitley presented the Union Budget for the Financial Year 2015-2016, causing a commotion in the service industry of the economy. Increasing the service tax from 12.36% to 14%, another major proposal in the bill was to add the services provided by the 'aggregators' under the service tax ambit w.e.f 1st March 2015.

The term 'Aggregator' is defined as a person, who owns and manages a web based software application, and by means of the application and a communication device, enables a potential customer to connect with persons providing service of a particular kind under the brand name or trade name of the aggregator. For example, if X brand provides airlines' services in India via a web based software provider under its brand name which shall help it to connect to X's customers in India, then that software provider would be an aggregator. "Therefore, making an aggregator an intermediary between the airlines brand and the customers. The aggregator would thus be a 'service receiver' and the airlines company (brand) would be the 'service provider' in this contract of service."

The word 'brand name' or trade name in reference to the aggregator has been defined as a "brand name or a trade name, whether registered or not, that is to say, a name or a mark, such as an invented word or writing, or a symbol, monogram, logo, label, signature, which is used for the purpose of indicating, or so as to indicate a connection, in the course of trade, between a service and some person using the name or mark with or without any indication of the identity of that person."


Reverse Charge Mechanism (herein after mentioned as RCM) is not a new concept in the Service Industry. It is a concept applicable when the service receiver has to pay taxes for the services he availed for. In that case, the service receiver registers himself with service tax authorities and files the required returns. Services provided by the legal industry are already working on this model. One more addition to this model shall be the services provided by the Aggregators. Vide Notification No. 30/2012- Service Tax dated 20th June, 2012, the onus to pay 100% service tax with regards the services provided or agreed to be provided by a person involving an aggregator in any manner is on the Service Receiver, making the Aggregators wholly liable to pay the tax.

In case where the aggregator does not have any physical presence in the taxable territory, any person representing the aggregator for any purpose in the same territory shall be liable for paying the service tax. And, in case the aggregator does not have any representative in the territory, the aggregator will be required to appoint a person for the purpose of paying the service tax."1


Vide this amendment, all ecommerce goods, websites, online shopping and their shipping will now attract service tax. Service tax will also be imposed on online and mobile advertising while supply of manpower services and security services have been brought under the full RCM. The Budget is likely to affect the financial stance of the companies even more because at present, most of them are offering significant discounts to their customers in an effort to beat competition in a growing market.

Amongst such online app based companies are Uber and Meru, which are drastically cutting prices to stay upbeat in the market. According to the Association of Radio Taxis, there are 19 radio taxi operators in the country, including Mega Cabs, Easy Cabs, Meru Cabs, and Tab Cabs etc. These operators run over 25,000 cabs across India. In the recent months, these taxi services market, though suppressed under the financial stress, have gained rapid investment from global investors, primarily because the radio taxi model has emerged as the fastest-growing and most reliable form of public transport. There are about 6, 00,000 taxis in India which generate a combined annual revenue of about Rs 11,000 crore. But even though big global investors like Japan's Softbank Corporation, have minted money into this growing sector, the latest development may force taxi service aggregators to stay in the red a bit longer. All aggregators including Flipkart, Snapdeal, Amazon etc would be now be liable to pay service tax under this amendment, along with online services providers such as Quikr, Zomato, FoodPanda, Olx, Housing, Mydala, Cashkaro and Stayzilla.

Soon, booking a cab through these online aggregators such as Ola, Meru, Uber and TaxiForSure is likely to be more expensive than usual. Also, going for a movie, ordering flowers, or even getting anything online is bound to get costlier.


1. Service Tax (Amendment) Rules, 1st March, 2015 Notification No. 5/2015-Service Tax

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