Every morning, before most of urban India has stirred, a delivery rider in Mumbai or Bengaluru straps on a helmet, checks the charge on a borrowed smartphone, and logs into an app that will decide the rhythm of his next twelve hours. He owns no shop, holds no inventory, issues no invoice, and has never heard of a GST return. NITI Aayog estimates 7.7 million such gig workers in 2020–21, projected to reach 23.5 million by 2030.
Forty-three percent earn under ten thousand rupees a month. These are not businesses. These are people. Yet, through a series of regulatory moves and advance rulings, our tax system is steadily closing in on this invisible workforce.
The Organisation of Economic Co-operation and Development (OECD) addressed this question in its 2021 report, “The Impact of the Growth of the Sharing and Gig Economy on VAT/GST Policy and Administration.” The central insight is that tax policy must ensure that millions of micro-operators are not dragged into the VAT/GST net. Instead, it must leverage the platform, the entity that already collects data, processes payments, and controls the transaction architecture, as the primary point of tax compliance. The OECD grounds this in the Ottawa Taxation Framework Conditions: neutrality, efficiency, certainty, simplicity, and fairness. A cab driver earning fifteen thousand rupees a month is not a small business. He is a worker using someone else’s infrastructure.
The OECD’s recommended solution, the “full VAT/GST liability regime,” treats the platform as the deemed supplier, bearing the obligation to collect and remit tax. Over seventy jurisdictions have adopted this architecture.
India anticipated this principle through Section 9(5) of the CGST Act, 2017, which shifts the tax liability from the actual service provider to the e-commerce operator for notified categories: passenger transport (Uber) , restaurant services (Swiggy/Zomato), accommodation (OYO), and housekeeping (Urban company). The actual service provider is entitled to the registration threshold exemption. The 56th GST Council meeting in September 2025 extended this framework by notifying e-commerce operators as liable to pay GST on local delivery services where the delivery partner is unregistered. However, a slight anomaly has emerged in the rate structure.
While passenger transport services supplied through e-commerce operators attract GST at five per cent, local delivery services have been notified at eighteen percent. Input tax credit is admissible on the eighteen percent rate, which offers some relief to the platform. But the differential raises a legitimate question of neutrality: if both services are supplied by similarly placed gig workers through digital platforms, the tax burden ought to reflect comparable economic logic.
There is also an obvious gap in coverage that creates a different kind of distortion. Beauty and salon services, one of the fastest growing segments of the platform economy, remain outside the notified list. The same 56th GST Council reduced the rate on salon and wellness services from eighteen per cent to five per cent without input tax credit, effective 22nd September 2025.
When a customer walks into a registered neighbourhood salon, five per cent GST is charged on the bill. But when the same customer books an identical service through an e-commerce platform, no GST is collected at all, because the platform has not been notified under Section 9(5). The result is a clear competitive disadvantage for the brick-and-mortar salon. Notifying beauty and personal care services under Section 9(5) would remove this distortion and generate meaningful revenue buoyancy.
The cracks extend beyond rates and coverage. In a series of advance rulings from the same authority, identical economic services have received opposite tax treatment depending on how the authority interprets the business model. In one ruling, a ride hailing platform operating a subscription model, where it does not collect the ride fare and the passenger pays the driver directly, was held liable under Section 9(5).
Tax should not be a barrier to innovative business models. The subscription model is a market response to the exploitative economics of commission-based aggregation. It empowers the driver, reduces intermediation costs, and offers consumers lower fares. Penalising this model through an expansive reading of Section 9(5) does not protect revenue but would stifle innovation.
The OECD explicitly cautions against approaches that treat gig workers as traditional businesses and recommends minimising the number of new actors dragged into the VAT/GST system. Business models should evolve on the basis of service quality and consumer demand, not tax arbitrage.
Our approach must be guided by two imperatives. First, Section 9(5) must be anchored in functional control, not in the form of the business model. If a platform collects consideration and controls the transaction, it should be liable. If it merely connects a service provider and a customer and earns a subscription fee, it should not.
Second, the coverage of Section 9(5) must be expanded purposefully: high growth platform segments like beauty and personal care services should be brought within its ambit to remove distortions and enhance revenue without burdening individual service providers. The gig economy is not a problem to be taxed into submission. It is a labour market reality that demands policy sophistication.
—The author, Siddharth Jain is a former IRS officer. The views expressed are personal.
Source: CNBC TV18
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