In this article, Nandhini Ramakrishnan pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata discusses on how to start a taxi business in India.
Until a few years back, Taxis were used by the common man as a mode of luxury not necessity. Taxis were not affordable for the poor and lower middle class people until recently. Due to modernization and digitalization, almost every other man in the country possesses a smart mobile phone. Availing this opportunity, and making use of the technology, companies like Ola, Uber, Taxiforsure, etc. have entered into the market through the hands of the common man, making taxi rides easier and affordable to all classes. To avoid the congestion of public transport and to gain comfort, the common man prefers the taxis/ cabs, thereby making it one of the beaming markets in the country. The citizens, who are rich enough to own a car, prefer taxis for the sake of convenience and non requirement to appoint a driver separately. The technology has made us avail a taxi at the ease of home, a phone call away/ use of app/ other options.
Structuring the Business
To begin taxi business in India, one has to first look into the business type suitable for him/ her.
- If it is going to be sole proprietorship, then the compliances to follow for setting up are much less. But the risk of loss in the business will sound scary as one single person has to bear all the losses.
- If the business structure is partnership, then one has to ensure that a registered partnership agreement with detailed clauses as to everything including liability, share of profit and loss, etc is in place. A partnership firm may be registered with the Registrar of Companies by making an Application under Section 58 of the Indian Partnership Act.
- If the business structure is a Limited Liability Partnership, wherein the liability of partners is limited, the same requires registration with the Registrar of Companies. The process of incorporation of a limited liability partnership is entirely online. An LLP agreement must also be executed during the registration process.
- If the business structure is a Company, then it requires a detailed registration and incorporation process. The company must have its own Memorandum of Association and Articles of Association which also must be filed with the Registrar of Companies. A Public Limited Company can raise funds from the public whereas the investor has to make the entire investment in a Private Limited Company. One – Person Company is also a gradually developing trend which was introduced in the Companies Act, 2013.
Hence, one has to make a detailed analysis on the structure of business to be chosen for starting taxi business. The factors that one must look upon include the size of business, capital availability, risk sharing capability, compliance requirements, etc., while structuring the taxi business.
Types of Taxi Business
There are typically two types of taxi businesses – Traditional & Radio Taxis.
Traditional Taxi business is losing its hold in India. Examples of traditional taxis business include (1) individual taxis & (2) organizations owning a number of cars & thereby running taxi business (Eg. Fast Track Call Taxis, Meru Cabs, etc.). This kind of traditional taxi business is not preferable at this point in time and people tend to prefer the modern type i.e. Radio Taxis due to ease of access.
Radio Taxis contain GPS installed systems wherein the taxis are booked online and the taxi driving route is traceable. Examples of Radio Taxis include Ola Cabs, Uber, etc. which uses the online platform/ app based platform for booking.
It is the Motor Vehicles Act which governs the taxi business in the country. However, with the advent of technology, since the taxi business is making it possible for people to book taxis online, it would be better if the scope of Information Technology Act is widened and the radio taxis come under the preview of the Information Technology Act. Usually in Radio Taxi type, it is the drivers of the taxi who own the vehicle, unlike the traditional type. The drivers will receive the consideration for the taxi ride and pay a percentage of the same to the company which co-ordinated and scheduled the taxi rides.
Registration & Obtaining Permits for Vehicles
Registration Process and Required Compliances
Purchase, registration and obtaining permits for the taxis/ vehicles will be a herculean task during the initial stages of setting up the taxi business.
While purchasing cars for the purpose of taxi business, one has to ensure that the cars are of taxi-type and economically affordable.
Once purchased, the vehicle needs registration before the District Transport Office/ Regional Transport Office (as it is called in that particular State) within 7 days from the date of purchase of the vehicle as mandated under Section 39 of Motor Vehicles Act, 1988.
The transport authority provides the owner with the registration certificate. It is an offence to drive unregistered vehicles which attracts a penalty of Rs.2000/-.
The portals and Application forms differ with respect to the Transport Authority in the particular state where the vehicle was purchased.
The taxi needs to be insured with, so that it will be useful if any harm or damage is caused to a third party by the taxi. Vehicle insurance can be obtained from various insurance companies by filling in their Application forms and complying with the various mandatory procedures as stated by the insurance companies.
It is to be seen to it that the car has complied with all the environmental clearances as required by the State Authorities.
Not all cars can be used for taxi business. Certain vehicle permits are required to transport people/goods from one place to another. Hence, permit for transporting people must be obtained from the Regional Transport Office/ State Transport Office by submitting forms as required under the respective procedures.
Contract of carriage of passengers
Further, an Application must be made with respect to contract carriage of passengers i.e. the owner/ driver carries the passengers under a contract to a particular place for a particular sum. The Application has to be filed in accordance with Section 73 of Motor Vehicles Act, 1988 as per which the type & seating capacity of the taxi, the area in which the taxi is going to operate and other such details as prescribed by the State Authorities.
Further, in accordance with Section 84 of the Motor Vehicles Act, 1988, every vehicle should carry a fitness certificate from an Authorized Testing Station. The vehicle should be maintained properly as mandated under the provisions of the Motor Vehicles Act. The speed limit of the taxi varies from state to state. Usually, the speed limit for taxis is about 50 to 65 km/hr. The name and the address of the operator of the vehicle shall be painted or affixed on the taxi.
All India Tourist Permit
If the taxi is to ply from state to state, then a permit called All India Tourist Permit is required for the said taxi. The All India Permit may be obtained by making necessary application before the Transport Authority after properly analyzing the same. The number plate of taxi for which All India Permit is granted should contain that the taxi has All India Tourist Permit. The taxi which has been provided with All India Transport Permit cannot be used for local purposes i.e. it cannot carry passengers locally.
Drivers, their Licenses & their Work Hours
The driver of taxis should obtain commercial vehicle driving license from the Regional Transport Office of that particular state. In order to obtain commercial driving license, the taxi driver should qualify certain basic requirements such as 18 years of age, should have completed at least Class 8, should get training from a Government Motor School and should pass a written test and driving test. The taxi driver should also submit a medical certificate regarding his/ her physical and mental fitness. The commercial driving license will be granted by the Regional Transport Authority after analyzing all the above factors and consideration of the Application.
The work hours for a taxi driver shall be as provided under Motor Transport Workers Act, 1961. Section 13 of Motor Transport Workers Act, 1961 provides that an adult motor transport worker shall not work for more than 8 hours per day or 48 hours in a week. If the taxi business involves driving long distances, etc., then the employer shall obtain permission from the prescribed authority, with whose permission the driver may be allowed to work for an extended period but not more than 10 hours a day and 54 hours a week.
To be precise, if any new startup is looking forward to start taxi business in the country, they have to first choose the business structure, then purchase cars suitable for taxi business, subsequent to which one has acquire permits for the cars (if the cars are to be owned by the company), ensure if the drivers have obtained commercial driving licenses for driving taxis and thereafter step into the field of taxi business. It is advisable that, any new venture into the taxi business may take the route of Radio Taxis, since the same is thriving in the market presently and looks like it will have a booming market in the near future as well and to state further, it is being highly preferred by the common man, due to ease of access.