In this article, Sanghamitra Sengupta of SLS, Pune discusses Legal Compliances to follow while starting a taxi business in India.

With fuel prices on a rise and a liter of petrol being charged at a high amount of Rs. 75 in several states, the Indian man is now shifting to alternate and cheaper modes of commutation. It is known to all that the public transport scenario is not the brightest with overcrowding, lack of vehicles under the system and uncomfortable journeys contributing to a common man shifting to availing benefits of the Taxi Industry.

The initial set-up investment may be large and daunting but the future returns are promising as the industry is lucrative in the long run. Here are a few factors from the legal point of view that are essential to the management of a Taxi Business in India and mind you, you cannot afford to forget these.

Business Structure

As an owner of a taxi-business, you must first decide what type of a business structure you want to opt for. This decision has huge legal implications as it affects your personal liability, taxation, paperwork of the business, etc. A taxi business is no different from any other type of business, and as an owner, you have 5 choices – sole proprietorship, partnership, limited liability partnership or a private limited company. Mostly, owners of tours and travel company taxis opt for the private limited company because of the amount of credibility and possible outside funding.

Commercial driving license

It is a well-understood fact that before you drive a vehicle, you must obtain a driving license which will permit you to do so. If you go ahead and drive the vehicle without obtaining a license, the chances are that you may soon find yourself embroiled in a legal mess. A driving license is issued by the Regional Transport Authority (RTA) or Regional Transport Authority (RTO) of a particular state, and it is absolutely necessary to have the license, as per the Motor Vehicle Act.

How to get a Commercial driver’s license for driving a taxi

Now, a commercial driving license is one which is awarded to those drivers who wish to drive commercial vehicles. Taxi drivers, falling under the ambit of commercial drivers, must opt for a commercial driving license.

Criteria for obtaining a commercial driving license

• Driver must be of minimum 18 years of age. In some states, the minimum requirement of age is 22.
• Driver must be at least educated up to Class 8. It must be ensured that the driver possesses enough intelligence to read and understand road signs
• A learner’s license is necessary. Before obtaining a commercial driver license, the driver must learn how to drive and pass a written test to obtain a learner’s license.
• Training from a Government Motor School is essential.
• The application for the license can be made through online/offline modes along with the necessary documents. An online application can be made here.
• A driving test is necessary to assess the driver’s skill to award the license to him.
• A medical certificate will also have to be provided by the driver

Documents required for application for a commercial driving license:

• Identity Proof (Passport, Aadhar, PAN Card, Birth Certificate or 10th-grade mark sheet)
• Address Proof
• Multiple passport size photographs
• Application fee

Obtaining permits as per the provisions of Motor Vehicle, Act

Section 66

Section 66 in the Motor Vehicle Act, 1988 makes it compulsory for the owner of a transport vehicle, whether it is transporting goods or people, to obtain a permit from the Regional or State Transport Authority. Both driver of the vehicle and owner can be held liable and be punished under Section 192A of the Motor Vehicle Act if the vehicle is operated as a transport vehicle without obtaining a permit.

Section 73

Section 73 in the Motor Vehicle Act, 1988 deals with ‘contract carriage permit’ and mandates a taxi owner to submit an application to the Regional Transport Authority to grant a permit to carry passengers under a contract to a fixed destination within or outside the state. The authority can decide through this permit the specific routes or roads on which the taxi may ply, the maximum number of passengers and luggage that may be loaded to the taxi, specific rates or fares that may be charged, provision of a taximeter in the taxi, etc. The 5 seater local taxis which you notice plying on the roads have to apply for this permit to the Regional Transport Authority.

Section 84

Section 84 of the Motor Vehicle Act, 1988 spells out all the conditions that are necessary to justify the grant of permit to a taxi. For instance, 84(c) states that a taxi driver with a permit must only charge fares as fixed by the State Government. He may also not drive at a speed exceeding the prescribed speed limit in the Act. If provisions of Section 84 are not fulfilled, the permit may be revoked by the Regional Transport Authority.

All India Permit

Taxi owners can choose to obtain an All India Permit under which, there is the All India Tourist Permit (AITP). An application must be made to The Transport Authority along with the prescribed legal fee. A vehicle granted such a permit must have “Tourist Vehicle” painted on both sides of the vehicle and a board stating that the vehicle has an AITP must be hung above the number plate. Such taxis can only carry tourists and not common commuters. The judgment in the case Satish N vs. State Of Karnataka clearly laid down that if a vehicle with an AITP was found to be carrying common commuters, the vehicle would be detained. The following documents must be submitted along with the application to The Transport Authority:

• Registration Certificate for the vehicle.
• Fitness Certificate of the vehicle.
• Insurance Certificate for the vehicle.
• Proof of payment of tax for the current Quarter to the Home State.

For the issuance of all these permits, one may visit either the State Transport Authority or the Motor License Officer of your city, with the required permit fee and application. The permit granted could be local or natural thus deciding the applicability of the permit in the country. Every local permit has a period of applicability, usually 5 years, after which, reapplication is required.

Motor Vehicle Act, 1988

Section 39 – Registration of vehicle

This section makes it mandatory for every motor vehicle to register his motor vehicle before driving it. It also implies that if the owner of the vehicle lends or rents it out to someone for the purpose of driving, he must ensure that such motor vehicle is registered. Owner of the motor vehicle will be prosecuted even if he wasn’t the one driving it. This makes it clear that owners of taxi businesses, if not owners of the cars under their business, must ensure that such cars are registered before letting them ply on roads.

Section 56 – Fitness Certificate

This section mandates procurement of a fitness certificate for every transport vehicle. The certificate may be issued by an authorized testing station or a prescribed authority after ensuring that the transport vehicle complies with all the requirement of the act. The authorized testing station is basically a service station which could be private or public. The certificate is valid throughout India.

Section 146 – Insurance against third party risk

This section necessitates insurance of the motor vehicle in use against any third party risk. Insurance is necessary to keep your business running smoothly. This insurance will prove to be a safeguard for circumstances where the owner of a motor vehicle accidentally causes harm, damage or even death to a third party. The third party does not actually include the passenger in the owner’s vehicle. But, since taxis are public vehicles, the passenger in your taxi will be a third party and hence, securing insurance for the vehicle is necessary. Do it, because, your taxi is not just your vehicle but also your livelihood.

Taxation norms

• Before GST came into force, service tax was applicable on radio taxis and AC buses. Radio taxis are taxis which are in two-way communication with a central control office and are enabled for using GPS or GPRS tracking system.
• This essentially includes cab aggregators like Uber and Ola. The same practice continues now that GST has come into force; metered taxis will not be liable to GST. If you are an owner of a cab aggregation in India, then, 5% GST is to be charged on the fare from the passenger.
• Before the emergence of GST, the service tax was 6% on the fare. It must be noted that if you have leased cars and for your business and are not the true owner, then, the driver will have to pay 28-43% of tax along with the rent of the vehicle.
• This goes on to show that GST and the new taxation norms pose numerous problems to taxi companies and drivers due to the large increase in the lease payments.
• This, in turn, increases the costs incurred by a taxi company, forcing drivers to look for employment elsewhere.

Environmental regulations

As a taxi business owner, you must ensure that you’re aware of all the norms imposed in the city/state with regards to the environment. For instance, in the city of Delhi, only taxis running on CNG are allowed to ply on roads. It is very important to run taxis as per the environmental regulations to not run into a legal dilemma.

Finances

Funding a business all by yourself can be a taxing and frustrating task. You may want to expand your business by buying more cars, or you may be a driver who is interested in buying a car and operating it as a taxi. The fear of large costs involved acts as an obstacle to business expansion or entry in an industry but banks these days have made the job easier by providing attractive loans.

• A down payment will have to be made, at the outset of the purchase of the car, which will be used in the taxi business.
• An installment repay plan is chalked out by the bank extending the loan. This plan could decide on a weekly repayment plan where the business repays the bank by deducting a predetermined amount from the income of the business. In case of cab aggregators, the bank could chalk out a plan, where the installment amount is deducted from the driver’s income. Repayment could also be through post-dated cheques.
• There is usually no requirement for collateral security or third party guarantee
• The bank could have eligibility requirements for granting of the loan in the form of minimum years of business experience, minimum number of taxis, etc.
• Usually, specific rate of interest is levied on the loan, keeping in mind the customer profile of the business, tenure of loan
• The bank may require the taxi to be hypothecated to the bank
• A guarantor may also be required by the bank extending the loan

What is a radio taxi scheme?

Various state governments have enacted a radio taxi scheme, under Section 74 of the Motor Vehicle Act. Different from the traditional taxis, the general public can commute in a radio taxi by a) making a request on a phone call by dialing their phone numbers b) by hiring the taxi from a designated location c) by stopping the taxi on the road. Online orders cannot be made.

• Only a registered company under the Companies Act, 1956 or a society registered under the Societies Registration Act, 1860 can register under this scheme.
• The State Transport Authority (STA) provides the permit
• Permit is initially granted for 5 years
• The radio taxis will be allowed to ply within the territorial jurisdiction of the municipal corporation for which the permit has been obtained.
• The licensee must be financially sound to run the radio taxi operation and must have sufficient experience of transport business.
• The licensee must ensure sufficient parking space for all taxis and possess adequate office space for control of radio communication.
• The licensee should also have a minimum fleet of radio taxis. This requirement is different for different states. For instance, UP requires a fleet of 10 taxis whereas Delhi-NCR requires a fleet of 500 taxis, within 1 year of commencement of operations.
• Working hours of drivers must be in accordance with the rules laid down in the Transport Workers Act, 1961

List of documents required while making an application

• Address proof, attested by a gazetted officer (Ration card, Voter ID card, Passport, Electricity Bill)
• Proof of financial status
• Affidavit sworn before a notary for any statement made in the application
• Self-signed passport photo
• Fee payment receipt
• Copy of the registration certificate of the vehicles

What are cab aggregators in the taxi industry?

Cab aggregators fall under the taxi industry but are very different from the traditional taxi companies or radio-taxi companies. Let’s divide taxi businesses into two for better understanding, and through this division, we will answer one important question which is, ‘Do taxi companies own the taxis?’

Taxi business where taxis are owned by the company

An outdated and traditional model, this particular business is facing a setback due to its scalability. For instance, Meru Cabs, India’s first radio taxi service company in India, when established in 2007 owned its own fleet of cars. Soon, Meru Cabs changed its strategy, and now, over 50% of its cars are owned by the drivers, themselves, and not Meru. The drivers are salaried employees in this model of business. Large costs are attached to this model in the form of car loan EMIs, high maintenance costs, driver strikes, etc.

Taxi businesses where taxis are owned by the drivers

• This model is highly scalable and prevalent in most countries, including India. Ola, for instance, started with this model in India, where small fleet owners or even single car owners could just put the company brand on its car and get registered with the company.
• The model is better known as taxi/cab-aggregation. Drivers have to pay a fixed commission for every ride they undertake because of the company.
• The model, as evident, includes very low capital expenditure and maintenance costs. These companies don’t particularly want to be governed by the provisions of the Motor Vehicle Act, 1988.
• As their bookings are made online, they wish to be governed by the Information Technology Act, 2000 (IT Act). The City of Bidhannagar in Kolkata is the only city in India that has permitted online taxi aggregators to be governed by the IT Act. The Delhi Government too amended the Radio Cab Scheme to include these taxi aggregators within its purview and allowed these taxis to ply.

Conclusion

There are various other factors such as choosing wise drivers, investment in the business, garage facilities, etc. that play an important role in the establishment of a taxi business. But, without fulfilling these legal requirements, the business is bound to fail.