Gig-Worker Levy: Unanswered Tax Questions Before Section 114 Kicks In

Summary: The article examines the proposed social-security contribution payable by aggregators covered by the Seventh Schedule to the Code on Social Security, 2020, under section 114(4). The contribution is set at 1% to 2% of annual turnover, subject to a ceiling of 5% of amounts paid or payable to gig and platform workers, with the applicable rate and commencement date awaiting notification as at 18 October 2026. Rule 49 of the Social Security (Central) Rules, 2026 provides for provisional assessment and payment by 30 June, followed by an audited final return and balancing payment by 31 October. The article considers how turnover may differ between agent-model marketplaces and inventory-based platforms under Ind AS 115, and how exclusions for Central taxes and levies affect the calculation. It argues that the contribution should ordinarily qualify as business expenditure under section 34 of the Income-tax Act, 2025, while identifying uncertainty over whether the actual-payment restriction in section 37 applies. It separately examines the potential deductibility of compensatory interest, premature payments and the distinction between statutory contributions and CSR expenditure. On GST, it distinguishes the contribution itself from amounts separately recovered from customers, which may form part of the taxable value of platform services and increase recorded revenue. It contrasts the statutory fund contribution with voluntary NPS payments into individual workers’ accounts. Finally, it recommends documenting turnover methodology, worker payouts, payment timing and invoice treatment before the rate and commencement notifications are issued.

Brief: Aggregators in the categories listed in the Seventh Schedule to the Code on Social Security, 2020 will have to pay 1% to 2% of annual turnover into a fund for gig and platform workers once the Central Government notifies the rate and the start date. Neither has been notified yet, but the Social Security (Central) Rules, 2026 already fix the payment calendar. This article examines how “annual turnover” is measured, whether and when the contribution is deductible under the Income-tax Act, 2025 and how GST applies if platforms pass the cost on.

1. Introduction

The Code on Social Security, 2020 came into force on 21 November 2025. The Ministry of Labour and Employment notified the Social Security (Central) Rules, 2026 (the SS Central Rules) by G.S.R. 344(E) on 8 May 2026, and they took effect the same day. Section 114(4) of the Code requires aggregators to contribute between 1% and 2% of their annual turnover to a fund for gig and platform workers. The rate and the start date are left to notification. As on 18 October 2026, no notification under section 114(4) or section 114(5) appears in the e-Gazette.

Coverage of the levy so far, including TaxGuru’s overview of the Labour Codes, has dealt mainly with worker registration, data sharing and the welfare schemes the money will fund. The tax side has had less attention, though it decides what the levy costs a platform after tax and what customers end up paying.

The tax questions cannot wait for the notification. Rule 49 of the SS Central Rules already sets out when the contribution is assessed, paid and reconciled, and those dates sit close to the income tax return calendar.

The sections below take up the turnover base first, then the deduction and its timing under the Income-tax Act, 2025 and then GST. The article closes with steps aggregators can take before the notification arrives.

2. The levy in brief

Section 114(4) sets the contribution at a rate between 1% and 2% of the aggregator’s annual turnover. A proviso caps it at 5% of the amount paid or payable by the aggregator to gig and platform workers. The aggregator pays the lower of the two figures.

The obligation applies only to aggregators in the nine categories of the Seventh Schedule, the last of which is “any other goods and services provider platform”. Other parts of section 114 matter for tax purposes:

• The Explanation excludes from annual turnover any tax, levy and cess paid or payable to the Central Government.
• An aggregator with more than one business is treated as a separate aggregator for each business. Each business line has its own turnover base and its own cap.
• Section 114(7)(ii) allows the Central Government to exempt an aggregator or a class of aggregators by notification.

Rule 49 of the SS Central Rules supplies the machinery. Under Rule 49(3)(a), the aggregator assesses the contribution in Form XX and pays a provisional amount for the preceding year by 30 June. Under Rule 49(3)(b), once its accounts are audited, it files a final return in Form XXI and pays any balance by 31 October. Excess payments are refunded within 90 days under Rule 49(3)(c). Rule 49(2) charges interest at 1% for every month or part of a month on late or short payment.

3. What counts as “annual turnover”?

The Code does not define “annual turnover”. Rule 49(3)(b) ties the final return to the audited statement of accounts prepared under the Income-tax Act, 2025, the Companies Act, 2013 or the Limited Liability Partnership Act, 2008, so the figure will in practice come from the financial statements. For a company, section 2(91) of the Companies Act, 2013 defines turnover as the gross amount of revenue recognised in the profit and loss account from the sale, supply or distribution of goods or from services rendered.

That makes the accounting treatment decide the base. A marketplace that acts as an agent under Ind AS 115 records only its commission and fees as revenue. An inventory-model platform that buys and resells records the full sale value. Entry 4 of the Seventh Schedule covers both models, so two platforms with the same order volume can face very different contributions. The 5% cap narrows the gap only where payouts to workers are small compared with turnover.

The Explanation raises a second point. It excludes only taxes, levies and cesses payable to the Central Government. Under Ind AS 115, GST collected from customers is an amount collected on behalf of the government and stays out of revenue anyway, so State GST should not swell the base in practice. The narrow wording matters more for State-level levies that a platform recovers from customers and books as revenue. On a literal reading, such levies stay inside the turnover base.

Section 9(5) of the CGST Act needs a separate look. E-commerce operators have paid GST on restaurant services supplied through them since 1 January 2022. From 22 September 2025, Notification No. 17/2025-Central Tax (Rate) added local delivery services where the delivery partner is not liable to register. The operator is treated as the supplier for GST, but that deeming does not change its revenue in the accounts. A food delivery platform that acts as the restaurant’s agent does not add the value of the food to its turnover merely because it pays the GST on that food.

4. Income tax: is it deductible, and when?

4.1 Is the contribution deductible?

The contribution is paid because the platform carries on its business, and it is neither capital nor personal in nature. It should be allowable under section 34 of the Income-tax Act, 2025, which corresponds to section 37(1) of the 1961 Act. It is charged on turnover, so it is not a tax on profits.

4.2 Timing and section 37

The harder question is timing. Section 37 of the 2025 Act, which replaces section 43B, allows certain sums only in the year they are actually paid. Section 37(2)(a) covers any “tax, duty, cess, surcharge or fee, by whatever named called, levied under any law in force” (“named” is as printed in the official text). Section 37(2)(b) covers an employer’s contribution to any fund for the welfare of employees.

Clause (b) is unlikely to apply. The Code defines gig and platform workers as people who work outside a traditional employer-employee relationship, so the aggregator is not their employer.

Clause (a) can be argued both ways. The contribution is compulsory and fixed by statute as a share of turnover. It is collected by a designated authority and credited to the Social Security Fund under section 141, and the aggregator gets no specific service in return. Those features point towards a levy, and clause (a) looks past labels, so the word “contribution” does not decide the matter. On the other side, Chapter VIII of the same Code calls the building workers’ levy a “cess”, with a similar band of 1% to 2%, while section 114 uses “contribution”. That choice of words suggests Parliament saw the two differently.

In practice, the answer matters only when payment is late. Section 37(3) allows the deduction in the year the liability arose if the sum is paid by the due date of the return under section 263(1). Rule 49 requires the final payment by 31 October, which is also the return due date under section 263(1)(c) for companies and for businesses whose accounts must be audited. Where a transfer pricing report under section 172 is required, the return is due on 30 November, so the Rule 49 date comes first. An aggregator that pays on time keeps the deduction in the right year on either view. One that misses 31 October may see the deduction pushed to the year of payment, if section 37 is held to apply.

4.3 Interest, early payment and CSR

Interest under Rule 49(2) runs automatically at a fixed rate for each month of delay. In Prakash Cotton Mills v CIT, the Supreme Court said the nature of a statutory impost, and not its name, decides whether it is penal or compensatory. It allowed interest on arrears of sales tax in Lachmandas Mathuradas v CIT and interest on a delayed cess in Mahalakshmi Sugar Mills v CIT. A recent Patna ITAT ruling applied the same reasoning to interest on several statutory dues. Interest on a late contribution should be deductible on the same footing.

The proviso to Rule 49(3)(a) lets an aggregator compute the contribution at 5% of payouts, which can be done before any rate is notified. A payment made before the commencement date is not yet a statutory liability. Its deduction would rest on section 34 alone, and the aggregator would have to show a business reason for paying early.

Section 114(3)(e) also lets a scheme be funded from corporate social responsibility funds. If a platform meets part of a scheme’s cost through its CSR spending, section 34(2)(b) of the 2025 Act disallows that amount. The contribution under section 114(4) is a separate payment and is not CSR expenditure.

5. GST

The contribution itself should fall outside GST. A supply needs consideration for goods or services, and the Central Government supplies nothing to the aggregator in return. The money funds schemes for workers. The department has, however, read the reverse charge entry for services supplied by the government to business entities widely in other settings, such as mining royalty and licence fees. Aggregators should keep their reasoning on record in case the point is raised.

The position changes if a platform passes the cost on. Under section 15(2)(a) of the CGST Act, the value of a supply includes taxes, duties, cesses, fees and charges levied under any law other than the GST laws, if the supplier charges them separately. A line on the customer’s invoice called a “social security fee” will therefore attract GST at the rate that applies to the platform’s own service. Calling the recovery a statutory charge does not take it out of the value of supply.

A recovery of this kind also affects the turnover base. The contribution is the aggregator’s own liability, so an amount recovered from customers is part of the price of its service and counts as revenue under Ind AS 115, unlike GST, which it collects on the government’s behalf. The recovery stays out of annual turnover only if the contribution is itself a levy paid or payable to the Central Government within the Explanation to section 114, and an aggregator taking that view would find it hard to argue under section 37(2)(a) that the contribution is not a levy. At a 1% rate the extra contribution is small, and it is nil for a platform on the 5% cap.

A platform may instead absorb the cost by cutting per-order payouts, which the Code does not prohibit. The formula has a quirk here. Payouts set the 5% cap, so a platform on the capped limb lowers its own contribution each time it lowers what it pays workers.

6. A contrast: voluntary NPS contributions

Under PFRDA’s NPS e-shramik (Platform Service Partner) model, an aggregator may pay into a gig worker’s individual pension account, on its own or jointly with the worker. This payment differs from the section 114 contribution in two ways that matter for tax.

It is voluntary, so section 37(2)(a) has no role and the deduction rests on section 34. It is also credited to a named worker, so it is a payment to that worker and not to a government fund. The worker is not an employee, so the rules on employer contributions to NPS do not appear to apply, and the worker would probably have to treat the credit as part of what the platform paid for the work. The statutory contribution has no such effect on the worker, because nothing from it is credited to an individual account.

7. What aggregators can do now

• Work out both limbs of section 114(4) for the current year, separately for each business: turnover net of Central taxes, levies and cesses, and total payouts to gig and platform workers. The proviso to Rule 49(3)(a) counts workers engaged through group companies, LLPs and third parties, so payout data should include them.
• Settle which revenue figure will be treated as turnover, and check that the principal or agent conclusion under Ind AS 115 is documented.
• Plan payments so that the final amount reaches the fund by 31 October. That protects the deduction even if section 37 is held to apply.
• Review customer terms and invoice formats before adding any line for the levy, keeping section 15(2)(a) of the CGST Act in mind.

8. Conclusion

The rate notification will settle how much aggregators pay. It will not settle how the payment is treated for tax, and the first Form XXI will fall due within months of the start date.

Three parts of the notification will need a close reading when it appears. The first is whether rates differ between categories of aggregator, since section 114(4) frames the obligation by reference to the categories in the Seventh Schedule. The second is the start date. If it falls in the middle of a financial year, neither the Code nor the SS Central Rules says how annual turnover or payouts for that year are to be apportioned. The third is whether any aggregator or class of aggregators is exempted under section 114(7)(ii), which the Central Government can do by notification and which would take that aggregator out of every question discussed here.

On the tax side, positions on the turnover base and on the timing of the deduction are easier to settle now than in reply to an assessment or a show cause notice. The same is true of any decision to pass the cost on to customers. Aggregators that record their position on section 37 and their Ind AS 115 conclusions this year will have less to reconstruct later. A clarification from CBDT on whether section 37 applies to the contribution would remove the main uncertainty for the sector.

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Disclaimer: This article is for general information and is not legal or tax advice. The position stated is as on 18 October 2026.