Gig Workers Welfare Levy Upheld: Karnataka High Court Dismisses Platforms' Challenge to Karnataka Gig Workers Act

BENGALURU — The Karnataka High Court has upheld the welfare fee imposed on platform aggregators by the Karnataka Platform Based Gig Workers (Social Security and Welfare) Act, 2025, dismissing a challenge by an association of delivery, ride-hailing and home-services platforms which argued that the levy is a tax the state has no power to impose and that the field is occupied by the Code on Social Security, 2020. A Division Bench delivered the judgment on 13 October in Platform Operators Association v. State of Karnataka.

"The platform economy cannot be a regulation-free zone simply because it is new," the bench said.

What the Karnataka Gig Workers Act does

The Act, which replaced an ordinance promulgated in May 2025 and was passed by the legislature that August, is the second state law of its kind after Rajasthan's 2023 Act and the first to be tested in court. Its principal features:

• A Welfare Board (Section 3), chaired by the Labour Minister, with representatives of the government, workers, aggregators and civil society, which registers workers and platforms and frames welfare schemes.
• Registration and a unique ID for every platform-based gig worker in the state, valid across platforms, and registration of every aggregator.
• A welfare fund (Section 19), of which no more than 5 per cent may be spent on administration.
• The welfare fee (Section 20): between 1 and 5 per cent of the payout to the worker in each transaction, at a rate notified for each category of platform. For delivery and ride-hailing services the notified rate is 2 per cent, remitted through a Payment and Welfare Fee Verification System that records every transaction, with 12 per cent interest on late remittance.
• Transparency obligations: disclosure to workers of fares, deductions and the parameters of automated allocation and rating systems, which must not discriminate on grounds such as gender, caste or religion.
• Protection against arbitrary termination: written reasons and prior notice before a worker's access is terminated, a right to refuse work without penalty, and a grievance redressal mechanism.

The platforms' challenge

1. A tax in disguise. The association argued that a percentage charge on every transaction is a tax on the supply of services, a field occupied by the goods and services tax under Article 246A, and that a state legislature cannot impose it under the guise of a fee.
2. Repugnancy. The Code on Social Security, 2020, in force since November 2025, provides for social security schemes for gig and platform workers in Section 114 and for an aggregator contribution of 1 to 2 per cent of annual turnover. A state law on the same subject, the platforms said, is repugnant under Article 254 unless it has received the President's assent, which the Karnataka Act did not.
3. No employment relationship. Gig workers are independent contractors, the platforms argued; a welfare obligation modelled on employer contributions cannot be imposed on a party that is not an employer.
4. Article 19(1)(g). The levy, the reporting system and the restrictions on termination were said to be unreasonable restrictions on the freedom to carry on business.

What the court held

1. Fee, not tax. The distinction turns on whether the levy is earmarked for a service rendered to the class from which it is collected. Applying the line of authority from Shirur Mutt (1954) to Sreenivasa General Traders (1983), the bench held that a charge credited to a dedicated fund, administered by a statutory board with a cap on administrative spending, and applied to the welfare of the very workers whose transactions generate it, is a fee. A mathematical quid pro quo is not required.
2. Competence. Social security and social insurance (Entry 23) and welfare of labour (Entry 24) are in the Concurrent List, and Entry 47 of that List covers fees in respect of any matter in it. The state had competence to enact the law and to charge the fee.
3. No repugnancy. The Code on Social Security itself contemplates both central and state schemes for gig workers and does not purport to be exhaustive. A state law that supplements the central framework, with its own fund and its own levy, can operate alongside it; there was no direct conflict in which obedience to one required disobedience of the other, so the question of Presidential assent did not arise.
4. Employment status is irrelevant. The Act does not treat gig workers as employees; it regulates the platforms that profit from their work. The Code on Social Security defines gig workers precisely as people outside the traditional employment relationship and still provides for their social security. The platforms' argument, the court said, proved the need for the statute rather than its invalidity.
5. Reasonable restriction. A levy of 2 per cent of payouts and a reporting obligation are reasonable restrictions in the public interest under Article 19(6).

The platform economy cannot be a regulation-free zone simply because it is new.

From the judgment

What it means

• For platforms: registration with the Board, integration with the verification system, weekly or quarterly remittance at the notified rate, and documented notice-and-reasons procedures before deactivating a worker. An appeal to the Supreme Court is expected, but no stay is in place.
• For gig workers in Karnataka: a unique ID, access to schemes framed by the Board, and a statutory grievance channel. Registration is the gateway to every benefit.
• For other states: Rajasthan's Act is in force and several states have drafts under consultation. The judgment supplies a template for defending a state levy that coexists with the central Code.
• For the Union: the aggregator contribution under Section 114 of the Code and state fees now run in parallel. The bench observed that coordination between the two is a matter for the governments, not a ground to strike either down.

Timeline

• 2020 — Code on Social Security enacted, with provisions for gig and platform workers.
• 2023 — Rajasthan enacts the first state law on platform-based gig workers.
• 27 May 2025 — Karnataka promulgates the Platform Based Gig Workers Ordinance.
• Aug 2025 — Karnataka legislature passes the Act, replacing the ordinance.
• Nov 2025 — The Code on Social Security comes into force with the other labour codes.
• 2026 — Welfare fee rates notified; platforms' writ petition heard.
• 13 Oct 2026 — Division Bench upholds the Act and the levy.

The Counsel will report any appeal to the Supreme Court. Platforms operating in Karnataka should take advice from a qualified labour-law practitioner on registration, remittance and the termination procedures the Act now requires.

This report is for general information only and does not constitute legal advice. Readers should consult a qualified lawyer about their own circumstances. Case citations are to The Counsel Reports (TCR) unless otherwise stated.