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India has 5.23 million kilometres of roads, which makes it the second-largest road network in the world. Only 2% of the roads in the country are designated as national highways, but they carry 40% of all the traffic in the country. The fact that roads carry 65% of freight and 80% of people is an interesting place to start. This shows how important the road system is to the growth of the economy and the country as a whole. Road projects in India are also subject to GST. In this article, you’ll learn about the GST Registration for Indian road projects.
Understand the Concept of Road Projects of Highways
Before we can talk about whether or not the GST applies to roads and highways, we need to understand how the whole idea works. In India, the Indian government has to build Indian National Highways. In this case, the Indian Parliament has passed the National Highways Act of 1956.
So, one thing is clear: India’s government still has control over the roads in the country, no matter what model was used to build them.
In India, the government uses the following models for building roads:
BOT Toll
The Build, Operate, and Transfer (BOT) Toll is what Bot stands for. To use this kind of model, the NHAI and a private developer/operator (called a “concessionaire”) sign an agreement that says the concessionaire is in charge of the project’s design, construction, financing, operation, and transfer at the end of the concession period.
BOT- Annuity (PPP)
In this model, the concessionary is in charge of a number of things. In exchange for a certain amount of money, the government gives the concessionaire a fixed amount of money every six months. The government gets the money from tolls, so the concessionaire doesn’t have to worry about business risks.
OMT Model
Private companies have recently been given OMT Concessions for some of the NHAI’s road projects. Before, toll collectors/operators and subcontractors were in charge of collecting tolls and keeping roads in good shape. These duties are now part of the OMT concession. Under the terms of the concession, private operators would be able to charge tolls on some segments so that roads could be kept in good shape and important services could be provided.
Hybrid Model
At the end of the concession period, the concessionaire is responsible for the project’s design, construction, financing (60 percent of the project cost), operation, and transfer. With the reduced balance approach, 60% of the project costs are paid back through an annual annuity payment and a separate interest payment that is tied to the market.
Contracts for Operation and Maintenance
Most of the time, the NHAI gives these kinds of contracts in the form of a package of services. In this case, it would depend on the contract-by-contract basis for the main supplier. If the main service is running the road, it will be called a service contract and not a work contract.
Applicability of GST on Road Projects
The HSN code 9954 or SAC 9954 is for building roads. Service code 9967 is about paying a toll to use a road or bridge, which is exempt. Even if a toll or annuity is paid, there is no tax to pay to get on the road. So, the toll collected is not subject to GST.
The exemption does not cover the building of road services, even if they are paid for with delayed payments or annuities. The CGST’s Circular 150/2021, which came out on June 17, 2021, gives more information about these points.
Private developers pay the tax authorities annuity payments from the government department that include the GST. An annuity paid to a private developer is subject to GST at a rate of 12%, which the private developer must pay.
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Tag : GST Filing, GST Registration, TDS Filing