India has the second-largest road network in the world, with a total of 5.23 million kilometers of roadway. Only 2% of the country’s overall road network is designated as a national highway, although it carries 40% of the country’s total traffic. Roads carry 65% of freight and 80% of passenger travel, which is a fascinating start to know. This demonstrates the critical role played by road infrastructure in the growth of the economy and the country as a whole. In India, there is also a GST on Road Projects in India. In this article, you will understand the GST Registration on road projects in India.
Understand the Concept of Road Projects of Highways
Before discussing the GST chargeability on roads and highways, we must first grasp some fundamental facts about how the whole concept works. The development of Indian National Highways is a government obligation in India. The National Highways Act,1956 has been passed by the Indian Parliament in this respect.
Thus, one thing is quite clear: India’s government retains control of the nation’s roadways, regardless of the model used to build them.
The different types of models that government uses for the construction of road projects in India are as follows:
Bot Stands for the Build, Operate, and Transfer (BOT) Toll. To implement this sort of model, the NHAI and a private developer/operator (concessionaire) enter into an agreement under which the concessionaire is in charge of the project’s design, construction, finance, operation, and transfer at the conclusion of the concession period.
BOT- Annuity (PPP)
There are several responsibilities that fall under the purview of the concessionary in this model. The government makes semi-annual annuity payments to the concessionaire in exchange for a certain amount of money. Toll income is collected by the government, and the concessionaire has no business risk as a result.
OMT Concessions have recently been awarded to private sector companies for certain of NHAI’s roadway projects. Toll collection and roadway maintenance were previously delegated to toll collectors/operators and subcontractors. The OMT concession has incorporated these duties. Under the concession, private operators would be allowed to collect tolls on some segments in order to maintain roadways and provide vital services.
At the end of the concession period, the concessionaire is responsible for the design, construction, financing (60 percent of the project cost), operation, and transfer of the project. A yearly annuity payment plus a separate market-linked interest payment on the reduced balance approach recover 60% of the project costs.
Contracts for Operation and Maintenance
The NHAI often awards these sorts of contracts in the form of a composite supply of service. It would rely on the contract to contract basis for the primary supplier under such arrangements. If the primary supply is the operation of the roadway, it will be referred to like the same and not a work contract.
Applicability of GST on Road Projects in India
The HSN code or SAC 9954 covers the construction of roads. Service code 9967 covers access to a road or bridge by toll payment, which is exempt. Regardless of whether the toll or annuity is paid, entrance to the road is tax-free. As a result, the toll collected is exempt from GST.
The building of road services, whether paid for with delayed payments or annuities, is not covered by the exemption. Circular 150/2021 of the CGST, released on June 17th, 2021, provides more clarifications on these points.
Annuity payments from the government department, which include the GST, are paid to the tax authorities by private developers. An annuity paid to a private developer is subject to GST at a rate of 12 percent, which the private developer must deposit.
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