GST Council Considering Relief Measures for Roads and Highways Developers

The Goods and Services Tax(GST) Council is preparing to deliberate on potential tax relief measures for road and highway developers. The discussion is scheduled for June 22 and may lead to a clarification regarding the hybrid annuity model. It is expected that the council will propose changes to the current invoice rules, and the applicability of GST on interest components included in installments or annuities payable by the National Highways Authority of India (NHAI) to the builder.

The Hybrid Annuity Model

The hybrid annuity model is a public-private partnership, where the government will typically pay 40% of the construction cost in annual payments. Developers will be responsible for arranging the remaining funds, which they will later recover from toll collections. The GST Council’s upcoming discussion, on June 22, may clarify that under this model, the GST payable by the developer for parts of the project under construction or maintenance will only become due when the invoice is raised or when payment is made, whichever comes first. This clarification was required as the industry was facing issues with GST authorities and investigative agencies, who wanted the companies to pay GST upfront when the completion of the project couldn’t be linked to the due date.

Proposed changes to invoice rules

The GST Council may also propose a new rule regarding invoices under the hybrid annuity model. In the model, if invoices are not issued on or before the specified date or the date of completion of the contract, tax liability will arise on the date of provision of the said service or the date of receipt of the payment, whichever is earlier. This change is expected to provide clarity for highway developers and ensure the timely issuance of invoices. The GST Council is expected to suggest that if any interest component is included in installments or annuity payable by the NHAI to the builder, GST will be applicable on that interest as well. Currently, such payments received are taxed at a rate of 12%.

Conclusion

This proposal is aimed at standardizing the taxation process for highway developers under the hybrid annuity model.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.