BOT annuities brought under GST

January 4, 2023

Tax experts said that while annuity under Hybrid Annuity Model mode was taxable under GST, pursuant to this omission, annuity under Build-Operate-Transfer model will also be taxable from this month

Concessionaires who receive annuities from the National Highways Authority of India and state authorities for construction and maintenance of roads and highways will now have to pay goods and services tax (GST) on the toll amounts received. Effective January 1, 2023, an exemption has been removed.

A recent notification by the Central Board of Indirect Taxes and Customs has omitted section 23A and related entries dealing with this. The provision had exempted “service by way of access to a road or a bridge on payment of annuity”.

GST at the rate of 12% is expected to be charged.

Tax experts said that while annuity under Hybrid Annuity Model mode was taxable under GST, pursuant to this omission, annuity under Build-Operate-Transfer model will also be taxable from this month. Of course, fewer new concessional agreements have been signed in recent years under the BOT-annuity model.

“The repercussions of withdrawal of the exemption are that the companies which receive annuities from NHAI, instead of toll from public, will be taxed under GST. As a corollary, depending on the contractual terms, the total cost for recipient may increase in certain cases,” Abhishek A Rastogi, Author and Founder of Rastogi Chambers, adding that as toll to final consumers is exempt, there will be tax cascading in most of the cases.

It is also to be seen whether the move will impact the overall cost of such projects and if it would have an impact on the end user or customers.

The GST Council in its 22nd meeting in 2017 had exempted this annuity paid by NHAI (and State authorities or state owned development corporations for construction of roads) to concessionaires for construction of public roads.

[The Financial Express]