To implement the GST in road constructions where government payment is made in part, i.e. in annuity, the National Highway Authority of India (NHAI) issued a circular setting out various scenarios.
The GST Council, at its May 28 meeting, did not recommend any GST exemption on annuity (deferred payments) paid for the construction of a road. The GST rate here is 12 percent.
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Based on the recommendation of the GST Council followed by a circular from the Central Council of Indirect Taxes and Customs (CBIC), NHAI issued detailed clarifications on four different scenarios. The first concerns projects for which the deadline for submissions was June 30, 2017 (the GST having been implemented from July 1). Here, GST on annuity payments will be paid or refunded in accordance with standard operating procedures. The calculation of the taxes will be carried out on the total cost of the project, that is to say the file of the project of offer plus the indexation tax. The impact of the additional GST will be calculated after adjusting the input tax credit (ITC) payable by the concessionaire.
The second scenario speaks of projects for which the deadline for submissions was on or after July 1, 2017 and no later than October 13, 2017. Here, no GST on annuities under a change of law will be paid. or refunded since bids were solicited, GST included. .
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The third scenario is linked to projects for which the submission deadline was October 14, 2017 at the latest and June 16, 2021. Here, the effect of the change in law on the annuity will be calculated at the rates GST applicable after adjustment of the ITC. In addition, no GST will be paid on a portion of the cost of the project known as construction support, which represents 40 percent of the total. Here, GST on interest on annuity payments will also be payable.
The fourth scenario concerns projects for which the deadline for submissions was after June 16, 2021. Here, no GST will be paid, because bids are solicited, excluding GST.
Not for everyone
Aditya Singhania, Founder of Singhania’s GST Consultancy, said the GST Board’s recommendation cleared the ambiguity regarding taxation on the road construction activity where the consideration is received in deferred payment HAM (Hybrid Annuity Model ).
“The clarification issued by NHAI is certainly a welcome step, however, its impact will depend on the actual treatment done by contractors in the lead-up to the decision of the 43rd GST Council Meeting. For the contractors who would have treated it as taxable and would have paid the taxes, they are mainly in a favorable situation, as NHAI undertakes to reimburse the GST due on the supply. However, this would be of concern to contractors who treated it as an exempt supply and did not use / after using their ITC, as the policy circular categorically stated that the annuity payment should be calculated. at the applicable GST rate after adjusting the ITC for the GST. in projects where the expiry date of the offer was between October 14, 2017 and June 16, 2021, ”he said.
In addition, although so far no TDS has been deducted given the same as the exempt supply, it is now clearly stated that the TDS GST will be deductible from the annuity and annuity interest payable on and after. June 17, 2021.