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Exempt Road, Railway Under GST Regime: Assocham To Government

Assocham has strongly recommended that rate of GST should be retained at the current levels on the goods and services, on the existing projects in progress as any increase in existing tax cost will adversely impact the project financials, cash flow and margins.

Photo Credit : PTI

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In view of the long gestation period and showing negative returns, industry body Associated Chambers of Commerce and Industry of India (Assocham) has suggested that infrastructure and transportation such as road and railway sectors should continue to be exempted under goods and services tax (GST) regime.

In a note submitted to the Finance Ministry, Assocham has recommended that to avoid accumulation of input tax credit with the contractors, a similar exemption should be granted in GST on direct procurement made by the contractors for use in such projects. Further withdrawal of exemption on existing projects will have a negative impact on business revenues.

The chamber says, alternative options should be provided in GST, such as zero rating the contract value chain, in the event the current exemptions are withdrawn, so as to protect the infrastructure projects from any additional tax burden.

The chamber spokesperson said, presently, highway toll collected from passengers and annuity amounts received from National Highways Authority of India (NHAI) for construction and maintenance of highways is exempt from Service tax. While service by way of access to a road or a bridge on payment of toll charges has been specifically exempted in GST regime, exemption to similar income received in form of annuity from NHAI has not been provided. Essentially in case of annuity based project NHAI collects Toll charges and share Toll income in form of annuity.

Levy of GST on existing contracts with non-recoverable taxes from NHAI will have significant impact on revenue and therefore exemption should be accorded to annuity income as well.

As per contract with NHAI, concessionaire is required to a share a pre-defined percentage of income from toll collection with NHAI and there is no clarification whether sharing of such exempted income would be subject to GST. Since Toll income is exempt from GST, sharing of such income also should not attract GST.

It may be mentioned that currently the services provided to infrastructure project are exempted from service tax and wherever service tax is levied, works contract abatement is available and in value-added tax (VAT) also abatement is available and the combined effective tax rate comes to 10 per cent to 12 per cent while the rate schedule released by GST council provides for 18 percent GST rate for works contract services.

Assocham has strongly recommended that rate of GST should be retained at the current levels on the goods and services, on the existing projects in progress as any increase in existing tax cost will adversely impact the project financials, cash flow and margins, due to inability to pass on or recover such increased cost in the entire contract value chain and GST rate on works contract services should be provided as 12 per cent instead of 18 per cent.

Similar rate structure has been provided by GST council for construction of a complex, building, civil structure or a part thereof, intended for sale to a buyer, wholly or partly.


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