GST Relief Likely on NHAI Toll Contracts

The Goods and Services Tax (GST) Council is expected to bring major relief for contractors engaged in toll collection under the Toll-Operate-Transfer (TOT) model of the National Highways Authority of India (NHAI). A clarification is likely in the upcoming Council meeting that could impact how these contracts are taxed under GST.

Background: Current Tax Treatment

At present, private companies that are awarded TOT contracts by NHAI are being charged 18% GST on the consideration paid for toll rights. This is being treated as a supply of service, similar to leasing or licensing of assets.

The tax is being collected under the reverse charge mechanism, which means the liability to pay tax lies on the recipient (the contractor), instead of the supplier (NHAI).

Nature of TOT Contracts

In the TOT model, NHAI grants private entities the exclusive right to collect tolls from completed highway stretches for a fixed period, in exchange for a lump-sum payment. These arrangements are part of the government’s asset monetisation programme, designed to generate funds for new infrastructure development.

Although toll collection by NHAI is exempt from GST, the granting of toll collection rights was being interpreted as a taxable supply, leading to confusion and increased cost burden on contractors.

Fitment Committee’s Recommendation

The Fitment Committee, a technical advisory group under the GST Council, has reviewed this issue and recommended that TOT contracts should be exempt from GST. According to the committee:

The transaction should not be treated as a separate supply of service.

Toll collection rights are simply transferred, not supplied in the usual sense.

Therefore, applying GST on this transfer is a misinterpretation of the law.

Reverse Charge Explained

Under reverse charge, the responsibility to pay GST shifts from the service provider to the recipient of the service. In the case of TOT contracts, this means private companies must pay GST directly to the government, even though they are not the original suppliers of the toll service.

This treatment significantly increases their cost, especially given the high-value lump-sum payments involved.

Expected Clarification by GST Council

In the upcoming Council meeting (post the monsoon session ending August 21, 2025), it is expected that a formal clarification will be issued stating that:

The grant of toll collection rights under TOT is not a taxable service.

The transaction will be exempted from GST, aligning it with the existing exemption on toll collection itself.

This clarification will resolve ambiguity, ensure tax certainty, and reduce the cost burden on road contractors and infrastructure developers.