GST Council rules out tax on highway toll collection as Telangana warns of reform hit

The GST Council has clarified that highway toll collections will not attract goods and services tax, a move aimed at ending years of confusion in infrastructure projects. But as the council pushes ahead with its latest round of reforms, state governments are warning that the changes could hit their budgets, with Telangana alone estimating an annual loss of more than ₹800 crore.

Clarifying the toll tax exemption

The clarification from the council's 57th meeting addresses a long-running dispute over whether the right to collect toll is taxable. Because tolls paid by motorists are already exempt from GST, the council ruled that the right to collect those tolls cannot be taxed either. The decision treats both upfront and deferred payment contracts between highway authorities and concessionaires the same way.

"If the toll itself bears no tax, the right to collect the toll cannot bear tax either," the council said.

The council also resolved another tax headache for the road sector by changing how maintenance services are taxed. Instead of taxing money when it is first deposited into escrow accounts for future road upkeep, GST will now only fall due when the concessionaire actually draws down the funds to pay for work done.

Kuljit Singh, partner and national infrastructure leader at EY India, noted that before this decision, some risk-averse developers were pricing potential GST liabilities into their bids because of the lack of clarity.

Telangana warns of revenue hit

But while the infrastructure sector welcomed the rules, state governments expressed anxiety about how the broader overhaul of the tax regime will affect their finances.

Telangana's Deputy Chief Minister and Finance Minister, Mallu Bhatti Vikramarka, used the meeting to urge the Centre to protect state revenues. He warned that proposed changes to refunds on motor vehicles, capital goods, and input services could hit Telangana's budget hard. The motor vehicle changes alone could cost the state over ₹800 crore a year, he said.

GST accounts for about 35% of Telangana’s own tax revenue. Vikramarka warned that any drop in collections would immediately threaten spending on schools, hospitals, welfare programmes, and infrastructure. He demanded that the Centre share the full financial implications of any reform with state governments before putting them into effect.

Crackdown on identity theft and evasion

Vikramarka also urged the council to crack down on systemic tax evasion, particularly the misuse of identity documents. He said the personal details of elderly citizens, homemakers, and daily-wage labourers were being stolen to set up fake GST registrations. He also pointed to the scrap metal sector, where unorganised, cash-heavy transactions have made it easy to generate fraudulent invoices and claim tax credits.

To tackle this, Telangana proposed setting up a dedicated Group of Ministers to investigate identity theft and scrap-sector evasion. Vikramarka also lobbied for regional offices of the GST Network and the GST Council Secretariat to be set up in Hyderabad, arguing the city’s tech and AI sector makes it the ideal hub for tax data analytics.