NHAI Clarifies GST Compensation Framework for HAM Projects

The National Highways Authority of India (NHAI), vide Policy Circular bearing reference no. 3.3.35/2026 dated May 8, 2026 (the “Circular”), has issued a clarification governing the treatment of Goods and Services Tax (GST) compensation under the Change in Law provisions applicable to Hybrid Annuity Model (HAM) projects. The Circular addresses issues arising from changes in the GST regime affecting construction support, annuity payments and Operation & Maintenance (O&M) components under HAM concession agreements.

The clarification has been issued in the backdrop of developments under the GST framework, including the increase in GST on road construction services from 12% to 18% with effect from July 18, 2022, and CBIC clarifications relating to the taxability of annuity payments under HAM projects.

A central feature of the Circular is the classification of HAM projects based on their bid due dates, with separate treatment prescribed for each category.

Projects with Bid Due Date between July 1, 2017, and October 13, 2017

1. The Circular clarifies that bids during this period were invited inclusive of GST and both construction support and annuity payments were treated as taxable while preparing bids.
2. Where invoices relating to construction support, annuity payments or O&M activities are raised on or after July 18, 2022, the GST impact arising from the increase in tax rates from 12% to 18% is to be determined in accordance with the methodology prescribed in the Circular.
3. No compensation is payable where work was completed and the tax invoice was raised on or before July 17, 2022, even if payment was made subsequently.

Projects with Bid Due Date between October 14, 2017 and June 16, 2021

1. During this period, bids were invited inclusive of GST. Construction support was treated as taxable, while annuities were considered exempt pursuant to CBIC Notification No. 32/2017-Central Tax (Rate) dated October 13, 2017.
2. Subsequently, CBIC Circular No. 150/06/2021-GST dated June 17, 2021 clarified that annuity payments under HAM projects were taxable at applicable rates. The Circular provides that compensation relating to the annuity component shall be determined in accordance with Annexure-IV appended thereto.
3. In relation to construction support invoices raised on or after July 18, 2022, the GST impact arising from the increase in GST rates is to be computed in accordance with the prescribed methodology.

Projects with Bid Due Date on or after June 17, 2021

1. The Circular clarifies that bids invited from June 17, 2021 onwards were sought exclusive of GST and therefore GST shall be payable at applicable rates.
2. Tax invoices relating to milestone payments, annuity payments, interest on annuity and O&M payments raised before July 18, 2022 continue to attract GST at 12%, while invoices raised on or after July 18, 2022 attract GST at the revised rate of 18%, subject to applicable GST provisions.

The Circular also clarifies the treatment of O&M-related expenses for HAM projects where the bid due date was on or before June 30, 2017. In such cases, the Change in Law compensation percentage computed under Annexure-II is to be applied to O&M expenses based on the relevant invoice period. Accordingly, the percentage computed for post-GST work executed up to July 17, 2022 applies to O&M invoices raised up to July 17, 2022, while the percentage computed for post-GST work executed after July 17, 2022 applies to invoices raised thereafter.

In addition to the substantive clarification, the Circular prescribes an administrative framework for processing GST-related Change in Law claims. Concessionaires are required to submit GST claims to the GST Cell at NHAI Headquarters under intimation to the concerned PIU. The Circular also requires scrutiny and vetting of specified calculation files by GST consultants or auditors, verification by Regional Offices and adherence to the approved financial model and applicable GST provisions before release of payments.

The Circular provides a consolidated framework for determining GST-related Change in Law implications across different categories of HAM projects. The clarification is expected to assist stakeholders in applying a uniform methodology for assessment and processing of GST-related claims under HAM concession agreements.