GST Rate on Interest Component: AAR Confirms Interest Follows Classification of Road Works Contract, Taxed at Same Rate as Principal Supply [Read Order]
AAR held that GST on interest from deferred road payments is taxable at the same rate as the principal supply.
![GST Rate on Interest Component: AAR Confirms Interest Follows Classification of Road Works Contract, Taxed at Same Rate as Principal Supply [Read Order]](https://images.taxscan.in/h-upload/2025/09/04/2084077-aar-gst-road-works-gst-rate-interest-component.webp "GST Rate on Interest Component: AAR Confirms Interest Follows Classification of Road Works Contract, Taxed at Same Rate as Principal Supply [Read Order]")
The Maharashtra bench of the Authority for Advance Ruling (AAR) involved an application by Shenwa Infrastructure Private Limited, the applicant, seeking an advance ruling in respect of the classification of service and the applicable rate of GST payable.
The applicant company was incorporated to execute a concessionaire agreement awarded by the Public Works Department, Government of Maharashtra, on a Hybrid Annuity Basis. The agreement stipulated that 60% of the Bid Project Cost (BPC) would be funded by the Public Works Department in five equal installments during the construction period, while the balance 40% of BPC would be paid after completion, with interest as stipulated in the tender, as annuity in biannual installments for 10 years.
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The applicant stated that the interest received is taxable at the same rate as applicable on supply made, and cited Section 15 of the MGST Act, which provides that the value of supply shall include interest or late fee or penalty for delayed payment of any consideration for any supply.
The Jurisdictional Officer contended that the classification of service and applicable rate of GST payable on the interest receivable on deferred payment in Equated Yearly Instalment shall be the same as that of the original taxable supply of services of construction of road and maintenance.
The Authority observed that the classification of service and applicable rate of GST payable on the interest receivable on deferred payment in Equated Yearly Instalment shall be the same as that of the original taxable supply of services of construction of road and maintenance.
The bench comprising D.P. Gojamgunde (State Member) and Priya Jadhav (Central Member) ordered that the service is classified the same as that of the original taxable supply of services of construction of road and maintenance, and the applicable rate of GST shall be the same as that of the original taxable supply.
Accordingly, AAR held that the interest component in deferred annuity payments under the Hybrid Annuity Model is taxable as part of the value of supply under Section 15(2)(d). It shall be subject to GST at the same rate and classification as the principal road works contract.
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Thus, AAR clarified that the classification of service and applicable rate of GST payable on the interest receivable on deferred payment in Equated Yearly Instalment shall be the same as that of the original taxable supply of services of construction of road and maintenance, and applicable rate of GST shall be the same as that of the original taxable supply.
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