Union Territory Tax Mandated On Escrow Account Debits For Road Maintenance Under Concessions

Notification 10/2026-UT Tax (Rate) requires Toll-Operate-Transfer concessionaires to pay Union Territory Goods and Services Tax on operation and maintenance expenses charged or debited from escrow from 1 November 2026. This rule establishes clear tax obligations for infrastructure operators managing toll roads within union territories. The mandate applies specifically to funds withdrawn or debited from designated escrow mechanisms for upkeep and repair activities.

Under public-private partnership models like Toll-Operate-Transfer, private operators pay upfront concession fees to governments in exchange for the right to collect tolls and maintain highways over a long period. Escrow accounts are typically utilized to channel toll revenues and disburse operational, maintenance, and debt-servicing expenses securely. The application of indirect tax on escrow debits for operation and maintenance alters the cash flow dynamics between concessionaires and service providers. Previously, such intra-project debits faced differing interpretations regarding taxability, whereas the new notification explicitly enforces Union Territory Tax liabilities on these maintenance expenditures.

Infrastructure finance professionals and tax accountants must review concession agreements and escrow transaction structures to ensure accurate tax computation starting 1 November 2026. Companies need to update their internal accounting controls and file timely returns reflecting the Union Territory Tax due on escrow account debits. Bottom line: concessionaires must re-evaluate project cash flows and compliance workflows to prevent liabilities stemming from unpaid taxes on road maintenance debits.