For Prelims: Goods and Services Tax, Escrow account, Tyre retreading
For Mains: Economy: Indirect taxation and GST; Economy: Transport infrastructure
Source:
Dainik Bhaskar
5 facts for one-day exams
SSC, railway, police and teaching exams ask direct questions like these.
- Highway maintenance payments previously attracted 18% GST.
- The revised highway maintenance tax treatment took effect on 1 November 2026.
- Madhya Pradesh issued a notification implementing the revised rules.
- GST on isabgol seeds was removed from the earlier 5% rate.
- GST on retreading old tractor tyres fell from 18% to 5%.
The news
The central government has exempted payments for the maintenance of national and state highways from the 18% Goods and Services Tax (GST) with effect from 1 November 2026. The Madhya Pradesh government issued a notification on Thursday to implement the new rules, which are expected to reduce the tax burden on highway maintenance contractors.
According to GST expert Mukul Sharma, toll tax collected from highways is deposited in an escrow account, from which contractors are paid for maintenance work. Earlier, these payments attracted 18% GST, a levy that contractors had long sought to be removed. The exemption applies only to maintenance payments and does not affect toll collection itself.
The revised tax treatment also covers other items. GST on isabgol seeds has been removed from the earlier 5% rate. The rate for retreading old tractor tyres has been reduced from 18% to 5%. Packaged organic manure and seaweed-based products now attract 5% GST.
Why in the news?
The central government exempted highway maintenance payments from 18% GST from 1 November 2026, and Madhya Pradesh notified the new rules on Thursday, reducing costs for contractors and affecting related agricultural goods.
Who decides GST rate changes in India?
The Goods and Services Tax (GST) was introduced in India on 1 July 2017, subsuming multiple central and state indirect taxes. The GST Council, a constitutional body under Article 279A, is empowered to make recommendations on tax rates, exemptions, and the date from which they take effect. Its decisions are notified by the central and state governments through amendments to the relevant GST rate notifications. The Council is chaired by the Union Finance Minister and includes state finance ministers as members.
How are highway maintenance contractors paid?
Toll revenue collected from national and state highways is deposited in an escrow account, a special bank account in which funds are held and used under specified conditions. Contractors are paid from this account for maintenance work. Previously, these payments attracted 18% GST, which contractors had sought to remove.
What other tax changes were announced?
The revised rates also affect agricultural goods and services. Isabgol seeds, earlier taxed at 5% GST, are now fully exempt. Retreading old tractor tyres, which attracted 18% GST, now attracts 5% GST. Packaged organic manure and seaweed-based products are taxed at 5% GST. These changes are expected to reduce costs for farmers and consumers.
GST treatment of selected items
| Item | Earlier rate | Revised rate |
|---|---|---|
| Highway maintenance payments | 18% | Nil |
| Isabgol seeds | 5% | Nil |
| Old tractor tyre retreading | 18% | 5% |
Madhya Pradesh connection
Facts and terms for exams
- Goods and Services Tax:
- GST is an indirect tax on the supply of goods and services in India.
- Escrow account:
- An escrow account is an account in which funds are held and used under specified conditions.
- Tyre retreading:
- Tyre retreading is the process of applying new tread rubber to a used tyre.
Why it matters for exams
Exams: MPPSC, MPESB
Syllabus: Economy: Indirect taxation and GST; Economy: Transport infrastructure
Common mistake: Examiners may swap the nil rate on isabgol seeds with the 5% rate on tractor tyre retreading: the two treatments are different.
Mains question
Examine the rationale behind exempting highway maintenance payments from GST and its likely impact on infrastructure costs and contract efficiency. Discuss.
Stuck? Get it in one tap
GST is a tax on goods and services. Highway maintenance payments no longer attract the earlier 18% tax, which is expected to reduce contractors' costs. Isabgol seeds are also tax-free, while retreading old tractor tyres attracts 5% GST.
- Highway maintenance payments previously attracted 18% GST.
- The revised highway maintenance tax treatment took effect on 1 November 2026.
- Madhya Pradesh issued a notification implementing the revised rules.
- GST on isabgol seeds was removed from the earlier 5% rate.
- GST on retreading old tractor tyres fell from 18% to 5%.
- Economy: Indirect taxation and GST
- Economy: Transport infrastructure
Related concepts: Goods and Services Tax, Escrow account, Tyre retreading
Practice questions
Pick an answer, then read the explanation.
- Q1Easy
Which government notified the revised GST rules on highway maintenance in Madhya Pradesh in November 2026?
Explanation: The Madhya Pradesh government issued the state notification for the revised rules. The central government provided the relief, while contractors and banks are not the state government issuing the notification.
- Q2Hard
Consider the following statements about the GST changes effective from November 2026:
- 1.Highway maintenance payments previously attracted 18% GST.
- 2.GST on old tractor tyre retreading was increased from 5% to 18%.
- 3.GST on isabgol seeds was removed from the earlier 5% rate.
Which of the statements given above are correct?
Explanation: Statements 1 and 3 are correct: the earlier rates were 18% for highway maintenance payments and 5% for isabgol seeds. Statement 2 reverses the change: tractor tyre retreading was reduced from 18% to 5%.
- Q3Medium
What GST rate applies to retreading old tractor tyres under the revised November 2026 rules?
Explanation: The rate on retreading old tractor tyres was reduced to 5% from 18%. The nil rate applies to isabgol seeds, while 12% is not the revised retreading rate.
- Q4Medium
What is the expected direct effect of removing GST from highway maintenance payments from November 2026?
Explanation: Removing the earlier 18% GST is expected to reduce contractors' maintenance costs. Toll collections continue to finance payments through an escrow account; the specified agricultural tax changes reduce or remove rates rather than increase them.
Frequently asked questions
1. When did the GST relief on highway maintenance payments take effect?
The relief took effect on 1 November 2026. Such payments previously attracted 18% GST.
2. What is the revised GST rate on tractor tyre retreading?
The rate is 5%, reduced from 18% for retreading old tractor tyres.
3. What GST applies to isabgol seeds under the revised rules?
GST on isabgol seeds has been removed from the earlier 5% rate.
4. How are highway maintenance contractors paid from toll collections?
Toll revenue is deposited in an escrow account, from which maintenance contractors are paid.
All sources
- Original13 November 2026 · Read story