The GST Council’s 52nd meeting was held in Delhi on October 07, 2023, under the chairpersonship of the Union Finance & Corporate Affairs Minister Smt. Nirmala Sitharaman.
The GST Council has clarified the taxability of personal guarantee offered by directors to the bank against the credit limits/loans being sanctioned to the company and regarding the taxability of corporate guarantee provided for related persons, including corporate guarantee provided by the holding company to its subsidiary company.
The Council has inter alia recommended:
- For Personal Guarantees: When no consideration is paid by the company to the Directors in any form, directly or indirectly, for providing personal guarantee to the bank/financial institution on their behalf, the open market value of this transaction/supply may be considered zero, resulting in no GST liability on services of Personal guarantee.
- For Corporate Guarantees: For corporate guarantees provided to related parties, including guarantee by the holding company to its subsidiary.
Further, in order to determine the valuation of Corporate guarantee it has been recommended to insert a new sub-rule (2) in Rule 28 of the CGST Rules, 2017.
The GST Council has recommended in the meeting that the taxable value will be 1% of the amount of the guarantee offered or the actual consideration, whichever is higher.
Further, it has been recommended to issue a circular that, after the insertion of the said sub-rule, the value of such supply of services of corporate guarantee provided between related parties would be governed by the proposed sub-rule (2) of rule 28 of CGST Rules, 2017, irrespective of whether full ITC is available to the recipient of services or not.
In summary, the GST Council’s recommendations provided clarity on the taxability of personal and corporate guarantees, offering specific guidelines for their treatment under the GST regime.
The Press Release can be accessed at: https://www.pib.gov.in/PressReleasePage.aspx?PRID=1965431
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