GST Council Decides on GST on corporate guarantee and personal guarantee offered by directors

The 52nd GST Council Meet has made clarifications regarding 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 holding company to its subsidiary company.

The Council has recommended that a circular should be issued clarifying that when no consideration is paid by the company to the director in any form, directly or indirectly, for providing a personal guarantee to the bank/ financial institutes on their behalf, the open market value of the said transaction/ supply may be treated as zero and hence, no GST to be payable in respect of such supply of services.

For Taxing Corporate Loan Guarantees, sub-rule (2) shall be inserted in Rule 28 of CGST Rules, 2017, to provide for taxable value of supply of corporate guarantee provided between related parties as one percent of the amount of such guarantee offered, or the actual consideration, whichever is higher.

A circular will also be issued to clarify 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.

Refer: Recommendations of 52nd GST Council Meeting [Download Official Press Release]