CA Pratibha Goyal | Oct 10, 2023 |
GST: Personal Guarantee by the director to come in purview of RCM
The 52nd GST Council meeting has finally settled the long ongoing conflict as to whether extending corporate and personal guarantees for extending loans constitutes a supply or not. Through this article let us understand the issue and what the GST Council has said.
Supreme Court of India in the matter of Commissioner of CGST and Central Excise v. Edelweiss Financial Services Ltd. [Civil Appeal Number 1769 of 2023 Dated 17th March 2023] upheld that where the assessee had not received any consideration while providing a corporate guarantee to its group companies, same would not be liable to Service Tax.
GST Council Decides on GST on corporate guarantee and personal guarantee offered by directors
However, as per GST Law, the transaction of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business without consideration would come in the purview of supply.
Personal Guarantee by a Director:
No GST is applicable when no consideration is paid by the company to the director in any form, directly or indirectly, for providing personal guarantee to the bank/ financial institutes on their behalf. In this case, the open market value of the said transaction/ supply may be treated as zero and hence, no tax is to be payable in respect of such supply of services.
However when consideration is involved, the same would be subjected to GST and would come under the purview of the Reverse charge mechanism (RCM).
Corporate guarantee including corporate guarantee provided by the holding company to its subsidiary company:
One percent of the amount of such guarantee when no consideration is paid by the company in any form, directly or indirectly.
In case where consideration is involved, GST will be levied on one percent of the amount of guarantee or the amount of consideration paid whichever is higher.
Recommendations of 52nd GST Council Meeting [Download Official Press Release]
This has been explained by below mentioned chart:
| Particulars | Consideration | GST Applicable | RCM Applicable |
| Personal Guarantee by the director | Yes | Yes | Yes |
| Personal Guarantee by the director | No | No | No |
| Corporate guarantee | No | Yes, on 1% of such guarantee | No |
| Corporate guarantee | Yes | Yes, on Higer of Consideration or 1% of such guarantee | No |
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