Taxability and Valuation of
Corporate Guarantees Under GST - Clarification
Overview
The Ministry of Finance issued Circular No. 225/19/2024-GST
to clarify issues related to the taxability and valuation of services for
providing corporate guarantees between related persons. This circular follows
the recommendations of the GST Council and amendments to Rule 28 of the CGST
Rules, 2017.
Key Clarifications
1.
Applicability
to Prior Corporate Guarantees
o Corporate guarantees issued before 26th October 2023 are
taxable.
o Valuation of these services is based on the provisions of
Rule 28 as it existed before the amendment.
o For guarantees issued or renewed after 26th October 2023,
the valuation follows Rule 28(2).
2.
Valuation
When Loan is Partly Availed or Not Availed
o Valuation is based on the amount guaranteed, not the amount
of loan disbursed.
o Recipients can avail full Input Tax Credit (ITC) regardless
of loan disbursal.
3.
Takeover
of Existing Loans
o GST is not applicable if there's no issuance or renewal of a
corporate guarantee during loan takeover.
o GST applies if a new corporate guarantee is issued or an
existing one is renewed.
4.
Multiple
Co-Guarantors
o GST is payable proportionately by each co-guarantor based on
their share of the guarantee.
o Example: If two co-guarantors provide a guarantee for Rs. 1
crore, each pays GST on their respective share.
5.
Intra-Group
Corporate Guarantees
o Domestic corporate guarantees are under the forward charge
mechanism, requiring the supplier to issue an invoice.
o Foreign guarantees for Indian entities are under the reverse
charge mechanism, with the recipient paying GST.
6.
Timing and
Frequency of Tax Payment
o GST is payable annually at 1% of the guaranteed amount or
actual consideration, whichever is higher.
o For guarantees issued for less than a year, GST is
calculated proportionately.
7.
Value
Declaration in Invoice
o The value declared in the invoice is deemed to be the open
market value if full ITC is available to the recipient.
o This applies to services between related persons where the
recipient can fully claim ITC.
8.
Export of
Corporate Guarantee Services
o Rule 28(2) does not apply to the export of corporate
guarantee services.
o Exported services are exempt from the valuation rules
specified in the amendment.
Summary Table
|
Issue
|
Clarification
|
|
Applicability to Prior Guarantees
|
Taxable based on Rule 28 before amendment
|
|
Valuation for Partly Availed Loans
|
Based on guaranteed amount, not loan disbursed
|
|
Takeover of Loans
|
No GST unless new/renewed guarantee is issued
|
|
Multiple Co-Guarantors
|
GST payable proportionately based on share
|
|
Intra-Group Guarantees
|
Forward charge for domestic, reverse charge for foreign
guarantees
|
|
Timing of Tax Payment
|
Annually or proportionately if less than a year
|
|
Invoice Value Declaration
|
Deemed market value if full ITC is available
|
|
Export of Guarantee Services
|
Not applicable under Rule 28(2)
|
This circular aims to ensure uniformity in the application
of GST provisions related to corporate guarantees across various field
formations. Trade notices will be issued to disseminate this information.
Disclaimer: All the Information is based on the notification, circular
and order issued by the Govt. authority and judgement delivered by the
court or the authority information is strictly for educational purposes and on the
basis of our best understanding of laws & not binding on anyone.
