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
·
Corporate guarantees issued before 26th
October 2023 are taxable.
·
Valuation of these services is based on
the provisions of Rule 28 as it existed before the amendment.
·
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
·
Valuation is based on the amount
guaranteed, not the amount of loan disbursed.
·
Recipients can avail full Input Tax Credit
(ITC) regardless of loan disbursal.
3. Takeover
of Existing Loans
·
GST is not applicable if there's no
issuance or renewal of a corporate guarantee during loan takeover.
·
GST applies if a new corporate guarantee
is issued or an existing one is renewed.
4. Multiple
Co-Guarantors
·
GST is payable proportionately by each
co-guarantor based on their share of the guarantee.
·
Example: If two co-guarantors provide a
guarantee for Rs. 1 crore, each pays GST on their respective share.
5. Intra-Group
Corporate Guarantees
·
Domestic corporate guarantees are under
the forward charge mechanism, requiring the supplier to issue an invoice.
·
Foreign guarantees for Indian entities are
under the reverse charge mechanism, with the recipient paying GST.
6. Timing
and Frequency of Tax Payment
·
GST is payable annually at 1% of the
guaranteed amount or actual consideration, whichever is higher.
·
For guarantees issued for less than a
year, GST is calculated proportionately.
7. Value
Declaration in Invoice
·
The value declared in the invoice is
deemed to be the open market value if full ITC is available to the recipient.
·
This applies to services between related
persons where the recipient can fully claim ITC.
8. Export
of Corporate Guarantee Services
·
Rule 28(2) does not apply to the export of
corporate guarantee services.
·
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.
Click here
