The Central Board of Indirect Taxes and Customs (CBIC) has implemented an 18% Goods and Services Tax (GST) on corporate guarantees involving related entities, such as parent companies and subsidiaries, effective from Thursday, October 26th. The notification gives effect to the decision announced by the GST Council on October 8th. The CBIC order of the GST Rule is made...
The Central Board of Indirect Taxes and Customs (CBIC) has implemented an 18% Goods and Services Tax (GST) on corporate guarantees involving related entities, such as parent companies and subsidiaries, effective from Thursday, October 26th. The notification gives effect to the decision announced by the GST Council on October 8th.
The CBIC order of the GST Rule is made prospectively such that the rule will have no impact on transactions executed prior to October 26th.
The notification specifies that the 18% GST will apply to corporate guarantees between parent and subsidiaries and other related parties either on the financial consideration charged by the guarantor for that service or 1% of the value of the guarantee, whichever is higher.
“The value of supply of services by a supplier to a recipient who is a related person, by way of providing a corporate guarantee to any banking company or financial institution on behalf of the said recipient, shall be deemed to be one percent of the amount of such guarantee offered, or the actual consideration, whichever is higher.”
The order also provides that in the case of corporate guarantees issued to a bank by a director against loans sanctioned to a company, and where no fee is paid to the director for that service, no GST would apply.