GST on Corporate guarantee
This query is : Resolved
01 January 2024
The assesse company had given corporate guarantee to State Bank of India on behalf of its subsidiary company XYZ Limited for credit facilities availed by XYZ F.Y 2010-11. The said corporate guarantee had been released by bank on dated 22-10-2019. Kindly advise in above mention case GST applicable or not
14 January 2024
A new provision has been added in CGST Rules (with effect from October 26, 2023). This says: ”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 per cent of the amount of such guarantee offered, or the actual consideration, whichever is higher.” This means if the corporate guarantee was ₹100 crore, then ₹18 lakh would be the GST liability.
There will be no GST if a director provides a personal guarantee for a loan from a bank or any financial institution to his/her own company.
There will be no GST if a director provides a personal guarantee for a loan from a bank or any financial institution to his/her own company.
15 January 2024
Sir, The assessee company corporate guarantee has been given without consideration to the subsidiary company and before of GST laws were implemented on 01.07. 2017, when the provisions of service tax had been applicable.
27 July 2024
In the context of GST and corporate guarantees, here are the key considerations for your situation:
### 1. Applicability of GST
**Corporate Guarantee Provided Before GST Implementation:**
- **Before July 1, 2017:** The corporate guarantee was given in the financial year 2010-11, which is well before the implementation of GST on July 1, 2017. At that time, service tax would have been applicable.
- **Release of Guarantee After GST Implementation:** The guarantee was released on October 22, 2019, which falls under the GST regime.
### 2. GST Treatment of Corporate Guarantees
**Corporate Guarantees Under GST:**
- **Consideration for Service:** Under GST, the provision of corporate guarantees is considered a supply of service. However, if the guarantee was provided without any consideration and there was no charge for it, it might not fall under the purview of GST. Typically, the consideration (or the lack thereof) is a key factor in determining the applicability of GST.
- **No Consideration:** Since the guarantee was provided without consideration, and assuming it was not a commercial transaction but rather a group support to a subsidiary, the GST liability might not apply. In GST, if a service is provided without consideration, it is generally not considered a taxable supply unless it falls under the specific provisions where GST is levied on such transactions (like under certain conditions for gifts or certain types of non-commercial services).
- **No GST on Release:** The release of the guarantee itself does not usually trigger GST. The GST implications are typically on the provision of the service, not on its cessation.
### 3. Service Tax vs. GST:
- **Service Tax Compliance:** Since the corporate guarantee was given before GST was implemented, it would fall under the service tax regime. If it was not considered taxable under service tax rules at that time (if no consideration was involved), GST would also not apply.
- **Transitional Provisions:** GST does not have provisions for past transactions such as guarantees given before its implementation unless there are specific transitional provisions. The guarantee provided and released before GST implementation generally should not attract GST.
### 4. Summary and Advice
Based on the information provided:
- **Corporate Guarantee Provided:** Before GST implementation, hence not liable for GST.
- **Guarantee Released After GST Implementation:** The release itself doesn’t attract GST, especially when there was no consideration involved.
### Recommendations:
- **Documentation:** Ensure proper documentation and records for the corporate guarantee given and released, including the fact that no consideration was involved.
- **Consultation:** For confirmation and detailed advice, consulting a GST practitioner or tax advisor familiar with corporate guarantees and transitional provisions might be prudent, especially if there are complex scenarios or specific interpretations required.
This should help clarify the GST implications for your case. Let me know if you have further questions!
### 1. Applicability of GST
**Corporate Guarantee Provided Before GST Implementation:**
- **Before July 1, 2017:** The corporate guarantee was given in the financial year 2010-11, which is well before the implementation of GST on July 1, 2017. At that time, service tax would have been applicable.
- **Release of Guarantee After GST Implementation:** The guarantee was released on October 22, 2019, which falls under the GST regime.
### 2. GST Treatment of Corporate Guarantees
**Corporate Guarantees Under GST:**
- **Consideration for Service:** Under GST, the provision of corporate guarantees is considered a supply of service. However, if the guarantee was provided without any consideration and there was no charge for it, it might not fall under the purview of GST. Typically, the consideration (or the lack thereof) is a key factor in determining the applicability of GST.
- **No Consideration:** Since the guarantee was provided without consideration, and assuming it was not a commercial transaction but rather a group support to a subsidiary, the GST liability might not apply. In GST, if a service is provided without consideration, it is generally not considered a taxable supply unless it falls under the specific provisions where GST is levied on such transactions (like under certain conditions for gifts or certain types of non-commercial services).
- **No GST on Release:** The release of the guarantee itself does not usually trigger GST. The GST implications are typically on the provision of the service, not on its cessation.
### 3. Service Tax vs. GST:
- **Service Tax Compliance:** Since the corporate guarantee was given before GST was implemented, it would fall under the service tax regime. If it was not considered taxable under service tax rules at that time (if no consideration was involved), GST would also not apply.
- **Transitional Provisions:** GST does not have provisions for past transactions such as guarantees given before its implementation unless there are specific transitional provisions. The guarantee provided and released before GST implementation generally should not attract GST.
### 4. Summary and Advice
Based on the information provided:
- **Corporate Guarantee Provided:** Before GST implementation, hence not liable for GST.
- **Guarantee Released After GST Implementation:** The release itself doesn’t attract GST, especially when there was no consideration involved.
### Recommendations:
- **Documentation:** Ensure proper documentation and records for the corporate guarantee given and released, including the fact that no consideration was involved.
- **Consultation:** For confirmation and detailed advice, consulting a GST practitioner or tax advisor familiar with corporate guarantees and transitional provisions might be prudent, especially if there are complex scenarios or specific interpretations required.
This should help clarify the GST implications for your case. Let me know if you have further questions!
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