GST on Corporate Guarantee


GST on Corporate Guarantee :

one company (let’s say Company H) provided a corporate guarantee to a Bank or Financial institutions on behalf of its related entity, Company S . Since Company H and Company S are related persons under GST law, the question arises: ➡ Is a Corporate Guarantee taxable under GST? ➡ If yes, on what value should it be taxed, considering it is provided free of cost? Analysis As per Section 7(1)(c) read with Para 3 of Schedule I of the CGST Act, 2017, any supply of goods or services between related persons or distinct persons, made in the course or furtherance of business, is deemed a supply even without consideration. Further, Rule 28(2) of the Valuation Rules, 2017, provides that the value of a Corporate Guarantee shall be determined as: ✅ 1% per annum of the guaranteed amount (irrespective of whether the loan is partly or fully utilized) OR ✅ Actual consideration charged (if any) Whichever is higher However, as per the proviso under Rule 28, if the recipient is eligible for full Input Tax Credit (ITC), the value declared in the invoice shall be deemed to be the Open Market Value (OMV). This interpretation has significant implications for businesses offering corporate guarantees to related entities. Ensuring proper valuation and compliance is crucial to avoid any GST-related disputes.

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