CBIC Implements GST on Corporate Guarantees

CBIC Implements GST on Corporate Guarantees

VoM News Desk | October 28, 2023 | 12:17 AM IST | Breaking News | Follow on Google News

CBIC Implements GST on Corporate Guarantees

CBIC Implements GST on Corporate Guarantees

The Central Board of Indirect Taxes and Customs (CBIC) has officially declared that the Goods and Services Tax (GST) will now be applicable to corporate guarantees shared between related entities, including parent companies and subsidiaries. This new directive came into effect on Thursday, 26th October, following a decision made by the GST Council on 8th October.

As outlined by the CBIC order, an 18% GST will be levied on corporate guarantees issued between parent and subsidiary companies and other related parties. This GST will be calculated based on either the financial consideration charged by the guarantor for their services or 1% of the value of the guarantee, depending on which amount is higher.

Impact of GST Rule Modification

Experts in the field have noted that this modification to the GST rule will not retroactively affect transactions conducted prior to the 26th of October. Additionally, the council clarified that corporate guarantees issued by a director to a bank, with no fee paid to the director for the service, will not be subject to GST. However, despite these changes aimed at facilitating trade, there are still several critical issues yet to be addressed.

One such issue is the lack of clarity regarding the periodicity of GST payments for corporate guarantees. It remains uncertain whether these payments should be made monthly, annually, or as a one-time occurrence. Vivek Baj, a partner at Economic Laws Practice, a law firm, pointed out that as the new rules come into effect, the resolution of pending disputes and how corporations adapt to the new valuation for both past and future transactions will be intriguing to observe.

VoM News Desk

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