• Notification Date: 03-11-2023
  • Notification No: N/A

Finance Ministry notifies Prospective Levy of GST on Corporate Guarantees

The finance ministry has issued a notification stating goods and services tax will be levied on guarantees provided by corporates to their subsidiaries prospectively. 

The Goods and Services Tax (GST) council, comprising central and state finance ministers, had earlier this month clarified on the taxability of corporate guarantee, saying it would be subject to 18 per cent GST. 

Tax experts had then sought clarity on GST levy on past transactions as many companies might not be able to recover the tax from subsidiaries or group companies. 

The finance ministry on Thursday notified amendments to Central GST rules, saying that the corporate guarantee would be taxable from the date of the notification. 

GST at 18 per cent will be levied on 1 per cent of the total amount guaranteed by the parent company or the actual consideration, whichever is higher, the notification said. 

"This prospective modification shall have no bearing on transactions executed prior to October 26, consequently preserving the tax risk associated with past transactions," AMRG & Associates Senior Partner Rajat Mohan said. 

Corporate entities must carefully evaluate their tax position when reviewing or renewing corporate guarantees and within lending agreements where contractual constraints prevent the assessment of consideration, Mohan added.