GST Circular No 225/2024
The Circular No. 225/19/2024-GST provides clarification on how corporate guarantees between related entities should be valued and taxed under GST. Effective from October 26, 2023, new rules specify that GST on such guarantees is set at 1% of the amount guaranteed. For guarantees issued before this date, valuation follows the old rules, while those issued after must adhere to the updated valuation method. This distinction ensures that past transactions are not retroactively affected by the new rules.
GST liability for corporate guarantees is determined based on the full guaranteed amount, not just the portion of a loan actually used. The circular specifies that GST should be calculated annually for multi-year guarantees or based on the actual consideration, whichever is higher. For guarantees renewed or extended, GST is payable each
time a new guarantee is issued. This approach ensures clarity on tax obligations over the life of the guarantee.
For intra-group guarantees, GST must be paid under the forward charge mechanism by the domestic supplier, while international guarantees are subject to reverse charge by the recipient in India. The circular also notes that if a loan is transferred to a new financial institution, no additional GST is due unless a new guarantee is issued. Lastly, the new rules do not apply to corporate guarantees provided to entities outside India, ensuring that export transactions remain unaffected by these domestic tax changes.
