GST Circular No 204/2023
- The activity of providing personal guarantee by the Director of a company to the bank/ financial institutions for sanctioning of credit facilities to the said company without any consideration will be treated as a supply of service and the same will attract GST.
However, it mentions that if the RBI mandates that no consideration, including commission or fees, can be paid to directors for providing personal guarantees, the open market value is effectively zero. Therefore, no GST is payable on such supplies when no consideration can be paid.
In exceptional cases where directors or guarantors are paid remuneration, the taxable value of the supply of service is the remuneration or consideration provided by the company, directly or indirectly. - Corporate guarantees offered by one company for another related company or by holding company to its
subsidiary company, securing credit facilities even when provided without any payment. In both scenarios, these activity will be treated as as supplies of service between related parties as per provision of Schedule I of the CGST Act.
To establish the taxable value, Rule 28 of the CGST Rules is utilized. However, acknowledging the diverse approaches used by field formations and taxpayers, an addition to Rule 28, termed sub-rule (2), has been introduced via Notification No. 52/2023 dated October 26, 2023. This sub-rule standardizes the method for determining the taxable value of supplies between related parties, specifically concerning corporate guarantees. The circular underscores that this new sub-rule (2) applies universally to all instances of service supply involving corporate guarantees between related entities, irrespective of the Input Tax Credit (ITC) availability for the service recipient
