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TMI BlogClarification on issues pertaining to taxability of personal guarantee and corporate guarantee in GST.X X X X Extracts X X X X X X X X Extracts X X X X ..... iformity. it has been decided that the said circular issued by the CBIC is being made applicable, mutatis mutandis , in implementation of the MGST Act, 2017. Copy of the referred CBIC circular is attached herewith. This Trade Circular is clarificatory in nature. Difficulty if any, in the implementation of this Circular may be brought to the notice of the office of the Commissioner of State Tax, Maharashtra. (Rajeev Kumar Mital) Commissioner of State Tax, Maharashtra State, Mumbai Circular No. 204/16/2023-GST F. No. 20/06/22/2023-GST-CBEC Government of India Ministry of Finance Department of Revenue Central Board of Indirect Taxes and Customs GST Policy Wing ***** New Delhi, Dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to the said company without any consideration will be treated as a supply of service or not and whether the same will attract GST or not. As per Explanation (a) to section 15 of CGST Act, the director and the company are to be treated as related persons. As per clause (c) of sub-section (1) of section 7 of the CGST Act, 2017, read with S. No. 2 of Schedule I of CGST Act, supply of goods or services or both between related persons, when made in the course or furtherance of business, shall be treated as supply even if made without consideration. Accordingly, the activity of providing personal guarantee by the Director to the banks/ financial institutions for securing credit facilities for their companies is to be treated as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ranted, they should bear reasonable proportion to the estimated worth of the person. The system of obtaining guarantees should not be used by the directors and other managerial personnel as a source of income from the company . Banks should obtain an undertaking from the borrowing company as well as the guarantors that no consideration whether by way of commission, brokerage fees or any other form, would be paid by the former or received by the latter, directly or indirectly. This requirement should be incorporated in the bank's terms and conditions for sanctioning of credit limits. During the periodic inspections, the bank's inspectors should verify that this stipulation has been complied with. There may, however, be exceptiona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er exceptional cases where the promoters, existing directors, other managerial personnel, and shareholders of borrowing concerns are paid remuneration/ consideration in any manner, directly or indirectly. In all these cases, the taxable value of such supply of service shall be the remuneration/ consideration provided to such a person/ guarantor by the company, directly or indirectly. 2. Whether the activity of providing corporate guarantee by a person on behalf of another related person, or by the holding company for sanction of credit facilities to its subsidiary company, to the bank/ financial institutions, even when made without any consideration will be treated as a taxable supply of service or not, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in rule 28 of CGST Rules vide Notification No. 52/2023 dated 26.10.2023, for determining the taxable value of such supply of services between related persons in respect of providing corporate guarantee. Accordingly, consequent to insertion of the said sub-rule in rule 28 of CGST Rules, in all such cases of supply of services by a related person to another person, or by a holding company to a subsidiary company, in the form of providing corporate guarantee on their behalf to a bank/ financial institution, the taxable value of such supply of services, will henceforth be determined as per the provisions of the sub-rule (2) of Rule 28 of CGST Rules, irrespective of whether full ITC is available to the recipient of services or not. It is c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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