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TMI BlogClarification on issues pertaining to taxability of personal guarantee and corporate guarantee in GSTX X X X Extracts X X X X X X X X Extracts X X X X ..... guarantee by Directors to banks for securing credit facilities for the company. Similarly, clarifications are being sought with respect to taxability and valuation of the activity of providing corporate guarantee by a related person to banks/financial institutions for another related person, as well as by a holding company in order to secure credit facilities for its subsidiary company. 2. In order to ensure uniformity in the implementation of the provisions of law across the field formations, the Board, in exercise of its powers conferred by section 168(1) of the Karnataka Goods and Services Tax Act, 2017 (hereinafter referred to as KGST Act ), hereby clarifies the issues as under : Sl. No. Issue Clarification 1. Whether the activity of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ular No. RBI/2021-22/121, dated 9th November, 2021, which is reproduced below : 2.2.9 Guidelines relating to obtaining of personal guarantees of promoters, directors, other managerial personnel, and shareholders of borrowing concerns Banks should take personal guarantees of promoters, directors, other managerial personnel or major shareholders for the credit facilities granted to corporates, public or private, only when absolutely warranted after a careful examination of the circumstances of the case and not as a matter of course. In order to identify the circumstances under which the guarantee may or may not be considered necessary, banks should be guided by the following broad considerations : ....................... C. Worth of the guara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sideration can be paid for the said transaction by the company to the director in any form, directly or indirectly, as per RBI mandate, there is no question of such supply/transaction having any open market value. Accordingly, the open market value of the said transaction/supply may be treated as zero and therefore, taxable value of such supply may be treated as zero. In such a scenario, no tax is payable on such supply of service by the director to the company. There may, however, be cases where the director, who had provided the guarantee, is no longer connected with the management but continuance of his guarantee is considered essential because the new management s guarantee is either not available or is found inadequate, or there may be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y consideration, is also to be treated as a supply of service by holding company to the subsidiary company, being a related person, as per provisions of Schedule I of the KGST Act. In respect of such supply of services by a person to another related person or by a holding company to a subsidiary company, in form of providing corporate guarantee on their behalf to a bank/financial institution, the taxable value will be determined as per rule 28 of the KGST Rules. Considering different practices being followed by the field formations and taxpayers in determining such taxable value, in order to provide uniformity in practices and ease of implementation, sub-rule (2) has been inserted in rule 28 of the KGST Rules vide Notification (4-E/2023) No ..... X X X X Extracts X X X X X X X X Extracts X X X X
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