GST on Corporate Guarantees: A Comprehensive Guide

GST on Corporate Guarantees: A Comprehensive Guide

Blog Article

The Goods and Services Tax (GST) framework in India has been a subject of continuous evolution, and one of the recent areas of focus is GST on corporate guarantees. Corporate guarantees are widely used in business transactions, especially within group companies, where a parent or holding company guarantees the financial obligations of its subsidiary. However, the taxation of such guarantees under GST has raised significant concerns among businesses and financial experts.

As per recent clarifications by the GST authorities, providing a corporate guarantee constitutes a supply of service, making it liable for GST. The key question revolves around the valuation of such services and the applicable tax rate. The GST law requires that transactions between related parties, even when made without consideration, be valued at their fair market price. Consequently, when a company provides a corporate guarantee for its subsidiary, the transaction is subject to GST, even if no direct payment is involved.

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