The Central Board of Indirect Taxes and Customs has issued Notification 52/2023-Central Tax and Circular 204/16/2023-GST on 26 and 27 October 2023, respectively, regarding the levy of GST on personal and corporate guarantees. The Notification and Circular clarify the taxability of personal guarantees offered by directors to a bank against credit limits/loans being sanctioned to a company, as well as the taxability of corporate guarantees provided for related persons, including corporate guarantees provided by a holding company to its subsidiary company. The Circular explains that providing a corporate guarantee by a person on behalf of another related person, or by a holding company for credit facilities to its subsidiary company, to a bank/financial institution, even when made without any consideration, will be treated as a taxable supply of service. The taxable value will be determined as per rule 28 of CGST Rules. However, sub-rule (2) of Rule 28 shall not apply in respect of the activity of providing personal guarantee by the Director to banks/financial institutions for securing credit facilities for their companies.
Source Orbitax
