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Indirect Tax Alert

Indirect Tax Alert valuation of Corporate Guarantee!

November 02, 2023

Please note the latest update with reference to the recent amendment in the Rule no. 28 of CGST Rules, 2017 vide NN 52/2023- Central Tax dated 26 October, 2023.

For the valuation of corporate guarantee given by a person to a financial institution/bank on behalf of its related party (E.g., corporate guarantee given by a holding company to a bank on behalf of its subsidiary company),

the valuation of supply in case of providing corporate guarantee to any banking company or financial institution by holding company/one related person on behalf of its subsidiary or another related person, shall be deemed to be the higher of the following:

  • 1% of the amount of such guarantee offered or;
  • actual consideration

The applicable GST rate on the aforesaid value of supply of service by way of providing corporate guarantee is 18% as per the provisions of the Act. In addition to this, it has also been clarified by the CBIC vide its circular no. 204/16/2023-GST dated 27th October, 2023 that the value of personal guarantee provided by a director to bank for securing credit facilities for the company will be open market value which is Nil in case no consideration is received by the director. Hence, in such cases no GST is payable.

If you require assistance with your tax compliance, please reach out to us.

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