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Background-
The issue of tax on corporate guarantee in GST is settled now. The personal guarantee given by the director is taxable now. Although many corporates were getting the notices earlier also. There was a lack of clear provisions. Most of the corporates were not charging any tax on it. But the department was trying to charge the tax.
All in all the issue was in dispute. A lot of litigation was there on this issue. Now in 52nd meeting of GST council, this issue is almost resolved
The tax on corporate Guarantee-
The tax rate on corporate guarantee will be 18%.
The valuation for corporate guarantee-
The valuation for the purpose of corporate guarantee will be 1% of the amount of the Guarantee.
This decision is going to open a lot of issues. First of all, if it is prospective then all the past cases should drop. Secondly, can the government make something a supply even if it is not in nature of supply? The constitutional validity of this provision can be challenged in the future
Also in the case of the related party, the Value would be governed by the proposed sub-rule (2) of rule 28 of CGST Rules, 2017, irrespective of whether full ITC is available to the recipient of services or not.
