GST on corporate guarantee needs clarification: Experts
NEW DELHI: The recent goods and services tax (GST) notification has clarified that the 1% charge on corporate guarantees between related parties applies yearly, not for each transaction.
This clarity is in addition to various notifications issued by the Central Board of Indirect Taxes and Customs (CBIC) on July 10 to give effect to the recommendations made in 53rd GST Council meeting held in June.
According to the notification, companies can avoid this charge if they claim full tax credit and deal only with taxable goods and services. However, as per experts, businesses earning even a small portion of exempt income will still face complexities in valuing guarantees for tax purposes. They have sought for further guidance to address issues for businesses with mixed taxable and exempt income.
Saurabh Agarwal, Tax Partner, EY said, “The tax treatment of corporate guarantees under India’s GST has been confusing. A recent notification by the CBIC clarifies that the 1% GST charge applies annually, not per transaction. Additionally, companies claiming full tax credit on purchases won’t be taxed on guarantees if their business deals only with taxable goods and services. This simplifies things for some.”
