Real Estate Developers Seek Amendment to 18% GST on Corp. Guarantees
“As per developers, 18% GST should be imposed on either actual consideration or 1% of the guarantee amount, whichever is lower,” a highly placed source said. Notably, as per the circular, the consideration value on which the GST will be levied is higher of either the actual payout or 1% of the loan amount. Besides realty developers, other industry bodies are also in the process of making representation before the government in respect of recent ruling. “Currently the courts are on vacations. We will file the writ petition in the first or second week of January,” another source said.
Meanwhile, as per government sources, the next GST Council meet may take up the above issue for discussion. The 53rd Council meeting will likely take place in January. According to experts, the recent ruling by the Council will have a significant impact on the infrastructure and real estate sector, which heavily relies on external financing and borrowing for large-scale projects.
The new rule states that the taxable value of corporate guarantees will be either 1% of the guarantee amount or the actual consideration paid for providing the corporate guarantee, whichever is higher. This means that GST will be applicable on guarantees between related parties, even if the subsidiary company cannot claim full input tax credit. The proposed rule determines the value for taxation purposes based on this valuation.
One of the expert had earlier told this newspaper that guarantees issued by the parent company on behalf of lending banks should not be considered a service to the subsidiary. He argued that guarantees, being actionable claims, do not fall under the category of goods or services and should not be subject to GST.
Mishra pointed out that the parent company cannot charge a consideration to the subsidiary due to the commitment made to the banks, which further supports the argument against GST imposition in the absence of consideration.
Ruling to impact infra, real estate sector
According to experts, the recent ruling by the Council will have a significant impact on the infrastructure and real estate sector, which heavily relies on external financing and borrowing for large-scale projects. Realtors may file writ petition in the first or second week of January,
