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Taxability of Corporate Guarantees under GST

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– Dayita Kanodia, Executive | finserv@vinodkothari.com

A person who can’t pay gets another person who can’t pay, to guarantee that he can pay.

– Charles Dickens

Background

It is a common practice for companies to issue guarantees for loans taken by their group companies. When transactions happen between related parties, there is always a likelihood of them being not at arm’s length. 

Accordingly, this has led to questions that whether such corporate guarantees given without any consideration shall be liable to GST. A Supreme Court ruling issued earlier this year has clarified that corporate guarantees issued without any consideration shall not be liable to service tax. 

Therefore while the situation in case of levy of service tax has been clarified by the ruling, the same has led to a lot of ambiguities and questions for the levy of GST on such guarantees. This article aims to clarify the same.   

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A Critical Analysis on Corporate Guarantees under Service Tax and GST

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Dayita Kanodia, Executive | finserv@vinodkothari.com

“The Supreme Court’s only armour is the cloak of public trust; its sole ammunition, the collective hopes of our society.” – Irving R. Kaufman

Background

The Supreme Court has ruled that service tax will not be levied on corporate guarantees by a parent company to its subsidiaries where there is no consideration involved.

This article discusses the impact of this ruling on companies which issue corporate guarantees without consideration.

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