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According to Abhishek A Rastogi, founder of Rastogi Chambers, who is representing clients at different forums for taxability of corporate guarantee, “the statutory provisions provide that ‘supply’ should be taxable on the value of the consideration and hence the moot point which arises is whether tax on corporate guarantee is valid at the higher amount of 1% and whether this can be taken as a deemed value.”“With respect to the consideration for corporate guarantee, there is also an ambiguity when guarantee is provided for a period beyond one year. The question arises whether 1% deemed value will be subject to tax only once or whether this 1% will be subjected to tax every year, thereby leading to vagueness in tax provisions”, added Rastogi.This newspaper in April had reported that the Ministry of Finance will likely issue a clarification regarding the taxability of corporate guarantees under the GST law between related parties. The debate revolves around the calculation of taxable value based on actual amount utilised by the beneficiary when the guaranteed amount exceeds the utilisation. In addition, there is also a need for clarity on whether this change should apply prospectively or retrospectively. In October, the GST Council had announced that corporate guarantees for bank loans given by the parent company to its subsidiary would attract 18%.
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Punjab and Haryana HC stays CBIC-circular on taxability of corporate guarantee between related parties
