In a relief to companies, CBIC clarifies taxability on corporate guarantee

Goods and services tax (GST) will be applied to 1 per cent of corporate guarantee fees on an annual basis and become applicable from October 23, 2023, the government has said.

This will give relief to companies.

The Central Board of Indirect Taxes and Customs (CBIC) has notified the rules following the decision on corporate guarantees in the GST Council meeting on June 22.

Besides, there is a provision for taxing invoices for corporate-guarantee services among related entities. By this the recipient is eligible for full input tax credit.

This is relief for businesses, which in various cases faced concern on cash flows.

Restricting the deemed valuation (1 per cent per annum) to only domestic transactions would be helpful, said Abhishek Jain, partner and national head (indirect tax), KPMG.

The CBIC has also come up with an enabling provision for allowing rectification of GSTR-1 for businesses. “The modus operandi prescribed should not significantly impact the input tax credit reconciliation process for businesses” Jain said.