The parent company’s corporate guarantee to its subsidiary for a bank loan will attract 18 per cent GST, recommended the GST Council on Saturday. However, there will be no GST if a director provides a personal guarantee for a loan from a bank or any financial institution to his/her own company without consideration.”

“When the corporate guarantee is given by a director to a company then the value of service will be deemed to be zero when there is no consideration, hence no tax,” Revenue Secretary Sanjay Malhotra said at a press conference to announce recommendations of 52nd meeting of GST Council under the Chairpersonship of Finance Minister Nirmala Sitharaman in the national capital.

A statement issued by the Finance Ministry clarified that when no consideration is paid by the company to the director in any form, directly or indirectly, for providing personal guarantee to the bank/ financial instituitions on their behalf, the open market value of the said transaction/ supply may be treated as zero and hence, no tax to be paid.  However, taxable value of supply of corporate guarantee provided between related parties including corporate guarantee provided by parent company to its subsidiary will be one per cent of the amount of such guarantee offered, or the actual consideration, whichever is higher.

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