Taxability of Personal Guarantee by Director and Corporate Guarantee for Related parties & for Subsidiary Company

Consideration received by the Director from the company

Consideration Condition

Recommendation

GST Implication

               NO           

in any form, directly or indirectly, for providing personal guarantee to the bank/financials institution on their behalf

Consideration value for the said supply/value in the open market may be treated as "Zero".

No tax to be payable in respect of such supply of services

              YES          

in any form, directly or indirectly, for providing personal guarantee to the bank/financials institution on their behalf

Consideration value for the said supply/value in the open market may be treated as "Taxable value".

Tax @ 18% to be payable in respect of such supply of services

Consideration received by the Holding company from the subsidiary company and Related parties**

Consideration Condition

Recommendation

GST Implication

               NO           

in any form, directly or indirectly, for providing guarantee to the bank/financials institution on their behalf.

Consideration value for the said supply/value may be 1% of the guarantee amount.

Tax @ 18% to be payable on the taxable value i.e. 1% of the guarantee amount.

              YES          

in any form, directly or indirectly, for providing guarantee to the bank/financials institution on their behalf.

Consideration value for the said supply/value may be 1% of the guarantee amount or Actual consideration, whichever is higher.

Tax @ 18% to be payable on the taxable value i.e. 1% of the guarantee amount or Actual consideration, whichever is higher.

Related Parties** under GST

Related persons are defined u/s 2(84) of the GST Act. Persons shall be deemed to be related if they fall under any of the categories below:-

1. Officer or director of one business is the officer/ director of another business
2. Businesses legally recognised as partners
3. An employer and an employee
4. Any person who holds at least 25% of shares in another company, either directly or indirectly
5. One of them controls the other directly or indirectly
6. They are under common control or management
7. The entities together control another entity
8. The promoters or managerial persons are members of the same family

Persons include a legal person who can be individuals, HUF, company, firm, LLP, co-operative society, a body of individuals, local authority, government, or an artificial juridical person. It also includes entities incorporated outside India. Persons who are associated with one another's business or is a sole agent or sole distributor or sole concessionaire shall be deemed to be related.