No GST is applicable for the services provided by the Director under personal guarantee and loan extensions for the Company

Last updated: 20 November 2024

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The Kerala High Court has ruled that no Goods and Services Tax (GST) is applicable on services provided by a director for personal guarantees and on loan extensions to a subsidiary company. This decision follows two key circulars from the Central Board of Indirect Taxes and Customs (CBIC). These circulars clarify that personal guarantees provided by directors for company loans, when no consideration is paid, have a taxable value of zero. Additionally, loan extensions between related entities are exempt from GST if the consideration is solely in the form of interest.

Court :
Kerala High Court

Brief :
The Hon'ble Kerala High Court in the case of M/s.Manappuram Finance Ltd. v. Union of India [Writ Petition (Civil) No. 24617 of 2022 dated July 29, 2024] wherein, M/s Manappuram Finance Ltd. ("the Petitioner") was served the Show Cause Notice ("the Impugned SCN") demanding the GST on the Reverse Charge Mechanism ("RCM") for the services provided by the Managing Director concerning personal guarantee loans taken by the Petitioner and the GST payable for the services for extending the loans by the Petitioner to its subsidiary company.

Citation :
Writ Petition (Civil) No. 24617 of 2022 dated July 29, 2024

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