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52nd GST Council Meeting: Ministry of Finance Notifies 18% GST

Published on October 31, 2023
Current Context: The Ministry of Finance has recently notified the applicability of 18% GST on corporate guarantees given by one entity to another in favour of a third party, such as a bank or a financial institution.
52nd GST Council Meeting: Ministry of Finance Notifies 18% GST
  • The new rule applies to transactions involving Corporate Guarantees provided on or after 26th October 2023.
  • This notification was issued following the recommendations of the 52nd GST Council meeting held on 7th October, 2023.
  • A corporate guarantee is a promise made by one entity (the guarantor) to pay the debt or perform the obligation of another entity (the borrower) in case of default.
  • Corporate guarantees are often issued by parent companies for their subsidiaries or by group companies for each other.
  • The notification specifies that the 18% GST will apply to corporate guarantees between parent and subsidiary and other related parties either on the financial consideration charged by the guarantor for that service or 1% of the value of the guarantee, whichever is higher. However, personal guarantees offered by the promoters or directors of the company in their individual capacity shall not attract GST.

Question:

Q.1 What is the GST rate on guarantees provided by corporates to their subsidiaries as per the 52nd GST Council Meeting?
a. 5%
b. 12%
c. 18%
d. 28%
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