GST Council's Corporate Guarantee Relief Not a Boon for Realty and Power Firms
The GST Council's decision to provide tax exemption on corporate guarantees may not provide relief to real estate and power sectors, facing tax liabilities of Rs 1,000 crore.
Corporate GuaranteeGst CouncilReal EstatePower SectorTax ExemptionInput Tax CreditReal EstateJun 23, 2024
The GST Council had earlier decided that the consideration for the issue of corporate guarantee would be 1% of the value of guarantee or the actual amount charged, whichever is higher. A notification to enforce this was issued in October 2023, making GST applicable at a rate of 18% to corporate guarantees between parent and subsidiaries and other related parties.
Many infrastructure firms, including real estate and power companies, filed writ petitions before courts, challenging the 18% levy. An official source revealed that 50-60 such companies received tax notices after the GST Council's decision in late October to tax these guarantees, and the aggregate tax demands raised via these notices were over Rs 1,000 crore.
Among the companies that received these notices are DLF, IL&FS, Indiabulls Real Estate, and Supertech. The industry's plea is that giving guarantee is not a benefit or a supply of service that they are extending to their special purpose vehicles (SPVs) but a necessity for SPVs to remain operational.
Experts believe that the amendment would continue to apply in cases where full input tax credit is not available to the recipient, and sectors such as power or real estate would look for reduced rate of deemed valuation. Unless the fine-print of the amendment comes out, it cannot be said that the latest decision has solved any concerns of these sectors.
Information
BDO India is a leading provider of assurance, tax, and advisory services. SW India is a consulting firm specializing in indirect tax services.
The Goods and Services Tax (GST) Council is a constitutional body that decides on GST rates, taxes, and exemptions. It is composed of the Union Finance Minister, Union Minister of State in charge of Revenue, and the Minister in charge of Finance or Taxation from each of the 28 states.
Keywords Tags corporate guarantee, GST Council, real estate, power sector, tax exemption, input tax credit
Frequently Asked Questions
What is the GST rate applicable to corporate guarantees?
The GST rate applicable to corporate guarantees is 18%.
Which sectors are facing tax liabilities of Rs 1,000 crore due to GST on corporate guarantees?
The real estate and power sectors are facing tax liabilities of Rs 1,000 crore due to GST on corporate guarantees.
What is the criterion for exemption from GST on corporate guarantees?
The criteria for exemption from GST on corporate guarantees are transactions that qualify as export of services and recipients who can claim full input tax credit.
Why are real estate and power companies not eligible for exemption from GST on corporate guarantees?
Real estate and power companies are not eligible for exemption from GST on corporate guarantees because they do not meet the criteria of export of services or full input tax credit.
What is the industry's plea regarding corporate guarantees?
The industry's plea is that giving guarantee is not a benefit or a supply of service that they are extending to their special purpose vehicles (SPVs) but a necessity for SPVs to remain operational.
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