GST on corporate Guarantee by directors and relatives

[ROHIT GOEL]

Dear Experts,

Company A has 3 directors and has raised substantial Term loans and Cash credit limits from Banks. In lieu of the same, the directors have given their personal guarantee. Furthermore, the immediate relatives of the directors including their spouse, son, father as well as brother have also given personal guarantees. Further, another company in which one of the directors is director has also given corporate guarantee. No guarantee fees/commission is being charged by any of the guarantors.

In this regard, I have the following queries:

1. Whether GST would be leviable on Personal guarantee by directors since they are deemed to be related persons? Would the answer be different if directors are drawing salary from company?

2. Whether GST would be leviable on personal guarantee by directors' relatives mentioned above? Are they deemed to be related persons as defined in Section 15 of CGST Act?

3. Whether GST would be leviable on corporate guarantee given by another company, just because they have single common director? (Section 15 defines two entities to be related if they are controlled by the same persons)

4. Any other GST effect of such transaction.

Your views would be appreciated.

[Shilpi Jain]

Personal guarantee and corporate guarantee are points that department checks in audits. This surely would raise disputes.

It is possible to conclude that service element does not exist in case of personal guarantee. However a stand can be taken that valuation is not available which could be fatal for the levy.

AI Summary

GST on guarantees: lack of charged fees may suggest no service, but valuation uncertainty creates levy and audit risk. The queries ask whether GST applies to personal guarantees by directors (including salaried directors), guarantees by their immediate relatives as related persons under Section 15, and corporate guarantees by a company sharing a director. The expert reply states guarantees are audit triggers likely to cause disputes, suggests personal guarantees may lack a service element, but warns that absence of a valuation method could expose the transaction to GST levy risk.