GST on Corporate Guarantee- Books Value or 1% ?

[khushboo Doshi]

What would be the valuation adopted for Corporate Guarantee purposes, if the accounting is done at a rate higher than specified under GST (i.e. more than 1%). Would GST still be payable at 1% of sanctioned amount or on such higher percentage as per books of accounts?

Please note no payment has been made for corporate guarantee fees.

[KASTURI SETHI]

See Circular No. 225/19/2024-GST [F. NO. CBIC-20001/4/2024 - GST]

[Anand Lobo]

Dear Sir, thank you for sharing the circular. While this circular clarifies several questions around corporate guarantee, I am still unable to find any solution or answer to my specific query.

[KASTURI SETHI]

Serial No.6 of the circular is relevant for you.

[Raam Srinivasan Swaminathan Kalpathi]

Dear Querist

Kindly also refer to Circular 210 of 2024, more specifically para 3.7 specifically addresses your issue. I am reproducing the same for reference.

In view of the above, it is clarified that in cases where the foreign affiliate is providing certain services to the related domestic entity, and where full input tax credit is available to the said related domestic entity, the value of such supply of services declared in the invoice by the said related domestic entity may be deemed as open market value in terms of second proviso to rule 28(1) of CGST Rules. Further, in cases where full input tax credit is available to the recipient, if the invoice is not issued by the related domestic entity with respect to any service provided by the foreign affiliate to it, the value of such services may be deemed to be declared as Nil, and may be deemed as open market value in terms of second proviso to rule 28(1) of CGST Rules. 

In your specific issue since no corporate guarantee fees has been paid AND if the recipient is eligible for full ITC then nothing need be done.

[Shilpi Jain]

It will have to be paid at the higher % and not 1%. This is clear from the rules. Rule 28

AI Summary

Corporate guarantee valuation under GST follows the higher declared percentage where books of account exceed the prescribed rate. Valuation of corporate guarantee under GST is discussed with reference to the rule governing related-party supplies and the treatment of declared invoice value, book value, and prescribed percentage valuation. The discussion indicates that where the corporate guarantee is accounted for at a rate higher than the prescribed percentage, GST valuation is to follow the higher declared percentage rather than a lower notional rate, as the valuation rule and related circular guidance are treated as controlling the measure of supply.