M Hussain Khatri, University of Mumbai
Introduction
The Indian legal framework for guarantees, particularly corporate guarantees, is multifaceted. Under Section 126 of the Indian Contract Act, 1872, a guarantee is a promise by one party to assume responsibility for the debt or obligation of another. Corporate guarantees, often provided by parent, holding, or sister companies to secure loans for subsidiaries, traditionally fell under actionable claims and were exempt from GST. Recent amendments, including Circular No. 204/16/2023-GST and Notification No. 52/2023 – Central Tax, have redefined the taxability of these guarantees. The new regulations stipulate that the value of services provided via corporate guarantees shall be deemed 1% of the guaranteed amount or the actual consideration, whichever is higher, ensuring these guarantees are treated as a supply of service subject to GST. This paper explores the definition, legal framework, and recent amendments affecting corporate guarantees under Indian law. It highlights the implications, ambiguities, and judicial responses to these changes, providing a comprehensive analysis of the evolving landscape of corporate guarantees under the GST regime.
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