NEW DELHI: The recent goods and services tax (GST) notification has clarified that the 1% charge on corporate guarantees between related parties applies yearly, not for each transaction. 

This clarity is in addition to various notifications issued by the Central Board of Indirect Taxes and Customs (CBIC) on July 10 to give effect to the recommendations made in 53rd GST Council meeting held in June. 

According to the notification, companies can avoid this charge if they claim full tax credit and deal only with taxable goods and services. However, as per experts, businesses earning even a small portion of exempt income will still face complexities in valuing guarantees for tax purposes. They have sought for further guidance to address issues for businesses with mixed taxable and exempt income. 

Saurabh Agarwal, Tax Partner, EY said, “The tax treatment of corporate guarantees under India’s GST has been confusing. A recent notification by the CBIC clarifies that the 1% GST charge applies annually, not per transaction. Additionally, companies claiming full tax credit on purchases won’t be taxed on guarantees if their business deals only with taxable goods and services. This simplifies things for some.”

 “However, companies with even a small portion of exempt income (like 2-3%) will still need to value the guarantee for tax purposes, creating inconsistencies. Overall, it’s a positive step towards a certainty of taxes on corporate guarantees, but further guidance might be needed to address valuation issues for businesses with mixed taxable and exempt income,” Agarwal said. 

New provisions allow manual filing of appeals with the Registrar’s permission. This helps in situations where the online portal isn’t accessible. Additionally, a minimum filing fee of Rs 5,000 has been set, bringing clarity and structure to the appeals process.

“This is a positive step, offering flexibility for exceptional circumstances while also establishing a clear financial threshold for appeals,” said Agarwal.

Meanwhile, the amendment has been made under the Central Goods and Services Tax Act, 2017 (CGST Act), to empower the Central Government to notify the rate of tax for supplies made through electronic commerce operators. It notified a reduction in TCS rate from 1% to 0.5 %. The centre also exempted the requirement of filing of annual return in FORM GSTR-9/9A for the FY 2023-24 for taxpayers having aggregate annual turnover up to Rs 2 crore.