Corporate guarantee relief will not benefit realty, power firms: Experts
By: Admin
June 26, 2024
Categories: GST Recent News
4 Min Read
The Goods and Services Tax (GST) Council’s decision to provide tax exemption on corporate guarantees in two scenarios – transactions that qualify as “export of services” and recipients who can claim full input tax credit – may not provide any relief to the power or real estate sectors, which are facing tax liabilities to the tune of Rs 1,000 crore, experts say.
The Council in its earlier meeting had 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 it was issued in October 2023, which made GST applicable at a rate of 18% to corporate guarantees between parent and subsidiaries and other related parties.
Post the enforcement, several infrastructure firms, including real estate and power companies, filed writ petitions before courts, challenging the 18% levy. An official source had told FE that 50-60 such companies have 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 was over Rs 1,000 crore.
Among the companies that had been slapped with these notices are DLF, IL&FS, Indiabulls Real Estate, and Supertech, the official had said, on condition of anonymity.
On Saturday, the Council proposed an amendment to Rule 28(2) of CGST Rules, 2017, and said that valuation under the said rules would not be applicable in case of export of such services (for instance, guarantee given for a foreign subsidiary), and where the recipient is eligible for full input tax credit.
“This amendment would help in easing the compliance and record keeping burden and also would reduce the fund blockages in some cases,” noted an expert. However, the amendment would continue to apply in cases wherein 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, she said.
Another expert said that the two criteria don’t include power and real estate companies, hence, their “demand for exemption stays”.
“Unless the fine-print of the amendment comes out, we can’t really say the latest decision has solved any concerns of these sectors,” he said.
Many companies, especially in the energy and real estate sector, float a special purpose vehicle (SPV) for each project. So for funding purposes, the main entity has to give guarantees to financial institutions to extend the funding to these SPVs.
The industry’s plea is that giving guarantee is not a benefit, or a supply of service, that they are extending to their SPVs but a “necessity” for SPVs to remain operational. Since the SPVs are newly set-up, raising funds becomes a challenge for them, hence arises the need for guarantee from Indian holding companies.
Source from: https://www.financialexpress.com/policy/economy-corporate-guarantee-relief-will-not-benefit-realty-power-firms-experts-3532754/
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