GST on Personal Guarantee by Director and Corporate Guarantee by Company—CA. Anshu Gupta

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The Tax Publishers GST--Personal Guarantee & Corporate Guarantee GST on Personal Guarantee by Director and Corporate Guarantee by Company CA. Anshu Gupta The learned author seeks to analyse the issue of taxability of personal guarantee given by directors and corporate guarantee given by companies to the banks or financial institutions. The related issue is being discussed in the light of statutory provisions and a recent CBIC clarification. 1. Introduction The term "contract of guarantee" is defined under section 126 of the Indian Contract Act, 1872as under : "A "contract of guarantee" is a contract to perform the promise, or discharge the liability, of a third person in case of his default. The person who gives the guarantee is called the "surety"; the person in respect of whose default the guarantee is given is called the "principal debtor", and the person to whom the guarantee is given is called the "creditor". A guarantee may be either oral or written." Contract of Guarantee is a Tri-partite agreement i.e. it involves 3 Parties and is different from Contract of Indemnity as mentioned in Section 124 of the Indian Contact Act, 1872 in which one party promises to save the other from loss caused to him by the contract of the promisor himself, or by the conduct of any other person and involves only 2 Parties- Indemnifier and Indemnity holder. In this regard it is worthwhile to discuss the meaning of some specified terms, namely : (i) Indemnifier The person who makes a promise to indemnify against the loss or to make good the loss (promisor) is called an indemnifier. (ii) Indemnity-holder SUBSCRIBE FOR FULL CONTENT

The Tax Publishers

GST--Personal Guarantee & Corporate Guarantee

GST on Personal Guarantee by Director and Corporate Guarantee by Company

CA. Anshu Gupta

The learned author seeks to analyse the issue of taxability of personal guarantee given by directors and corporate guarantee given by companies to the banks or financial institutions. The related issue is being discussed in the light of statutory provisions and a recent CBIC clarification.

1. Introduction

The term "contract of guarantee" is defined under section 126 of the Indian Contract Act, 1872as under :

"A "contract of guarantee" is a contract to perform the promise, or discharge the liability, of a third person in case of his default. The person who gives the guarantee is called the "surety"; the person in respect of whose default the guarantee is given is called the "principal debtor", and the person to whom the guarantee is given is called the "creditor". A guarantee may be either oral or written."

Contract of Guarantee is a Tri-partite agreement i.e. it involves 3 Parties and is different from Contract of Indemnity as mentioned in Section 124 of the Indian Contact Act, 1872 in which one party promises to save the other from loss caused to him by the contract of the promisor himself, or by the conduct of any other person and involves only 2 Parties- Indemnifier and Indemnity holder.

In this regard it is worthwhile to discuss the meaning of some specified terms, namely :

(i) Indemnifier

The person who makes a promise to indemnify against the loss or to make good the loss (promisor) is called an indemnifier.

(ii) Indemnity-holder