The Directorate General of Goods and Services Tax Intelligence (DGGI) has issued tax demand notices to multiple local corporate entities regarding corporate guarantees provided on behalf of their subsidiaries. Similar notices have also been sent to multinational companies that have offered such guarantees for their Indian units.

According to sources, these notices have been dispatched to at least 14 companies, including automakers, FMCG (Fast-Moving Consumer Goods) manufacturers, and electronics companies.

As per a notice reviewed by ET (Economic Times), the DGGI considers this practice as a “service” that is subject to taxation under the Goods and Services Tax (GST). The DGGI argues that parent companies engage in this activity to maximize the returns on their investment in these subsidiaries. In the case of multinational corporations, tax authorities are seeking GST payments from the local units using the reverse charge mechanism.

An official stated to ET, “During our audit, we discovered that certain companies were not paying tax on the corporate guarantees they extended, which are indeed taxable under the GST. Therefore, tax demands have been raised in accordance with the law.”

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Although the amounts being demanded in taxes are not significantly high, the recipient companies have raised objections and are seeking legal advice, as per sources. Officials approximate that the total sum of demand notices issued in the past two months is approximately Rs 600-700 crore.

Providing corporate guarantees for subsidiaries is a common practice among parent companies, but it has sparked debates regarding whether it should be considered a taxable service.

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