Blog on Circular No. 154/10/2021-GST: GST Exemption on Loan Guarantees by Government for PSUs
<h4><strong>Introduction</strong></h4><p>The <strong>Central Board of Indirect Taxes and Customs (CBIC)</strong> issued <strong>Circular No. 154/10/2021-GST</strong> on <strong>June 17, 2021</strong>, clarifying the <strong>applicability of GST on loan guarantees provided by Central and State Governments to their Public Sector Undertakings (PSUs)</strong>. The circular confirms that such services are <strong>exempt from GST under Entry 34A of Notification No. 12/2017-CT(R)</strong>.</p><hr><h3><strong>Key Highlights of the Circular</strong></h3><h4><strong>1. GST Exemption for Loan Guarantees by Governments</strong></h4><ul><li><strong>Entry No. 34A of Notification No. 12/2017-CT(R) exempts GST</strong> on:<ul><li>Services provided by <strong>Central, State, or Union Territory Governments</strong>.</li><li><strong>Loan guarantees issued for their undertakings or PSUs</strong>.</li><li>Loans obtained from <strong>banks and financial institutions</strong>.</li></ul></li></ul><h4><strong>2. Clarification from the GST Council</strong></h4><ul><li>The <strong>GST Council in its 43rd meeting (May 28, 2021)</strong> examined concerns about <strong>whether loan guarantees by Governments to PSUs attract GST</strong>.</li><li>The Council <strong>reaffirmed that such services are specifically exempt from GST</strong> under <strong>Entry 34A</strong>.</li></ul><h4><strong>3. Impact of the Clarification</strong></h4><ul><li><strong>PSUs and Government Entities</strong> can <strong>continue to receive loan guarantees from the Government without additional GST costs</strong>.</li><li><strong>Banks and financial institutions</strong> can process such guarantees <strong>without considering GST liabilities</strong>.</li><li><strong>Ensures smooth financial assistance</strong> to PSUs without increasing their borrowing costs.<a href="https://cms.plasament.com/storage/nisha/circular-refund-154.pdf">circular_refund_154</a><br> </li></ul>