The upcoming GST Council may impose an 18% GST on loans secured by India Inc. on bank guarantees which implies a drastic change for the industry. This development could have far-reaching implications for the financial landscape in India, impacting the costs associated with corporate borrowing and financial operations within the corporate sector.
The impact that this change may have on the industrial sector is significant. Companies may need to allocate more funds for GST payments on loans, which could tie up working capital that might otherwise be used for business expansion or other operational needs. Moreover, it might also lead to an increase in the interest percentage.
Sources to CNBC-TV18: #GST Council likely to deliberate on proposal to levy 18% GST on corporate guarantee extended by holding cos/ subsidiaries.@TimsyJaipuria reports. #Exclusive pic.twitter.com/Yz5fsWKAzN
— CNBC-TV18 (@CNBCTV18Live) October 4, 2023
Industries will face higher borrowing costs due to the 18% tax burden on the loans causing direct effect on their financial planning and profitability. This calls for companies to rethink financing structures and explore alternative options to mitigate the GST impact. Another point to note is that higher interest expenses stemming from this GST could erode profit margins, especially for industries with substantial capital needs.
The exact impact will hinge on specific GST Council decisions, including potential exemptions or thresholds, which will shape how businesses and financial institutions adapt to the altered landscape. The long and short of it is that, while the goods and services tax has no direct influence on lending because there is no GST on loan amounts, the overall consequences of the tax regime have indisputable repercussions for various sorts of loans.