GST & Indirect TaxUpdated 5 October 2026

GST on Bank-Guarantee Commission Recharged to a Group Company: Valuation and ITC Checklist

By Ravi Sisodia · Reviewed by CA Divyanshu Sengar · Updated 5 October 2026

2-minute summary

If Company A obtains a guarantee for Company B business and simply recovers bank charges, first identify whether A is acting as a pure agent or providing a financing/treasury support service.
A related-party supply can be taxable even without a conventional markup; Rule 28 valuation and the full-ITC deeming rule may become relevant.
Pure-agent exclusion requires all Rule 33 conditions, including recipient liability to the third party, authorisation, separate disclosure and exact recovery.
ITC on the bank commission and on the intercompany invoice must be tested under sections 16/17 and business-use facts; do not assume group-company status guarantees credit.

Current position

A bank guarantee commission paid to a bank and later recharged to a group company should not automatically be labelled a tax-free reimbursement. GST treatment depends on what the recharging entity is supplying, whether parties are related/distinct persons, valuation under Rule 28, and whether the narrow pure-agent conditions of Rule 33 are actually met.

Control and evidence map

#	Control	What the file should show
1	Map who requested the guarantee, whose obligation is secured and who is legally liable for bank commission.
2	Review intercompany treasury agreement and authorisation for payment on behalf of the recipient.
3	Test Rule 33 line by line before excluding the reimbursement from value.
4	If it is a related-party service, document Rule 28 valuation and invoice/self-invoice mechanics as applicable.
5	Reconcile bank GST invoice, intercompany invoice, ITC ledger and guarantee register.

Worked example

ParentCo arranges a bank guarantee supporting SubsidiaryCo’s vendor contract and pays Rs. 2 lakh bank commission plus GST. If the bank contract is with ParentCo and SubsidiaryCo was not itself liable to the bank, a simple “pure reimbursement” label is weak. The group should analyse whether ParentCo supplied treasury support and value that supply under the related-party rules rather than merely pass through the bank debit.

Common mistakes

Calling every cost recharge a pure-agent transaction.
Ignoring who is contractually liable to the bank.
Netting the recharge against intercompany balances without a tax invoice where a taxable supply exists.
Taking ITC without checking use, documentation and section 17 restrictions.

Frequently asked questions

Is a bank guarantee commission recharge always taxable?

Not automatically; characterise the underlying intercompany arrangement and apply valuation/pure-agent rules.

When can Rule 33 pure-agent exclusion apply?

Only when all prescribed conditions are satisfied, including recipient liability, authorisation and exact separately disclosed recovery.

What if both group companies have full ITC?

Rule 28 contains a deeming rule for full-ITC cases, but documentation and supply character still matter.

What should be reconciled?

Bank invoice, guarantee beneficiary/obligation, intercompany agreement, tax invoice and both entities’ ITC/ledger entries.

Official sources

Central Board of Indirect Taxes and Customs - Central Goods and Services Tax Act, 2017 (current consolidated law)
Central Board of Indirect Taxes and Customs - CGST Valuation Rules (current rules)

Disclaimer: Educational and informational content only. Apply the current law, instrument, contract and facts before acting; obtain professional advice for material or disputed matters.

Disclaimer

Educational and professional reference only; confirm the current law, rates and the facts of your case before relying on this page.