GST & Indirect Tax

GST on Corporate Guarantees Between Group Companies: Checklist, Due Dates and Common Mistakes

📅 June 2026GSTReviewed: 30 August 2026✔ cbic-gst.gov.in

Answer first: CBIC's Circular 204/16/2023-GST says a corporate guarantee between group companies is taxable even without a fee, valued under Rule 28(2) at the higher of 1% of the guarantee amount per year or actual consideration. That was the settled official position — but it is no longer uncontested. As of August 2026, the Bombay High Court has ruled that a guarantee given with no consideration at all is not a taxable "supply" in the first place, directly against CBIC's circular, while the Gujarat High Court upheld the GST levy generally but struck down the "whichever is higher" valuation formula. This guide gives you both the official CBIC position and the current litigation picture, because relying on only one side right now is a real compliance risk.

⚠️

Active litigation as of August 2026: Bombay High Court (D.P. Jain & Co. Infrastructure Pvt Ltd v. Union of India, WP 2087/2025, order dated 6 May 2026) held that a corporate guarantee issued with no fee, commission or other consideration is not a "supply" under Section 7 of the CGST Act at all — contradicting CBIC's circular that treats it as taxable regardless of consideration. Gujarat High Court (Torrent Power Ltd v. Union of India, SCA 12175/2024, order dated 14 August 2026) took a different view: it upheld the GST levy on corporate guarantees and the general constitutional validity of Rule 28(2), but struck down (\"read down\") the \"whichever is higher\" wording specifically — meaning a taxpayer's actual, lower consideration can be used instead of being forced to the 1% floor — and confirmed Rule 28(2) cannot be applied retrospectively before 26 October 2023. Separately, the Punjab & Haryana High Court has granted an interim stay in a challenge by Acme Cleantech Solutions, and other large taxpayers (including Jindal Stainless) have pending challenges of their own. These rulings do not agree with each other, and none is from the Supreme Court — treat this as genuinely unsettled law, not a resolved question, until a higher court or the GST Council settles it.

Use the GST Refund Route and RFD-01 Checklist to apply these points to your figures or facts.

Is a Corporate Guarantee Taxable Under GST?

Under CBIC's official position, yes: CBIC has clarified (Circular 204/16/2023-GST, 27 October 2023) that a corporate guarantee provided by a company (guarantor) to a bank or financial institution on behalf of its related party (borrower) is a taxable supply of service under Schedule I of the CGST Act, even when provided without an explicit fee — related-party supplies between distinct/related persons are deemed to be a supply even without consideration. The valuation is governed specifically by Rule 28(2) of the CGST Rules, inserted by Notification 52/2023-CT (26 October 2023) and subsequently amended by Notification 12/2024-CT (10 July 2024, applied retrospectively to 26 October 2023). This is a standalone valuation rule for corporate guarantees — it is not based on the Safari Retreats Supreme Court ruling, which concerned a different question (ITC eligibility on construction of immovable property let out on rent) and has no bearing on corporate guarantee valuation. However, this "yes" is now contested: the Bombay High Court's May 2026 ruling in D.P. Jain held that a genuinely no-consideration guarantee is outside the scope of "supply" altogether — so whether a specific guarantor actually owes GST on a fee-free guarantee depends, as of today, partly on which High Court's jurisdiction applies and how that litigation ultimately resolves.

For the connected rule, example or next step, see GST on Corporate Guarantees Between Related Parties.

Valuation Under Rule 28(2): Higher of 1% or Actual Consideration

Rule 28(2) sets the taxable value as the higher of (a) 1% of the guarantee amount offered, per annum, or (b) the actual consideration charged — not simply "1% unless a higher fee is charged." This rule applies only where the recipient is a related person located in India; it does not apply to corporate guarantees extended to a related recipient located outside India. There is also an important exception: where the recipient is eligible for full input tax credit, the value declared in the invoice is deemed to be the value of the supply — meaning the 1%-per-annum floor does not bind in that scenario, and the parties can use a lower invoiced value if they choose, since the government has no revenue-leakage concern when the recipient can claim full ITC anyway.

For the connected rule, example or next step, see GST Return Filing Guide: GSTR-1, GSTR-3B, GSTR-9 — Due Dates, Process and Penalties.

Situation	GST Value	GST Amount (18%)
Corporate guarantee of ₹10 Cr; no fee charged; recipient does NOT have full ITC eligibility	Higher of 1% of ₹10Cr (₹10L per year) or actual consideration (₹0) = ₹10L per year	₹1.8L per year
Corporate guarantee of ₹10 Cr with explicit fee of ₹12L; recipient does NOT have full ITC eligibility	Higher of 1% (₹10L) or actual fee (₹12L) = ₹12L	₹2.16L
Corporate guarantee of ₹10 Cr; recipient IS eligible for full ITC	Invoice-declared value is deemed the value of supply (the 1% floor does not apply)	18% of the declared invoice value
Corporate guarantee to a related recipient located outside India	Rule 28(2) does not apply; valuation falls back to the general related-party rules	Depends on general valuation (Rule 28(1)) and export-of-service analysis

ℹ️

Key Point (CBIC's stated position): the 1%-per-annum figure is a floor, not a ceiling, and it only binds when the recipient lacks full ITC eligibility. If the recipient is eligible for full ITC, the parties' invoiced value controls instead.

⚠️

Update — Gujarat HC, 14 August 2026: in Torrent Power Ltd v. Union of India, the Gujarat High Court read down exactly this "whichever is higher" wording as arbitrary, holding that actual consideration can be used even where it is lower than the 1% benchmark, rather than the taxpayer being forced onto the higher figure. This directly narrows the "1% floor" position stated above; confirm the current status of this ruling (and whether it has been stayed, appealed, or extended beyond Gujarat) before relying on either the original CBIC position or the Gujarat HC reading for a transaction outside Gujarat.

Who Pays GST: Forward Charge

If the guarantor (holding company) is a registered taxpayer, it charges GST on the guarantee service to the borrower (subsidiary) under forward charge at the value determined by Rule 28(2). The borrower can claim this as ITC if its business is taxable. There is no general, notified reverse-charge entry that shifts corporate guarantee GST liability to the borrower merely because the guarantor is unregistered — RCM under GST applies only where a specific notification creates that mechanism for a defined category of supply, and corporate guarantees between group companies are not one of the notified RCM categories. If the guarantor genuinely has no GST registration, the practical issue is usually whether the guarantor should register (since it is making a taxable supply), not an automatic shift of liability to the recipient.

Compliance Checklist

Corporate Guarantee GST Compliance Checklist

Identify all corporate guarantees provided by your company to group entities, and confirm the recipient is located in India (Rule 28(2) doesn't apply to recipients located outside India)
Check whether the recipient is eligible for full ITC — if so, the invoice-declared value controls; if not, value at the higher of 1% per annum of the guarantee amount or actual consideration charged
Issue GST invoice to the borrower entity annually (or as per guarantee terms)
Borrower to claim ITC on GST paid (if borrower's business is taxable)
Report in GSTR-1 as B2B supply to related party
Disclose in annual report under related party transactions (Companies Act)
Review if guarantee is called — partial guarantees may affect valuation

FAQ

Is the 1% valuation rule still the final word? +

No, not as of August 2026. The Bombay High Court (D.P. Jain, 6 May 2026) held no-consideration guarantees aren't taxable at all, while the Gujarat High Court (Torrent Power, 14 August 2026) upheld the levy but struck down the "whichever is higher" valuation wording. Different High Courts currently disagree, and no Supreme Court ruling has resolved it — confirm the latest status, including any stay or appeal, before finalising a position.

Is GST on corporate guarantees a new requirement? +

The GST liability on corporate guarantees as related-party supplies existed in principle under Schedule I from the start of GST, but the specific 1%-per-annum valuation mechanism was introduced by Notification 52/2023-CT with effect from 26 October 2023, and CBIC's Circular 204/16/2023-GST (27 October 2023) clarified its application. The rule was further amended by Notification 12/2024-CT, applied retrospectively to 26 October 2023, to add the India-located-recipient condition and the full-ITC exception. Many companies historically did not charge GST on intra-group guarantees, and this created significant compliance review requirements once the valuation rule took effect.

Can the subsidiary (borrower) claim ITC on GST paid on corporate guarantee? +

Yes, if the subsidiary is a regular taxable person using the borrowed funds for business purposes. The GST paid on the guarantee service is an input service and ITC is available under Section 16 of the CGST Act. ITC is blocked only for personal expenses, construction of immovable property (for self) and a few specific categories.

What if the guarantee is free and the holding company is unregistered? +

If the holding company is making a taxable supply of corporate guarantee service (deemed under Schedule I even without a fee) and its aggregate turnover crosses the registration threshold, it is required to register and charge GST under forward charge — there is no general notified reverse-charge entry that shifts this liability to the borrower simply because the guarantor hasn't registered. Legal opinion is recommended in complex holding structures, particularly to assess registration obligations and threshold computation for the guarantor.

Sources: CGST Act 2017 (Schedule I); CGST Rules 2017 (Rule 28); CBIC Circular No. 204/16/2023-GST; Notification No. 52/2023-Central Tax; Notification No. 12/2024-Central Tax; Bombay HC in D.P. Jain & Co. Infrastructure Pvt Ltd v. Union of India (WP 2087/2025, 6 May 2026); Gujarat HC in Torrent Power Ltd v. Union of India (SCA 12175/2024, 14 August 2026).

Current-law status: this is an actively litigated area as of August 2026 with conflicting High Court rulings and no Supreme Court resolution yet — verify the latest position before relying on any single answer.

Disclaimer: For general information only, not legal or tax advice. Consult a GST practitioner for specific advice, particularly given the unsettled litigation described above.

Source and review trail

Use the current official instrument, portal or regulator publication before acting. This panel separates the category authority from page-specific references.

Primary category: GST & Indirect Tax
Official starting point: www.gstcouncil.gov.in

Page source links

Primary sources & related provisions

Statutory provisions referenced in this guide: