GST on Corporate Guarantees Between Group Companies: Checklist, Due Dates and Common Mistakes
The GST treatment of corporate guarantees provided by holding companies to subsidiaries — or between group companies — has been clarified by CBIC and confirmed by the Supreme Court. A corporate guarantee is a taxable supply of service by the guarantor, even when provided without consideration. This guide explains the valuation rules, reverse charge implications and compliance checklist.
Is a Corporate Guarantee Taxable Under GST?
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.
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.
| 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 |
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