Corporate guarantees are now a boardroom GST issue. A parent company guaranteeing a subsidiary loan may create a taxable service and a valuation question even when no fee is charged. Finance teams need a contract-wise register and Rule 28 control.
Rule 28 deals with valuation of supplies between related or distinct persons. Sub-rule (2) specifically deems value for a service by a supplier to a related recipient located in India by providing a corporate guarantee to a banking company or financial institution on behalf of that recipient. Circular 225/19/2024-GST clarifies important questions on date of issue/renewal, loan disbursal and multi-guarantor cases.
| Question | Why it matters | Document to keep |
|---|---|---|
| Who issued the guarantee? | Identifies supplier of service. | Board approval / guarantee deed. |
| Who benefits from the guarantee? | Identifies related recipient. | Loan sanction and borrower details. |
| Was it issued or renewed after 26 Oct 2023? | Relevant to Rule 28(2) application. | Guarantee date / renewal letter. |
| Guarantee amount and period? | Needed for valuation. | Bank guarantee/loan documents. |
| Is consideration charged? | Compare actual consideration with deemed value. | Invoice/inter-company debit note. |
Rule 28(2) states that the value shall be one per cent of the amount of guarantee offered per annum or actual consideration, whichever is higher. Circular 225 clarifies that the value is based on the amount guaranteed and not on actual loan disbursal, subject to the circular’s specific cases.
This draft uses official GST law, rules, GST Council, CBIC/GST portal and e-invoice/e-way bill portal sources only. Before publishing, re-check whether any notification, circular, rule text or portal workflow has changed after the draft date.