GST on Corporate Guarantees Between Related Parties
Reviewed by CA Nikhil Gupta · Last reviewed 19 June 2026
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.
What changed in practical terms
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.
For the connected rule, example or next step, see GST on Corporate Guarantees Between Group Companies: Checklist, Due Dates and Common Mistakes.
Corporate guarantee checklist
| 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. |
Valuation guardrails
Rule 28(2), as CBIC reads it, deems the value at one per cent of the amount of guarantee offered per annum or the actual consideration, whichever is higher, and Circular 225 clarifies that this is based on the amount guaranteed rather than actual loan disbursal. This is no longer settled law and should not be treated as final. The Bombay High Court (Nagpur Bench), in D.P. Jain & Co. Infrastructure Pvt Ltd v. Union of India (7 May 2026), held that a no-consideration corporate guarantee is not even a taxable "supply" under Section 7 at all. The Gujarat High Court, in Torrent Power Ltd v. Union of India (14 August 2026), took a different view - it upheld the general validity of the GST levy and Rule 28(2), but READ DOWN the "whichever is higher" wording (so actual, even lower, consideration can be used instead of the flat 1% figure) and confirmed Rule 28(2) cannot apply retrospectively before 26 October 2023. Treat the 1%-or-higher figure as CBIC’s stated position, not the only legally correct answer, until the conflict between these rulings is resolved at a higher forum.
Worked example
A parent company guarantees a ₹50 crore bank loan taken by its subsidiary, charging no fee. Under CBIC’s Rule 28(2) reading, the deemed taxable value is 1% of ₹50 crore per annum = ₹50 lakh, attracting 18% GST = ₹9 lakh per year, payable even though zero cash actually changed hands for the guarantee itself. Under the Gujarat High Court’s reading (actual consideration allowed instead of the flat 1%), a genuinely nil-consideration guarantee could support a nil or near-nil valuation instead - a material difference the group’s GST working paper should flag as an open position, not resolve unilaterally in either direction.
Common mistakes
- No corporate guarantee register at group level.
- Assuming no GST because no guarantee fee is charged.
- Missing renewals and amendments.
- Not allocating value between multiple guarantors.
- Not issuing tax invoice/inter-company debit note where required.
- Treating the 1%-or-higher valuation as settled law when it is currently contested between the Bombay and Gujarat High Courts.
Official References Used
This article uses official GST law, rules, GST Council, CBIC/GST portal and e-invoice/e-way bill portal sources only. Notifications, circulars, rule text and portal workflows can change after this article’s last-reviewed date — verify against the current official source before relying on it.
- CBIC Tax Information: CGST Rule 28 — valuation of related-party supplies and corporate guarantees
- GST Council / CBIC: Circular 225/19/2024-GST — corporate guarantee valuation clarifications
- CBIC Tax Information: CGST Section 9 — levy and reverse charge mechanism
Frequently Asked Questions
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.gst.gov.in
Page source links
See “Official References Used” above for the Circular 225, Section 9 and Rule 28 references used in this article.
Primary sources & related provisions
Statutory provisions referenced in this guide: