GST circular 210 retrospective regularisation corporate guarantee

Indian corporate groups routinely secure credit facilities, working capital limits, and project term loans for their subsidiary entities by executing corporate guarantees in favour of commercial lending institutions. Under historical tax practice, parent companies rarely charged guarantee commission fees to their wholly owned subsidiaries. This absence of cash flow led corporate accounts teams to treat intra-group guarantee letters as non-taxable banking formalities. That assumption triggered severe tax scrutiny across the country, resulting in show cause notices seeking 18 percent GST on nominal guarantee exposures.

Statutory amendments and administrative circulars issued by the Central Board of Indirect Taxes and Customs have reshaped corporate guarantee taxation. In practice, finance teams must apply the amended provisions of Rule 28(2) of the CGST Rules, introduced vide Notification No. 52/2023-Central Tax and refined vide Notification No. 12/2024-Central Tax. They must also implement the vital regularisation principles articulated in CBIC Circular No. 210/4/2024-GST, Circular No. 204/16/2023-GST, and Circular No. 225/19/2024-GST.

Statutory basis of corporate guarantee taxability

Under Section 7(1)(c) of the Central Goods and Services Tax Act read with Entry 2 of Schedule I, supplies of goods or services between related persons, when carried out in the course or furtherance of business, are treated as taxable supplies even when made without consideration. Under Explanation (a) to Section 15 of the CGST Act, holding companies, subsidiary companies, and common-control affiliates qualify as related persons. Consequently, when a parent corporation signs a deed of guarantee committing its balance sheet to back loan repayments for its subsidiary, it renders a distinct facilitation service to that related borrower.

For several tax periods, field officers sought to determine the open market value of these guarantee services by comparing them to commercial bank guarantee commissions, typically demanding tax on values ranging between 1 percent and 3 percent of the sanctioned credit limit. This uncertainty prompted the GST Council to establish a standard valuation mechanism.

Valuation formula under amended Rule 28(2)

To establish uniformity across tax jurisdictions, the Government inserted sub-rule (2) into Rule 28 of the CGST Rules with effect from 26 October 2023. As initially notified, Rule 28(2) stated that the value of service by way of providing a corporate guarantee to any banking company or financial institution on behalf of a related recipient was deemed to be 1 percent of the guarantee amount offered, or the actual consideration, whichever was higher.

Taxpayers immediately raised concerns regarding multi-year loans: did the 1 percent charge apply once at the inception of the loan, or did it recur annually? In addition, did it penalise groups where the borrowing subsidiary enjoyed full input tax credit? In response, the GST Council recommended structural modifications, which were enacted via Notification No. 12/2024-Central Tax with retrospective effect from 26 October 2023:

• The deemed taxable value equals 1 percent of the amount of such guarantee offered per annum, or the actual consideration, whichever is higher. For guarantees covering multiple years, the taxable value equals 1 percent multiplied by the number of years for which the guarantee is executed. If a guarantee is extended for a fraction of a year, the value is calculated proportionately.
• As clarified in Circular No. 225/19/2024-GST, taxable value is computed strictly on the total guarantee sum offered in the loan agreement, regardless of the actual disbursement drawdowns utilised by the subsidiary.
• Notification No. 12/2024-Central Tax inserted a specific proviso into Rule 28(2): where the recipient is eligible for full input tax credit, the value declared in the tax invoice shall be deemed to be the value of supply of services.
• Rule 28(2) applies strictly where the recipient of the corporate guarantee service is located in India. Outward guarantee support extended to offshore subsidiaries falls outside Rule 28(2) and is governed by general valuation rules.

Retrospective regularisation and Circular 210 open market value relief

One of the most litigated questions in corporate finance has been the tax treatment of corporate guarantees executed prior to the notification of Rule 28(2) on 26 October 2023. Field officers issued pre-show cause notices in Form GST DRC-01A and demand notices under Section 73 attempting to enforce the 1 percent rate retrospectively across all historical periods back to July 2017. For steps on handling pre-show cause notices, review our guide on GST notice Form DRC-01A reply.

CBIC Circular No. 225/19/2024-GST resolved this issue by clarifying that Rule 28(2) governs valuation rather than the underlying chargeability of tax. Guarantees issued or renewed prior to 26 October 2023 must be evaluated according to the provisions of Rule 28(1) as they existed during those tax periods. Under the second proviso to Rule 28(1), where the recipient is eligible for full input tax credit, the value declared in the invoice is deemed to be the open market value.

This principle aligns directly with CBIC Circular No. 210/4/2024-GST, which examined inter-company supplies between distinct persons and related entities. Paragraph 3.5 of Circular 210 affirms that the second proviso to Rule 28(1) applies comprehensively to transactions between related persons where full tax credit is admissible to the recipient. Crucially, paragraph 3.7 of Circular 210 confirms that where full ITC is available to the recipient, if no invoice was issued with respect to services supplied between related entities, the value of such services may be deemed to be declared as Nil, and that Nil value is deemed to be the open market value.

Therefore, for intra-group corporate guarantees executed before 26 October 2023 where the recipient subsidiary was engaged in taxable manufacturing or trading and held full ITC entitlement, the absence of an invoice or an invoice issued at Nil consideration represents compliance. Demands attempting to impose a 1 percent deemed commission on such past periods run counter to Board instructions.

Personal director guarantees under Circular 204

Corporate credit sanctions frequently mandate joint security: a corporate guarantee from the holding company alongside personal bank guarantees from the executive promoters or managing directors. Tax officers routinely sought to demand 18 percent GST on directors personally for providing these guarantees without consideration.

CBIC Circular No. 204/16/2023-GST resolved this conflict by examining the regulatory framework governing company directors. Under paragraph 2.2.9(C) of Reserve Bank of India Circular RBI/2021-22/121, commercial lending banks are strictly prohibited from permitting borrowing companies to pay any commission, brokerage, or fee, directly or indirectly, to directors for extending personal guarantees.

“As per mandate provided by RBI in terms of Para 2.2.9 (C) of RBI Circular No. RBI/2021-22/121 dated 9th November, 2021, no consideration by way of commission, brokerage fees or any other form, can be paid to the director by the company, directly or indirectly, in lieu of providing personal guarantee to the bank for borrowing credit limits. As such, when no consideration can be paid for the said transaction by the company to the director in any form, directly or indirectly, as per RBI mandate, there is no question of such supply/ transaction having any open market value. Accordingly, the open market value of the said transaction/ supply may be treated as zero and therefore, taxable value of such supply may be treated as zero.” CBIC Circular No. 204/16/2023-GST, paragraph 1

Because statutory banking regulations prohibit monetary consideration, the open market value of a personal guarantee provided by a director is zero. No GST is payable, and no tax invoice is required, provided the director is not paid any direct or indirect remuneration for providing that guarantee.

Intra-group guarantees: domestic units versus foreign affiliates

The operational GST mechanism differs significantly depending on whether the entity providing or receiving the corporate guarantee is situated in India or abroad:

For import of corporate guarantees from an overseas holding corporation, the Indian borrowing entity is liable to discharge integrated tax under the reverse charge mechanism. Under paragraph 3.7 of Circular 210/4/2024-GST, if the Indian entity is eligible for full credit, it may issue a self-invoice under Section 31(3)(f) at Nil value, discharging zero tax liability. If the recipient entity operates in an exempt sector, such as healthcare or banking, it must determine the open market value and pay IGST in cash under reverse charge.

Worked rupee example: multi-year term loan guarantee

For example, consider Hind Heavy Engineering Limited (holding company located in Gujarat) providing a corporate guarantee to State Bank of India on behalf of its subsidiary, Hind Precision Forgings Private Limited (located in Maharashtra). Both entities make 100 percent taxable industrial supplies and are fully eligible for credit.

On 1 November 2023, the parent executed a binding corporate guarantee covering a 3-year term loan facility of ₹10,00,00,000 (₹10 crore). Consider two operational scenarios: one where the subsidiary holds full ITC eligibility and the parent utilizes the invoice valuation proviso, and another where the borrower has restricted ITC eligibility and must pay under the 1 percent deemed valuation rule.

Arithmetic breakdown: In Scenario B, the guarantee covers 3 full years. The deemed valuation equals 1 percent multiplied by 3 years, which is 3 percent of the ₹10,00,00,000 guarantee sum, generating a taxable value of ₹30,00,000. At the standard 18 percent rate, the parent company pays ₹30,00,000 × 0.18 = ₹5,40,000 as IGST in its Form GSTR-3B. Conversely, in Scenario A, because the subsidiary makes solely taxable supplies, the parent exercises the second proviso to Rule 28(2) by raising a tax invoice for ₹1,00,000 plus 18 percent IGST of ₹18,000. The subsidiary reconciles this tax invoice in Table 4(A)(5) of its GSTR-2B statement and avails the full ₹18,000 credit, resulting in zero leakage for the group.

If your business faces input tax credit mismatches or requires reconciliation between head office cross charges and regular vendor bills, see our analysis on cross charge vs input service distributor rules. If an audit enquiry arises concerning past years, consult our practical guide on GST circular 183 ITC mismatch relief certificate.

Step-by-step compliance checklist for corporate guarantee transactions

Finance controllers and tax managers should implement the following internal verification protocol whenever corporate guarantees are issued, renewed, or reviewed across group entities:

1. Examine whether the borrowing subsidiary makes exempt supplies. If the borrower is engaged exclusively in taxable activities and has full ITC entitlement, take advantage of the invoice valuation proviso under Rule 28(2).
2. For ongoing guarantees executed prior to 26 October 2023, document the date of execution. Apply Circular No. 210/4/2024-GST and Circular No. 225/19/2024-GST to defend against retrospective 1 percent valuation demands.
3. Maintain copies of credit sanction letters and the underlying deed of guarantee. Verify whether the transaction involves loan takeovers. As clarified in Circular 225, assignment or takeover of credit facilities by another bank without issuing a fresh guarantee does not attract GST.
4. For guarantees executed after 26 October 2023, ensure the guarantor entity issues a tax invoice under Section 31 at the time the guarantee is signed. Report the transaction in Table 4 of Form GSTR-1 by the 11th of the succeeding month.
5. The borrowing entity must verify that the corporate guarantee invoice appears correctly in Table 4(A)(5) of its Form GSTR-2B before availing credit in Form GSTR-3B. Discrepancies between returns can trigger system notices under Rule 88C or Rule 88D. If an automated intimation is received, follow our guide on GST notice Form DRC-01B mismatch reply.

Common compliance mistakes to avoid

• Applying the 1 percent deemed valuation rule to personal bank guarantees executed by company directors. Under Circular No. 204/16/2023-GST, personal guarantees by directors carry zero taxable value because RBI regulations prohibit consideration.
• Rule 28(2) is explicitly restricted to corporate guarantees provided on behalf of related recipients located in India. Guarantees provided by an Indian parent for offshore subsidiaries qualify as export of services if foreign exchange realization criteria under Section 2(6) of the IGST Act are satisfied.
• When multiple corporate entities jointly guarantee a credit facility, Circular 225 clarifies that the 1 percent valuation is apportioned proportionately among the co-guarantors based on their agreed guarantee ratios.

Related guides

• GST notice DRC-01 notice meaning: Section 73, Section 74 and how to reply
• GST circular 218 taxability of services provided by director
• GST notices after reconciliation: remaining tax risks and fixes
• Pharma expired medicine ITC reversal: circular rules and procedure

Frequently asked questions

Last checked: 19 October 2026. Sources: CBIC CGST Rules Rule 28, CBIC Circular No. 210/4/2024-GST, CBIC Circular No. 204/16/2023-GST, CBIC Circular No. 225/19/2024-GST, CBIC CGST Act Section 15.