Corporate guarantee under GST has long been a grey area for businesses that give guarantees to support group borrowings. The Gujarat High Court’s Torrent Power ruling (August 2026) settles two key questions: is there GST on corporate guarantee, and how should it be valued? The Court confirmed that such guarantees between related parties can attract tax, but limited the 1% formula in Rule 28(2) to periods from 26 October 2023, favouring actual, ascertainable consideration over a notional value. This blog explains the GST valuation of corporate guarantee in simple, practical terms for businesses.
Corporate guarantees are commonly furnished by holding or group companies to banks and financial institutions to support borrowings of subsidiaries or other related entities. Although such arrangements are often viewed commercially as internal financial support, GST may treat specified transactions between related persons as supplies even where no separate fee or commission is charged.
The Gujarat High Court’s decision in Torrent Power Ltd. v. Union of India & Ors., dated 14 August 2026, provides significant guidance. The Court upheld the GST framework for corporate guarantees but read down the valuation expression “whichever is higher” in Rule 28(2) and restricted the operation of that specific valuation mechanism to the period from 26 October 2023.
The text of Rule 28(2) and related notifications is available on the official CGST Rules, 2017 (as amended) page maintained by CBIC.
Evolution of the Legal Position
Period | Position |
Pre-GST / Service Tax | In Edelweiss Financial Services, the Supreme Court held, under the then service-tax framework and on the facts before it, that a corporate guarantee without consideration did not constitute a taxable service. |
2017 – 25 Oct 2023 | Section 7(1)(c) read with Schedule I brought specified related-party supplies within GST even without consideration. However, no specific corporate-guarantee valuation rule existed, leaving the valuation position unsettled. |
26 Oct 2023 | Notification No. 52/2023-CT inserted Rule 28(2), prescribing a deemed value of 1% of the amount of guarantee offered per annum or the actual consideration, whichever was higher. |
July 2024 | Notification No. 12/2024-CT amended Rule 28(2) retrospectively from 26 Oct 2023, including the ‘per annum’ wording and full-ITC proviso. Circular No. 225/19/2024-GST set out the Department’s position on earlier guarantees. |
14 Aug 2026 – Torrent Power | The Gujarat High Court upheld GST taxability of corporate guarantees but read down “whichever is higher”. It also held that Rule 28(2) cannot be used to levy GST for periods before 26 Oct 2023; continuing guarantees may attract GST prospectively from that date. |
The Court did not accept a blanket proposition that corporate guarantees are outside GST merely because no separate guarantee fee is charged. Under the GST framework, Section 7(1)(c) read with Schedule I can bring specified related-party transactions within the scope of supply even without consideration. The Court therefore upheld the underlying GST treatment.
The important qualification concerns valuation. The expression “whichever is higher” in Rule 28(2) was read down. Thus, where actual and ascertainable consideration exists, a taxpayer cannot be compelled to adopt a higher 1% benchmark merely because it produces a larger value. The special 1% mechanism remains relevant where the rule applies and actual consideration is absent or otherwise cannot be determined.
A key finding is that Rule 28(2), introduced from 26 October 2023, cannot be used to impose its specific valuation mechanism for an earlier period. The Gujarat High Court held the levy under Rule 28(2) on corporate guarantees furnished before that date to be violative of Articles 14 and 19(1)(g). Where an earlier guarantee continues beyond 26 October 2023, the levy may apply prospectively from that date
The judgment provides significant judicial guidance and reduces the risk of an unduly aggressive valuation approach. However, it should not be treated as a blanket exemption. Businesses should adopt a documented, guarantee-wise GST review process.
Area | Recommended Business Response |
Existing Guarantees | Maintain a centralised guarantee register covering the guarantor, beneficiary, amount, issue/renewal date, validity and outstanding exposure. |
GST Exposure | Review taxability and valuation guarantee-by-guarantee, particularly the 26 October 2023 cut-off and the post-Torrent Power treatment of Rule 28(2). |
Litigation / Notices | Revisit pending notices, demands and disputes involving pre-26 October 2023 guarantees and valuation under the 1% mechanism. |
Documentation | Retain guarantee deeds, board resolutions, loan documents, invoices and evidence of actual consideration or absence of consideration. |
ITC Position | Verify the recipient’s ITC eligibility, as the Rule 28(2) proviso can materially affect the valuation outcome. |
Businesses should now separate three questions: (i) whether the corporate guarantee is a taxable supply; (ii) which valuation mechanism applies for the relevant period; and (iii) whether the valuation reflects the actual commercial facts. This is particularly important for legacy guarantees, guarantees carrying a commission below 1%, and guarantees that continued after 26 October 2023.
Companies should map all group guarantees, identify issue and renewal dates, quantify potential exposure, document the basis of valuation and reassess pending litigation or notices. The ruling provides meaningful support against retrospective application of Rule 28(2) and against mechanical use of the 1% benchmark where actual consideration is lower and ascertainable.
A1. A corporate guarantee under GST is a commitment given by a holding or group company to a bank or lender, promising to repay a loan if the borrowing subsidiary defaults. Even when no fee is charged, GST law treats certain related-party transactions as a “supply” under Section 7(1)(c) read with Schedule I, which is why GST on related party transactions like corporate guarantees can apply despite being commercially treated as internal support.
A2. Yes. In Torrent Power Ltd. v. Union of India (14 August 2026), the Gujarat High Court upheld that corporate guarantees between related parties fall within GST even without consideration, but it read down the phrase “whichever is higher” in Rule 28(2), so businesses cannot be forced to use the higher 1% valuation if their actual, ascertainable consideration is lower.
A3. Corporate guarantee GST taxability under Rule 28(2)’s 1% valuation formula does not apply retrospectively to guarantees issued before 26 October 2023. Applying it earlier was found to violate Articles 14 and 19(1)(g) of the Constitution. If such a guarantee continues beyond that date, GST may apply only prospectively.
A4. Under the corporate guarantee GST valuation rules clarified by the Torrent Power corporate guarantee GST ruling, actual, ascertainable consideration (such as a guarantee commission) should generally be used. The 1% deemed value in Rule 28(2) applies mainly where no actual consideration exists or cannot be determined, not automatically as a higher benchmark.
A5. Example: Suppose a manufacturing holding company guarantees a ₹300 crore bank loan for its subsidiary and charges a guarantee commission of 0.25% per annum, instead of the deemed 1%. Under the GST valuation of corporate guarantee as settled in Torrent Power, the department can no longer insist on the higher 1% value merely because it results in more GST. The actual 0.25% commission, being real and ascertainable, should be accepted as the taxable value, provided it is properly documented.
The corporate guarantee controversy has moved from a broad taxability debate to a more structured analysis of taxability, timing and valuation. Torrent Power confirms that related-party corporate guarantees can fall within GST, while placing important limits on the manner in which the valuation mechanism can be applied. For businesses, the prudent approach is neither blanket taxability nor blanket exemption, but a documented, transaction-specific review based on the guarantee terms, relevant period, consideration and applicable GST provisions.
KEY ACTION: Review every corporate guarantee by date, amount, consideration, recipient ITC eligibility and the period for which GST is being evaluated. |
If your group has intercompany guarantees, the Torrent Power ruling makes this the right time to review them. UJA Global Advisory helps businesses work through corporate guarantee GST valuation rules, GST on related party transactions & the practical impact of the Torrent Power corporate guarantee GST ruling — with a documented, guarantee-wise compliance approach.
Get in touch with our indirect tax team today for a structured review of your corporate guarantees.