When a holding company provides a corporate guarantee for its subsidiary’s bank loan without charging any fee or commission (nil consideration), how should the open market value be determined under Rule 28 of the CGST Rules vs. the specific 1% valuation rule? Does commercial expediency override the deeming provisions of Schedule I for transactions between distinct persons?
A corporate guarantee given without charging any fee does not automatically mean there is no GST implication.
Under GST law, certain corporate guarantees provided between related persons can be treated as a supply of service even when no consideration is received. Rule 28(2) of the CGST Rules provides a specific valuation mechanism for such guarantees.
However, the position has developed through recent court decisions. In 2026, the Gujarat High Court held that intra-group corporate guarantees can constitute a taxable supply even without consideration, while also holding that the 1% valuation mechanism is not necessarily mandatory where actual consideration can be determined.
There have also been differing judicial views, including a Bombay High Court ruling concerning guarantees given without consideration. Therefore, the exact facts, relationship between the entities, date of the guarantee, consideration, and availability of input tax credit need to be examined before determining
Under GST law, corporate guarantees provided for a related company may be treated as a supply even when given for “Nil” consideration. The valuation and applicable GST depend on the prescribed rules and the specific circumstances of the guarantee.
Corporate Guarantees with “Nil” Consideration under GST Law
A corporate guarantee is a commitment by one company, such as a holding company, to a bank or financial institution to support a loan taken by another company, such as its subsidiary.
The key GST question is: If the holding company provides the guarantee without charging any fee or commission, is GST still payable?
Under the GST framework, transactions between related persons can be treated as supplies even when no consideration is charged. The government clarified this position in Circular No. 204/16/2023-GST dated 27 October 2023.