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Circular No. 225/19/2024-GST
F. No. CBIC-20001/4/2024 - GST
Government of India
Ministry of Finance
(Department of Revenue)
Central Board of Indirect Taxes and Customs
GST Policy Wing
*****
New Delhi, Dated the 11th July, 2024
To,
The
Principal
Chief
Commissioners/
Chief
Commissioners/
Principal
Commissioners/ Commissioners of Central Tax (All)
The Principal Directors General/ Directors General (All)
Madam/Sir,
Subject: Clarification on various issues pertaining to taxability and valuation of
supply of services of providing corporate guarantee between related persons.
1.1
As per the recommendations of the GST Council, sub-rule (2) was inserted in Rule 28
of Central Goods and Services Tax Rules, 2017 (hereinafter referred to as the “CGST Rules”)
vide Notification No. 52/2023-Central Tax dated 26th October, 2023 to provide for a specific
clause for valuation of supply of services of providing corporate guarantee to any banking
company or financial institution by an entity on behalf of a related person. Besides, Circular
No. 204/16/2023-GST dated 27th October, 2023 was also issued as per the recommendations
of the GST Council, to provide clarity regarding the applicability of the said sub-rule.
Subsequently, based on the recommendations of the GST Council, sub-rule (2) of Rule 28 of
CGST Rules has been amended retrospectively with effect from 26.10.2023 vide notification
No. 12/2024 dated 10th July 2024.
1.2
In this regard, various representations have been received from trade and industry,
seeking clarifications on various issues pertaining to the taxability and valuation of the
supply of services of providing corporate guarantee between related persons as per the said
rule.
2.
Therefore, in order to ensure uniformity in the implementation of the provisions of
law across the field formations, the Board, in exercise of its powers conferred by section 168
(1) of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as “CGST
Act”), hereby clarifies the issues as under:
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S. No.
Issue
Clarification
1
Whether sub-rule (2) of rule 28
of CGST Rules will apply to
the corporate guarantees issued
prior to insertion of the said
sub-rule on 26th October 2023?
Also,
where
intra-group
corporate guarantees have been
issued before 26th October
2023, which are still in force
today, would they be liable to
pay GST on “1% of the amount
of such guarantee offered” on
such guarantees?
It is to be clarified that the supply of service of
providing corporate guarantee to any banking company
or financial institution by a supplier to a related
recipient, on behalf of the said recipient, was taxable
even before the insertion of sub-rule (2) in rule 28 of
CGST Rules with effect from 26th October 2023. Rule
28(2) of CGST Rules is only for determination of the
value of the taxable supply of providing corporate
guarantee to any banking company or financial
institution by a supplier to a related recipient, on behalf
of the said recipient and not regarding the taxability of
the said supply itself. Prior to the insertion of the said
sub-rule, i.e., before 26th October 2023, the valuation
of service of providing corporate guarantee to any
banking company or financial institution by a supplier
to a related recipient, on behalf of the said recipient,
was to be done as per the provisions of Rule 28 of
CGST Rules, as it existed then.
Therefore, in respect of supply of services of
providing corporate guarantee between related persons,
in respect of corporate guarantee issued or renewed
before 26th October 2023, the valuation of the said
supply is to be done in accordance with Rule 28, as it
existed during that time. However, if the corporate
guarantee is issued or renewed on or after 26th October
2023, then the valuation of the said supply will be
required to be done as per Rule 28(2) of CGST Rules.
2
In cases where the corporate
guarantee is provided for a
particular amount, whereas the
loan is only partly availed or
not availed at all by the
recipient, what will be the
value of supply of corporate
guarantee. Also, whether the
recipient would be eligible to
avail full ITC (Input Tax
Credit) even before total loan is
disbursed?
The activity of supply of the service of providing a
corporate guarantee is not linked with the actual
disbursal of the loan. The service that is provided by
the guarantor to the guarantee is that of taking on the
risk of default. Therefore, it is clarified that the value of
supply of the service of providing a corporate
guarantee will be calculated based on the amount
guaranteed and will not be based on the amount of loan
actually disbursed to the recipient of the corporate
guarantee.
Further, it is also clarified that the recipient of
the service of providing corporate guarantee shall be
eligible to avail the ITC, subject to other conditions
specified in the Act and the Rules made thereunder,
irrespective of when the loan is actually disbursed to
the recipient, and irrespective of the amount of loan
actually disbursed.
3
In the case of takeover of
existing loans, since there is
merely an assignment of an
In the service of providing corporate guarantee to any
banking company or financial institution by a supplier
to a related recipient, on behalf of the said recipient, the
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already
issued
corporate
guarantee, whether GST would
be applicable again?
supplier of the service is the corporate entity providing
the corporate guarantee and the recipient is the related
entity for whom the corporate guarantee is provided by
the said supplier.
Therefore, if the loan issued by the banking
company/ financial institution is taken over by another
banking company/ financial institution, the said activity
of taking over of the loan does not fall under the
service of providing corporate guarantee to any
banking company or financial institution by a supplier
to a recipient. Therefore, it is clarified that in such
cases, there will be no impact on GST, unless there is
issuance of fresh corporate guarantee or there is a
renewal of the existing corporate guarantee. However,
if the takeover of the loan is followed/ accompanied by
issuance of fresh corporate guarantee, then GST would
be payable on the same.
4
Where corporate guarantee is
provided by more than one
entity / co-guarantor, what is
the amount on which GST is
payable by each co-guarantor?
In cases where corporate guarantee is being
provided by multiple related entities, the value of such
services of providing corporate guarantee shall be the
sum of the actual consideration paid/ payable to co-
guarantors, if the said amount of total consideration is
higher than one per cent of the amount of such
guarantee offered. In cases where the sum of the actual
consideration is less than one per cent of the amount of
such guarantee offered, then GST shall be payable by
each co-guarantor proportionately on one per cent of
the amount guaranteed by them.
For instance, if there are two co-guarantors, A
and B, who jointly provide a corporate guarantee to a
banking/ financial institution on behalf a related
recipient C for Rs. 1 crore, then A and B shall each pay
GST on 0.5% of the amount guaranteed.
However, if in the above case of A and B
providing corporate guarantee jointly to a banking/
financial institution on behalf a related recipient C for
Rs 1 crore, A provides guarantee for 60% of the
guarantee amount and B provides guarantee for the
remaining 40% of the guaranteed amount, then GST
shall be payable by A and B proportionately i.e., 0.6%
and 0.4% of the amount guaranteed. This is to say that
A shall pay GST on 1% of the amount guaranteed by
A, i.e., 1% on Rs. 60 lakhs and B shall pay GST on 1%
of the amount guaranteed by B, i.e., 1% on Rs. 40
lakhs.
5
Where intra-group corporate
guarantee is issued, whether
GST may be paid by the
It is clarified that in cases where domestic corporates
issue intra-group guarantees, GST is to be paid under
forward charge mechanism, and invoice is to be issued
