Corporate & Director Guarantee under GST 2026: Rule 28(2) Explained
Corporate guarantees and personal guarantees by directors do not have the same GST valuation treatment. CBIC Circular 204/16/2023-GST clarifies that a corporate guarantee between related persons is a taxable supply even without consideration and is valued under the special Rule 28(2) framework. A director's personal guarantee is also a supply between related persons, but where RBI rules prohibit consideration and no consideration is actually paid, CBIC permits the open-market value to be treated as nil.
Quick comparison
- Corporate guarantee between related companies: taxable supply; special Rule 28(2) valuation applies.
- Rule 28(2) corporate-guarantee valuation applies irrespective of whether the recipient has full ITC.
- Director personal guarantee with no consideration, where RBI conditions prohibit payment: taxable value may be nil under Circular 204/16/2023-GST.
- If consideration/remuneration is actually paid to the personal guarantor in a permitted exceptional case, that consideration becomes relevant for valuation.
Corporate guarantee: why GST can apply without a fee
Where a holding company gives a corporate guarantee for a subsidiary, or another related person gives a guarantee for a related entity, Schedule I can treat the activity as a supply even without consideration because the parties are related and the activity is in the course or furtherance of business.
Special Rule 28(2) valuation
CBIC introduced a specific valuation rule for corporate guarantees provided by a related person to another related person. The circular makes an important point: the special sub-rule applies irrespective of whether full input tax credit is available to the recipient. Therefore, the ordinary 'full ITC means invoice value is accepted' shortcut should not be applied to bypass the special corporate-guarantee valuation rule.
Practical point: Finance teams should use the current text of Rule 28(2) for the precise deemed-value computation for the guarantee period and guaranteed amount, and compare it with actual consideration where the rule requires.
Director's personal guarantee
CBIC's circular separately discusses a director providing a personal guarantee to a bank or financial institution for the company's borrowing. The director and company are related persons, so the activity can constitute a supply even without consideration. However, RBI guidance generally requires that no commission, brokerage or other consideration be paid to directors/promoters for such guarantees in the normal case.
Because no consideration can normally be paid in such circumstances, CBIC states that there is no open-market value and the taxable value may be treated as zero. Accordingly, no GST is payable on that nil value.
When a personal guarantee may not have nil value
The circular recognises exceptional cases—for example, where a guarantor is no longer connected with management but the guarantee continues, or another permitted situation where remuneration/consideration is actually paid. In such cases, the taxable value is the remuneration or consideration paid, directly or indirectly, to the guarantor.
| Situation | GST position | Valuation focus |
|---|---|---|
| Holding company guarantees subsidiary borrowing | Taxable related-party supply | Rule 28(2) |
| Related company gives guarantee without fee | Taxable supply | Rule 28(2) |
| Director gives personal guarantee; no consideration permitted/paid | Supply exists, but taxable value may be nil | CBIC Circular 204 guidance |
| Personal guarantor receives permitted consideration | Taxable | Actual remuneration/consideration under circular guidance |
Compliance checklist
- Identify guarantor, borrower and bank/financial institution.
- Determine whether guarantor and borrower are related persons.
- Separate corporate guarantees from personal director/promoter guarantees.
- For corporate guarantees, apply the current Rule 28(2) formula rather than ordinary related-party full-ITC valuation shortcuts.
- For personal guarantees, document whether any consideration is legally permitted and actually paid.
- Maintain guarantee agreement, sanction letter, board approval, valuation working and GST invoice/payment evidence where applicable.
- Reassess when the guarantee amount, tenure or consideration changes.
Common mistakes
- Using the normal Rule 28 full-ITC proviso to ignore the special corporate-guarantee rule.
- Treating every director guarantee as automatically outside GST.
- Charging GST on a nil-valued director guarantee without checking the CBIC/RBI conditions.
- Using corporate-guarantee valuation for a personal guarantee.
- Failing to revisit valuation when a guarantee is renewed or modified.
Frequently asked questions
Does full ITC allow a company to use any invoice value for a corporate guarantee?
No. Circular 204/16/2023-GST states that the special Rule 28(2) corporate-guarantee valuation applies irrespective of whether full ITC is available.
Is GST payable when a director gives a personal guarantee without any fee?
CBIC says the supply exists between related persons, but where RBI conditions mean no consideration can be paid and none is paid, the open-market/taxable value may be treated as nil.
What if the director receives guarantee commission?
Where consideration is permitted and paid in an exceptional case, the circular states that the taxable value is the remuneration/consideration provided to the guarantor.
Official reference
Reviewed 19 August 2026. Use the current Rule 28(2) text for the exact corporate-guarantee valuation calculation applicable to the guarantee period.
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