This circular provides clarity on how GST applies to personal guarantees given by company directors and corporate guarantees given between related entities. It states that when directors provide personal guarantees to banks for company loans, the activity counts as a supply between related persons. However, since RBI rules prohibit companies from paying any fee or commission to directors for such guarantees, the transaction has no open market value. As a result, its taxable value is treated as zero and no GST is payable, except in exceptional cases where any consideration is paid.

For corporate guarantees issued by one related company for another, including guarantees given by a holding company for its subsidiary, the activity is considered a taxable supply even without consideration. The value of such supplies must now be determined under the newly inserted Rule 28(2), which standardizes valuation across taxpayers. The circular also confirms that this new rule does not apply to personal guarantees, which continue to follow the valuation approach explained above.