# GST on Related Party Transactions and Cross Charges in India (2026)

> Source: https://krystal7.com/insights/gst-on-cross-charges-related-party-services
> Publisher: Krystal7 Consultants (Krystal7 Innovations Private Limited), Gurugram, India
> Author: CA Nandini
> Published: 04 Feb 2026; updated 24 Oct 2026
> Summary: Free services between related companies are GST supplies under Schedule I, valued under rule 28, with a 1 percent a year rule for corporate guarantees.

*Written by CA Nandini Hasija, Krystal7 Consultants. Last updated 23 October 2026.*

## AI Overview Summary

- Paragraph 2 of Schedule I to the CGST Act treats supplies between related persons or distinct persons in the course of business as supplies, even when nothing is charged.
- Rule 28 values these supplies at open market value. Where the recipient is eligible for full input tax credit, the invoice value is accepted, and a service with no invoice can be nil.
- A corporate guarantee for a related company located in India is valued at 1 percent a year of the amount guaranteed, or the actual fee if higher, under rule 28(2) from 26 Oct 2023.
- When a foreign parent guarantees an Indian subsidiary's bank loan, the subsidiary pays the GST under reverse charge, according to Circular No. 225/19/2024-GST of 11 Jul 2024.
- From 1 Apr 2025, common third party services received for several GST registrations of one company must be distributed through an Input Service Distributor registration.

**Free services and cross charges between related companies are taxable supplies under paragraph 2 of Schedule I to the CGST Act, even without consideration. Rule 28 of the CGST Rules values them at open market value. Where the recipient is eligible for full input tax credit, the invoice value is accepted, and an uninvoiced service can be nil. Corporate guarantees have a fixed rule: 1 percent a year under rule 28(2), in force from 26 Oct 2023.**

This guide covers related party and distinct person supplies for a foreign owned Indian company as the law stands on 23 Oct 2026. It includes corporate guarantees, secondment, parent cost allocations, ISD and exports, with a worked example.

## How does GST apply to related party transactions?

GST treats a supply between related persons as taxable even when no price is charged, if it is made in the course of business. The value is not the agreed price. It is the open market value under rule 28 of the CGST Rules, with relief where the recipient can claim full input tax credit.

Four provisions carry the topic:

1. Section 7(1)(c) of the CGST Act brings Schedule I activities into "supply" even without consideration.
2. Paragraph 2 of Schedule I covers supplies between related persons, or between distinct persons under section 25, in the course or furtherance of business.
3. Paragraph 4 of Schedule I covers imports of services from a related person or from the importer's own establishment outside India.
4. Section 15(4) of the CGST Act and rule 28 of the CGST Rules set the value where the parties are related.

For a foreign owned subsidiary, related party GST shows up in five places. They are charges from the parent, guarantees, secondees, charges between its own registrations, and charges it raises on the parent. We take each in turn.

Charges from the parent are imports of services and carry reverse charge. Our guide to [reverse charge on import of services from a parent](/insights/gst-reverse-charge-import-of-services-from-parent) covers time of supply, self invoices and GSTR-3B reporting.

## Who is a related person or a distinct person under GST?

Related persons are separate legal persons linked by control, ownership or a close relationship. The Explanation to section 15 of the CGST Act lists them. Distinct persons are registrations or establishments of the same legal person. Section 25(4) and (5) of the CGST Act and Explanation 1 to section 8 of the IGST Act define them.

| Relationship | Category | Where it sits |
|---|---|---|
| Foreign parent and its Indian subsidiary | Related persons | Explanation to section 15: one directly or indirectly controls the other |
| Two subsidiaries of the same parent | Related persons | Explanation to section 15: both controlled by a third person |
| Company and its directors or officers | Related persons | Explanation to section 15: officers or directors of one another's businesses |
| Employer and employee | Related persons | Explanation to section 15 |
| Same company's GST registrations in Haryana and Karnataka | Distinct persons | Section 25(4) and (5), CGST Act |
| Foreign company's head office and its branch in India | Distinct persons (establishments) | Explanation 1 to section 8, IGST Act |

The difference matters for exports. An Indian subsidiary and its foreign parent are separate persons, not establishments of one person. Circular No. 161/17/2021-GST of 20 Sep 2021 says so in terms. A branch of a foreign company is an establishment of that company, so its services to head office fail the export test today.

## When is a free service between related companies a supply?

It is a supply when it is made in the course or furtherance of business and falls in Schedule I. Group companies share staff time, premises, know how and software, and they give each other guarantees. Each of these can be a Schedule I supply even when no invoice exists.

Some common activities are outside the net:

1. Holding shares in a subsidiary is not a service by the parent (Circular No. 196/08/2023-GST of 17 Jul 2023).
2. Services by an employee to the employer in the course of employment are neither goods nor services (paragraph 1 of Schedule III).
3. Gifts by an employer to an employee up to INR 50,000 a financial year are not a supply (proviso to paragraph 2 of Schedule I).
4. A director's personal guarantee for the company's loan, with no consideration, has a nil value (Circular No. 204/16/2023-GST of 27 Oct 2023).

Circular No. 204/16/2023-GST treats the director's guarantee as a supply between related persons. It values it at nil because RBI guidelines bar the company from paying the director a commission for it. If the director does receive any consideration for the guarantee, that amount is the taxable value.

The practical risk sits with activities nobody thinks of as services. Group finance reviews, regional management time, shared office space and free use of the group brand are the usual ones. We list them once a year with the finance team and decide the GST position for each.

## How is a related party supply valued under rule 28?

Rule 28(1) sets an order of methods. First, the open market value. If that is not available, the value of supplies of like kind and quality. If neither works, cost plus 10 percent under rule 30 or reasonable means under rule 31. Two provisos then simplify the answer in common cases.

| Method or proviso | What it says | When it applies |
|---|---|---|
| Rule 28(1)(a) | Open market value of the supply | First choice where a comparable unrelated price exists |
| Rule 28(1)(b) | Value of supply of like kind and quality | Where open market value is not available |
| Rule 28(1)(c) with rule 30 | 110 percent of the cost of providing the service or acquiring the goods | Where (a) and (b) fail |
| Rule 28(1)(c) with rule 31 | Reasonable means consistent with section 15 | Residual; for services the supplier may skip rule 30 |
| First proviso to rule 28(1) | At the supplier's option, 90 percent of the price the recipient charges unrelated customers for like goods | Goods only, where the recipient resells them as such |
| Second proviso to rule 28(1) | Invoice value is deemed open market value | Recipient eligible for full input tax credit |

The Explanation after rule 35 defines open market value. It is the full value in money, excluding GST, that an unrelated buyer would pay at the same time. Price must be the sole consideration.

The 90 percent proviso is for goods only. It helps a company that moves stock from a warehouse registration to a sales branch in another State. It has no use for services, and none for goods imported from a foreign parent, which follow customs valuation.

Circular No. 199/11/2023-GST of 17 Jul 2023 applied the full credit proviso to services between a head office and its branches. Where the branch is eligible for full credit, the invoice value is deemed open market value, whether or not every cost was included. Where no invoice is issued, the value may be deemed nil. Circular No. 210/4/2024-GST of 26 Jun 2024 extended the same reading to imports of services from related persons.

## What does "eligible for full input tax credit" mean in practice?

It means the recipient can claim all the tax on that supply as credit. That holds when it uses the supply only for taxable or zero rated supplies, and the credit is not blocked under section 17(5). If any part of the credit must be reversed under rule 42 or 43, the recipient is not eligible for full credit.

In our experience, most foreign owned service subsidiaries qualify. Our guide to [input tax credit rules](/insights/gst-input-tax-credit-rules) covers blocked credits and reversals. These subsidiaries export services under a letter of undertaking or supply taxable services in India. The ones that do not qualify usually have one of these:

1. Exempt outward supplies, such as residential rent or certain financial services.
2. Blocked credits on the specific service, such as some employee benefits under section 17(5).
3. A mix of business and non business use.

For a recipient without full credit, rule 28 bites. A free service needs a value, and the tax on it is a partial cost. Circular No. 199/11/2023-GST eases one point for branches. Salary costs of the supplying office need not be included in the value of an internally generated service.

We record the full credit test in a short note each year, with the supply mix that supports it. A tax officer who questions a nil value will ask for that basis first.

## How is a corporate guarantee between group companies taxed?

A corporate guarantee given to a bank for a related company's loan is a taxable supply of service, even without a fee. Rule 28(2), inserted by Notification No. 52/2023-Central Tax of 26 Oct 2023, values it at 1 percent a year of the amount guaranteed, or the actual consideration if higher. Notification No. 12/2024-Central Tax of 10 Jul 2024 amended it with effect from 26 Oct 2023.

The amendment made three changes, read with Circular No. 225/19/2024-GST of 11 Jul 2024:

1. The recipient must be a related person located in India. A guarantee for an overseas group company is outside rule 28(2), and the circular confirms it does not apply to exports.
2. "Per annum" was added, so a five year guarantee is valued at 5 percent of the amount, or the actual fee if higher.
3. A proviso deems the invoice value to be the value where the recipient is eligible for full input tax credit.

| Question | Answer | Basis |
|---|---|---|
| Guarantee issued before 26 Oct 2023 | Valued under the old rule 28; rule 28(2) applies to guarantees issued or renewed from that date | Circular No. 225/19/2024-GST |
| Value base | Amount guaranteed, not the amount of loan drawn | Circular No. 225/19/2024-GST |
| Multi year guarantee | 1 percent for each year, all taxed when the guarantee is issued | Circular No. 225/19/2024-GST |
| Guarantee for less than a year | Proportionate, so six months is 0.5 percent | Circular No. 225/19/2024-GST |
| Co guarantors | Each pays on 1 percent of its share, unless total consideration is higher | Circular No. 225/19/2024-GST |
| Loan taken over by another bank | No GST unless a fresh or renewed guarantee is issued | Circular No. 225/19/2024-GST |
| Foreign parent guarantees the Indian subsidiary's loan | Indian subsidiary pays under reverse charge | Circular No. 225/19/2024-GST |
| Indian guarantor for a related company in India | Guarantor charges GST under forward charge | Circular No. 225/19/2024-GST |
| Director's personal guarantee, no consideration | Nil value | Circular No. 204/16/2023-GST |

The full credit proviso raises a question the circular leaves open. If no invoice is issued for a guarantee, can the value be nil, as Circular No. 210/4/2024-GST allows for other services? Circular No. 225/19/2024-GST does not say.

Our current practice is to issue the self invoice at 1 percent a year and claim the credit. The cash cost is then only timing, and there is no argument about an uninvoiced guarantee.

## What have the courts said about rule 28(2) in 2026?

Two High Courts ruled on rule 28(2) in 2026. Neither ruling binds the other High Court, and the question may reach the Supreme Court. A subsidiary should keep paying, or protect its position in writing, until the law settles.

| Court and case | Date | Outcome |
|---|---|---|
| Bombay High Court (Nagpur Bench), D P Jain and Co. Infrastructure Private Limited v Union of India, Writ Petition No. 2087 of 2025 | 6 May 2026 | Challenge to the validity of rule 28(2) rejected. Show Cause Notice No. 02/2025-GST of 28 Jan 2025 was quashed because the guarantee deeds stated that no consideration was payable. The court relied on the Supreme Court's service tax ruling in Edelweiss Financial Services |
| Gujarat High Court, Torrent Power Limited v Union of India, Special Civil Application No. 12175 of 2024 with 13 connected petitions | 14 Aug 2026 | Common judgment of a Division Bench. The petitions challenged rule 28(2), its use for guarantees given before 26 Oct 2023, and show cause notices under section 74 |

The Bombay ruling helps where the guarantee documents state that no fee is payable. It does not strike down rule 28(2). In paragraph 70 the court also held that giving a corporate guarantee to a subsidiary without consideration was not a supply taxable under section 9.

For the Gujarat ruling, read the operative part of the official copy on the [Gujarat High Court case status portal](https://gujarathc-casestatus.nic.in/gujarathc/) before relying on it.

Check three points there. First, whether rule 28(2) stands as written. Second, how the court reads the words "whichever is higher". Third, whether the rule reaches guarantees given before 26 Oct 2023. We keep the guarantee deed, the board resolution and the bank's sanction letter on file. We also flag the position in the notes to the GST annual return.

## Is a secondment from the parent a supply of manpower?

Usually yes. Take a parent that employs the secondee, pays the salary abroad and recharges it. The Indian company is then treated as receiving a supply of manpower from the parent. The Supreme Court took that view for service tax on 19 May 2022, in the Revenue's appeals against Northern Operating Systems Private Limited. Use the [Supreme Court's judgment search](https://www.sci.gov.in/judgements-case-no/) for the civil appeal numbers and the full text.

Under GST the charge is an import of services. The Indian company pays IGST at 18 percent under reverse charge on the recharge. Where it is eligible for full input tax credit, the recharge amount is the value under the second proviso to rule 28(1). Where the parent charges nothing and the company issues no invoice, Circular No. 210/4/2024-GST allows a nil value, again only with full credit.

Two structures reduce the GST question:

1. The Indian company employs the person directly, on its own payroll, with a local contract. Schedule III then applies, because services by an employee to the employer are not a supply.
2. The parent keeps the employment, and the Indian company pays the recharge and the reverse charge with full credit. The tax is a cash timing cost only.

Secondment also raises permanent establishment, TDS and provident fund questions. Our guide to [seconding employees to India](/insights/secondment-of-employees-to-india-pe-gst-tds) covers those.

## How should a parent's cost allocation be treated?

Treat it as an import of services from the parent, taxed under reverse charge, unless it meets every pure agent condition in rule 33. Parents allocate group software, insurance, audit, IT security, travel tools and regional management. The parent is the supplier of that bundle to the Indian company, even if it bought the items from third parties.

Rule 33 lets a supplier exclude a recovery of costs it paid as a pure agent. All of these must hold:

1. A written agreement under which the parent acts as the subsidiary's agent for the payment.
2. The parent neither holds nor intends to hold title to the goods or services bought.
3. The parent does not use them for its own interest.
4. The parent recovers only the actual amount, shown separately on its invoice.
5. The items are in addition to services the parent supplies on its own account.

Most allocations fail at least one of these. A group software licence is a common example, because the parent holds the licence and uses it too. The cleaner answer is to accept the import, pay the reverse charge and claim the credit.

| Allocation from the parent | GST treatment | What we check |
|---|---|---|
| Group software and cloud tools | Import of services, reverse charge | Licence terms; who holds title |
| Global insurance premium share | Import of services, unless the Indian company is a named insured with its own policy | Policy schedule; insurer's location |
| Regional management and HR time | Import of services; nil possible only with full credit and no invoice | Timesheets, allocation key |
| Group audit fee share | Import of services | Audit firm's engagement letter |
| Travel booked by the parent for Indian staff | Usually an import of a bundled service | Whether the parent adds its own service |
| Year end transfer pricing true up invoice | Import of services when booked | Date of entry in the books |

The time of supply for these charges is the date of entry in the subsidiary's books or the date of payment, whichever is earlier. That comes from the second proviso to section 13(3) of the CGST Act for associated enterprises.

## How do cross charges between a company's own GST registrations work?

Each GST registration of a company is a distinct person. Services one registration gives another, such as head office finance, HR or IT support for a plant in another State, are Schedule I supplies. They need an invoice and GST at the correct value, unless the full credit proviso applies.

Circular No. 199/11/2023-GST of 17 Jul 2023 settled three points for internally generated services:

1. Where the receiving registration is eligible for full credit, the invoice value is deemed open market value, whatever costs it includes.
2. Where no invoice is issued in that case, the value may be deemed nil.
3. Where the receiving registration is not eligible for full credit, salary costs of the head office staff need not be included in the value.

The circular also said that distributing third party common services through an ISD was optional. That part changed on 1 Apr 2025.

A foreign company's branch in India is a different case. Its head office abroad and the branch are establishments of distinct persons under Explanation 1 to section 8 of the IGST Act. Services from head office to the branch are imports from the branch's own establishment outside India, under paragraph 4 of Schedule I. See our guide to [branch offices in India](/insights/branch-office-in-india-rbi-rules).

## When must common services be distributed through an ISD?

From 1 Apr 2025, third party services received for more than one GST registration of a company must be distributed through an ISD registration. Notification No. 16/2024-Central Tax of 6 Aug 2024 brought sections 11 and 12 of the Finance Act, 2024 into force on that date. They amended the ISD definition in section 2(61) and substituted section 20 of the CGST Act.

The new rules include reverse charge services. Notification No. 12/2024-Central Tax substituted rule 39(1) and added rule 39(1A) for this. Notification No. 09/2025-Central Tax of 11 Feb 2025 brought both into force on 1 Apr 2025.

The registration that pays the reverse charge on a common service can issue an invoice to the ISD with the same PAN and State. The ISD then distributes the credit.

Substituted rule 39(1) sets the method. Credit available in a month is distributed in that month through Form GSTR-6. It is shared in proportion to each recipient's turnover in the relevant period, with ineligible credit shown separately. IGST credit is distributed as IGST to all recipients.

Internally generated services are not distributed through the ISD. Head office staff time for a branch stays a Schedule I cross charge under Circular No. 199/11/2023-GST. The 57th GST Council recommended further ISD circulars on 8 Oct 2026, to address "varied interpretations by the field formations" (PIB release, item 16(1)).

## When is a cross charge to the foreign parent an export of services?

A service from the Indian subsidiary to its foreign parent is an export when it meets all five conditions in section 2(6) of the IGST Act. The supplier is in India, the recipient is outside India and the place of supply is outside India. Payment must arrive in convertible foreign exchange or, where RBI permits, in Indian rupees. The two must not be merely establishments of a distinct person.

The last condition does not catch a subsidiary. Circular No. 161/17/2021-GST of 20 Sep 2021 says a company incorporated in India and its foreign parent are separate legal persons. An Indian branch of a foreign company is caught, so its services to head office are not exports today. The 57th GST Council recommended on 8 Oct 2026 that section 2(6)(v) be omitted (PIB release, item 10(1)). That needs an amendment to the IGST Act.

Intermediary services changed on 30 Mar 2026. The Finance Act, 2026 omitted section 13(8)(b) of the IGST Act, as the GST Council's March 2026 newsletter reports. Before that, a subsidiary that arranged sales for its parent had its place of supply in India, so it paid GST. Now the default rule applies, and the parent's location abroad is the place of supply. The service can qualify as an export.

Exports go out under a letter of undertaking without tax. Our guides to [GST on export of services](/insights/gst-on-export-of-services-from-india) and [LUT filing](/insights/lut-filing-for-exporters-under-gst) cover the steps.

## How do GST values relate to transfer pricing?

They answer different questions and can differ. Transfer pricing tests whether the price is at arm's length for income tax. GST valuation under rule 28 accepts the invoice value where the recipient has full credit, whatever the transfer pricing result. A recipient without full credit must use open market value, which is close to an arm's length price.

A transfer pricing adjustment in the income tax return does not create a GST invoice by itself. A true up invoice the parent raises later is a fresh import when the subsidiary books it. We keep one intercompany schedule that ties the transfer pricing study, the GST self invoices and the TDS records. See our guides to [transfer pricing documentation](/insights/transfer-pricing-documentation-requirements-in-india) and [related party approvals under section 188](/insights/related-party-transactions-section-188-indian-subsidiary).

## What changed in 2026

| Topic | Old position | New position | Date | Instrument |
|---|---|---|---|---|
| Intermediary services | Place of supply was the intermediary's location | Default rule applies; a subsidiary's intermediary service to its parent can be an export, and a foreign agent's service is an import | 30 Mar 2026 | Finance Act, 2026, omission of section 13(8)(b), IGST Act |
| Corporate guarantee validity, Bombay | Rule 28(2) under challenge | Rule 28(2) upheld; notice quashed for lack of consideration | 6 May 2026 | Bombay High Court, Writ Petition No. 2087 of 2025 |
| Corporate guarantee validity, Gujarat | Rule 28(2) under challenge | Common judgment delivered in Torrent Power Limited; read the operative directions | 14 Aug 2026 | Gujarat High Court, Special Civil Application No. 12175 of 2024 |
| ISD issues | Field formations differ | Circulars recommended | 8 Oct 2026 (recommendation) | 57th GST Council, item 16(1) |
| Branch services to head office abroad | Not an export under section 2(6)(v) | Omission of section 2(6)(v) recommended | 8 Oct 2026 (recommendation) | 57th GST Council, item 10(1) |
| Foreign shipping lines' free related party imports | Taxable, valued under rule 28 | Exemption recommended, past periods regularised | 8 Oct 2026 (recommendation) | 57th GST Council, item C2.10 |

Three earlier changes still drive the answers above. Rule 28(2) on guarantees started on 26 Oct 2023, and its July 2024 amendment applies from the same date. ISD became compulsory for third party common services on 1 Apr 2025.

## Worked example

A German company owns an Indian Private Limited subsidiary. The subsidiary has GST registrations in Haryana (Gurugram head office) and Maharashtra (Pune plant). It makes only taxable and export supplies, so both registrations are eligible for full input tax credit. Last year Haryana had 30 percent and Maharashtra 70 percent of its turnover. We use INR 96.00 to the euro as an assumed rate.

### Group software allocation

The parent allocates EUR 40,000 of ERP and productivity licences for April to June 2026. The Gurugram team books it on 30 Jun 2026. The value is INR 38,40,000, and IGST at 18 percent is INR 6,91,200. The Haryana registration pays it under reverse charge in cash. Both units use the software, so Haryana issues an invoice for that credit to the Haryana ISD under rule 39(1A). The ISD gives INR 2,07,360 to Haryana and INR 4,83,840 to Maharashtra as IGST.

### Corporate guarantee from the parent

On 1 Jul 2026 the parent guarantees a three year term loan of INR 25 crore from an Indian bank to the subsidiary. It charges no fee. Rule 28(2) gives 1 percent a year for three years, so 3 percent of INR 25 crore, which is INR 75,00,000. The subsidiary pays IGST of INR 13,50,000 under reverse charge when the guarantee is issued, and claims the same amount as credit.

### Secondee recharge

The parent seconds an engineer to Pune and recharges EUR 24,000 of salary for the quarter, booked on 30 Sep 2026. The value is INR 23,04,000 and the IGST is INR 4,14,720 under reverse charge, paid by the Maharashtra registration.

### Head office support for the plant

The Gurugram finance team keeps the Pune plant's books. No invoice is raised. Maharashtra is eligible for full credit, so the value is nil under Circular No. 199/11/2023-GST.

### Engineering support to the parent

The Pune plant bills the parent EUR 1,00,000 for design support, received in euro. It is an export of services under a letter of undertaking, so no IGST is charged.

| Item | Value (INR) | IGST at 18% (INR) | Paid by | Credit |
|---|---|---|---|---|
| Group software | 38,40,000 | 6,91,200 | Haryana, reverse charge | Through ISD, 30:70 |
| Corporate guarantee | 75,00,000 | 13,50,000 | Haryana, reverse charge | Full |
| Secondee recharge | 23,04,000 | 4,14,720 | Maharashtra, reverse charge | Full |
| Head office support to Pune | Nil | Nil | Not applicable | Not applicable |
| Engineering support to parent | 96,00,000 | Nil (export under LUT) | Not applicable | Refund route for unused credit |
| Total reverse charge (software, guarantee, secondee) | 1,36,44,000 | 24,55,920 | Cash ledger | Full |

The company pays INR 24,55,920 in cash and gets the same amount back as credit. The cost is the time value of that cash. For an exporter, the credit often turns into a refund claim, which can take months.

## Common mistakes

1. Treating a free service as outside GST. Paragraph 2 or 4 of Schedule I usually catches it. Fix: list free group services each year and decide the value.
2. Assuming full credit without checking. A small exempt supply removes the full credit proviso. Fix: test eligibility for each recipient registration and record it.
3. Valuing a corporate guarantee on the loan drawn. Circular No. 225/19/2024-GST uses the amount guaranteed. Fix: value at 1 percent a year of the guarantee amount, for the full term.
4. Paying the guarantee tax year by year. The circular taxes the full term on issue. Fix: pay on the issue date and on each renewal.
5. Calling a parent recharge a pure agent cost. Most fail rule 33. Fix: treat it as an import unless every condition is documented.
6. Skipping the ISD after 1 Apr 2025. Common third party services must be distributed. Fix: register an ISD and route common reverse charge credit through rule 39(1A).
7. Raising internal cross charges at random values. Fix: use invoice value with full credit, and keep salary costs out where credit is partial, as Circular No. 199/11/2023-GST allows.
8. Ignoring the 30 Mar 2026 intermediary change. Fix: review agency and sales support contracts both ways.

If you want us to review your intercompany charges, email business@krystal7.com with the intercompany agreements and last year's GSTR-9.

## Checklist

1. Map every related person and distinct person, including each GST registration.
2. List all charges, free services, guarantees and secondments between them.
3. Decide for each item whether it is a Schedule I supply, an import or outside GST.
4. Test full credit eligibility for every receiving registration.
5. Value each supply under rule 28, using the invoice value or nil only where the proviso allows.
6. Value corporate guarantees at 1 percent a year of the amount guaranteed under rule 28(2).
7. Pay reverse charge on imports from the parent in cash and issue self invoices within 30 days.
8. Route common third party credit, including reverse charge, through the ISD.
9. Raise cross charges between your own registrations where the receiver lacks full credit.
10. Check exports to the parent against all five conditions in section 2(6) of the IGST Act.
11. Reconcile GST values with the transfer pricing study and TDS records every quarter.
12. Keep guarantee deeds, secondment letters and allocation keys on file for audits.

## Key terms

- **Distinct persons**: Under section 25(4) and (5) of the CGST Act, each GST registration of the same legal entity is a distinct person. Under Explanation 1 to section 8 of the IGST Act, an establishment in India and one outside India are also distinct persons. (https://krystal7.com/glossary#distinct-persons)
- **Open market value**: The full value in money, excluding GST, that an unrelated buyer would pay for the same supply at the same time, where price is the only consideration. The Explanation after rule 35 of the CGST Rules defines it for the valuation rules. (https://krystal7.com/glossary#open-market-value)
- **Corporate guarantee**: A guarantee one company gives a bank or financial institution for a loan to a related company. Where the related recipient is located in India, rule 28(2) of the CGST Rules values it at 1 percent a year of the amount guaranteed, or the actual fee if higher. (https://krystal7.com/glossary#corporate-guarantee)
- **Input Service Distributor (ISD)**: A separate GST registration under section 24(viii) of the CGST Act through which a company passes credit on common services to its other GST registrations. Rule 39 of the CGST Rules sets the turnover based method of distribution. (https://krystal7.com/glossary#input-service-distributor)
- **Schedule I supply**: An activity listed in Schedule I to the CGST Act that is a supply even without consideration, such as supplies between related or distinct persons in the course of business and imports of services from a related person. (https://krystal7.com/glossary#schedule-i-supply)
- **Pure agent**: A supplier that pays a third party on the recipient's behalf under a written agreement and recovers the exact amount. Rule 33 of the CGST Rules excludes such recoveries from the supplier's taxable value when all its conditions are met. (https://krystal7.com/glossary#pure-agent)

## Frequently Asked Questions

### Are free services between related companies taxable under GST?
Yes, if they are made in the course or furtherance of business. Paragraph 2 of Schedule I to the CGST Act treats supplies between related persons as supplies even without consideration. Rule 28 then sets the value. Where the recipient is eligible for full input tax credit, an uninvoiced service can be valued at nil under Circular No. 199/11/2023-GST.

### What is the 90 percent rule in rule 28?
It is the first proviso to rule 28(1) of the CGST Rules. Where the recipient will resell goods as they are, the supplier may value them at 90 percent of the price the recipient charges unrelated customers for like goods. It applies only to goods, and only at the supplier's option.

### How is a corporate guarantee to a related company valued for GST?
Rule 28(2) of the CGST Rules values it at 1 percent a year of the amount guaranteed, or the actual consideration if higher. It applies to guarantees issued or renewed from 26 Oct 2023, for a related person located in India. Where the recipient has full input tax credit, the invoice value is accepted.

### Who pays GST when a foreign parent guarantees an Indian subsidiary's loan?
The Indian subsidiary pays under reverse charge, because the guarantee is an import of services from a related person. Circular No. 225/19/2024-GST of 11 Jul 2024 confirms this. The subsidiary pays the IGST in cash when the guarantee is issued and can claim it as credit if eligible.

### Is a director's personal guarantee for the company's loan taxable?
It is a supply between related persons, but Circular No. 204/16/2023-GST values it at nil where the director receives no consideration. RBI guidelines bar companies from paying directors a commission for such guarantees. If the director is paid anything for the guarantee, that amount becomes the taxable value.

### Does rule 28(2) apply to a guarantee for an overseas group company?
No. Notification No. 12/2024-Central Tax limited rule 28(2) to a related recipient located in India, with effect from 26 Oct 2023. Circular No. 225/19/2024-GST confirms the rule does not apply to exports of the guarantee service. Such a guarantee is tested under the export conditions in section 2(6) of the IGST Act.

### Is a secondee salary recharge from the parent subject to GST?
Usually yes. Where the parent employs the secondee and recharges the salary, the Indian company receives a supply of manpower from abroad and pays IGST under reverse charge. With full input tax credit, the recharge amount is the taxable value. Employing the person directly on Indian payroll removes the supply, under Schedule III.

### Do head office services to a branch in another State need a GST invoice?
They are Schedule I supplies between distinct persons. Where the branch is eligible for full input tax credit, Circular No. 199/11/2023-GST allows the invoice value as open market value, and a nil value where no invoice is issued. Where credit is partial, raise an invoice; salary costs need not be included.

### Is the Input Service Distributor mandatory from 1 Apr 2025?
Yes, for third party services received for more than one GST registration of the same company. Sections 11 and 12 of the Finance Act, 2024 took effect on 1 Apr 2025 under Notification No. 16/2024-Central Tax. Reverse charge services can be passed to the ISD under rule 39(1A), in force from the same date, and then distributed by turnover.

### Can an Indian subsidiary's service to its parent be an export?
Yes, if all five conditions in section 2(6) of the IGST Act are met, including payment in convertible foreign exchange. Circular No. 161/17/2021-GST says a subsidiary and its foreign parent are separate persons, so condition (v) does not apply. A branch office supplying its own head office does not qualify today.

### How did the 2026 intermediary change affect group companies?
The Finance Act, 2026 omitted section 13(8)(b) of the IGST Act from 30 Mar 2026. A subsidiary that arranges sales for its parent no longer has its place of supply fixed in India, so the service can be an export. A commission paid to a foreign agent now becomes an import under reverse charge.

### Is holding shares in a subsidiary a service by the parent?
No. Circular No. 196/08/2023-GST of 17 Jul 2023 says a parent merely holding shares in its subsidiary is not supplying a service to it. Securities are neither goods nor services. A separate service the parent gives, such as management support, must still be assessed on its own.

### Does a transfer pricing adjustment create GST on a related party supply?
An adjustment made only in the income tax return does not create a GST invoice by itself. A true up invoice the parent raises later is an import of services when the subsidiary books it, under the associated enterprise rule in section 13(3) of the CGST Act. We tie both records through one intercompany schedule.

### What have the High Courts held on corporate guarantees?
The Bombay High Court (Nagpur Bench) on 6 May 2026 rejected the challenge to rule 28(2) but quashed a notice where the guarantees carried no consideration. The Gujarat High Court decided Torrent Power Limited on 14 Aug 2026. Read its operative directions on the Gujarat High Court portal before relying on either ruling.

### Are gifts by a company to employees taxed as related party supplies?
Gifts by an employer to an employee up to INR 50,000 in value in a financial year are not a supply, under the proviso to paragraph 2 of Schedule I. Above that value they are Schedule I supplies between related persons. Services by an employee to the employer in the course of employment are outside GST under Schedule III.

## Sources

- CBIC, Circular No. 199/11/2023-GST, Taxability of services between distinct persons, 17 Jul 2023, https://gstcouncil.gov.in/sites/default/files/2024-06/circular-cgst-199.pdf
- CBIC, Circular No. 196/08/2023-GST, Share capital held by a holding company in a subsidiary, 17 Jul 2023, https://gstcouncil.gov.in/sites/default/files/2024-06/circular-cgst-196.pdf
- CBIC, Circular No. 204/16/2023-GST, Personal and corporate guarantees, 27 Oct 2023, https://gstcouncil.gov.in/sites/default/files/2024-06/circular-no-204-16-2023.pdf
- CBIC, Circular No. 210/4/2024-GST, Valuation of import of services by a related person, 26 Jun 2024, https://gstcouncil.gov.in/sites/default/files/2024-09/circular-no-210-04-2024.pdf
- CBIC, Circular No. 225/19/2024-GST, Corporate guarantee between related persons, 11 Jul 2024, https://gstcouncil.gov.in/sites/default/files/2024-09/circular-no-225-2024.pdf
- CBIC, Circular No. 161/17/2021-GST, Condition (v) of section 2(6) of the IGST Act, 20 Sep 2021, https://gstcouncil.gov.in/sites/default/files/2024-06/circular_20no._20161_14_2021_gst.pdf
- Ministry of Finance, Notification No. 12/2024-Central Tax (rules 28(2) and 39), 10 Jul 2024, https://gstcouncil.gov.in/sites/default/files/2024-09/central-tax-12-2024-11072024.pdf
- Ministry of Finance, Notification No. 16/2024-Central Tax (Finance Act, 2024 sections 11 and 12 from 1 Apr 2025), 6 Aug 2024, https://gstcouncil.gov.in/sites/default/files/2024-09/16-2024-ct-eng.pdf
- GST Council Secretariat, Newsletter March 2026 (Finance Act, 2026), https://gstcouncil.gov.in/sites/default/files/2026-04/newsletter-march-2026.pdf
- Ministry of Finance (PIB), Recommendations of the 57th Meeting of the GST Council, 8 Oct 2026, https://www.pib.gov.in/PressReleasePage.aspx?PRID=2320934
- Ministry of Finance, Notification No. 09/2025-Central Tax (substituted rule 39(1) and rule 39(1A) in force from 1 Apr 2025), 11 Feb 2025, https://gstcouncil.gov.in/sites/default/files/2025-04/09-2025-ct-eng.pdf
- GST Council, 53rd meeting agenda with the Council approved text of amended section 2(61) and substituted section 20 of the CGST Act, https://gstcouncil.gov.in/node/5061
- Bombay High Court (Nagpur Bench), D P Jain and Co. Infrastructure Private Limited v Union of India, Writ Petition No. 2087 of 2025, 6 May 2026, official judgment search at https://bombayhighcourt.nic.in/
- Gujarat High Court, Torrent Power Limited v Union of India, Special Civil Application No. 12175 of 2024 with connected matters, 14 Aug 2026, official case status and judgment portal at https://gujarathc-casestatus.nic.in/gujarathc/
- Supreme Court of India, Revenue's appeals against Northern Operating Systems Private Limited (secondment, service tax), 19 May 2022, judgment search at https://www.sci.gov.in/judgements-case-no/
- CBIC, Central Goods and Services Tax Rules, 2017 (rules 33 and 34, Explanation to Chapter IV), https://cbic-gst.gov.in/pdf/cgst-rules-30122017.pdf
- CBIC, Central Goods and Services Tax Rules, 2017 (rules 28 to 33), https://gstcouncil.gov.in/sites/default/files/2024-04/01062021-cgst-rules-2017-part-a-rules.pdf
- CBIC, Integrated Goods and Services Tax Act, 2017 as enacted on 12 Apr 2017, https://cbic-gst.gov.in/aces/Documents/IGST-bill.pdf

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