Clarification on Section 17(4) of CGST Act for Banking and Financial Entities · 261/07/2026-GST

Circular No. 261/07/2026-GST

F. No. CBIC-20001/2/2026-GST
Government of India
Ministry of Finance
(Department of Revenue)
Central Board of Indirect Taxes & Customs
GST Policy Wing
****

Room No. 16039, Kartavya Bhawan-01
New Delhi, Dated: 26.10.2026

To,

The Principal Chief Commissioners/ Chief Commissioners (All)
The Principal Director General/ Director General (All)

Madam/Sir,

Subject: Clarification on issues related to provisions of section 17(4) of the Central Goods and Services Tax Act, 2017 – reg.

Representations have been received regarding varying practices being followed by the banking companies or financial institutions, including non-banking financial companies, engaged in supplying services by way of accepting deposits, extending loans or advances, in respect of apportionment of credit toward taxable supplies including zero-rated supplies, where such a registered person opts to comply with the provisions of section 17(4) of Central Goods and Services Tax Act, 2017 (hereinafter referred to as “CGST Act”), with a request to clarify the same.

2. The matter has been examined. In order to ensure uniformity in the implementation of the provisions of the law across the field formations, the Board, in exercise of its powers conferred under section 168(1) of the CGST Act, hereby clarifies the issues raised as follows:

• a. A registrant (“distinct person”) of a banking company or a financial institution including a non-banking financial company, who is not engaged in supplying services by way of accepting deposits, extending loans and advances, such as one engaged exclusively in “Bullion trading” etc., neither has the option nor is required to comply with the provisions of section 17(4) of CGST Act.
• b. A registrant (“distinct person”) of a banking company or a financial institution including a non-banking financial company, who is engaged in supplying services by way of accepting deposits, extending loans and advances, and who may also be engaged in supplying services other than the said services has the option to comply with the provisions of section 17(4) of CGST Act.
• c. Further, if one registrant (“distinct person”) of a banking company or a financial institution including a non-banking financial company, who is engaged in supplying services by way of accepting deposits, extending loans and advances, and who may also be engaged in supplying services other than the said services, opts to comply with the provisions of section 17(4) of CGST Act, all registrants of the said banking company or a financial institution including a non-banking financial company, who are engaged in supplying services by way of accepting deposits, extending loans and advances, and who may also be engaged in supplying services other than the said services, will have to necessarily comply with the provisions of section 17(4) of CGST Act. | | 2. | Whether the provisions of the second proviso to section 17(4) of CGST Act applicable to the tax paid on supplies made by a registered person having same PAN as the banking company or a financial institution including a non-banking financial company, where such a registered person does not opt to comply with the provisions of section 17(4) of CGST Act? | Second proviso to section 17(4) of CGST Act provides a relaxation to the person who has opted to comply with the provisions of section 17(4) of CGST Act, from the restriction of availment of only fifty percent of the eligible input tax credit on inputs, input services and capital goods.

The said proviso needs to be read within the context of applicability of section 17(4) of CGST Act to those registrant(s) of a banking company or a financial institution including a non-banking financial company, which are engaged in supplying services by way of accepting deposits, extending loans and advances, and have opted to comply with the provisions of section 17(4) of CGST Act.

Accordingly, it is clarified that such relaxation under the second proviso to section 17(4) of CGST Act is available only in respect of supplies received from another registered person with the same PAN who has also opted to comply with the provisions of section 17(4) of CGST Act. | | 3. | What is the correct manner for reporting of availment and reversal of input tax credit (ITC) in FORM GSTR-3B, to be followed by a banking company or financial institution including a non-banking financial company, engaged in supplying services by way of accepting deposits, extending loans or advances, which opts to comply with the provisions of section 17(4) of CGST Act? | 1. It is to mention that Circular No. 170/02/2022-GST dated 06.07.2022 was issued to clarify the correct manner of furnishing information regarding ITC availment and reversal in FORM GSTR-3B. Further, Invoice Management System (IMS) facility has been introduced from October, 2024 onwards, wherein a facility has been provided to the registered person to accept, reject or keep pending on IMS, invoice or other documents pertaining to inward supplies, for the purpose of correct auto-population of ITC in FORM GSTR-3B.

2. Accordingly, it is clarified that the correct manner of reporting of availment and reversal of ITC in FORM GSTR-3B, to be followed by the registered person under section 17(4) of CGST Act read with rule 38 of Central Goods and Services Tax Rules, 2017 (CGST Rules), is as follows:

A. In cases where IMS was not used:

• a. The eligibility of ITC from the amount which is (i) auto-populated in FORM GSTR-3B from the available ITC in FORM GSTR-2B (other than ITC on inward supplies liable to reverse charge) and, (ii) claimed on inward supplies liable to reverse charge, in the said FORM GSTR-3B, needs to be ascertained.
• b. The amount of ITC, which is ascertained to be eligible under section 16, shall be availed by the taxpayer in FORM GSTR-3B of the said tax period, by the following procedure:
  • i. the credit of tax paid on inputs and input services that are used for non-business purposes and the credit attributable to the supplies specified in sub-section (5) of section 17 shall be permanently reversed in Table 4(B)(1) of the said FORM GSTR-3B;
  • ii. the credit of tax paid on inputs and input services referred to in the second proviso to sub-section (4) of section 17 shall be availed; and
  • iii. fifty per cent of the remaining amount of ITC shall be the input tax credit admissible to the taxpayer and shall be availed. The balance amount shall be permanently reversed in Table 4(B)(1) of FORM GSTR-3B of the same tax period, as per provisions of section 17(4) of CGST Act.
• c. The amount of ITC which cannot be ascertained to be eligible due to non-fulfillment of conditions under section 16 of CGST Act but which may become eligible in the future on fulfillment of such conditions should be temporarily reversed in FORM GSTR-3B of the same tax period, in Table 4(B)(2) of the said FORM GSTR-3B.
• d. Such ITC may, on fulfilment of the requisite conditions, be reclaimed in the return in Table 4(A)(5) of FORM GSTR-3B for a subsequent tax period, subject to the time limit under section 16(4) of CGST Act and should also be subjected to the procedure provided for in para. b above. Further, all such reclaimed ITC shall also be shown in Table 4(D)(1) of the said subsequent tax period FORM GSTR-3B.