Clarification on issues related to provisions of section 17(4) of the Central Goods and Services Tax Act, 2017.
The document, verbatim
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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:
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S. No.
Issue
Clarification
1.
Whether all registrations of a
banking
company
or
a
financial institution including
a
non-banking
financial
company, even those which
are not engaged in supplying
services by way of accepting
deposits, extending loans
and advances, can opt or are
required to opt to comply
with the provisions of section
17(4) of CGST Act?
Section 17(4) of CGST Act provides an option
to a banking company or a financial
institution including a non-banking financial
company engaged in supplying services by
way of accepting deposits, extending loans
and advances, to avail of fifty percent of
eligible input tax credit, for the purpose of
apportionment of credit towards taxable
supplies, including zero-rated supplies rather
than for the proportionate availment in terms of
section 17(2) of CGST Act. Accordingly, it is
clarified that:
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
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Issue
Clarification
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
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.
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S. No.
Issue
Clarification
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?
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.
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Issue
Clarification
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
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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.
B. After amendment in CGST Rules,
2017, related to IMS are notified,
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including cases where IMS has been
used even before such amendment:
a. The taxpayer has an option to accept, to
reject, or to keep pending the invoices or
other documents pertaining to inward
supplies received on IMS.
b. The registrant is required to keep pending
on IMS, invoice or other documents
pertaining to inward supplies, the ITC on
which is not eligible to the taxpayer at
present, due to non-fulfillment of any of the
conditions under section 16 of CGST Act
but which may become eligible in the
future on fulfillment of such conditions.
Such ITC would not be made available in
FORM GSTR-2B and therefore would not
get auto-populated in FORM GSTR-3B.
c. Thereafter, the amount of ITC in respect of
invoices or other documents pertaining to
inward supplies, accepted and deemed
accepted on IMS, shall be made available
in FORM GSTR-2B, and will get auto-
populated in FORM GSTR-3B.
d. In respect of the sum of, (i) such auto-
populated amount of ITC (other than ITC
on inward supplies liable to reverse
charge), and (ii) the amount of ITC claimed
on inward supplies liable to reverse charge
in the said FORM GSTR-3B, the availment
and reversal of ITC is required to be done
following the same procedure as has been
delineated in para (b) of part A above.
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Issue
Clarification
3. It may be noted that various practices
regarding availment and reversal of ITC in
FORM GSTR-3B, may have been followed
by the taxpayers opting to comply with the
provisions of section 17(4) of CGST Act, in
various periods. Field formations are
advised not to take an adverse view of a
different methodology of reporting of
availment and reversal of ITC for the past
period, as long as the amount of ITC
availed under the provisions of section
17(4) of CGST Act is in congruence with
the principles enunciated above.
3.
It is requested that suitable trade notices may be issued to publicize the contents of
this Circular.
4.
Difficulty, if any, in implementation of this Circular may be brought to the notice of
the Board.
Yours faithfully,
(Gaurav Singh)
Commissioner (GST)