Chandrasekhar Kutty, Founding Partner, Sashthi Taxlegal Advisory Services LLP | GST Litigation • Advisory • Appellate Representation | Hosur • Bengaluru
27 October 2026
CBIC has settled three questions on the option under section 17(4) of the CGST Act, which lets a banking company or financial institution (including an NBFC) engaged in accepting deposits or extending loans and advances avail 50% of eligible ITC instead of apportioning credit under section 17(2).
| Issue | Clarification |
|---|---|
| Who can or must opt | A registration (distinct person) of the entity that is not engaged in deposit-taking or lending, for example one doing only bullion trading, has neither the option nor the obligation. A registration that does deposit-taking or lending, even alongside other services, may opt. Once any one such registration opts, every other registration of the entity engaged in deposit-taking or lending must follow. |
| Second proviso (intra-PAN supplies) | The relief from the 50% restriction for supplies received from another registration under the same PAN applies only where the supplying registration has also opted under section 17(4). |
| GSTR-3B reporting | Ascertain eligible ITC under section 16; reverse non-business and section 17(5) credit permanently in Table 4(B)(1); avail second-proviso credit in full; avail 50% of the balance and reverse the other 50% permanently in Table 4(B)(1). Credit not yet eligible is reversed temporarily in Table 4(B)(2) and reclaimed in Table 4(A)(5) and shown in Table 4(D)(1) when eligible, within the section 16(4) limit. Under IMS, such invoices are to be kept pending rather than accepted. |
Protection for past periods
Field formations are told not to take an adverse view of a different reporting methodology for earlier periods so long as the ITC actually availed is consistent with the principles above. This line should be quoted in any reply to a notice alleging excess availment merely on the basis of table placement in GSTR-3B.
What banks and NBFCs should do now
- Align GSTR-3B reporting with the prescribed method from the current tax period.
- Review whether every registration under the PAN has consistently exercised (or not exercised) the option.
- In pending audits or notices on past methodology, rely on the past-period protection in the circular.
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For advice on how this circular affects your business or a pending dispute, write to contact@sashthitaxlegal.com or call +91 99521 84110.
Source: CBIC Circular No. 261/07/2026-GST dated 26.10.2026, F. No. CBIC-20001/2/2026-GST. This article is for general information and does not constitute professional advice. Readers should obtain specific advice before acting on any matter discussed here.