Published 28 October 2026
Banks, financial institutions and non-banking financial companies (NBFCs) that accept deposits or give loans and advances can choose a simple rule for credit. Under section 17(4) of the CGST Act, they can take 50 per cent of the eligible input tax credit, instead of working out a proportionate reversal under section 17(2). Practices differed on who may opt, how the option applies across registrations, and how to report it in GSTR-3B. Circular No. 261/07/2026-GST, issued on 26 October 2026, settles these points.
1. Which registrations can, or must, opt?
The circular looks at each registration (each “distinct person”) of the bank or institution.
| Registration | Position |
|---|---|
| Does not supply services by way of accepting deposits or extending loans and advances (for example, one used only for bullion trading) | Has no option, and is not required, to follow section 17(4) |
| Supplies services by way of accepting deposits or extending loans and advances (whether or not it also supplies other services) | Has the option |
| Any one such registration opts | All such registrations of the same bank or institution must follow section 17(4) |
So the option is exercised once for the whole entity, across those registrations that deal in deposits, loans or advances. It cannot be chosen branch by branch.
2. The second proviso: same-PAN supplies
The second proviso to section 17(4) relaxes the 50 per cent limit for the tax paid on supplies from another registered person with the same PAN. The circular says the relaxation only works inside the section 17(4) regime. It applies to supplies received from another registered person with the same PAN who has also opted for section 17(4). It is not available for a same-PAN registration that has not opted.
3. Reporting in GSTR-3B
The circular repeats that Circular 170/02/2022-GST dealt with reporting, and adds the Invoice Management System (IMS), which has been available since October 2024. It gives a method for two cases.
A. IMS not used
- Work out which credit is eligible under section 16, from the amount that is auto-populated from GSTR-2B (other than reverse charge) and the credit claimed on reverse charge supplies.
- Of the eligible amount:
- Credit on inputs and input services used for non-business purposes, and credit attributable to the supplies in section 17(5), is permanently reversed in Table 4(B)(1).
- Credit on supplies covered by the second proviso to section 17(4) is availed in full.
- Of the remaining amount, 50 per cent is availed, and the other 50 per cent is permanently reversed in Table 4(B)(1) of the same period’s return.
- Credit that cannot be confirmed as eligible now, because a section 16 condition is not met, but may become eligible later, is temporarily reversed in Table 4(B)(2).
- When the condition is met, the credit may be reclaimed in Table 4(A)(5) of a later return, within the section 16(4) time limit, again applying step 2. It is also shown in Table 4(D)(1).
B. Once the rules on IMS are amended, and where IMS has been used already
- The taxpayer may accept, reject or keep pending each invoice on IMS.
- An invoice whose credit is not eligible now but may become so later must be kept pending. Its credit then does not appear in GSTR-2B, and does not flow into GSTR-3B.
- Credit on invoices accepted or deemed accepted flows into GSTR-2B and GSTR-3B. Availment and reversal then follow the same three-step procedure as in A above.
4. Earlier methods will not be questioned
The circular recognises that taxpayers may have reported differently in past periods. Field officers are told not to take an adverse view of a different method of reporting for a past period, as long as the amount of credit availed under section 17(4) is in line with the principles in the circular.
What a bank or NBFC should check
- Which of its registrations supply deposit, loan or advance services, and whether all of them are following section 17(4).
- Whether same-PAN supplies are claimed under the second proviso only where the supplier has also opted.
- That non-business and section 17(5) credit is reversed permanently, before the 50 per cent calculation.
- That credit held back for a missing section 16 condition goes through Table 4(B)(2), and not Table 4(B)(1).