Circular
26 Oct 2026
CBIC
Operative & In Force
261/07/2026-GST — Clarification on issues related to provisions of section 17(4) of the Central Goods and Services Tax Act, 2017.
Legal Citation
CBIC Circular No. 261/07/2026-GST, dt. 26-10-2026
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Executive Directive & Regulatory Background
This CBIC Circular No. 261/07/2026-GST, dated 26.10.2026, provides crucial clarifications regarding the application of Section 17(4) of the CGST Act, 2017, for banking companies, financial institutions, and NBFCs.
Key Statutory Takeaways & Compliance Mandates
01
Objective & Uniformity of Implementation
Standardize the interpretation and implementation of the optional 50% input tax credit (ITC) availment rule for these entities, addressing inconsistencies observed across field formations.
02
The circular clarifies which distinct persons within such entities can opt for Section 17(4), the scope of the second proviso to Section 17(4) concerning inter-unit supplies, and details the correct methodology for reporting ITC availment and reversal in FORM GSTR-3B, both before and after the introduction of the Invoice Management System (IMS).
03
Objective & Uniformity of Implementation
This aims to bring uniformity and reduce litigation by providing clear guidelines for compliance, particularly for past periods where varying practices may have been followed.
Key Procedural Changes & Industry Impact
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Clarification on applicability of Section 17(4) to distinct persons within banking/financial institutions.Only registrants engaged in accepting deposits, extending loans, or advances have the option to comply with Section 17(4). If one such registrant opts in, all other such registrants of the same entity must also comply. Registrants exclusively engaged in other activities (e.g., bullion trading) cannot opt for Section 17(4).
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Scope of the second proviso to Section 17(4) regarding inter-unit supplies.The relaxation from the 50% ITC restriction for supplies received from a registered person with the same PAN is only available if both the supplier and recipient distinct persons have opted to comply with Section 17(4).
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Detailed procedure for reporting ITC availment and reversal in FORM GSTR-3B.Prescribes a specific methodology for calculating and reporting eligible ITC (50% of remaining ITC after certain reversals) and for handling temporarily ineligible ITC, both for periods before and after the IMS implementation. This standardizes reporting and ensures correct ITC availment.
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Advisory against adverse views for past reporting methodologies.Field formations are advised not to take adverse action for past periods where different reporting methodologies were used, provided the total ITC availed under Section 17(4) aligns with the principles clarified in this circular. This offers relief and reduces retrospective disputes for taxpayers.