GST credit option for financial institutions: registration and reporting rules

CBIC Circular 261/07/2026-GST, dated 26 October 2026, clarifies the 50% input-tax-credit option under section 17(4) for qualifying banking companies and financial institutions, including NBFCs.

Eligibility is assessed at the GST-registration level. A registration dealing exclusively in an unrelated activity, such as bullion trading, cannot use this option merely because the wider entity is a financial institution. If an eligible registration chooses section 17(4), the entity’s other qualifying registrations must follow that treatment.

The exception for supplies between registrations with the same PAN applies only where the supplying registration has also adopted section 17(4). Businesses should not assume that every internal invoice escapes the restriction.

The circular explains permanent and temporary reversals in GSTR-3B and handling invoices whose credit may become eligible later, including through IMS. Earlier reporting methods should not attract an adverse view merely for differing presentation where the credit amount follows the stated principles.

Finance teams should identify qualifying GSTINs, check internal suppliers’ treatment and reconcile eligibility, reversals and subsequent reclaims with supporting invoices.