Skip to main content
ECOMCAAccounting · Tax · Advisory
Menu
WhatsApp UsContact us

CGST circularGeneral for ecommerce sellers

CBIC clarifies how banks and NBFCs use the fifty per cent input tax credit option under section 17(4)

Official text · Summary prepared automatically

Document
Circular No. 261/07/2026-GST
Issued
26 Oct 2026
Effective
26 Oct 2026
Issued by
Central Board of Indirect Taxes & Customs (CBIC), GST Policy Wing
Official PDF(opens in a new tab)

Want help working out what this means for your business?

We handle GST and TDS compliance, returns and notice replies for D2C and marketplace sellers, and can walk you through how a change applies to your books.

Contact usWhatsApp us
On this page

What it means for ecommerce sellers

Circular No. 261/07/2026-GST clarifies which registrations of a banking company or financial institution, including a non-banking financial company, may opt for the fifty per cent input tax credit route under section 17(4) of the CGST Act, when the second proviso relaxation applies, and how availment and reversal are to be reported in FORM GSTR-3B. It applies to such entities engaged in accepting deposits, extending loans or advances, and advises field formations not to take an adverse view of a different past reporting method where the credit availed matches the principles set out. The circular does not concern ecommerce sellers or marketplace operators.

Who it affects

  • Banking companies engaged in supplying services by way of accepting deposits, extending loans or advances
  • Financial institutions, including non-banking financial companies, engaged in supplying such services
  • Distinct registrations (same PAN) of such entities
  • GST field formations

What to do

  1. A registration of a bank or financial institution engaged only in activities other than accepting deposits, extending loans and advances (such as exclusively bullion trading) does not have the section 17(4) option.
  2. If one registration engaged in accepting deposits, extending loans and advances opts for section 17(4), every other registration of the same entity engaged in those services must also comply with section 17(4).
  3. The second proviso relaxation is applied only to supplies received from another registered person with the same PAN that has also opted for section 17(4).
  4. In FORM GSTR-3B, credit for non-business use and supplies under section 17(5) is permanently reversed in Table 4(B)(1), credit under the second proviso is availed, and fifty per cent of the remaining eligible credit is availed with the balance permanently reversed in Table 4(B)(1).
  5. Where IMS is not used, credit not yet eligible under section 16 is temporarily reversed in Table 4(B)(2) and may be reclaimed in Table 4(A)(5) of a later period, subject to section 16(4), and shown in Table 4(D)(1).
  6. Under the IMS procedure, invoices whose credit is not currently eligible under section 16 are to be kept pending on IMS.

Provisions referred to: Section 17(4) of the CGST Act, 2017; Second proviso to section 17(4) of the CGST Act; Section 17(2) of the CGST Act; Section 17(5) of the CGST Act; Section 16 and section 16(4) of the CGST Act; Section 168(1) of the CGST Act; Rule 38 of the Central Goods and Services Tax Rules, 2017; Circular No. 170/02/2022-GST dated 06.07.2022

Related tools and services

Official text

As issued by Central Board of Indirect Taxes & Customs (CBIC), GST Policy Wing. Where the text starts with “Extract”, only the parts that concern ecommerce sellers are reproduced; the official PDF (opens in a new tab) is the authoritative version.

Type a word, number or section to highlight it below.

Page 1 of 8 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: Page 2 of 8 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 Page 3 of 8 S. No. 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. Page 4 of 8 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. Page 5 of 8 S. No. 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 Page 6 of 8 S. No. Issue Clarification 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, Page 7 of 8 S. No. Issue Clarification 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. Page 8 of 8 S. No. 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)

Questions sellers ask

Does Circular No. 261/07/2026-GST apply to ecommerce sellers?

Circular No. 261/07/2026-GST deals with banking companies and financial institutions, including non-banking financial companies, engaged in supplying services by way of accepting deposits, extending loans or advances, that opt to comply with section 17(4) of the CGST Act. The circular does not address ecommerce sellers or marketplace operators, and its clarifications on the fifty per cent input tax credit option and FORM GSTR-3B reporting are confined to those financial entities.

Can a bank registration that only does bullion trading opt for section 17(4) of the CGST Act?

No. Circular No. 261/07/2026-GST clarifies that a distinct registration of a banking company or financial institution, including a non-banking financial company, that is not engaged in supplying services by way of accepting deposits, extending loans and advances, such as one engaged exclusively in bullion trading, neither has the option nor is required to comply with section 17(4) of the CGST Act.

If one registration of an NBFC opts for section 17(4), must its other registrations also opt?

Yes, for registrations engaged in accepting deposits, extending loans and advances. Circular No. 261/07/2026-GST clarifies that if one such distinct registration of a banking company or financial institution, including a non-banking financial company, opts for section 17(4) of the CGST Act, all its registrations engaged in those services, even if also supplying other services, will have to necessarily comply with section 17(4).

When is the second proviso relaxation under section 17(4) available for supplies between same-PAN registrations?

Circular No. 261/07/2026-GST clarifies that the second proviso to section 17(4) of the CGST Act relaxes the restriction of availing only fifty percent of eligible input tax credit. That relaxation is available only for supplies received from another registered person with the same PAN who has also opted to comply with section 17(4). Supplies from a same-PAN registration that has not opted do not get the relaxation.

Will GST officers object to a different past method of reporting section 17(4) credit in GSTR-3B?

Circular No. 261/07/2026-GST advises field formations not to take an adverse view of a different methodology of reporting availment and reversal of input tax credit in FORM GSTR-3B for the past period, as long as the amount of credit availed under section 17(4) of the CGST Act is in congruence with the principles set out in the circular. The amount availed, not the reporting format, is the test.

Want help working out what this means for your business?

We handle GST and TDS compliance, returns and notice replies for D2C and marketplace sellers, and can walk you through how a change applies to your books.

Contact usWhatsApp us

General information only, not professional advice. The summary is ecomca’s reading of the document; the official PDF is the authoritative version, and later amendments may change it. Check the official source before you act.