Circular 261: Section 17(4) 50% ITC for Banks and NBFCs Clarified
CBIC Circular 261/07/2026-GST on section 17(4): who can opt for 50% ITC, same-PAN second proviso relief and how to report in GSTR-3B.
Key takeaways: circular 261
- Section 17(4) lets eligible banks, financial institutions and NBFCs claim 50% of eligible ITC.
- Once one eligible registrant opts in, all eligible registrants of the entity must follow circular 261.
- The balance 50% is reversed permanently in Table 4(B)(1) of GSTR-3B.
Table of contents
CBIC’s Circular No. 261/07/2026-GST, dated 26 October 2026, clarifies how banks, financial institutions and NBFCs should apply circular 261 of the CGST Act, which lets them claim 50% of eligible input tax credit as an alternative to the proportionate reversal route. It is issued under section 168(1) because practices varied.
Who can opt for circular 261?
- Registrants engaged in accepting deposits and extending loans or advances may opt in, even if they also supply other services.
- A registrant of the same entity that is not engaged in those activities, such as one dealing only in bullion trading, neither has the option nor is required to comply.
- Once one eligible registrant opts in, all eligible registrants of that entity must follow circular 261.
Second proviso relief
The relief from the 50% restriction on inputs, input services and capital goods applies only to supplies received from another registrant with the same PAN that has also opted into circular 261. It does not apply where the same-PAN supplier has not opted in.
Reporting in GSTR-3B (Rule 38)
- Determine eligibility of the auto-populated ITC and any reverse charge ITC claimed.
- Reverse non-business and section 17(5) credit permanently in Table 4(B)(1).
- Avail the second-proviso credit.
- Avail 50% of the remaining eligible ITC and reverse the balance permanently in Table 4(B)(1) for the same period.
- ITC that may become eligible later is reversed temporarily in Table 4(B)(2) and reclaimed in Table 4(A)(5) in a later period, subject to section 16(4).
Where the Invoice Management System (IMS) is used, invoices can be accepted, rejected or kept pending. ITC not currently eligible because section 16 conditions are not met must be kept pending, so it does not appear in GSTR-2B. Accepted ITC auto-populates in GSTR-3B and follows the same 50% procedure.
Past periods
Field formations should not take an adverse view of a different reporting method used earlier, provided the circular 261 credit is consistent with these principles.
Related: ITC conditions and blocked credits and GSTR-2B explained. For GST return support, see our GST services.
What to do next about circular 261
Review how circular 261 affects your business: note the effective date, check your records and software, brief your team and keep a copy of the official text on file. Where the position is unclear for your case, take professional advice before filing or changing your process.
Official sources for circular 261
Always read the original text. You can find notifications, circulars and rules on the CBIC Tax Information Portal and file returns and applications on the GST Portal. This guide on circular 261 is a summary and is not a substitute for the official text.
Frequently asked questions
Does the circular apply to all businesses?
No, it deals with banks, financial institutions and NBFCs that opt for circular 261.
If one branch opts in, must others follow?
Yes, all eligible registrants of the same entity must follow circular 261.
Where is the balance 50% reversed in GSTR-3B?
Permanently in Table 4(B)(1) for the same period.
This article is for general information only and is not tax, legal or financial advice. It is based on the text of the notification or circular as published by CBIC. Rules, rates and criteria change, so confirm the latest position with the official source or a professional before acting.
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