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Section 17(4) of CGST Act - an analysis

SEPTEMBER 11, 2017

By P Sivaraman, FCA

AS per Section 17(4) of the CGST Act, 2017, a banking company or a financial institution including a non-banking financial company, engaged in supplying services by way of accepting deposits, extending loans or advances shall have the option to either comply with the provisions of sub-section (2), or avail of, every month, an amount equal to fifty per cent. of the eligible input tax credit on inputs, capital goods and input services in that month and the rest shall lapse:

Provided that the option once exercised shall not be withdrawn during the remaining part of the financial year:

Provided further that the restriction of fifty per cent. shall not apply to the tax paid on supplies made by one registered person to another registered person having the same Permanent Account Number.

We can analysis the wordings of this section as under:

1) The company must be a banking company or a financial institution including a non-banking financial company,

2) It must be engaged in supplying services by way of accepting deposits, extending loans or advances.

3) If the company satisfies the above said conditions it shall have the following two options:

a) To either comply with the provisions of section17 (2), or

b) To avail of, every month, an amount equal to fifty per cent of the eligible input tax credit on inputs, capital goods and input services in that month and the rest shall lapse:

ANALYSIS OF POINT NO: 3(b)

a) the option once exercised by the company shall not be withdrawn during a financial year.

b) The 50% reversal will not be applicable for transfer of credits by the company to its branches under the same permanent account Number.

ELIGIBLE Input tax credit on INPUTS, CAPITAL GOODS OR INPUT SERVICES MEANS:

a) Inputs used or intended to be used by a supplier in the course or furtherance of business other than capital goods (section2(59))

b) Capital goods the value of which is capitalised in the books of account of the person claiming the input tax credit and which are used or intended to be used in the course or furtherance of business (section 2(19))

c) Input services- any service used or intended to be used by a supplier in the course or furtherance of business (section(2(60)).

for supply of goods or services or both.

The question arises whether the tax paid under reverse charge mechanism is eligible for input tax credit by the banking or NBFC companies.

As per section 2(62) of the CGST ACT, input tax in relation to a registered person consists of the following:

a) Central tax charged on any supply of goods or services or both

b) State tax charged on any supply of goods or services or both

c) IGST charged on any supply of goods or services or both

d) Union territory tax charged on any supply of goods or services or both

and includes

(a) the IGST charged on import of goods;

(b) the tax payable under the provisions of sub-sections (3) and(4) of section 9 of the CGST ACT (i.e. tax payable under RCM)

(c) the tax payable under the provisions of sub-sections (3) and (4) of section 5 of the IGST Act;(tax payable under RCM)

(d) the tax payable under the provisions of sub-sections (3) and (4) of section 9 of the respective SGST Act(tax payable under RCM); or

(e) the tax payable under the provisions of sub-sections (3) and (4) of section 7 of the Union Territory Goods and Services Tax Act (tax payable under RCM)

but does not include the tax paid under the composition levy;

So even though section 17(4) of the CGST ACT has not explicitly mentioned whether availed input tax credit includes tax paid under RCM, the definition of input tax credit under the CGST Act duly covers tax paid under RCM also under the definition.

So, the banking and NBFC companies shall be eligible to include the tax paid under RCM also in the eligible input tax credit under option 2 and reverse 50% of the eligible INPUT TAX credit under the Act.

 

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