Financial institution status under GST enables a co-operative society to use the special fifty per cent input tax credit option.
A co-operative society engaged in accepting deposits and extending loans or advances qualifies as a financial institution for GST credit purposes because the relevant definition is drawn from the RBI Act, 1934 and includes a non-banking institution. On that basis, the applicant fell within the class of suppliers eligible for the special credit regime under section 17(4). As it made both taxable services and exempt supplies from its financing activities and satisfied the statutory conditions, it could opt for fifty per cent of eligible input tax credit instead of the proportionate reversal mechanism under section 17(2).
Issues: (i) Whether the applicant is a financial institution for the purpose of section 17(4) of the GST law; (ii) Whether the applicant is entitled to the option of availing fifty per cent of eligible input tax credit under section 17(4).
Issue (i): Whether the applicant is a financial institution for the purpose of section 17(4) of the GST law.
Analysis: The applicant carried on the business of accepting deposits and extending loans or advances. The expression "financial institution" was taken from the Reserve Bank of India Act, 1934 through the relevant GST cross-reference, and a co-operative society falls within the definition of a non-banking institution. On that basis, a co-operative society engaged in financing activities by way of loans or advances qualifies as a financial institution.
Conclusion: Yes, the applicant is a financial institution for the purpose of section 17(4).
Issue (ii): Whether the applicant is entitled to the option of availing fifty per cent of eligible input tax credit under section 17(4).
Analysis: The applicant supplied both taxable services and exempt supplies arising from accepting deposits and extending loans or advances. Section 17(4) permits the specified class of suppliers, if they satisfy the statutory conditions, to opt for fifty per cent credit in place of the proportional restriction under section 17(2). Since the applicant satisfied both conditions, the statutory option was available.
Conclusion: Yes, the applicant is entitled to avail the option under section 17(4).
Final Conclusion: The applicant was held eligible under the GST credit scheme applicable to financial institutions and could adopt the special fifty per cent credit option instead of the regular proportionate reversal mechanism.
Ratio Decidendi: A co-operative society engaged in accepting deposits and extending loans or advances qualifies as a financial institution for GST credit purposes, and if it satisfies the statutory conditions, it may opt for the special fifty per cent input tax credit mechanism under section 17(4).
TaxTMI 
AI Drafter ✕
TaxTMI 
TaxTMI 
