ITC by Financial Institutions Section 17(4)

[Anshul]

A financial institution has option to reverse 50% ITC under Section 17(4) as per Rule 38 instead of proportionate reversal under Section 17(2) as per Rule 42. If it has not made reversal and was later pointed out by the department, then can it exercise option given in 17(4) or has to reverse as per Section 17(2)Rule 42 only ?

[Sadanand Bulbule]

If no reversal was made and department points it out later, the financial institution cannot retrospectively opt for Section 17[4]. It will likely have to follow Section 17[2] & Rule 42 for that past period. 

The option under Section 17[4] is prospective and has to be applied consistently from the start of the financial year.

[Shilpi Jain]

There is no requirement in the law to intimate what option is chosen by the assessee.

Hence, now they are still free to chose any option they wish to. You can chose the 50% option. There would be supporting cases for this principle under the CENVAT regime.

AI Summary

Input tax credit reversal option may be prospective or retrospective, affecting whether fixed-percentage or proportionate reversal applies. The option to use the fixed-percentage ITC reversal under Section 17(4) is contested: one view treats it as a prospective election requiring consistent application from the start of the financial year, precluding retrospective adoption and requiring proportionate reversal under Section 17(2) for past periods; an alternative view asserts no requirement to intimate the choice and that the fixed-percentage option may still be elected for earlier periods relying on analogies from prior indirect tax decisions.