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 ?

AI Summary

Can a taxpayer switch to 50% reversal under Section 17(4)/Rule 38 after earlier not reversing input tax? A financial institution asked whether, if it failed to reverse input tax credit earlier, it can now elect the 50% reversal option under Section 17(4)/Rule 38 instead of performing proportionate reversals under Section 17(2)/Rule 42. Respondents disagreed: one advised the 50% option is prospective and must be applied consistently from the start of the financial year, so past periods should follow Section 17(2)/Rule 42; the other argued there is no statutory filing requirement to notify the choice and the institution may still elect the 50% option, citing analogous CENVAT precedents.