GST Update on ITC of GST on Premium paid to DICGC by Banks 110/2020-21

The Applicant (Uttar Bihar Gramin Bank (GST AAR Bihar) Advance Rulings (B)-04/2019-20 Dated 30/06/2020) is engaged in the business of banking as a regional Rural Bank. It accepts deposit from its customers and also engaged in providing some exempted services. It is statutorily required to pay premium to Deposit Insurance and Credit Guarantee Corporation (DICGC) on these deposits, on which GST is collected by the DICGC. Now the bank is availing and intends continue to avail credit of GST paid, as prescribed under respective GST Acts, as it is an inward supply for the purpose of its banking business. Bank now seeks advance ruling, whether input credit of GST on this inward supply is just and proper under the GST law?

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Provided that the option once exercised shall not be withdrawn during the remaining part of the financial year.

AAR held that Bank can avail ITC on fifty percent of GST paid on DICGC premium, as it is statutorily required for the bank to obtain insurance of deposit, which has only been accepted by it in the course of its business or furtherance of business. Claim is allowable under Section 17(4) if compliance has been done as per Rule 38 of CGST Rules, 2017.

In GST, bankers can avail 50% of the input tax credit instead of reversing based on the inputs, input service and capital goods partly attributable to the taxable supply and exempted supplies. Similar provision is also in placed under Service Tax law.

Further, since all the capital assets are used for common services, therefore ITC of only 50% in respect of the capital goods gets allowed. Therefore, we suggest that the provision of reversal of 50% credit for capital goods must be relaxed. Various office furniture, equipment, computers, printers, air-conditioners etc. are of high procurement cost and if 50% of the credit on the same is to be lapsed then it shall have an adverse impact. Alternatively, the same may be brought in line with the service tax law and the credit for capital goods must be available in maximum of 2 years as per the service tax law.

This is solely for educational purpose.

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GST Update on ITC of GST on Premium paid to DICGC by Banks 110/2020-21

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