IndiaAudit Lens

Rule 38 of the CGST Rules, 2017

From the IndiaAuditLens Law Library

GST›CGST Rules, 2017›Chapter V, Input Tax Credit

At a glance

Entitlement and conditions

Rule 38, opening wordsThe procedure applies to a bank or financial institution, including a non-banking financial company, accepting deposits or extending loans or advances and choosing section 17(4) instead of the section 17(2) method.

Bars, duties and time limits

Rule 38(c)Fifty per cent of the remaining input tax is the prescribed admissible amount. The balance must be reversed in FORM GSTR-3B.

Procedure, powers and definitions

Rule 38(a)–(b)Non-business input and input-service tax and credit attributable to section 17(5) supplies must be excluded. The institution takes the credit covered by the second proviso to section 17(4), so far as clause (a) does not exclude it.

Rule 38 sets the credit procedure for eligible banking and financial institutions choosing the section 17(4) option. The institution first excludes non-business and blocked credit, then deals separately with the inputs and input services covered by the statutory proviso. Fifty per cent of the remaining input tax forms the admissible amount, and the balance must be reversed in FORM GSTR-3B.^[1]

Quick facts

Rule 38, CGST Rules, 2017

Claim of credit by a banking company or a financial institution

Provision
Act	Central Goods and Services Tax Rules, 2017
Chapter	V, Input Tax Credit
Rule title	Claim of credit by a banking company or a financial institution
Amendments
Last amendment	1 October 2022: Omitted (w.e.f. 01.10.2022) vide Notification No. 19/2022 - CT dated 28.09.2022.
Amendments	3 footnotes in the CBIC text (table)
Related provisions
Sections	Section 16 of the CGST Act, 2017, Section 17 of the CGST Act, 2017, Section 164 of the CGST Act, 2017
Forms named	FORM GSTR-3B
Structure 38 openingInstitution, activity and chosen option 38(a)(i)Non-business exclusion and non-availment 38(a)(ii)Section 17(5) exclusion and non-availment 38(b)Same-PAN input/input-service credit 38(c)Admissible amount on the remaining input tax 38(c)Balance reversal on the remaining input tax
Source
Law text	CBIC tax information portal, served on 17 September 2026^[1]
Questions reviewed	Prashant Prakash, 23 September 2026

Text

The text below is the rule as served by the CBIC tax information portal on 17 September 2026, with the portal's own amendment footnote markers (shown as small numerals before a bracket) and its footnotes.^[1] The Rules as published in the Gazette of India is the legal source.

Rule 38, verbatim (show)

Rule 38. Claim of credit by a banking company or a financial institution.-

A banking company or a financial institution, including a non-banking financial company, engaged in the supply of services by way of accepting deposits or extending loans or advances that chooses not to comply with the provisions of sub-section (2) of section 17, in accordance with the option permitted under sub-section (4) of that section, shall follow the following procedure, namely,-

(a) the said company or institution shall not avail the credit of,-

(i) the tax paid on inputs and input services that are used for non-business purposes; and (ii) the credit attributable to the supplies specified in sub-section (5) of section 17 ¹[****] ;

(b) the said company or institution shall avail the credit of tax paid on inputs and input services referred to in the second proviso to sub-section (4) of section 17 and not covered under clause (a);

(c) fifty per cent. of the remaining amount of input tax shall be the input tax credit admissible to the company or the institution ²[and the balance amount of input tax credit shall be reversed in FORM GSTR-3B];

(d) ³[****]

1. Omitted (w.e.f. 01.10.2022) vide Notification No. 19/2022- CT dated 28.09.2022.

2. Substituted (w.e.f. 01.10.2022) vide Notification No. 19/2022 - CT dated 28.09.2022.

3. Omitted (w.e.f. 01.10.2022) vide Notification No. 19/2022 - CT dated 28.09.2022.

Questions to answer on the file

Questions a reviewer answers from the engagement file, grouped by the part of the rule they come from. They describe what the rule asks; they do not decide it.

Institution, activity and chosen option 38 opening

Questions to answer on the file7 questions

Is this institution and its Rule 38 option under examination?
Is this service supplier a banking company?
Is it a financial institution, including an NBFC?
Does it supply services by accepting deposits?
Does it supply services by extending loans?
Does it supply services by extending advances?
Has it chosen the section 17(4) option not to comply with section 17(2)?

Ticks stay in this browser only.

Non-business exclusion and non-availment 38(a)(i)

Questions to answer on the file4 questions

What category is this inward item: inputs or input services?
Was the tax on this component paid?
Is this input or input-service component used for non-business purposes?
Was this credit actually availed?

Ticks stay in this browser only.

Section 17(5) exclusion and non-availment 38(a)(ii)

Questions to answer on the file2 questions

Is this credit blocked under an applicable section 17(5) limb after its exceptions?
Was this credit actually availed?

Ticks stay in this browser only.

Same-PAN input/input-service credit 38(b)

Questions to answer on the file9 questions

What category is this inward item: inputs or input services?
Was the tax on this component paid?
Do the supplier and recipient of this inward supply have the same PAN?
Was the supplier in this supply a registered person?
Was the recipient in this supply a registered person?
Is this component used for non-business purposes?
Is this credit blocked under an applicable section 17(5) limb after its exceptions?
What is the tax amount on the paid-tax document in question?
What credit amount was actually availed on this document?

Ticks stay in this browser only.

Admissible amount on the remaining input tax 38(c)

Questions to answer on the file8 questions

Does the ledger supplied include every input-tax entry for the month and tax head in question?
What is the total input-tax amount before these removals?
What is the clause (a)(i) excluded amount?
What is the additional clause (a)(ii) excluded amount without overlap?
What is the otherwise admissible same-PAN amount outside the fifty per cent pool?
What amount remains after the non-overlapping exclusions and the removal of the same-PAN amount?
What is fifty per cent of that remaining amount?
What amount was actually availed from this remaining amount?

Ticks stay in this browser only.

Balance reversal on the remaining input tax 38(c)

Questions to answer on the file9 questions

Does the ledger supplied include every input-tax entry for the month and tax head in question?
What is the total input-tax amount before these removals?
What is the clause (a)(i) excluded amount?
What is the additional clause (a)(ii) excluded amount without overlap?
What is the otherwise admissible same-PAN amount outside the fifty per cent pool?
What amount remains after the non-overlapping exclusions and the removal of the same-PAN amount?
What is fifty per cent of that remaining amount?
What amount was actually reversed for this remaining amount?
Was the entry recording this balance reversal made in FORM GSTR-3B?

Ticks stay in this browser only.

Amendment history

The CBIC text carries 3 footnotes. The table gives each in the source's own terms. Effective dates are as the footnotes state them.^[1]

Amendments to Rule 38 as footnoted in the CBIC text
Note	Change
1	Omitted (w.e.f. 01.10.2022) vide Notification No. 19/2022- CT dated 28.09.2022.^[2]
2	Substituted (w.e.f. 01.10.2022) vide Notification No. 19/2022 - CT dated 28.09.2022.^[2]
3	Omitted (w.e.f. 01.10.2022) vide Notification No. 19/2022 - CT dated 28.09.2022.^[2]

Provisions connected to Rule 38
Provision	Connection	Words that tie them
Section 164 of the CGST Act, 2017	Section 164 of the CGST Act, 2017 (1) prescribed by this provision	164(1) "make rules for carrying out the provisions of this Act"
Section 17 of the CGST Act, 2017	this provision requires Section 17 of the CGST Act, 2017 (4),(5)	38 "in accordance with the option permitted under sub-section (4)"; 38(a)(ii) "sub-section (5) of section 17"
Section 16 of the CGST Act, 2017	this provision requires Section 16 of the CGST Act, 2017	38(c) "remaining amount of input tax"; 16(1) "entitled to take credit of input tax"

Circulars and notifications

Circulars and notifications in the CBIC repository that cite this rule, newest first, by number, date and subject. A listing here does not say what an instrument decides; read the instrument.

Circulars (1)

Number	Date	Subject
Circular No. 170/02/2022-GST	6 July 2022	Mandatory furnishing of correct and proper information of inter-State supplies and amount of ineligible/blocked Input Tax Credit and reversal thereof in return in FORM GSTR-3B and statement in FORM GSTR-1

Notifications (4)

Number	Date	Subject
Notification No. 13/2025-Central Tax	17 September 2025	Seeks to notify the Central Goods and Services Tax (Third Amendment) Rules 2025.
Notification No. 09/2025-Central Tax	11 February 2025	Seeks to bring rules 2, 8, 24, 27, 32, 37, 38 of the CGST (Amendment) Rules, 2024 in to force
Notification No. 19/2022-Central Tax	28 September 2022	Seeks to make amendments (Second Amendment, 2022) to the CGST Rules, 2017.
Notification No. 14/2022-Central Tax	5 July 2022	Seeks to make amendments (First Amendment, 2022) to the CGST Rules, 2017

See also

Section 17 of the CGST Act, 2017: apportionment of credit and blocked credits
Section 16 of the CGST Act, 2017: eligibility and conditions for taking input tax credit

References

Central Board of Indirect Taxes and Customs. "Rule 38. Claim of credit by a banking company or a financial institution". Central Goods and Services Tax Rules, 2017, CBIC tax information portal, with amendment footnotes 1 to 3. Retrieved 17 September 2026.
Notification No. 19/2022-Central Tax, dated 28 September 2022: Seeks to make amendments (Second Amendment, 2022) to the CGST Rules, 2017. Cited in CBIC footnotes 1, 2 and 3.

External links

CGST Rules, 2017, Rule 38 on the CBIC tax information portal