TDS Under GST for the Metal Scrap Industry

TDS under GST on metal scraps is introduced to prevent revenue leakage and curb tax evasion in the scrap industry. Earlier TDS under Section 51 applied mainly to government entities and PSUs. Effective from 10th October 2024, a mandatory TDS mechanism was introduced for B2B supply of metal scraps between registered persons. With nearly 25 metric tons of scrap generated annually (as per Ministry of Steel), this sector has significant GST compliance importance.

Key Takeaways

• TDS is applicable only if the contract amount exceeds ₹2.5 lakh.
• 2% TDS will be deducted for metal scraps (1% CGST + 1% SGST or 2% IGST).
• TDS is levied on the taxable amount, not on GST.
• The deducted TDS is allotted to the supplier’s Electronic Cash Ledger, which can then be utilised to pay GST liability.

Applicability of TDS to the Metal Scrap Industry

A recipient of metal scrap from a registered supplier is liable to deduct TDS under GST, if the provisions of Section 51 are applicable.

• TDS is applicable only if the taxable value of supply exceeds ₹ 2.5 Lakhs.
• Tax will be deducted at the rate of 2% on taxable value of metal scrap (1% CGST+1% SGST or 2% IGST)

Exemption

• No TDS as a tax is payable on the unregistered person supplying the services (though RCM may apply).
• Certain exemptions shall be applicable to some governmental organisations notified under the GST Act

TDS Rates and Threshold Limits

Applicable TDS Rate

TDS is levied only on the taxable value, excluding GST.

Threshold Limit 

• The threshold of ₹2.5 Lakhs applies to the contract value. If a single contract is worth ₹3 Lakhs but is split into three invoices of ₹1 Lakh each, TDS is still applicable.

According to a report submitted by the GST Council, the precision of GST returns has been observed to have improved because of the implementation of the concept of GST TDS.

TDS Deduction Process

A step-by-step procedure for the deduction and deposit of TDS applicable on metal scrap is as follows:

1. Verify whether the buyer is a notified deductor
2. Deduct 2% TDS at the time of payment or credit, whichever is earlier
3. Deposit the deducted amount via the GST portal
4. File GSTR-7 return

Example of TDS Deduction on Metal Scrap

Compliance and Due Dates

Timely compliance is essential to avoid late fees and interest under GST.

The deductor shall obtain a separate GST registration as a TDS deductor. Application to be made through the GST Portal Services using Form REG - 07.

Due Dates for GST TDS

Penalties for Non-Compliance

• Late fee: ₹100 per day under CGST and SGST
• Maximum late fee: ₹5,000
• Interest: 18% per annum

Chapters of the Customs Tariff Act, 1975

• Chapter 72: Iron and Steel
• Chapter 73: Articles of Iron and Steel
• Chapter 74: Copper and Articles thereof
• Chapter 75: Nickel and Articles thereof
• Chapter 76: Aluminium and Articles thereof
• Chapter 78: Lead and Articles thereof
• Chapter 79: Zinc and Articles thereof
• Chapter 80: Tin and Articles thereof
• Chapter 81: Other Base Metals; Cermet’s; Articles Thereof

Credit Claim by Scrap Suppliers

The suppliers of scraps of metals through the TDS & TCS Credit Received tile on the GST portal will be able to receive information on the taxes deducted. Additionally, once the suppliers have accepted the transaction, the amount received will be liable to their Electronic Cash Ledger to pay off the output taxes.

Please refer to the ‘Official GST Manuals of CBIC’ or ‘Latest GST Council Notifications’ for more information.

Credit Claim by Scrap Suppliers

Suppliers from whom TDS is deducted can claim credit of the deducted amount.

How Can Suppliers Use TDS Credit?

• The deducted TDS is reflected in the Electronic Cash Ledger
• The balance can be used to pay:
  • GST liability
  • Interest
  • Penalty or late fees

“GST TDS is not a cost to the supplier but a recoverable credit.”

Exemptions and Non-Applicability Scenarios

TDS on Metal Scrap is not applicable on the following occasions:

• The value of the contract does not exceed ₹2,50,000
• The supplier is not a GST-registered entity
• Import of metal scrap from foreign countries
• Location of the supplier and place of supply are in a different State from recipient's registration state