TDS on Metal Scrap under GST (from October 2024)

1. Introduction

Beginning October 2024, the GST framework introduced a major compliance reform by making TDS applicable on the supply of metal scrap in specified transactions. The metal scrap sector has long been a sensitive area for tax leakage due to unorganized operations, cash dealings, inconsistent documentation, and frequent movement of goods. To reduce evasion and ensure accurate reporting, the Government brought metal scrap transactions under the Tax Deducted at Source (TDS) mechanism. This ensures that the tax trail starts at the transaction level, allowing authorities to track scrap supply chains more effectively. The October 2024 amendment marks a significant step toward formalizing the scrap industry under GST.

2. Rationale Behind Introducing TDS on Metal Scrap

The scrap industry, though crucial for recycling and metal recovery, is highly fragmented with numerous small suppliers and intermediaries. Historically, the sector experienced issues such as under-invoicing, non-reporting of sales, misuse of input tax credit, and fake billing. By applying TDS on scrap transactions, the government aims to create a financial checkpoint that verifies the authenticity of invoices at the time of payment itself. This prevents inflated input tax credit claims and compels suppliers to file accurate returns. The October 2024 regulation thereby increases transparency and strengthens compliance in an otherwise vulnerable sector.

3. Applicability of TDS from October 2024

From October 2024 onward, TDS on metal scrap becomes applicable when:

The buyer is a Government department, PSU, local authority, or any other notified TDS deductor, and
The seller is a GST-registered supplier of metal scrap, and
The supply is taxable under GST, and
The contract or invoice value crosses the prescribed threshold.

This ensures that TDS applies only to significant scrap transactions handled by entities with the capability to comply. Private companies are not automatically required to deduct TDS unless specifically notified.

4. What Constitutes “Metal Scrap” for GST TDS Purposes

Metal scrap includes a broad range of ferrous and non-ferrous waste generated from:

Manufacturing processes

Automotive dismantling

Industrial maintenance

Construction demolition

Machinery disposal

Recycled metal channels

Casting, forging, furnace waste

The October 2024 circular clarifies that both processed and unprocessed metal scrap fall under TDS, ensuring wide coverage across the scrap supply industry.

5. TDS Rate Applicable on Scrap Transactions

The TDS rate on metal scrap under GST remains:

1% of the taxable value
(0.5% CGST + 0.5% SGST for intra-state supply, or 1% IGST for inter-state supply).

TDS is deducted only on the taxable value, not on the GST charged on the invoice. This avoids excessive tax deduction and aligns with standard GST TDS rules.

6. How TDS Works in Metal Scrap Transactions

Once TDS becomes applicable, the buying entity must deduct 1% from the payable amount at the time of payment. This deducted amount is deposited directly to the government. The buyer must file a monthly TDS return reflecting the transaction and issue a TDS certificate to the supplier. After the deposit is made, the TDS amount becomes visible in the supplier’s Electronic Cash Ledger. The supplier can use this balance to pay GST liabilities, interest, penalties, or other dues. This strengthens the financial traceability of scrap movements.

7. Compliance Responsibilities of Buyers (TDS Deductors)

Government bodies, PSUs, and other notified entities must carefully evaluate scrap invoices before making payments. They must verify whether the supplier is registered, ensure that the supply is taxable, deduct the appropriate TDS amount, deposit it within the prescribed timeline, file the monthly TDS return, and issue the TDS certificate. These steps create an end-to-end compliance system that validates each scrap transaction under GST. Failure to comply may result in penalties, interest liabilities, or disallowance of expenses in their financial records.

8. Impact on Scrap Suppliers

Suppliers of metal scrap gain formal credit in their GST ledger whenever TDS is deducted and deposited by the buyer. This improves the financial credibility of suppliers, makes books of accounts more transparent, and reduces the risk of disputes. However, suppliers must ensure complete documentation, proper invoice preparation, and timely return filing to match TDS entries appearing in their ledger. Small suppliers, previously accustomed to cash-based operations, may need to adopt proper accounting practices to avoid reconciliation mismatches.

9. Prevention of Tax Evasion and Fake Billing

The metal scrap sector has historically witnessed fake invoicing chains, inflated scrap values, and mismatched ITC claims. With TDS applied at the transaction level, such malpractice becomes significantly harder. Each scrap transaction now creates a digital trail visible to GST authorities in real time. TDS ensures that only genuine suppliers and real transactions qualify for GST input tax credit. As a result, tax evasion through scrap billing is expected to reduce sharply from October 2024 onward.

10. Treatment of Scrap Purchases from Unregistered Persons

Scrap purchases from unregistered suppliers are not subject to TDS, but they may attract Reverse Charge Mechanism (RCM) under certain GST rules depending on the nature of supply. However, the October 2024 amendment places emphasis only on TDS when the supplier is registered. This rule encourages unregistered scrap dealers to obtain GST registration so they may participate fully in the supply chain and not lose business from government buyers.

11. Record Maintenance and Documentation Requirements

Proper documentation is essential for both buyers and suppliers. Buyers must maintain:

Supplier GSTIN details

Taxable value of scrap

TDS deduction records

Challans for TDS deposit

TDS return acknowledgments

TDS certificates issued

Suppliers must maintain:

Scrap purchase and sale invoices

Proof of TDS credits appearing in ledger

Reconciliation statements

Accurate documentation ensures smooth audits and prevents penalties.

12. Long-Term Impact on the Scrap Industry

The introduction of TDS on scrap from October 2024 is expected to transform the sector significantly. It promotes greater compliance, reduces informal transactions, enhances traceability, encourages GST registration among small dealers, and instills financial discipline in supply chains. Over time, TDS will bring stability, create transparency-based pricing mechanisms, and strengthen India’s recycling ecosystem. The reform also supports the larger goal of promoting a circular economy, where scrap recycling becomes more organized and environmentally efficient.

13. Conclusion

The application of TDS on metal scrap under GST from October 2024 marks a major regulatory upgrade for a traditionally unorganized sector. This measure helps prevent tax evasion, ensures clean financial trails, improves compliance quality, and builds trust between buyers and suppliers. While it imposes additional responsibilities on notified buyers and requires suppliers to adapt to more stringent recordkeeping, the long-term benefits significantly outweigh the compliance burden. The new TDS regime positions the metal scrap industry for a more transparent, accountable, and sustainable future.