GST TDS on Scrap in India: Thresholds & Credits

GST TDS on scrap in India applies to buyers of scrap who are required to deduct tax at 1% (0.5% CGST + 0.5% SGST, or 1% IGST) on the taxable value of scrap purchases, with the obligation triggered only when the buyer is a specified entity (like a government department or a registered person with a valid TAN) and the purchase value exceeds the threshold. This article explains the thresholds, how the TDS credit is claimed, when reverse charge applies, and how refunds work for excess or erroneous deductions.

Formula

The TDS amount is calculated as 1% of the taxable value of the scrap supply (excluding GST). The GST on the scrap is separate and is charged at the applicable rate (typically 18% for most scrap, but some items may attract 12% or 5%). The net amount payable to the supplier is the scrap value plus GST minus the TDS deducted.

Variables:

• Scrap value (₹) – the price of the scrap before GST, also the base for TDS.
• GST rate (%) – the rate applicable to the scrap category (commonly 18%).
• TDS amount (₹) – 1% of the scrap value, split equally between CGST and SGST (or as IGST for inter-state).
• GST on scrap (₹) – the GST charged on the supply.
• Net payable (₹) – the amount paid to the supplier after deducting TDS but adding GST.

Worked Example

Using the default values: Scrap value = ₹1,00,000, GST rate = 18%.

1. TDS = 1% of ₹1,00,000 = ₹1,000 (₹500 CGST + ₹500 SGST for intra-state).
2. GST on scrap = 18% of ₹1,00,000 = ₹18,000.
3. Net payable to supplier = ₹1,00,000 – ₹1,000 + ₹18,000 = ₹1,17,000.

The buyer pays ₹1,17,000 to the supplier, remits ₹1,000 as TDS to the government, and the supplier receives a TDS credit of ₹1,000 in their electronic cash ledger.

Background: Why TDS on Scrap Was Introduced

The GST Council introduced TDS on scrap to curb tax evasion in the unorganised scrap trade. Scrap dealers often operated without proper invoices, leading to leakages. By making the buyer deduct TDS, the government ensures a trail of transactions and brings more dealers into the formal tax net. The provision was notified under Section 51 of the CGST Act, and the rate was set at 1% (0.5% CGST + 0.5% SGST) for intra-state supplies and 1% IGST for inter-state supplies.

Who Must Deduct TDS on Scrap

The obligation to deduct TDS applies to the following buyers (termed as “deductor”):

• A department or establishment of the Central or State Government.
• A local authority.
• A governmental agency.
• A person or class of persons notified by the government on the recommendation of the GST Council (e.g., certain public sector undertakings).

Additionally, any registered person (including a private company) who has obtained a TAN (Tax Deduction and Collection Account Number) and is required to deduct TDS under GST must do so. However, the threshold for deduction is ₹2,50,000 per day or ₹5,00,000 in a month for a single supplier. If the total value of taxable supplies from a particular supplier exceeds these limits, TDS applies on the entire amount of the supply that exceeds the threshold, not on the first slab.

Reverse Charge on Scrap: When It Applies

Reverse charge under GST means the recipient of goods/services pays the GST directly to the government instead of the supplier. For scrap, reverse charge applies only in specific notified cases, such as purchases from an unregistered dealer. In such cases, the buyer must self-invoice and pay GST under reverse charge (RCM). However, TDS is not deducted on supplies that are subject to reverse charge, because the buyer is already paying the tax. If the supplier is registered, normal forward charge applies, and TDS is deducted as per the rules.

Claiming TDS Credit in GSTR-2 and GSTR-3B

The supplier (deductee) can claim the TDS amount as a credit in their electronic cash ledger. The steps are:

1. The deductor files GSTR-7 (monthly TDS return) and deposits the TDS with the government.
2. The TDS amount appears in the supplier’s GSTR-2A (auto-drafted from GSTR-7) as a credit.
3. The supplier must accept the TDS credit in GSTR-2 (if applicable) or claim it in GSTR-3B by entering the amount in the “TDS credit” field.
4. The credit can be used to offset output tax liability or be claimed as a refund if there is excess.

It is important to note that TDS credit is available only if the deductor has actually filed GSTR-7 and paid the amount. If the supplier does not see the credit, they should coordinate with the deductor.

Refunds of Excess or Erroneous TDS

Refunds of TDS arise in two scenarios:

• Excess deduction: If the deductor deducts more than 1% (e.g., by mistake), the supplier can claim a refund of the excess amount in their monthly GSTR-3B return by adjusting it against output tax or applying for a refund through Form GST RFD-01.
• Erroneous deduction: If TDS was deducted on a supply that is not taxable or is exempt, the supplier can claim a refund. The process requires filing a refund application with the proper officer, along with evidence that the supply was not liable to TDS.

In practice, most suppliers prefer to adjust excess TDS against future tax liabilities rather than file a refund, as refunds take time and require documentation.

Common Mistakes and How to Avoid Them

• Not checking the threshold: TDS is not applicable on every scrap purchase. Ensure the daily or monthly threshold is crossed before deducting.
• Confusing TDS with TCS: TCS (Tax Collected at Source) under GST is collected by the supplier on certain goods, while TDS is deducted by the buyer. They are different.
• Ignoring reverse charge: If you buy scrap from an unregistered dealer, you must pay GST under RCM, but you cannot deduct TDS on the same transaction.
• Incorrect GST rate: TDS is always 1% of the taxable value, but the GST rate on scrap varies. Using the wrong GST rate affects the total amount, not the TDS.
• Not filing GSTR-7: Deductors must file GSTR-7 monthly, even if no TDS is deducted (nil return). Failure leads to late fees and the supplier cannot claim credit.

Frequently Asked Questions

Is TDS applicable on scrap purchases from unregistered dealers?

No. If the supplier is unregistered, the buyer must pay GST under reverse charge, but TDS provisions do not apply because there is no GST invoice from the supplier. The buyer issues a self-invoice and pays GST directly.

Can I claim TDS credit if the deductor has not filed GSTR-7?

No. The TDS credit appears in your GSTR-2A only after the deductor files GSTR-7 and pays the tax. If the deductor fails to file, you cannot claim the credit. You should follow up with the deductor or report the issue to the GST department.

What is the threshold for TDS on scrap?

The threshold is ₹2,50,000 per day or ₹5,00,000 in a month from a single supplier. Once the threshold is crossed, TDS applies on the entire supply value of that day or month, not just the excess.

How do I show TDS in GSTR-3B?

In GSTR-3B, go to the “Eligible ITC” section and enter the TDS credit amount in the “TDS credit” field (usually row 6C). This amount is auto-populated from GSTR-2A if you have accepted it.

Can I get a refund of TDS if my output tax is nil?

Yes. If you have no output tax liability, you can claim a refund of the TDS amount by filing Form GST RFD-01. The refund will be processed after verification, typically within 60 days.

Does TDS apply to scrap exported from India?

No. Exports are zero-rated, and TDS is not deducted on zero-rated supplies. The buyer must ensure the supply is genuinely exported and supported by shipping bills and other documents.

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in a | Scrap value (₹) | ₹ | 100000 | 0
in b | GST rate (%) | % | 18 | 0
out tds | TDS amount (1%) | ₹ | a * 0.01 | 2
out gst | GST on scrap | ₹ | a * b / 100 | 2
out net | Net payable to supplier | ₹ | a - tds + gst | 2