The Scrap Metal Deal That Now Withholds Tax: RCM and TDS on Metal Scrap Under GST

The metal recycling and secondary steel industry has always run on thin margins and complex supply chains, where scrap changes hands several times before reaching a foundry or furnace. In a significant policy shift, the GST Council recommended and the government notified special compliance measures for the metal scrap sector, bringing certain supplies under the reverse charge mechanism (RCM) and introducing a tax deduction at source (TDS) obligation for registered buyers. For an industry long associated with unaccounted transactions, this is a structural change worth understanding.

What Has Changed

Two distinct measures now apply to metal scrap transactions.

Reverse charge on unregistered supplies

Where metal scrap is supplied by an unregistered person to a registered buyer, the liability to pay GST shifts to the registered recipient under the reverse charge mechanism, in line with Section 9(3) of the CGST Act. Earlier, if the seller was unregistered, tax often simply did not enter the chain. Now the registered buyer must self-assess and pay GST on such purchases and can claim input tax credit subject to the usual conditions.

TDS on registered-to-registered supplies

Separately, when one registered person supplies metal scrap to another registered person, the buyer is required to deduct tax at source at the notified rate on the taxable value and deposit it with the government. This operates under the TDS framework of Section 51 read with the relevant notification. The supplier can claim credit of this deducted amount in the electronic cash ledger.

Who Is Affected

The changes touch nearly every link in the scrap chain:

• Foundries, rolling mills and manufacturers buying scrap as raw material.
• Registered scrap dealers and aggregators who both buy and sell.
• Recyclers and processors dealing in ferrous and non-ferrous scrap falling under the specified tariff chapters.

Small unregistered kabadiwalas and collectors are not directly burdened with fresh filing, but their registered buyers now carry the compliance load on those purchases.

The Action Required

If your business buys or sells metal scrap, treat these steps as immediate priorities.

For reverse charge purchases

1. Identify all scrap purchases from unregistered suppliers.
2. Raise a self-invoice for such inward supplies as required under the RCM provisions.
3. Pay the GST in cash through your return and then claim eligible ITC.

For TDS on B2B scrap supplies

1. Obtain TDS registration under GST if you are a deductor and do not already hold it.
2. Deduct tax at the notified rate on qualifying purchases from registered suppliers.
3. Deposit the deducted amount within the prescribed timeline and file the TDS return (GSTR-7) for the relevant month.
4. Issue the TDS certificate to the supplier so they can reconcile the credit.

Practical example

Suppose a rolling mill in Punjab buys ferrous scrap worth Rs 10 lakh from a registered dealer. The mill must deduct GST TDS at the notified rate on this value and deposit it, while paying the balance to the dealer. If the same mill buys Rs 2 lakh of scrap from an unregistered collector, it instead self-invoices and pays GST under reverse charge, later claiming that as ITC.

How to Stay Compliant

• Segregate your vendor master into registered and unregistered scrap suppliers, since the treatment differs entirely.
• Automate self-invoicing for RCM purchases so nothing slips through during monthly closing.
• Track the GSTR-7 due date every month; late deduction or deposit attracts interest and late fee.
• Reconcile TDS credit appearing in the supplier's ledger with your deduction records to avoid mismatches.
• Train your purchase team to check the supplier's GST status before booking any scrap invoice.

Because deadlines and rates in this area are governed by specific notifications that can be revised, confirm the current effective date, applicable tariff items and deduction rate with your GST advisor before finalising your process.

Looking Ahead

The direction of policy is clear: the government wants the scrap trade to move firmly into the formal, invoice-backed economy. Businesses that build clean processes now will avoid notices, protect their input credit, and gain a compliance edge as scrutiny of this sector tightens. Review your scrap procurement workflow this week, update your accounting system for RCM and TDS entries, and speak to your CA to lock down a monthly compliance calendar before the next return cycle.