The government has clarified the rules on GST for transactions of metal scrap, giving much-needed clarity to businesses on their tax obligations.

What You Should Know About Metal Scrap Buyers.

If you are a registered scrap dealer under GST, your tax liability will depend on whether you are buying from a registered seller or an unregistered seller.

Purchase from a GST-registered supplier:

If the value of the contract is above Rs 2.5 lakh, then you have to deduct 2% TDS (Tax Deducted at Source).

Buy from an unregistered supplier (like a local scrap collector or kabadiwala):

You are liable to pay 18% GST under Reverse Charge Mechanism(RCM). This GST can be claimed as Input Tax Credit (ITC) later on, if all the conditions of GST are met.

The government has also clarified that unregistered suppliers of metal scrap are not automatically exempt from GST registration just because the buyer pays tax under the Reverse Charge Mechanism (RCM). The requirement to register under GST depends on whether the supply is made within the same state or across states.

• For intra-state supplies of metal scrap, the supplier must obtain GST registration only after crossing the prescribed turnover threshold. The limit is Rs 40 lakh for suppliers dealing only in goods and Rs 20 lakh in cases where the applicable threshold is Rs 20 lakh.

• But, for inter-state supplies of metal scrap, GST registration is compulsory irrespective of the turnover of the supplier. This means that even if the turnover of the supplier is less than the threshold limit, the registration is mandatory if the metal scrap is supplied to another state.

Clarification is issued on the basis of Section 22(1) and Section 24(i) of CGST Act, 2017 read with Notification No. 24/2024-Central Tax dated 09.10.2024.