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Under the new Tax Deducted at Source (TDS) regulations for metal scrap, businesses must withhold a portion of the payment to suppliers when purchasing metal scrap.
For instance:
If a company purchases metal scrap worth ₹50,000, it is required to deduct 2% TDS, amounting to ₹1,000, before making a payment of ₹49,000 to the supplier. The deducted TDS must then be deposited with the government.
Introduction
The introduction of TDS under the Goods and Services Tax (GST) framework marks a significant advancement in enhancing tax collection, curbing tax evasion, simplifying compliance processes, and fostering improved tax adherence in India.
Applicability
Importantly, the supplier can claim the Input Tax Credit (ITC) on the TDS that has been deducted by the buyer.
According to Section 51 of the CGST Act, 2017, certain entities, including departments of the Central or State Government, local authorities, governmental agencies, and other designated categories of individuals, must deduct TDS at a rate of 1% when the total value of the supply exceeds ₹2,50,000.
Official Notification
As stated in Notification No. 50/2018 – Central Tax dated September 13, 2018:
“The Central Government appoints October 1, 2018, as the date on which the provisions of Section 51 of the Act shall become effective concerning the persons specified under clauses (a), (b), and (c) of sub-section (1) of Section 51 and those mentioned below under clause (d) of the same subsection:
(a) An authority, board, or other body:
- (i) set up by an Act of Parliament or a State Legislature; or
- (ii) established by any Government with over 51% equity participation to perform certain functions;
(b) Societies established under the Societies Registration Act, 1860 by the Central or State Government or a Local Authority;
(c) Public sector undertakings.”
A recent amendment, under Notification No. 25/2024 – Central Tax dated October 9, 2024, introduces an additional clause stating that:
“(d) Any registered person receiving supplies of metal scrap classified under Chapters 72 to 81 of the First Schedule to the Customs Tariff Act, 1975, from other registered persons.”
Explanation
In simple terms, Notification No. 25/2024 – Central Tax introduces TDS under GST for metal scrap transactions, specifically in Business-to-Business (B2B) contexts.
Effective Date
The provisions outlined in this notification will take effect from October 10, 2024.
Separate Registration
A new registration form, REG-07, has been established specifically for TDS deduction purposes.
TDS Rates
Businesses are required to deduct TDS at a rate of 2% from payments to registered suppliers:
- Intra-State Transactions: 1% Central Goods and Services Tax (CGST) + 1% State Goods and Services Tax (SGST)
- Inter-State Transactions: 2% Integrated Goods and Services Tax (IGST)
Monthly Updates
Form GSTR-7 must be submitted by the 10th of the following month. This form requires details on the TDS deducted, the amount paid to the supplier, GSTIN details, and other relevant information.
FAQs
Who is required to deduct TDS on metal scrap?
Businesses engaged in B2B transactions, specifically those purchasing metal scrap from registered suppliers, must deduct TDS.
Does TDS on metal scrap apply to unregistered suppliers?
No, TDS on metal scrap does not apply to unregistered suppliers or individual sellers.
How does this rule benefit the government?
The TDS mechanism will enhance the government’s ability to monitor metal scrap transactions and improve overall tax compliance.