Scrap sales look simple, but tax treatment in India has become more detailed over the last few years. Factories, contractors and institutions selling scrap must deal with GST on the sale, special reverse charge and TDS rules for metal scrap, possible TCS under the Income Tax Act, HSN classification and e-way bills. Getting it wrong can mean interest, penalties and blocked input tax credit for your buyer. This guide explains the main rules in plain language.
Important: This article is general information, not tax advice. GST and income tax rules change frequently. Always confirm the treatment of your specific transaction with a qualified chartered accountant.
Is GST applicable on scrap?
Yes. Scrap is "goods" under GST, and its sale in the course of business is a taxable supply. This includes:
- Production scrap such as offcuts, turnings and rejects.
- Scrap from replaced machinery and equipment.
- Scrap from dismantling buildings or plants.
- Packaging and other waste materials sold for value.
Even when a business sells old capital assets as scrap, GST is generally payable on the sale value.
GST rates on common scrap
Rates are linked to the HSN code of the material. Indicatively:
| Scrap type | Common HSN chapter / heading | Typical GST rate |
|---|---|---|
| Iron and steel scrap | 7204 | 18% |
| Copper scrap | 7404 | 18% |
| Aluminium scrap | 7602 | 18% |
| Brass (copper alloy) scrap | 7404 | 18% |
| Lead scrap | 7802 | 18% |
| Zinc scrap | 7902 | 18% |
| Stainless steel scrap | 7204 | 18% |
| Plastic scrap | 3915 | 18% |
| Paper and cardboard waste | 4707 | Lower rate; check current schedule |
| E-waste | Classified by item | Varies |
Rates and classifications should be checked against the current GST rate schedule, as changes do occur.
Reverse charge on metal scrap from unregistered persons
Metal scrap trading in India has long involved many small, unregistered collectors. To improve compliance, the government introduced a reverse charge mechanism (RCM) for metal scrap with effect from 10 October 2024.
What it means: When an unregistered person supplies metal scrap (falling under Chapters 72 to 81 of the tariff) to a registered person, the registered buyer pays the GST directly to the government under reverse charge, instead of the supplier charging it.
Practical effect for buyers: Registered businesses buying metal scrap from unregistered collectors must issue a self-invoice, pay GST under RCM and can then claim input tax credit, subject to the usual conditions.
For sellers who are registered: If you are a GST-registered business selling scrap, you charge GST on your invoice in the normal way. The RCM rule applies to supplies from unregistered persons.
2% GST TDS on B2B metal scrap
From 10 October 2024, a further measure applies: registered persons receiving metal scrap from registered suppliers must deduct TDS under GST at 2% (1% CGST + 1% SGST, or 2% IGST) where the value of supply under a contract exceeds the notified threshold, which is ₹2.5 lakh.
For sellers: The buyer will pay you the invoice amount minus 2% TDS. The TDS is deposited by the buyer and reflects in your electronic cash ledger, which you can use to pay your GST liability. Reconcile it every month.
For buyers: You need to register as a tax deductor (TDS registration under GST), deduct 2%, deposit it and file the relevant returns.
TCS on scrap under the Income Tax Act
Separately from GST, the Income Tax Act has historically required sellers of scrap to collect tax at source (TCS) from buyers under section 206C(1), at 1% of the sale value for scrap, subject to specified exemptions. Income tax provisions are revised through annual Finance Acts, and the rules on TCS for goods have been restructured in recent years. Check with your accountant whether TCS applies to your scrap sales in the current financial year, the rate, and any exemptions (for example, where the buyer uses the scrap for manufacturing and provides the required declaration).
HSN codes on scrap invoices
Your invoice should show the correct HSN code for each scrap type. Using a single generic code for mixed scrap can create classification disputes. If you sell multiple grades in one lot, list them separately with their HSN codes, quantities, rates and tax amounts.
E-way bill requirements
An e-way bill is required when goods worth more than the threshold (generally ₹50,000, with state-specific variations for intra-state movements) are moved by road. For scrap, the e-way bill should match the invoice: same HSN, quantity and value. Weighbridge weight is the basis for the invoice quantity, so weigh before finalising the invoice where possible.
Practical compliance checklist for sellers
- Confirm the buyer's GSTIN on the GST portal.
- Weigh the material and collect weighbridge slips.
- Issue a tax invoice with correct HSN codes, quantities and GST.
- Generate an e-way bill where required.
- If the buyer deducts 2% GST TDS, verify it appears in your ledger.
- Check TCS applicability under the Income Tax Act.
- Keep all documents for audit.
Practical compliance checklist for buyers
- Register for GST TDS if you buy metal scrap from registered suppliers above the threshold.
- Deduct and deposit 2% TDS and file returns on time.
- For purchases from unregistered persons, pay GST under reverse charge with a self-invoice.
- Maintain KYC records of suppliers.
- Match weighbridge records with invoices.
Common mistakes
- Treating scrap sales as "miscellaneous income" without GST.
- Selling capital assets as scrap without considering GST and asset write-off accounting.
- Using wrong HSN codes for mixed lots.
- Ignoring GST TDS credits in the electronic ledger.
- Moving scrap without e-way bills.
- Dealing with buyers whose GSTIN is cancelled or invalid.
A simple worked example (illustrative only)
A registered manufacturer sells 20 tonnes of MS scrap to a registered steel mill at ₹32 per kg.
- Taxable value: 20,000 kg × ₹32 = ₹6,40,000
- GST at 18%: ₹1,15,200 (CGST + SGST if intra-state, or IGST if inter-state)
- Invoice value: ₹7,55,200
Because this is a B2B supply of metal scrap above the threshold, the buyer deducts 2% GST TDS on the taxable value: ₹12,800. The seller receives the balance and the TDS credit appears in the seller's electronic cash ledger, which the seller uses to pay GST. If TCS under the Income Tax Act applies in the year of sale, the seller also collects TCS from the buyer at the applicable rate and deposits it.
This example is simplified to illustrate the mechanics. Rates, thresholds and calculation bases must be confirmed with your accountant for each transaction.
Documents to keep for every scrap sale
- Purchase order or written acceptance from the buyer.
- Tax invoice with HSN codes.
- E-way bill (where required).
- Weighbridge tare and gross slips.
- Gate pass and material challan.
- Payment confirmation and TDS/TCS records.
- For capital assets: disposal approval and asset write-off entry.
Keeping these together in one file per sale makes audits and GST reconciliations straightforward.
How Kabadi24 handles tax and documentation
Every purchase by Kabadi24 is documented. We verify GST details, weigh at certified weighbridges, issue or receive proper tax invoices with HSN codes, comply with GST TDS and reverse charge rules where they apply, and generate e-way bills. Our accounts team at the Ramnagar head office can coordinate with your finance team so that scrap sales reconcile cleanly. We serve businesses across Varanasi and Purvanchal, and in Gurugram through our branch.
Conclusion
GST on scrap is no longer a simple 18% invoice. Reverse charge for unregistered suppliers, 2% GST TDS on B2B metal scrap and possible TCS under income tax all need attention. With correct HSN codes, weighbridge-based invoicing, e-way bills and a buyer who understands compliance, scrap sales can stay clean and audit-ready. Always confirm the latest rules with your chartered accountant.