India: CBIC notifies 2% TDS on metal scrap transactions

According to Notification No. 25/2024-Central Tax, issued on 9 October 2024, businesses engaged in business-to-business (B2B) transactions involving metal scrap are now required to deduct 2% Tax Deducted at Source (TDS) from registered suppliers. This rule is effective from 10 October 2024.

For intra-state transactions, the TDS rate is divided equally between CGST (1%) and SGST (1%), while for inter-state supplies, the full 2% is categorised under IGST.

This change expands the scope of TDS under Section 51 of the CGST Act, which previously applied mainly to government bodies and public sector undertakings (PSUs), to now include the metal scrap industry.

Reverse Charge Mechanism (RCM)

Under the RCM, if metal scrap is supplied by an unregistered seller, the buyer (recipient) must pay the GST instead of the seller. This ensures compliance even when the supplier is not registered under GST.

Impact on the Industry

The introduction of TDS is likely to influence cash flows and financial planning for businesses in the metal scrap trade. Companies must now ensure they are deducting the correct TDS amounts in compliance with the new rules. This change is part of the government's broader efforts to curb tax evasion and enhance the transparency of the metal scrap sector.

This regulatory update requires businesses to adjust their tax practices, particularly regarding their financial and pricing models, to account for the new TDS requirements. It also signals the government's intent to formalize the largely unregulated scrap sector, ensuring tax is promptly collected at every step in the supply chain.