GST on Scrap in 2026 What Buyers and Dealers Must Check Before Every Transaction

India's scrap and recycling industry is entering an important phase of GST compliance in 2026. Businesses dealing in metal scrap, plastic waste, used cooking oil, tyre scrap and electronic waste need to understand the latest changes affecting their transactions.

From 1 November 2026, amendments to the GST framework bring additional specified waste and scrap categories within the relevant compliance provisions. These changes make supplier verification, goods classification, GST Tax Deducted at Source (TDS) and Reverse Charge Mechanism (RCM) particularly important.

For scrap dealers, recycling companies, manufacturers and registered buyers, understanding these rules can help prevent incorrect tax deductions, payment errors and GST return mismatches.

What Are the New GST Rules for Scrap in 2026?

The expanded GST framework covers additional specified categories of waste and scrap from 1 November 2026.

The notified categories include:

Scrap category	Customs Tariff Heading
Used cooking oil	1518
Waste and scrap of plastics	3915
Waste and scrap of tyres	4004
Electrical and electronic waste and scrap	8549
Specified metal scrap	Chapters 72 to 81

Specified metal scrap was already covered under the earlier framework. The expanded provisions bring the additional categories into the relevant GST compliance framework.

Businesses should verify the correct Customs Tariff classification before deciding whether a transaction falls within these provisions. Not every discarded, used or second-hand product automatically qualifies as notified waste or scrap.

GST TDS on Scrap 2026: Understanding the 2% Rate

GST Tax Deducted at Source is governed by Section 51 of the Central Goods and Services Tax Act, 2017.

Under the applicable provisions, specified registered buyers are required to deduct tax from qualifying payments made to registered suppliers when the statutory conditions are satisfied.

The applicable GST TDS rate is generally 2%.

For qualifying intra-State transactions, the deduction is divided into:

• 1% Central GST (CGST)

• 1% State GST (SGST) or Union Territory GST (UTGST), as applicable

For qualifying inter-State transactions, 2% Integrated GST (IGST) may apply.

It is important to understand that GST TDS is not the GST rate charged on the scrap itself. It is a separate deduction mechanism applied to qualifying transactions.

GST TDS Threshold: What Does the ₹2.5 Lakh Limit Mean?

One of the most important conditions under Section 51 is the value of taxable supply under a contract.

GST TDS generally applies when the total taxable supply value under a contract exceeds ₹2.5 lakh, excluding GST and cess.

Consider these examples:

Taxable contract value	GST TDS threshold
₹1,80,000	Does not exceed the threshold
₹2,50,000	Does not exceed the threshold
₹3,00,000	Exceeds the threshold

The threshold must be assessed at the contract level rather than automatically treating every individual invoice as a separate contract.

Other statutory conditions and exceptions under Section 51 must also be checked before making a deduction.

Reverse Charge Mechanism on Scrap Purchases

Reverse Charge Mechanism changes who is responsible for paying GST.

Under the notified provisions of Section 9(3) of the CGST Act, the registered recipient may become liable to pay GST when specified goods are supplied by an unregistered person.

For example, imagine a registered recycling company purchasing notified plastic waste from an unregistered scrap collector.

If the transaction falls within the applicable RCM notification, the registered recycling company becomes responsible for paying the applicable GST under reverse charge.

The buyer should verify:

• Whether the supplier is registered under GST.

• Whether the goods fall under a notified tariff heading.

• Whether the transaction falls within the applicable notification.

• Whether the supply is intra-State or inter-State.

• What tax rate and payment requirements apply.

RCM should not be applied to every scrap purchase automatically. The relevant notification and transaction details determine its applicability.

GST TDS vs RCM: What Is the Difference?

Although both mechanisms affect scrap transactions, they serve different purposes.

Particulars	GST TDS	Reverse Charge Mechanism
Main provision	Section 51	Section 9(3)
Supplier	Registered supplier	Unregistered supplier under the notified framework
Buyer	Specified registered deductor	Registered recipient
Main responsibility	Deduct applicable tax	Pay applicable GST
Compliance	TDS payment and GSTR-7	RCM payment and applicable GST returns

The supplier's GST registration status is an important factor in determining which mechanism may apply.

Businesses should not confuse the 2% TDS deduction with the GST payable under RCM. They are separate legal mechanisms.

Do Scrap Dealers Need GST Registration?

GST registration requirements depend on the nature of business, aggregate turnover, applicable statutory thresholds and specific exemptions.

The registration framework has also been amended for suppliers dealing exclusively in certain specified goods.

Notification No. 06/2026-Central Tax, dated 27 October 2026, amends the relevant registration exemption framework.

However, this does not mean that every small scrap dealer automatically needs GST registration from the first transaction.

Businesses should evaluate their individual registration position under Section 22 and other applicable provisions.

It is equally important to distinguish the supplier's registration obligation from the registered buyer's RCM liability. A buyer may have an RCM obligation even when the supplier is not required to register under the normal turnover threshold.

What Is Form GST REG-07?

Form GST REG-07 is used for registration by persons required to deduct or collect tax at source under the applicable GST provisions.

Businesses falling within the GST TDS deductor framework should check whether separate TDS registration is required.

This is different from ordinary GST registration for making taxable supplies.

The application process generally involves:

1. Visiting the official GST portal.

2. Opening the registration section.

3. Selecting the relevant TDS registration option.

4. Providing the required business and applicant details.

5. Completing the applicable declaration and submission process.

Businesses should follow the latest GSTN instructions while completing the application.

Official portal: https://www.gst.gov.in/

Important GST Compliance Steps for Scrap Buyers

With the expanded framework, businesses should strengthen their transaction-level compliance process.

Verify goods classification: Check the applicable Customs Tariff heading before applying any notified provision.

Check supplier registration: Confirm whether the supplier is registered or unregistered under GST.

Review contract value: Evaluate the taxable contract value when checking the ₹2.5 lakh GST TDS threshold.

Determine the place of supply: Identify whether the transaction is intra-State or inter-State to establish the applicable tax treatment.

Check RCM applicability: Review the relevant notification before paying GST under reverse charge.

Maintain transaction documents: Keep purchase invoices, contracts, supplier details, payment records and supporting documents properly organised.

Complete return compliance: Follow the applicable GST payment, deduction, certificate and return-filing requirements within prescribed timelines.

Common GST Mistakes Scrap Dealers Should Avoid

Scrap businesses should be careful about the following mistakes:

• Treating GST TDS as the GST rate applicable to scrap.

• Applying the 2% deduction without checking Section 51 conditions.

• Ignoring the taxable contract-value threshold.

• Applying RCM without verifying supplier status and the relevant notification.

• Using incorrect HSN or Customs Tariff classifications.

• Confusing ordinary GST registration with TDS deductor registration.

• Failing to reconcile GST deductions, payments and returns.

A proper compliance review can help businesses avoid these errors and maintain more accurate financial records.

Official Notifications and GST Resources

Businesses should consult the applicable legal documents before making compliance decisions.

Important references include:

• Notification No. 04/2026-Central Tax (Rate), dated 27 October 2026, concerning the notified RCM expansion.

• Notification No. 06/2026-Central Tax, dated 27 October 2026, concerning registration-related amendments.

• Notification No. 07/2026-Central Tax, dated 27 October 2026, concerning the GST TDS framework.

• The applicable corresponding IGST notifications for inter-State supplies.

• GSTN Advisory No. 684 and relevant portal instructions.

Official resources:

• Government e-Gazette: https://egazette.gov.in/

• GST Portal: https://www.gst.gov.in/

• CBIC Tax Information: https://taxinformation.cbic.gov.in/

Conclusion

The GST changes effective from 1 November 2026 make correct classification, supplier verification and transaction-level compliance especially important for India's scrap and recycling businesses.

Buyers should understand when GST TDS applies, how the ₹2.5 lakh threshold works, when RCM becomes applicable and whether separate registration is required.

Rather than applying the same tax treatment to every scrap transaction, businesses should examine the relevant goods classification, supplier status, contract value and applicable notifications.

For a detailed explanation of GST TDS on scrap, rates, thresholds, RCM and registration requirements, read the complete guide from TaxAbide:

https://taxabide.com/blog/gst-tds-on-scrap-2026-2-rate-threshold-rcm-registration-rules

Disclaimer: This article is for general informational purposes only and does not constitute tax, legal or professional advice. GST provisions, notifications and portal procedures may change. Consult a qualified GST professional before making compliance decisions.