GST on Metal Scrap

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New GST Provisions for Metal Scrap Transactions: What You Need to Know

Effective from 10th October 2024, the GST Council has introduced updated provisions regarding the treatment of metal scrap under the Goods and Services Tax (GST). These new rules aim to streamline tax compliance for businesses involved in the purchase and sale of scrap metal, including iron, steel, copper, aluminum, and other base metals. Let’s dive into the key details of this change and what it means for buyers and sellers in the metal scrap industry.

Classification of Metal Scrap Transactions

Under the new provisions, the GST treatment varies depending on whether the supplier and buyer are registered or unregistered under GST. Below is a breakdown of how GST applies in different scenarios:

Unregistered Supplier to Unregistered Buyer:

GST: Exempt
GST TDS: Not Applicable

Unregistered Supplier to Registered Buyer:

GST: 18% under Reverse Charge Mechanism (RCM)
GST TDS: Not Applicable

Registered Supplier to Unregistered Buyer:

GST: 18% under Forward Charge Mechanism (FCM)
GST TDS: Not Applicable

Registered Supplier to Registered Buyer:

GST: 18% under Forward Charge Mechanism (FCM)
GST TDS: Applicable

RCM (Reverse Charge Mechanism): When a registered buyer purchases metal scrap from an unregistered supplier, the buyer is liable to pay GST at 18% under the Reverse Charge Mechanism.

FCM (Forward Charge Mechanism): In transactions involving a registered supplier, whether selling to a registered or unregistered buyer, the tax is payable at 18% under the Forward Charge Mechanism.

Metal Scrap Categories Covered

The new provisions apply to specific categories of metal scrap, which are classified under various Customs Tariff Chapters:

Chapter 72: Iron and Steel
Chapter 73: Articles of Iron or Steel
Chapter 74: Copper and Articles Thereof
Chapter 75: Nickel and Articles Thereof
Chapter 76: Aluminum and Articles Thereof
Chapter 77: Reserved for Future Use
Chapter 78: Lead and Articles Thereof
Chapter 79: Zinc and Articles Thereof
Chapter 80: Tin and Articles Thereof
Chapter 81: Other Base Metals, Cermets, Articles Thereof

These categories cover a wide range of metal scrap materials, ensuring that the new GST structure is comprehensive.

Registration Requirements for Metal Scrap Dealers

The need for GST registration depends on the threshold of supply for metal scrap. Here’s how it works:

Metal Scrap: Above Threshold GST Registration Required
If your business’s supply of metal scrap exceeds the prescribed threshold, you are required to register for GST.

GST TDS Applicability

GST Tax Deducted at Source (TDS) is applicable in certain transactions, primarily involving registered buyers. Here’s what you need to know about GST TDS:

Rate: The TDS rate is 2% IGST or 1% CGST + 1% SGST of the taxable value.
When to Deduct: GST TDS should be deducted at the time of payment or credit, whichever occurs earlier.
Threshold Limit: GST TDS applies when the contract value (excluding GST) exceeds ₹2.5 lakhs.

It’s important to note that separate registration is required for buyers who need to deduct GST TDS.

Key GST Compliance Deadlines for Metal Scrap Businesses

For businesses dealing with metal scrap, meeting the required deadlines is crucial to avoid penalties. Here are the key compliance requirements:

GST TDS Registration: If you are required to deduct TDS, a separate registration is needed.
GST Return Filing: You must file returns using GSTR-7, with the deadline being the 10th of the following month.
Late Fee: Failure to file on time incurs a late fee of ₹50 per day (₹25 CGST + ₹25 SGST), up to a maximum of ₹2000.
Interest on Delayed Payments: If payments are delayed, interest at the rate of 18% per annum will be charged.
Nil Return: If there is no GST TDS deduction in a particular month, you must file a Nil return, but no late fee will apply.

Important Notes to Remember

The new provisions came into effect on 10th October 2024.
GST TDS is mandatory for transactions involving registered suppliers.
Composite dealers are not eligible to claim Input Tax Credit (ITC) on taxes paid under RCM.
Separate registration is required for deducting GST TDS.

Conclusion

The updated GST provisions for metal scrap transactions mark a significant shift in how businesses need to handle tax compliance. By classifying transactions based on the registration status of buyers and suppliers, the government aims to ensure smoother tax collection and greater transparency in the metal scrap industry.

For businesses, it’s crucial to stay up-to-date with these changes to avoid penalties and ensure smooth operations. Whether you're a buyer or supplier, understanding how GST applies to your transactions and meeting the necessary compliance deadlines will help you stay on the right side of the law.

FAQs on GST for Metal Scrap

Q1: What is the GST rate on metal scrap transactions?

The GST rate on metal scrap transactions is 18% under both RCM and FCM, depending on the registration status of the buyer and supplier.

Q2: When does the Reverse Charge Mechanism apply for metal scrap?

RCM applies when a registered buyer purchases metal scrap from an unregistered supplier. The buyer is responsible for paying the GST at 18%.

Q3: Is GST TDS applicable on all metal scrap transactions?

GST TDS is applicable only when a registered buyer purchases from a registered supplier, and the contract value exceeds ₹2.5 lakhs.

Q4: What is the penalty for late GST TDS return filing?

The late fee for not filing GST TDS returns on time is ₹50 per day, with a maximum limit of ₹2000.

Q5: Do composite dealers have to pay GST on metal scrap?

Composite dealers are required to pay GST under the applicable mechanism but are not eligible to claim Input Tax Credit (ITC) on taxes paid under the Reverse Charge Mechanism (RCM).

With these new rules in place, ensuring compliance with GST on metal scrap has become more straightforward yet critical for businesses. Stay informed, stay compliant!

(Information provided are best of our Knowledge.)