Metal Scraps Recipients is Liable for Tax under RCM

Metal Scraps Recipients is Liable for Tax under RCM Even if Supplier is Below GST Threshold, 2% Tax Deducted at Source Apply

The recommendations from the 54th GST Council meeting underscore the government’s commitment to strengthening GST compliance in the metal scrap sector. Introduced significant updates concerning Tax Deducted at Source and the Reverse Charge Mechanism for metal scrap transactions.

• The new Notification No. 25/2024-Central Tax dated October 9, 2024, has introduced updated Tax Deducted at Source provisions under GST for transactions involving metal scrap.
• Effective from October 10, 2024, This amendment updates the Tax Deducted at Source provisions under Section 51 of the CGST Act, 2017, specifically for buyers of metal scrap.
• These changes aim to enhance compliance in the scrap industry by specifying clear guidelines for tax deductions, registration, and filing obligations. Here is a summary of the key elements of the notification.
• It clarifies and expands the scope, requiring TDS deductions on specific high-value transactions. The scope of the notification includes goods listed under Chapters 72 to 81 of the Customs Tariff Act, 1975.
• Recipients of Metal Scraps Liable for Tax under Reverse Charge Mechanism Even if Supplier is Below GST Threshold, 2% TDS Apply

What is Tax Deducted at Source in GST for Metal Scrap?

Under the new GST rules effective from October 10, 2024, TDS is applicable on transactions involving metal scrap. Businesses involved in purchasing metal scrap are required to deduct Tax Deducted at Source at the time of transaction. This requirement applies to items covered under Chapter 72 to Chapter 81 of the Customs Tariff Act, 1975, which includes:

• Iron and Steel (Chapter 72)
• Articles of Iron and Steel (Chapter 73)
• Copper, Nickel, Aluminum, Lead, Zinc, and Tin (Chapters 74-80)
• Other Base Metals and Cermets (Chapter 81)

Key Provisions of the RCM & TDS Rule – Provisions of the Notification

• Expanded Scope:
  • The notification applies to metal scrap transactions classified under Chapters 72-81, which cover metals like iron, steel, copper, nickel, aluminum, lead, zinc, tin, and other base metals. Buyers involved in transactions for these goods are obligated to deduct TDS.
• Reverse Charge Mechanism on Metal Scrap Transactions
  • When a registered buyer sources metal scrap from an unregistered supplier, they will be required to pay GST under RCM. This responsibility remains with the buyer even if the supplier’s total turnover is below the GST registration threshold. The registered recipient (buyer) must account for and remit the GST on these transactions. This responsibility shifts the tax burden from the unregistered supplier to the registered buyer, ensuring that all metal scrap transactions contribute to GST collections. Once an unregistered supplier exceeds the GST threshold, they will be required to register under GST and comply with standard tax payment obligations, relieving buyers from paying tax under RCM for transactions with them.
  • Under the new Reverse Charge Mechanism provision, registered recipients purchasing metal scrap from unregistered suppliers will be required to pay GST on these transactions. RCM applies even when the unregistered supplier’s turnover is below the GST registration threshold. The recipient will pay the tax, ensuring all metal scrap transactions are within the GST framework, even for suppliers who are otherwise exempt. Once the unregistered supplier’s turnover exceeds the threshold, they must register under GST and transition to regular compliance procedures.
  • This measure effectively brings all transactions involving metal scrap into the tax net, supporting the government’s goal of enhancing revenue from the sector.
• Tax Deducted at Source Rate and Applicability:

1. • Threshold: Tax Deducted at Source applies to transactions where the taxable value exceeds ₹2,50,000.
   • Tax Deducted at Source Rate: 2% of the taxable value, with a breakdown for intra- and inter-state transactions:
     • Intra-State: 1% CGST and 1% SGST
     • Inter-State: 2% IGST

4. Separate GST Registration Requirement
   • Buyers purchasing metal scrap must obtain a separate GST registration (Form REG-07) to enable TDS deduction under GST.
5. Monthly TDS Credit:
   • Suppliers receive monthly Tax Deducted at Source credits in their cash ledger, which aids in better cash flow management as they can utilize the credits to offset GST liabilities or claim refunds in case of excess credit.

Who Needs to Deduct Tax Deducted at Source?

• As per Notification No. 25/2024-Central Tax, issued on October 9, 2024, TDS provisions under Section 51 of the CGST Act apply to transactions in metal scrap except for certain categories specified under sub-section (1) of Section 51. The notification amends Notification No. 50/2018, providing clarity on applicable and exempted transactions.
• Exemptions on TDS under GST is not required on metal scrap imports. Imported metal scrap transactions do not attract Tax Deducted at Source deduction, easing compliance for companies dealing with foreign suppliers.

Compliance Process for Buyers

To comply with the Tax Deducted at Source on metal scrap requirements, buyers should:

1. Buyers must register under REG-07 for Tax Deducted at Source deductions. This registration allows them to file TDS returns monthly via Form GSTR-7.
2. Buyers deducting Tax Deducted at Source need to file GSTR-7 by the 10th of the following month, reporting the Tax Deducted at Source deducted. Any Tax Deducted at Source liability must be paid with the return.
3. After filing GSTR-7, buyers must issue a Tax Deducted at Source certificate (GSTR-7A) to the supplier, allowing the supplier to claim Tax Deducted at Source credit in their cash ledger.

Benefits for Suppliers

One significant advantage of this Tax Deducted at Source mechanism is that suppliers receive the Tax Deducted at Source credit monthly, which they can Directly using the Tax Deducted at Source credit for GST dues and Offsetting GST liability. And they may Claiming GST Refunds. In cases of excess Tax Deducted at Source credit, suppliers can claim a refund, providing flexibility and enhanced cash flow management.

Conclusion

Notification No. 25/2024-Central Tax establishes a clear framework for TDS on metal scrap transactions, ensuring compliance, transparency, and liquidity benefits in the metal scrap industry. The new TDS rule on metal scrap is designed to enhance tax transparency and ensure that the scrap materials industry aligns with GST compliance requirements. With a straightforward process for registration, return filing, and certificate issuance, businesses can efficiently manage these new obligations.

Above RCM requirement may increase compliance obligations for registered businesses, as they will need to track their purchases from unregistered suppliers and ensure accurate RCM payments.

Reverse Charge under Covered Goods List (Section 9(3)):

• Cashew nuts: Unregistered agriculturist se purchase hone par applicable.
• Tendu leaves: Agar unregistered supplier se kharidi jaye.
• Tobacco leaves: Unregistered agriculturist se lene par.
• Silk Yarn: Unregistered supplier se purchase par.
• Lottery tickets: Distributor/agent ke through supply hone par.
• Used vehicles, seized/confiscated goods, old or scrap goods: Central government/state government/UT/local authority ke dwara supply hone par RCM lagta hai.

Reverse Charge Mechanism Covered under Services List (Section 9(3)):

• Goods Transport Agency : Jab registered recipient ko services di jayein. and Exception: Jab GTA 12% GST charge karta hai toh RCM nahi lagta.
• Legal Services: Individual advocate ya firm ke dwara registered person ko services provide karne par.
• Sponsorship Services: Jab kisi body corporate ya partnership firm ko sponsorship services di jayein.
• Central/State Government Services: Rent, license fee ya any notified services central/state government ya local authority ke dwara di jayein.
• Director’s Services: Salary ke alawa jo fees di jati hai (company/body corporate ke liye), uspe RCM applicable hai.
• Security Services: Agar security services unregistered security agency se registered recipient ko mil rahi hai.
• Importer ki Services: Agar importer foreign supplier se consulting ya similar services le raha ho.
• Manpower Supply & Works Contract Services: Jab unregistered supplier se ye services li jayein.
• Renting of Motor Vehicle: Agar supplier unregistered hai aur registered recipient ko services de raha hai.
• Passenger Transportation Services: Radio taxi, auto-rickshaw ya aggregator platform ke madhyam se services provide ki jayein (registered aggregator hone par).

C. Other important points:

• Section 9(3): Notified goods/services par hi Reverse Charge Mechanism directly lagta hai.
• Under Section 9(4): Unregistered suppliers se goods/services purchase karte waqt registered recipient par RCM lagta hai, par yeh condition specific thresholds aur notifications ke under hai.

Ensure your business stays compliant with the latest GST provisions on metal scrap transactions. IFCCL  can assist you with: GST TDS Registration, TDS Filing and Reporting, Complete GST Compliance Support and Stay ahead of regulatory changes—contact IFCCL today for expert assistance in GST registration, TDS filing, and comprehensive accounting solutions.

**********************************************************

If this article has helped you in any way, i would appreciate if you could share/like it or leave a comment. Thank you for visiting my blog.

Legal Disclaimer:
The information / articles & any relies to the comments on this blog are provided purely for informational and educational purposes only & are purely based on my understanding / knowledge. They do noy constitute legal advice or legal opinions. The information / articles and any replies to the comments are intended but not promised or guaranteed to be current, complete, or up-to-date and should in no way be taken as a legal advice or an indication of future results. Therefore, i can not take any responsibility for the results or consequences of any attempt to use or adopt any of the information presented on this blog. You are advised not to act or rely on any information / articles contained without first seeking the advice of a practicing professional.