Comprehensive Article on GST TDS and RCM on Metal Scrap (Effective from 10th October 2024)

[RAHUL MODI]

Introduction

The 54th GST Council Meeting brought significant amendments that impact the taxation of metal scrap under the Goods and Services Tax (GST) regime. Two key changes were introduced: the Reverse Charge Mechanism (RCM) for metal scrap purchases from unregistered suppliers, and TDS (Tax Deducted at Source) for purchases from registered suppliers. These amendments, effective from 10th October 2024, aim to tighten compliance in the scrap industry.

This article outlines these changes, drawing on key insights from Notification No. 06/2024 and Notification No. 25/2024, and provides a user-friendly breakdown of the implications for businesses.

Key Provisions

1. RCM on Metal Scrap from Unregistered Suppliers:
   • Applicability: RCM applies to metal scrap purchases (Chapters 72 to 81 of Customs Tariff) from unregistered suppliers. The buyer, if registered, must pay the GST on the purchase.
   • GST Rate: 18% is applicable under RCM.
   • Self-Invoicing: Registered buyers must issue a self-invoice within 30 days of receiving the supply.
   • No TDS on Unregistered Suppliers: TDS provisions do not apply to purchases from unregistered suppliers.
2. TDS on Metal Scrap from Registered Suppliers:
   • Applicability: TDS must be deducted when metal scrap is purchased from registered suppliers.
   • Rate of TDS: 2% of the taxable value (1% CGST and 1% SGST for intra-state transactions or 2% IGST for inter-state transactions).
   • Threshold: TDS applies only if the total contract value exceeds ₹2.5 lakh.
   • Filing and Compliance:
     • Buyers must register for TDS through Form GST REG-07.
     • File TDS returns in GSTR-7 by the 10th of the following month and issue GSTR-7A certificates to suppliers.
     • The TDS credit will be available to the supplier via their cash ledger, which they can use for offsetting GST liabilities.

Impact on Stakeholders

1. Registered Buyers:
   • Increased Compliance: Buyers are responsible for both TDS deductions and paying GST under RCM (if purchasing from unregistered suppliers).
   • ITC Eligibility: Buyers can claim Input Tax Credit (ITC) for GST paid under RCM, reducing their overall tax burden.
   • Filing Requirements: Ensure timely filing of GSTR-7 and issuance of TDS certificates to suppliers.
2. Registered Suppliers:
   • TDS Credit: The 2% TDS deducted by buyers will be credited to the supplier's cash ledger, allowing for GST offset or refunds.
   • Compliance Burden: Suppliers must maintain accurate records of TDS deductions to ensure they can claim credit.
3. Unregistered Suppliers:
   • No GST Collection: Unregistered suppliers are not responsible for collecting GST, as the liability falls on the buyer under RCM.

Administrative Procedures for TDS

1. Registration for TDS Deduction:
   • Buyers must obtain a TDS registration number (Form REG-07) to deduct TDS.
2. Filing GSTR-7:
   • TDS deductions must be reported in GSTR-7 by the 10th of the following month.
   • Upon filing, a GSTR-7A certificate will be generated for the supplier, confirming the deduction and deposit of TDS.

Conclusion

The recent amendments introduced through Notification No. 06/2024 and Notification No. 25/2024 are crucial for improving tax compliance in the metal scrap industry. RCM for unregistered suppliers ensures that tax is paid even when the seller is outside the GST framework, while TDS on transactions with registered suppliers ensures that tax is collected at the source. Businesses involved in the sale and purchase of metal scrap must familiarize themselves with these changes and ensure compliance with both RCM and TDS provisions to avoid penalties and optimize their tax positions.