GST on scrap was already complicated. October 2024 made it more so.
New RCM rules, new TDS provisions, new registration requirements for buyers – all effective from October 10, 2024. If you’re selling scrap in Maharashtra and haven’t updated your understanding since then, there’s a real chance you’re either leaving money on the table or sitting on a compliance gap that will show up during an assessment.
This guide covers every rule that applies to you – straightforward, no jargon, with clear tables so you can check your situation quickly.
The Basics First – GST Rate and HSN Code for Iron Scrap
Nothing complicated here. Iron and steel scrap has been consistently taxed at 18% since GST launched.
| Scrap Type | HSN Code | GST Rate |
|---|---|---|
| Iron and steel scrap (HMS, MS, structural) | 7204 | 18% |
| Cast iron scrap | 7204 10 | 18% |
| HMS 1 and HMS 2 | 7204 29 | 18% |
| Turning and boring scrap | 7204 29 90 | 18% |
| Stainless steel scrap | 7204 21 | 18% |
| Copper scrap | 7404 | 18% |
| Aluminium scrap | 7602 | 18% |
| Brass scrap | 7402 | 18% |
One thing to get right every time: use HSN 7204 for ferrous scrap on every invoice and E-Way Bill. Wrong HSN code triggers mismatches at checkposts and flags your GSTR filings for scrutiny. It’s a small detail with a large downside if ignored.
The October 2024 Changes – What Actually Changed
The 54th GST Council Meeting introduced two significant amendments effective October 10, 2024. Both affect every scrap seller and buyer in India.
Change 1 – RCM on Unregistered Sellers Selling to Registered Buyers
Before October 2024: unregistered sellers selling scrap to registered buyers had a grey area in GST liability.
After October 2024: it’s clear. Under Notification No. 06/2024-Central Tax (Rate), if you are an unregistered seller and your buyer is a registered dealer or mill – the buyer pays the GST under Reverse Charge Mechanism (RCM) at 18%.
What this means for you as an unregistered seller:
- You don’t collect GST from the buyer
- The buyer self-assesses and pays the GST directly to the government
- The buyer can claim Input Tax Credit (ITC) on that amount
- Your invoice must clearly state you are an unregistered supplier
This rule covers all metal scrap under Chapters 72 to 81 of the Customs Tariff – iron, steel, copper, aluminum, zinc, tin, and all base metals.
Change 2 – TDS on Metal Scrap at 2%
Also effective October 10, 2024: registered buyers purchasing metal scrap from registered sellers must now deduct TDS at 2% on transactions exceeding ₹2,50,000 under a single contract.
Key details:
| TDS Rule | Detail |
|---|---|
| Rate | 2% on taxable value (excluding GST) |
| Threshold | Contracts exceeding ₹2,50,000 |
| Who deducts | Registered buyer |
| Who it applies to | Registered seller – registered buyer transactions |
| Buyer registration | Buyer must register separately in Form REG-07 |
| Return filing | Buyer files monthly GSTR-7 |
| Seller credit | TDS appears in seller’s GSTR-2A, credited to cash ledger |
| Certificate | Buyer issues GSTR-7A to seller as TDS certificate |
What this means practically: if you’re a registered scrap seller and your buyer is a registered mill or dealer, they will deduct 2% from your payment on contracts above ₹2.5 lakh. That 2% goes to the government but shows up as a credit in your GSTR. You don’t lose it – you just need to reconcile it correctly in your returns.
The Four Scenarios – Which One Are You?
Most of the GST confusion in the scrap trade comes from not knowing which scenario applies to your specific situation. Here are the four combinations and exactly what happens in each.
| Your Status | Buyer’s Status | Who Pays GST | How |
|---|---|---|---|
| Unregistered | Registered | Buyer pays via RCM at 18% | Buyer self-assesses, files GSTR-3B |
| Registered | Registered | You collect from buyer at 18% | Normal forward charge, you file GSTR-1 |
| Registered | Unregistered | You collect and pay | Normal forward charge |
| Unregistered | Unregistered | No GST applicable | But watch the registration threshold |
The most common scenario in Maharashtra’s scrap trade: unregistered small seller to registered induction furnace. Since October 2024 – that’s RCM. The mill pays the GST. Your invoice states you’re unregistered. Clean and straightforward – as long as both parties know the rule.
TCS Under Income Tax – Separate from GST, Often Confused
TCS (Tax Collected at Source) under Section 206C of the Income Tax Act applies to scrap sales separately from GST. These are two different tax systems. Both can apply to the same transaction.
TCS on scrap sales – quick rules:
| TCS Rule | Detail |
|---|---|
| Rate | 1% of sale value (including GST) |
| Who collects | Seller |
| Applies when | Seller’s turnover in previous FY exceeded ₹10 crore |
| Threshold per transaction | Exceeds ₹2.5 lakh |
| Form | 27EQ filed quarterly |
| Penalty for non-filing | ₹200/day late fee; ₹10,000 – ₹1,00,000 for non-filing |
Most small and mid-size scrap sellers in Maharashtra – those with annual turnover below ₹10 crore – are not required to collect TCS. But if your operation has grown significantly and crossed that threshold in the previous financial year, TCS compliance is mandatory.
Ignoring TCS when it applies is not a small oversight. The Income Tax department cross-references scrap transaction volumes against TCS filings. Gaps show up.
GST Registration Threshold – When You Must Register
Maharashtra follows the standard GST threshold:
| Threshold | Applicability |
|---|---|
| ₹40 lakh annual turnover | GST registration mandatory for goods suppliers in Maharashtra |
| ₹20 lakh | Special category states (Maharashtra is NOT in this category) |
| Voluntary registration | Available below threshold – sometimes beneficial for ITC claims |
Once your scrap sales cross ₹40 lakh in a financial year, registration is not optional. Selling above the threshold without registration and relying on the buyer’s RCM to handle the GST creates a compliance gap on your income tax filings – the turnover still needs to be reported correctly.
If you’re approaching that threshold, register proactively. It’s cleaner, it gives you ITC eligibility on your input purchases, and it removes uncertainty on how each deal is structured.
What a Correct Scrap Invoice Must Include
A missing or incorrect invoice field is the most common cause of GST disputes and ITC rejections in the scrap trade. Every invoice must have:
- ☑ Your full legal name, address, and GSTIN (or “Unregistered” if applicable)
- ☑ Buyer’s full name, address, and GSTIN
- ☑ Invoice number and date
- ☑ HSN code – 7204 for ferrous scrap
- ☑ Description of goods – grade and type (HMS 1, CI, turning scrap etc.)
- ☑ Quantity in MT (metric tonnes) and unit price
- ☑ Taxable value
- ☑ GST rate – 18% (split as 9% CGST + 9% SGST for intrastate, or 18% IGST for interstate)
- ☑ Total amount including GST
- ☑ Whether RCM applies – state “Tax payable on Reverse Charge: Yes/No”
- ☑ Place of supply
- ☑ Weighbridge slip reference number (best practice – not legally mandatory but avoids disputes)
For unregistered sellers: issue a simple delivery challan instead of a GST invoice. The buyer generates a self-invoice under RCM.
Input Tax Credit – What Scrap Sellers Can and Cannot Claim
If you’re a registered scrap dealer, you can claim ITC on:
- Goods purchased for resale (scrap bought from registered suppliers)
- Transport services with a GST invoice
- Weighbridge charges if GST invoice is issued
- Office expenses, equipment purchases used in the business
You cannot claim ITC on:
- Scrap bought from unregistered suppliers under RCM – wait, actually you can. The buyer pays RCM and claims ITC on the same amount. Net GST cost is zero for a registered buyer.
- Personal expenses
- Goods used for exempt supplies
The ITC mechanism in RCM transactions is one of the clearest win-win structures in GST for registered buyers. They pay 18% GST under RCM and immediately claim the same 18% back as ITC. Net cost: zero GST on the purchase. This is exactly why mills and large dealers prefer buying from registered suppliers despite the additional paperwork.
E-Way Bill Rules for Scrap – Quick Reference
Already covered in detail in the scrap steel transportation guide for India but worth summarizing here for completeness.
| Condition | E-Way Bill Required? |
|---|---|
| Goods value above ₹50,000, movement beyond 50km intrastate | Yes |
| Interstate movement regardless of value | Yes above ₹50,000 |
| Unregistered seller moving goods | Yes – buyer or transporter generates it |
| Own goods movement for job work | Yes if value above ₹50,000 |
| Scrap moved for weighing and returning | No (within same day, same premises area) |
Penalties for Non-Compliance – Know What You’re Risking
| Violation | Penalty |
|---|---|
| Not registering when above threshold | 10% of tax due or ₹10,000 minimum |
| Not paying GST (RCM or forward charge) | 18% interest per annum + 10% penalty |
| Missing E-Way Bill on moving goods | Equal to tax amount on the consignment |
| Goods seized at checkpost | Tax + penalty equal to 100% of tax value |
| TCS non-filing | ₹200/day + ₹10,000 – ₹1,00,000 prosecution |
| Incorrect HSN code | Notice, reconciliation demand, possible penalty |
None of these are theoretical. Maharashtra GST enforcement has increased significantly through 2025 and into 2026. Scrap is specifically identified as a high-risk sector for ITC fraud – which is exactly why the October 2024 RCM and TDS amendments were introduced in the first place.
The Practical Summary – What to Actually Do
If you’re a small seller below ₹40 lakh turnover:
- No registration required
- Your registered buyers handle GST via RCM
- Issue a delivery challan, not a GST invoice
- Keep records of every transaction – weight slips, payment proofs, delivery challans
If you’re a growing seller approaching ₹40 lakh:
- Register voluntarily before you cross the threshold
- Immediate benefit: ITC on your input purchases
- Cleaner paper trail for all transactions
If you’re a registered seller:
- Collect 18% GST from registered and unregistered buyers on forward charge transactions
- Ensure your buyers deduct 2% TDS correctly on contracts above ₹2.5 lakh
- Reconcile TDS credits in GSTR-2A monthly
- File GSTR-1 and GSTR-3B on schedule
One thing worth doing before your next significant deal: check the mistakes that cost scrap sellers the most money – GST documentation gaps sit right alongside grade sorting and weighbridge errors as the three most expensive recurring errors in the Maharashtra scrap trade.
If the compliance side feels complex for your specific situation, the team at Steel Baba can point you toward the right resources – especially for understanding how the October 2024 RCM and TDS changes affect your existing buyer relationships.
GST rules referenced are based on CBIC notifications effective as of February 2026, including Notification No. 06/2024-Central Tax (Rate) effective October 10, 2024. Tax rules are subject to amendment. Consult a qualified chartered accountant or GST practitioner for advice specific to your registration status and transaction structure.
