A metal-scrap purchase can now create GST TDS compliance even when the buyer is an ordinary private business rather than a government department. The trigger is not the word “scrap” on an invoice by itself. The buyer must test the supplier’s registration status, the tariff chapter of the goods, the taxable value under the contract and the place-of-supply condition before deducting.
The legal change came through Notification No. 25/2024-Central Tax. The official notification PDF inserted a new notified category covering any registered person that receives metal scrap falling under Chapters 72 to 81 of the First Schedule to the Customs Tariff Act, 1975 from another registered person. The change took effect on 10 October 2024.
Start with the four conditions that make the special metal-scrap rule relevant
For an ordinary registered buyer that is not already a section 51 deductor for some other reason, the metal-scrap notification is relevant when all of the following are present:
- the buyer is a registered person under GST;
- the supplier is also a registered person;
- the goods are metal scrap falling within Customs Tariff Chapters 72 to 81; and
- the underlying section 51 conditions for deduction are satisfied, including the contract-value threshold and the statutory place-of-supply exception.
This makes classification important. The notification does not say “all waste” or “all scrap”. It specifically identifies metal scrap falling under Chapters 72 to 81. A buyer should therefore confirm the tariff classification used for the scrap instead of applying TDS merely because the commercial description contains the word scrap.
The supplier’s GST status also matters. Clause (d) inserted by Notification No. 25/2024 applies to supplies received from another registered person. A purchase from an unregistered supplier is not brought into this particular TDS category by that clause and requires separate GST analysis rather than automatic use of the registered-supplier TDS rule.
The ₹2.5 lakh test is a contract test, not an invoice-by-invoice shortcut
The governing provision is section 51 of the CGST Act. It requires deduction where the total value of the taxable supply under a contract exceeds ₹2.5 lakh. That wording is important because a buyer can make several smaller payments or receive several invoices under one contract whose taxable value is above the threshold.
For example, suppose a registered manufacturer enters into a contract to buy qualifying iron or steel scrap from a registered supplier for a taxable value of ₹6 lakh, plus GST. If the first taxable-value instalment is ₹2 lakh, the fact that this individual instalment is below ₹2.5 lakh does not by itself take the payment outside section 51. The threshold is tested against the taxable supply under the contract.
The section also says that, for purposes of the deduction, the value of supply excludes CGST, SGST, UTGST, IGST and cess indicated in the invoice. So the TDS base should not be inflated by adding the GST shown separately on the invoice.
The deduction is 2% in aggregate when section 51 applies
The current GSTN GSTR-7 Offline Utility manual, updated in December 2025, validates TDS tax entries at 2% of the amount on which tax is deducted. For an intra-State supply, the deduction is split equally between Central Tax and State or UT Tax. For an inter-State supply, the deduction is reported as Integrated Tax.
Using the earlier hypothetical contract, assume the buyer makes an intra-State payment against ₹2 lakh of taxable value and all section 51 conditions are satisfied. The aggregate GST TDS on that taxable amount is ₹4,000. The GST charged separately on the invoice is not added to the deduction base for this calculation.
This illustration is deliberately simplified. Before choosing CGST plus SGST or IGST, the buyer still has to determine the nature of the supply correctly under the place-of-supply rules.
Do not miss the section 51 place-of-supply exception
Section 51 contains a specific exception: no deduction is made where the location of the supplier and the place of supply are in a State or Union territory that is different from the State or Union territory in which the recipient is registered.
That means a finance team should not build the control as “metal scrap plus contract above ₹2.5 lakh equals deduct automatically”. The supplier location, place of supply and recipient registration State or Union territory need to be checked together. Where the transaction pattern is unusual, the place-of-supply conclusion should be documented before the payment is processed.
A normal GST registration does not remove the TDS compliance question
Section 24 of the CGST Act lists persons required to deduct tax under section 51 as a category requiring registration, whether or not they are separately registered under the Act. For a metal-scrap buyer newly brought into section 51, the practical control is therefore to confirm that the business has the appropriate GST TDS-deductor registration and portal access before the first reportable deduction becomes due.
This is particularly important for businesses whose accounts-payable team is accustomed only to the normal taxpayer GSTIN. GSTR-7 is a TDS return, and its reporting workflow is different from the buyer’s ordinary GSTR-1 or GSTR-3B compliance.
What the buyer should capture before releasing payment
A workable payment control can be built around transaction facts rather than around a generic “scrap vendor” flag. Before releasing a payment, the buyer should be able to establish:
- the buyer GSTIN and the State or Union territory of that registration;
- the supplier’s active GST registration;
- the HSN or tariff classification establishing whether the scrap falls within Chapters 72 to 81;
- the taxable value of the relevant supply under the contract, not just the current invoice value;
- the taxable amount on which TDS is to be computed, excluding GST and cess shown in the invoice;
- the supplier location and place of supply for the section 51 exception; and
- whether the payment or credit falls within the period for which the deduction has to be reported in GSTR-7.
This information should ideally be available to the person approving the payment, rather than reconstructed after month-end from the general ledger.
GSTR-7 is the reporting route for the deduction
Section 39 requires a registered person deducting tax under section 51 to furnish the return for the month in which deductions are made within ten days after the end of that month, subject to any valid extension. The GSTN GSTR-7 utility is designed for reporting the deductee’s GSTIN, the amount paid or credited on which tax is deducted and the related IGST or CGST/SGST amounts.
From the supplier’s side, this deduction is not input tax credit. The GST Portal’s Electronic Cash Ledger guidance states that TDS and TCS credits are accounted for in the electronic cash ledger as cash deposits. Once accepted through the prescribed flow, the supplier can use the TDS credit reflected there for eligible tax payments.
Three cases that should not be mixed together
Registered buyer, registered supplier, qualifying metal scrap: test Notification No. 25/2024 together with section 51, including the contract threshold and place-of-supply exception. If the conditions are met, the buyer deducts and reports GST TDS.
Registered buyer, unregistered supplier: the special clause inserted by Notification No. 25/2024 does not itself apply because it expressly refers to metal scrap received from another registered person. Do not force this transaction into the registered-supplier TDS workflow; examine the separate GST treatment that applies to the unregistered-supplier case.
Registered buyer, registered supplier, goods outside Chapters 72 to 81: the metal-scrap notification does not create TDS merely because the goods are commercially described as waste or scrap. However, the buyer may still be a section 51 deductor under another notified category, so the conclusion should be based on the buyer’s overall status as well as the goods.
The most common control error is testing the wrong number
The easiest way to misapply this rule is to look only at the current invoice. A ₹1.8 lakh invoice can still sit under a ₹7 lakh taxable contract, while an invoice above ₹2.5 lakh does not remove the need to check classification, supplier registration and the place-of-supply exception. The correct sequence is to establish coverage first, test the contract threshold second, determine the taxable deduction base third, and then report the resulting TDS through the appropriate GST TDS workflow.
For metal-scrap buyers, the 2024 notification turned section 51 from a rule associated mainly with government-linked deductors into a live accounts-payable issue for a much broader group of registered businesses. A vendor-master flag, contract-level threshold check and pre-payment place-of-supply review are more reliable controls than trying to repair missed deductions at the end of the month.
