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GST TDS and income-tax TCS are different rules that can touch the same scrap transaction. GST TDS is deducted by a limited class of recipients under section 51 of the CGST Act. Income-tax TCS is collected by the seller on covered scrap sales when the income-tax conditions apply. A private business buying scrap should not assume that GST TDS applies simply because the goods are scrap.
There is also an important terminology point: people often ask about “income-tax TDS on scrap,” but the seller-side scrap rule is generally an income-tax tax collected at source (TCS) mechanism, not buyer-side TDS. For transactions around 1 April 2026, identify the governing Income-tax Act from the earlier of the credit or payment date before selecting a section, rate or threshold.
The two mechanisms at a glance
| Point | GST TDS | Income-tax TCS on covered scrap sales |
|---|---|---|
| Primary law | Section 51 of the CGST Act, together with applicable GST rules and notifications | For events under the earlier law, the income-tax TCS provision; for relevant events from 1 April 2026, section 394 of the Income-tax Act, 2025 |
| Who acts | A specified recipient deducts an amount from payment to the supplier | The seller or other prescribed collector adds and collects the amount from the buyer |
| Typical question answered | “Must this specified buyer deduct GST TDS from the supplier’s payment?” | “Must this seller collect income-tax TCS from the buyer on this scrap sale?” |
| Is every scrap buyer or seller covered? | No. The recipient must fall within a notified or described deductor category, and the stated contract-value test must be met | No. Coverage depends on the operative scrap-sale provision, its definition, thresholds, exclusions and the transaction date |
| Value reference | CBIC’s described section 51 test uses a total contract value above ₹2.5 lakh, excluding GST | The current post-2026 rate and threshold must be checked in the operative section 394 table; the available official material does not establish those figures |
| Economic character | A deduction from a payment under the GST compliance system | An interim income-tax collection credited against the buyer’s eventual income-tax liability, rather than a tax on the goods themselves |
| Reporting trail | GST-TDS records, statements, certificates and portal credits under the current GST procedure | Income-tax TCS collection and quarterly reporting; the Income Tax Department’s Form 143 guidance includes scrap among reporting categories |
| Date issue | Apply the GST law and notifications in force for the supply and payment | The earlier of credit or payment determines whether the Income-tax Act, 1961 or the Income-tax Act, 2025 governs the event |
The same invoice can therefore require one mechanism, both mechanisms, or neither. The answer comes from testing the parties, the contract or sale, the value basis and the date separately.
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Business disposal of scrap can be a supply
CBIC’s GST FAQ, answer 83, states that disposing of scrap in the course or furtherance of business is a supply. That conclusion is the starting point for GST analysis, but it does not by itself determine the applicable classification, rate, place of supply, invoicing treatment or whether GST TDS must be deducted.
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For example, a manufacturer selling metal off-cuts generated in its factory is dealing with a business disposal. A one-off personal sale is a different factual case. Once the transaction is treated as a business supply, analyse GST charging and GST TDS as separate questions.
GST TDS is limited to specified recipients
Section 51 does not make every commercial scrap purchaser a GST-TDS deductor. CBIC’s sectoral FAQ describes government departments, local authorities, governmental agencies and other notified categories as the relevant deductors. A normal private company buying scrap is not automatically included merely because it is registered under GST or buys large quantities.
Check the recipient’s legal status and the current notification before withholding. If the buyer is outside the specified categories, do not create a GST-TDS deduction simply because the invoice contains GST or the material is described as scrap.
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CBIC describes a total contract value above ₹2.5 lakh, excluding GST, for the section 51 rule explained in its FAQ. This is a contract-value test, not a blanket statement that every invoice above ₹2.5 lakh attracts GST TDS. Read the contract, identify the supplies covered by it and apply the current GST rules to the relevant payment.
- Use the value before GST when testing the stated threshold.
- Do not add the GST component to the threshold base merely because it appears on the tax invoice.
- Do not assume that splitting one arrangement into several invoices removes a contract-level test.
- Do not assume that a high-value purchase by an ordinary private buyer creates a GST-TDS obligation.
The applicable GST-TDS percentage, deposit date, return, certificate and portal-credit procedure can change through GST rules or notifications. Confirm the current procedure for the relevant tax period instead of copying a rate from an old invoice or article.
What income-tax TCS on scrap means
It is seller-side collection, not buyer-side GST TDS
When the income-tax scrap-sale conditions apply, the seller or prescribed collector collects TCS from the buyer. The buyer pays the sale consideration plus the TCS amount, and the seller deposits and reports the collection under the income-tax system. That is the reverse of the usual GST-TDS direction, where a specified recipient deducts from a supplier’s payment.
CBIC’s 7 March 2019 corrigendum to Circular No. 76/50/2018-GST explains the character of income-tax TCS in these words: “Tax collection at source (TCS) is not a tax on goods but an interim levy on the possible ‘income’ arising from the sale of goods by the buyer and to be adjusted against the final income- tax liability of the buyer.” The quotation’s explanation matters for GST valuation: income-tax TCS is not automatically part of the taxable value merely because it is shown on the commercial document.
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Do not state a post-2026 scrap rate from old material
The official material confirms that scrap is included in the Income Tax Department’s Form 143 TCS reporting guidance and that post-transition TCS provisions are in section 394 of the Income-tax Act, 2025. It does not establish the operative section 394 scrap rate and threshold. Those figures must be verified in the current statutory table and related rules before issuing an invoice, collecting TCS or correcting a return.
Older websites and software may still display figures or section numbers from the Income-tax Act, 1961. Treat those as historical unless the event is governed by the earlier Act. A rate that was correct for an earlier year is not evidence of the rate applicable to a 2026–27 transaction.
The 1 April 2026 transition: choose the Act from the event date
The Income Tax Department’s transition guidance uses the earlier of credit or payment test. The event is governed by the Income-tax Act, 1961 when that earlier event occurs on or before 31 March 2026. It is governed by the Income-tax Act, 2025 when the applicable earlier event occurs on or after 1 April 2026.
| Credit date | Payment date | Earlier event | Act to check |
|---|---|---|---|
| 28 March 2026 | 10 April 2026 | Credit on 28 March 2026 | Income-tax Act, 1961 |
| 3 April 2026 | 8 April 2026 | Credit on 3 April 2026 | Income-tax Act, 2025 |
| 30 April 2026 | 25 March 2026 | Payment on 25 March 2026 | Income-tax Act, 1961 |
| 31 March 2026 | 1 April 2026 | Credit on 31 March 2026 | Income-tax Act, 1961 |
For post-transition events, the Department identifies section 393 as the TDS provision and section 394 as the TCS provision in the 2025 Act. Use those references for an event governed by the new Act; do not label a 2026–27 transaction with an old section merely because a template or legacy accounting system has not been updated.
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If you are the buyer
- Identify your status. Decide whether your organisation is a government department, local authority, governmental agency or another notified GST-TDS category. A private buyer should not treat GST registration alone as enough.
- Test the arrangement. Review the contract and apply the stated ₹2.5 lakh threshold on the value excluding GST where the section 51 rule applies.
- Check both tax systems independently. GST TDS, if applicable, is deducted from the supplier payment. Income-tax TCS, if applicable, is collected by the seller and paid by you in addition to the sale consideration.
- Confirm the date rule. For income-tax TCS, record the credit and payment dates and identify the earlier event before selecting the 1961 or 2025 Act.
- Request and reconcile evidence. Match GST-TDS deductions or certificates and the seller’s income-tax TCS reporting or credit information to your ledger and tax records.
If you are the seller
- Classify the disposal. Determine whether the scrap is being sold in the course or furtherance of business and apply the normal GST supply analysis.
- Check whether the buyer is a GST-TDS deductor. You cannot decide this from the material alone; obtain the buyer’s status and the contract details.
- Test income-tax TCS separately. Confirm that the goods meet the operative scrap definition and that the relevant threshold, exclusion and rate apply for the governing Act.
- Show collections clearly. Keep the sale value, GST, income-tax TCS and any GST-TDS deduction as separate ledger items. Do not describe seller-collected TCS as GST TDS.
- Deposit and report on time. Use the current income-tax and GST procedures, preserve acknowledgements and reconcile the buyer’s details before filing.
Worked scenarios
Scenario 1: private manufacturer buys scrap
A private manufacturer buys factory scrap under a contract whose value before GST is ₹3,00,000. The buyer is GST-registered but is not a government department, local authority, governmental agency or other notified section 51 deductor.
- The scrap sale may be a GST supply for the seller.
- The contract exceeds the ₹2.5 lakh value described by CBIC, but the buyer’s identity fails the specified-deductor test.
- GST TDS should not be assumed solely from the value or the GST registration.
- If the seller’s income-tax TCS conditions apply, the seller—not the private buyer—collects TCS at the rate in force for the governing Act.
Scenario 2: specified recipient pays under a qualifying contract
A notified GST-TDS deductor enters a scrap-supply contract with a value above ₹2.5 lakh excluding GST. The recipient should verify the current section 51 rules, deduct the applicable GST-TDS amount from the supplier payment, deposit and report it through the GST process, and provide the prescribed evidence to the supplier.
This does not cancel or replace any income-tax TCS obligation. If the seller’s scrap sale is covered by the income-tax rule, the seller may still collect TCS from the buyer. Each amount has a different statute, payer direction and reconciliation trail.
Scenario 3: credit before 1 April, payment after 1 April
A buyer credits the seller’s account on 31 March 2026 but pays on 1 April 2026. The credit is earlier, so the income-tax event is governed by the Income-tax Act, 1961 under the Department’s transition test. The parties should retain the ledger entry and payment proof in case the timing is questioned.
Scenario 4: payment before 1 April, credit after 1 April
A buyer pays on 25 March 2026 and records the credit on 2 April 2026. Payment is earlier, so the 1961 Act governs the income-tax event. The later accounting entry does not move the event into the 2025 Act.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.How GST TDS and income-tax TCS appear in records
Keep separate fields for the following items:
- Contract or purchase-order value before GST.
- GST charged on the supply.
- GST TDS deducted by a qualifying recipient, if any.
- Income-tax TCS collected by the seller, if applicable.
- Credit date and payment date.
- The Income-tax Act used for the TCS event.
- GST statements, certificates, challans and portal credits.
- Income-tax collection statements, Form 143 filing details and buyer credit records.
Separating these fields prevents a common reconciliation error: netting seller-collected income-tax TCS against GST or recording a buyer’s GST-TDS deduction as though it were TCS. The amounts may appear on the same commercial payment, but they are not interchangeable.
Common mistakes and corrections
| Mistake | Why it is wrong | Correction |
|---|---|---|
| “Every scrap purchase attracts GST TDS.” | Section 51 is limited by the recipient’s specified status and the applicable contract test. | Check the buyer’s legal category and the contract value excluding GST. |
| Calling seller-collected TCS “income-tax TDS.” | TDS and TCS have different actors and payment directions. | Use GST TDS for a qualifying recipient’s deduction and income-tax TCS for the seller-side collection. |
| Adding GST to the ₹2.5 lakh threshold. | CBIC states the described threshold excluding GST. | Test the pre-GST contract value. |
| Using an old scrap TCS rate in 2026–27. | The operative section 394 table and rules must be checked for post-transition events. | Verify the current rate, threshold and exclusions before billing or collecting. |
| Choosing the Act from the invoice date alone. | The transition test uses the earlier of credit or payment. | Document both dates and apply the earlier event. |
| Treating income-tax TCS as GST on the goods. | CBIC describes TCS as an interim levy against possible buyer income. | Show GST and income-tax TCS as distinct amounts and reconcile them separately. |
| Assuming a software template proves compliance. | Legacy templates can retain superseded sections or rates. | Validate the statutory table and current portal procedure for the transaction date. |
A practical decision checklist
Before finalising a scrap invoice or payment, answer these questions in order:
- Is the seller disposing of scrap in the course or furtherance of business?
- Who is the buyer: a private business, government department, local authority, governmental agency or another notified category?
- What is the total contract value before GST, and does the described ₹2.5 lakh section 51 threshold apply?
- Is the buyer deducting GST TDS, or is the seller collecting income-tax TCS? Never use one label for both.
- Does the scrap sale satisfy the operative income-tax definition, threshold and exclusion rules?
- What are the credit and payment dates, and which one is earlier?
- Does the earlier date place the event under the Income-tax Act, 1961 or the Income-tax Act, 2025?
- Have the current GST procedure, income-tax rate, section 394 table entry and reporting forms been checked for that period?
- Are GST, GST TDS and income-tax TCS shown and reconciled as separate entries?
What to verify before filing
For a transaction before 1 April 2026, consult the applicable provisions and guidance under the Income-tax Act, 1961. For a transaction governed by the 2025 Act, use section 394 and the current rules rather than an archived section or rate. Confirm the scrap definition, threshold, exclusions, collection timing, statement due dates and credit mechanism from the operative Income Tax Department material.
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On the GST side, verify whether the buyer is actually a section 51 deductor, whether the contract-value condition is met excluding GST, and which GST return, certificate and deposit workflow applies. If a transaction straddles the transition date or involves a government contract, preserve the contract, purchase order, invoice, ledger dates and payment proof so the treatment can be demonstrated later.
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