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Do not deduct a final 2% amount from every scrap invoice yet. The 54th GST Council press release records a recommendation for 2% GST TDS on metal scrap supplied by a registered person to another business, but that release does not establish the implementing notification, start date, covered tariff classifications, or the value on which the percentage must be applied. Confirm the operative CBIC notification and applicable GST rules for the transaction before booking or depositing a deduction. Once the rule is confirmed, calculate TDS on its legally defined base, keep that amount separate from GST charged on the invoice, and reconcile the deduction to the supplier, payment and return records.
This guide shows a defensible workflow for that situation and separates it from income-tax TDS on purchases and income-tax TCS reporting for scrap. Those are different laws, rates, thresholds and reporting mechanisms.
What the 2% scrap TDS statement actually establishes
CBIC’s 54th GST Council press release dated 9 September 2024 states: “A TDS of 2% will be applicable on supply of metal scrap by registered person in B to B supply.” The statement is a Council recommendation reported in a press release. It is not, by itself, the operative notification that tells a taxpayer exactly when the rule starts, which scrap classifications are covered, whether all registered buyers must deduct, or whether the base is the taxable value, invoice total, or another defined amount.
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That distinction matters because a percentage cannot be applied reliably until the legal base and scope are known. A business that deducts 2% from the wrong value can under-deduct, over-deduct, create a supplier-reconciliation difference, or report a liability in the wrong tax period. Treat the press release as an alert to check the final law, not as permission to apply an assumed formula to every scrap sale.
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What must be verified in the operative rule
- The notification number, publication date and effective date.
- The exact buyer and seller conditions, including whether both parties must be GST-registered and whether the transaction must be business-to-business.
- The statutory description, HSN or other classification used for “metal scrap.”
- The person responsible for deduction and the point at which the deduction arises.
- The prescribed calculation base and whether any component of GST, freight, ancillary charges, discounts or credit notes is included.
- The payment, statement, certificate and ledger-reporting procedure and the relevant due dates.
If any of those points is unresolved for your transaction date, obtain current advice or a written interpretation from your tax team before posting a deduction.
First identify which tax regime applies
“TDS on scrap” is used loosely for three separate mechanisms. Classify the transaction before calculating anything.
| Regime | Typical trigger | Rate or threshold in the cited material | What it is not |
|---|---|---|---|
| GST TDS on metal scrap | Recommended for a registered person’s B2B supply of metal scrap; final scope must be confirmed in the operative GST notification. | 2% recommendation in the GST Council press release; operative base, date and classifications are not established by that release. | Not income-tax section 194Q and not a substitute for GST charged on the invoice. |
| Income-tax TDS on purchase of goods | Qualifying purchases from a resident seller exceeding the annual threshold, subject to section conditions. | 0.1% on the amount above ₹50 lakh in a previous year, according to the Income Tax Department’s purchase-of-goods guidance. | Not a scrap-specific 2% GST deduction. |
| Income-tax TCS or scrap reporting | Specified transactions, including sale of scrap, reported through the income-tax collection/reporting framework. | Rate and obligations depend on the applicable income-tax provision and facts. | Not evidence of the GST TDS base or rate. |
The Income Tax Department’s Form 143 user manual describes quarterly statements for specified transactions that include sale of scrap. That reporting channel should not be used to infer how a GST TDS deduction is calculated.
Use the transaction date, not a familiar section number
For transactions on or after 1 April 2026, the Income Tax Department says the applicable table item in section 393 of the Income-tax Act, 2025 should be used instead of relying on the old section numbering. The Department’s Tax Payments FAQ explains the transition. Record the transaction and deduction dates, then verify the current provision and table item for that period. A return or challan populated with a historical section number can be wrong even when the commercial transaction looks identical.
How to calculate the GST scrap TDS after the rule is confirmed
Use a controlled calculation rather than hard-coding 2% into an invoice template. The rate and base below are variables until the final notification applicable to your period and goods is checked.
- Confirm the transaction class. Check that the buyer, seller, registration status, supply type, goods classification and date meet the final rule.
- Identify the defined base. Read the operative rule for the exact amount subject to deduction. Do not assume it is the grand total merely because GST appears on the invoice.
- Separate the invoice components. Capture goods value, taxable value, GST rate, CGST/SGST or IGST amounts, freight and other charges in separate fields.
- Apply the prescribed rate to the prescribed base. In a spreadsheet, use a formula such as
GST_TDS = defined_base × notified_rate. Store the source notification and tax period beside the formula. - Round only as the applicable rule or accounting policy permits. Keep the unrounded calculation in an audit field so a difference can be traced to rounding rather than silently overwritten.
- Post the deduction and payment separately. Credit a GST-TDS payable ledger for the calculated amount; reduce the supplier settlement by that amount only when the legal deduction event occurs.
- Retain the calculation evidence. Link the invoice, classification check, rate/base decision, deduction entry, deposit or return reference and supplier communication.
Why a numeric worked example would be misleading now
The available official statement does not establish whether the 2% is calculated on taxable value before GST, invoice value including GST, or another amount. Publishing a worked number would therefore present an unverified assumption as law. Your final example should be created only after the notification is confirmed, and it should state the covered tax period, goods classification, registration facts, rate, base and treatment of GST in the same example.
Do not import the 194Q GST rule into GST TDS
CBDT Circular No. 13 of 2021 (PDF) explains a specific income-tax section 194Q situation: where GST is separately indicated under an agreement or contract and tax is deducted at the time of credit, the GST component is excluded from the 194Q base. If payment occurs before credit, deduction is on the whole amount because the future GST component cannot yet be identified.
That clarification belongs to 194Q. It does not determine the base for a separate GST TDS on scrap. Use it when testing a qualifying income-tax purchase transaction, but do not copy its GST-exclusion treatment into the scrap GST calculation unless the operative GST rule says so.
Reconcile the deduction to the GST invoice
Reconciliation is a matching exercise, not a netting shortcut. The GST invoice continues to show the supply and GST charged; the TDS entry explains why the supplier received less cash. Keep those facts visible in separate columns.
Minimum invoice fields to capture
CBIC’s Tax Invoice, Credit and Debit Notes rules require key information such as description, quantity, total and taxable value, tax rate and tax amount, along with place-of-supply details where applicable. Capture at least the following:
| Reconciliation field | What to record | Why it matters |
|---|---|---|
| Invoice identity | Invoice number, invoice date, supplier GSTIN and buyer GSTIN. | Prevents one deduction being matched to the wrong document or legal entity. |
| Supply details | Scrap description, HSN or classification used, quantity and unit. | Supports the test of whether the final notification covers the goods. |
| Value fields | Line value, taxable value, discounts, freight or other charges and invoice total. | Allows the legally defined TDS base to be reproduced. |
| GST fields | Tax type (CGST/SGST or IGST), rate and amount. | Keeps GST charged separate from the deduction and exposes base errors. |
| TDS fields | Applicable rule, rate, defined base, calculated TDS, deduction date and ledger reference. | Creates an audit trail for the percentage and timing. |
| Settlement fields | Gross payable, TDS deducted, other authorised adjustments, net paid, bank date and payment reference. | Explains the exact difference between invoice liability and cash settlement. |
| Compliance fields | Deposit/challan or return reference, certificate or statement reference, and supplier acknowledgement where used. | Connects the books to the statutory record and dispute resolution. |
Step-by-step matching workflow
- Start with the supplier ledger. List every scrap invoice for the relevant period and filter for the buyer and seller conditions in the operative rule.
- Validate the document. Match invoice number, date, GSTINs, place of supply, description, quantity and classification to the source invoice. Put exceptions in a review queue instead of changing the invoice silently.
- Rebuild the base. Recalculate the defined base from the stored value fields. If the base cannot be reproduced, mark the line “base unresolved” and hold the deduction decision.
- Compare the TDS entry. Match the calculated amount to the GST-TDS payable ledger and the deduction shown in the payment advice. Investigate any difference by checking rate, base, rounding, credit notes and timing.
- Match the net payment. Gross invoice liability less the authorised TDS and other approved adjustments should equal the bank payment or payable balance. A mismatch is not fixed by editing the invoice total.
- Match statutory records. Tie the ledger total to the relevant deposit, statement and certificate records for the same period. Keep transaction-date and filing-period columns separate.
- Obtain supplier confirmation. Send a remittance statement that shows invoice total, GST, TDS base, TDS amount and net payment. Resolve supplier objections against the stored rule and documents.
- Close only cleared items. Keep unresolved classifications, duplicate invoices, missing GSTINs and unexplained net-payment differences on an exception report.
Suggested reconciliation layout
A practical workbook can use one row per invoice with these columns: transaction date; invoice number; supplier GSTIN; buyer GSTIN; scrap description; HSN/classification; quantity; taxable value; GST type; GST rate; GST amount; defined TDS base; notified rate; calculated TDS; TDS ledger posting; gross payable; net paid; payment date; deposit/return reference; and exception status. CBIC’s Accounts and Records Rules require businesses to maintain tax and accounting records, including stock and records of scrap and wastage and invoice registers. This layout is a practical control inferred from those records, not a prescribed official spreadsheet format.
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Credit notes and returns
Do not reverse a TDS entry merely because a supplier issues a credit note. First determine what the operative GST TDS rule says about the deduction event and the adjustment. Match the credit note to the original invoice, preserve the original calculation, and record any permitted reversal or additional deduction as a separate adjustment with its own date and reference.
Debit notes or revised values
For a debit note that changes the value of covered scrap, recompute the base only if the law treats that document as part of the deduction calculation. Keep the original and revised values visible so the supplier can see why the payable changed.
Partial payments and advances
Payment timing can affect income-tax withholding rules, as the 194Q circular demonstrates, but it does not answer the timing question for GST TDS on scrap. Check the GST notification for the deduction trigger. Until that trigger is established, do not infer that an advance, invoice, credit or payment date automatically controls the GST deduction.
Common errors and how to correct them
- Treating the press release as the notification: Locate the operative CBIC notification and record its effective date and scope before applying a rate.
- Deducting 2% from the invoice total by habit: Rebuild the base from the final rule; keep taxable value and GST amount in separate fields.
- Calling 194Q “scrap TDS”: Run the resident-seller, annual-threshold and purchase conditions separately and apply the income-tax rate only when they are met.
- Using an old income-tax section after 1 April 2026: Check the applicable section 393 table item for the transaction date.
- Combining GST TDS and GST charged: The invoice tax is part of the supplier’s GST transaction; TDS is a separate deduction and ledger item.
- Ignoring classification: A material described commercially as scrap may not match the classification in the notification. Obtain the HSN or other required classification and document the decision.
- Posting net payment without a payable ledger: The bank amount alone cannot explain the liability. Post gross invoice, TDS payable and settlement as linked entries.
- Overwriting differences: Use an exception code for duplicate invoices, missing documents, rounding, credit notes, wrong GSTIN or unresolved base. Preserve the original value.
- Assuming Form 143 proves GST applicability: Form 143 concerns an income-tax reporting process for specified transactions and does not establish GST TDS.
Controls for a monthly close
Assign responsibility for three separate checks: a tax reviewer confirms the operative rule and classifications; an accounts reviewer reproduces the base and ledger posting; and a payments reviewer matches net settlement and statutory references. Lock the rate and base fields by tax period, require an approval note when the rule changes, and archive the notification used for each period.
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- Every covered invoice has one and only one TDS ledger entry.
- Every TDS entry links to an invoice and a supplier GSTIN.
- The calculated amount can be reproduced from stored base and rate fields.
- Gross payable minus authorised deductions agrees with the payable ledger and bank record.
- Credit and debit note adjustments are linked to their original invoices.
- Deposit, statement and certificate references agree with the period totals.
- Unresolved items have an owner and a documented next action.
What a compliant calculation record should say
For each transaction, write a short determination note in plain language: “This invoice was tested against [notification and effective date]; supplier and buyer registration status were [facts]; goods classification was [classification]; the defined base was [field or rule definition]; the notified rate was [rate]; GST was [included or excluded only as the rule states]; the deduction event was [date/event]; and the resulting ledger and payment references are [identifiers].” Do not fill those brackets from assumption; complete them from the operative rule and invoice.
That note makes the calculation auditable without pretending that the Council recommendation itself settled unresolved details.
Frequently asked questions
Is the 2% deducted from the GST amount too?
The cited Council release does not establish whether GST is included in or excluded from the GST-TDS base. Do not decide from the invoice total or from the 194Q rule. Apply the treatment stated in the operative GST notification for the relevant period.
Can a buyer deduct the recommended amount before a notification appears?
A press-release recommendation is not enough evidence of an enforceable deduction obligation. Confirm the notification, effective date and covered transaction before reducing a supplier’s payment.
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Does every sale of scrap qualify?
No conclusion can be made from the recommendation alone. Registration status, B2B conditions, goods classification, transaction date and the final scope all have to be tested.
Where should the deduction appear in the books?
Keep a separate GST-TDS payable ledger linked to the invoice and payment. Do not reduce the GST tax amount printed on the supplier’s invoice or hide the deduction inside a generic purchase discount.
What if the supplier disputes the amount?
Provide the invoice fields, classification decision, operative rule, base calculation, rate, deduction date and payment reconciliation. If the rule or classification remains uncertain, pause the disputed adjustment and obtain a written tax determination rather than altering records to force a match.
Is the ₹50 lakh threshold relevant to the 2% GST scrap recommendation?
No. The ₹50 lakh threshold and 0.1% rate belong to the income-tax purchase-of-goods guidance for qualifying transactions. They do not set a threshold or rate for the separate GST scrap recommendation.
Frequently Asked Questions
What should I do if the notification changes after I have configured my accounting system?
Create a new tax-period rule with its own effective date, base definition and approval record. Do not overwrite historical calculations; re-test only transactions that fall within the amended period or scope.
Can one invoice contain covered scrap and other goods?
Separate the lines and test each line against the operative classification and scope. If the rule or your system cannot allocate the base reliably, route the invoice for tax review before deduction.
How should I handle a missing or invalid supplier GSTIN?
Hold the GST-TDS applicability decision, verify the registration status from authoritative records, and document the result. Do not assume that a commercial invoice labelled B2B satisfies the legal registration condition.
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