TDS on GST On Purchase of Metal Scrap

Hi Harshavardini — good question, and a common area of confusion in TDS compliance. Let’s go step by step to understand the implications of not deducting TDS on metal scrap purchases, and what you or your client can do now.

✅ 1. TDS Applicability on Metal Scrap Purchases

Under the Income Tax Act, TDS is applicable on purchase of metal scrap under:

📘 Section 194Q (effective from 1st July 2021):

• Applicable to buyers whose turnover exceeded ₹10 crore in the preceding FY.

• TDS @ 0.1% is to be deducted on purchase of goods, if:

  • Purchase value from a single seller exceeds ₹50 lakh in a financial year.

  • The seller is resident in India.

📌 TDS is to be deducted on purchase value excluding GST, as per CBDT Circular No. 13/2021, if GST is separately indicated.

❗️ What Happened in Your Case:

• Your client purchased metal scrap and:

  • Did not deduct TDS u/s 194Q.

  • Paid the full invoice amount (including GST) to the seller.

⚠️ Implications of Not Deducting TDS:

✅ How to Rectify It Now:

You can reduce the risk of disallowance and default status by:

Option 1: Obtain Proof of Seller Paying Tax

• If the seller has already paid tax on the income (declared it in return), then:

  • Buyer is NOT treated as assessee-in-default, per proviso to Section 201(1).

  • But interest u/s 201(1A) may still apply.

You can get a CA certificate in Form 26A for this.

Option 2: Voluntary Compliance (Pay TDS Late)

• Buyer can:

  • Calculate and pay TDS now with interest.

  • File corrected TDS return (Form 26Q).

  • Inform the seller and issue Form 16A.

• This reduces exposure to penalty and disallowance.

🚫 What About GST TDS?

TDS under GST (Section 51 of CGST Act) is not applicable in scrap purchases unless the buyer is a Govt department, PSU, or notified entity.

So, based on your message, GST TDS is likely not relevant. The concern is Income Tax TDS under Section 194Q.

✅ Final Takeaway:

Assuming you mean GST TDS on metal scrap. From 10 October 2024, a registered buyer must deduct GST TDS at 2% (1% CGST + 1% SGST, or 2% IGST) on purchases of metal scrap (Chapters 72–81) from a registered supplier, where the contract value exceeds Rs 2.5 lakh (Notf 25/2024-CT, Sec 51).

Implications of not deducting:

• The buyer is liable to pay the TDS amount from its own funds, plus interest at 18% (Sec 50) from the due date (10th of the next month). It cannot be recovered from the supplier after full payment, except by mutual adjustment.

• Late fee for GSTR-7: Rs 50 a day (Rs 25 CGST + Rs 25 SGST), capped at Rs 2,000.

• Penalty under Sec 122 is possible for failure to deduct.

• Remedy:

– register as a TDS deductor (if not already)

– file GSTR-7 for the missed months

– pay TDS, interest and fee

– issue the TDS certificate so the supplier can claim the credit.

Also check:

• RCM on metal scrap bought from unregistered persons (Notf 06/2024-CT(R)).

• Income-tax: Sec 194Q (buyer turnover above Rs 10 crore), and TCS under Sec 206C(1) at 1% on scrap, collected by the seller.