In the evolving landscape of GST compliance, the recent Notification No. 25/2024-Central Tax dated 9th of October 2024 has introduced significant provisions regarding Tax Deducted at Source (TDS) applicable to transactions involving metal scrap. This notification not only clarifies the regulatory framework but also reinforces the government’s commitment to enhancing tax compliance in this sector.
Summary of notification:
On October 9, 2024, the Ministry of Finance issued Notification No. 25/2024-Central Tax, amending the earlier Notification No. 50/2018-Central Tax. This update clarifies the Tax Deduction at Source (TDS) rules under Section 51 of the CGST Act, 2017, specifically for metal scrap transactions.
Key Changes:
- Expanded Scope: The amendment now includes registered persons receiving metal scrap classified under Chapters 72 to 81 of the Customs Tariff Act, 1975.
- TDS Rate: A TDS of 2% is required on transactions where the taxable value exceeds ₹2,50,000.
- Registration Requirement: Buyers must obtain a separate GST registration (Form REG-07) to deduct TDS.
- Monthly TDS Credit: Suppliers will receive TDS credits in their cash ledger every month, which helps improve their cash flow.
- Exemption Update: The amendment confirms that while some supplies between certain entities are exempt from TDS, transactions involving metal scrap are not exempt.
- Compliance Requirements: Effective from October 10, 2024, both buyers and sellers must comply with the updated TDS rules, including filing GSTR-7 on time and issuing TDS certificates (GSTR-7A) to suppliers.
What is TDS under GST?
TDS under GST is a method of collecting tax at the source of income. When a buyer makes a payment for specified services or goods, a certain percentage of the payment is deducted as tax and deposited with the government. This mechanism aims to ensure tax compliance and streamline revenue collection.
The provision pertaining to TDS under GST is given under Section 51 of the CGST Act to be read with CGST Rule 66.
Effective Date:
The notification clearly states that the amendments will come into effect from the 10th of October 2024. This means that the provisions of this notification must be complied with for all eligible transactions on or after this date.
Applicability of TDS:
- A TDS of 2% is required to be deducted by the recipient (buyer) of goods, under GST, when purchasing metal scrap involving the taxable value of supply exceeding Rs.2,50,000/- per transaction.
- TDS Rate Breakdown: CGST = 1%, SGST = 1% (for intra-state transactions), IGST = 2% (for inter-state transactions)
It is important to note that the limit of ₹2,50,000 applies per transaction. This means that TDS at a rate of 2% must be deducted only if the taxable value of an individual transaction exceeds this amount. Each transaction is assessed separately for TDS obligations.
Applicability of this notification on Chapters of the Customs Tariff Act, 1975:
The new TDS rule is applicable to metal scraps falling under following chapters include the respective materials:
Chapter 72 – Iron and Steel
Chapter 73 – Articles of Iron and Steel
Chapter 74 – Copper and Articles thereof
Chapter 75 – Nickel and Articles thereof
Chapter 76 – Aluminium and Articles thereof
Chapter 78 – Lead and Articles thereof
Chapter 79 – Zinc and Articles thereof
Chapter 80 – Tin and Articles thereof
Chapter 81 – Other Base Metals; Cermets ; Articles thereof
This means that buyers purchasing metal scrap classified under these chapters must deduct TDS on transactions that meet the specified threshold.
Compliance requirements for TDS Deduction:
1. Separate registration:
To deduct GST TDS, the buyer of the metal scrap must obtain a separate GST registration for TDS deduction. The form for this registration is Form REG-07.
Once registered under Form REG-07, the buyer can begin deducting GST TDS on qualifying transactions.
2. Monthly filing of GSTR-7:
The buyer (who has deducted the TDS) is required to file Form GSTR-7 monthly, no later than the 10th of the subsequent month.
TDS Certificate under GST:
After the GSTR-7 has been filed, the GSTR-7A certificate will be automatically generated. This certificate acts similarly to Form 16A under the Income Tax Act and serves as a confirmation to the supplier that TDS has been deducted and deposited.
Exemptions and Exclusions:
TDS on metal scrap under GST is not applicable to the import of metal scrap. This means if the recipient (buyer) is importing metal scrap from a foreign country, no TDS deduction is required under GST.
Credit of TDS for the Supplier:
The supplier or seller of the metal scrap will receive the credit of the TDS deducted by the buyer. This credit will be automatically reflected in the cash ledger of the supplier on a monthly basis.
Benefits for the Supplier: Unlike Income Tax, where TDS credit is available only after the end of the assessment year, under GST, the credit of the TDS is available monthly. The supplier can utilize this credit to:
a. Offset their GST liability.
b. Claim a refund in case of excess credit.
This mechanism provides flexibility to the supplier to manage their cash flow effectively under GST.
Conclusion:
Notification No. 25/2024-Central Tax introduces key TDS requirements for metal scrap transactions, effective October 10, 2024. Buyers must deduct 2% TDS on transactions over ₹2,50,000 and obtain a separate GST registration. This ensures compliance and enhances liquidity for suppliers, who receive monthly TDS credits. Overall, these changes aim to improve tax collection and strengthen compliance in the metal scrap sector.
Author Bio
