TDS compliance process for metal scrap dealers under GST:

TDS compliance process for metal scrap dealers under GST

New GST updates for the Iron & Steel Industry regarding the sale of metal scraps, based on Notification No. 06/2024-Central Tax (Rate) and Notification No. 25/2024-Central Tax: The recent amendment to Notification No. 4/2017-Central Tax (Rate), u/s 9(3) of the CGST Act, 2017, addresses metal scrap transactions. This update, based on recommendations by the GST Council, introduces important changes that impact tax liabilities, particularly under the Reverse Charge Mechanism.

Objective & Impact of GST compliance on sale of metal scraps:

• These provisions aim to streamline tax compliance for metal scrap transactions and ensure proper TDS and GST reporting within the industry. This change aims to improve tax collection on metal scrap sales by ensuring that GST liabilities are met even when dealing with unregistered sellers.
• It also helps reduce tax evasion in the metal scrap sector and provides clarity on tax obligations for both registered buyers and sellers.
• Ensuring accurate and timely filing of GSTR-7 is crucial, as it directly impacts the deductee’s ability to claim TDS credit in their GST returns.

Key Provisions Effective from October 10, 2024

1. Reverse Charge Mechanism (RCM) on Metal Scrap:

   • If the Seller is Unregistered: The Registered Buyer must pay GST under RCM. RCM to be introduced on supply of metal scrap by unregistered person to registered person . Provided that the supplier shall take registration as & when it crosses the threshold limit. Such GST Registered Recipient will raise a Self Invoice  under section 31(3)(f) of the Central Goods and Services Tax Act, 2017. Credit of GST  paid under RCM by Such Registered Recipient is available (Section 16(2) of the CGST Act read with Rule 36(1)(b) of the CGST Rules).
   • If the Seller is Registered: The Seller is responsible for paying GST (no RCM applies).

2. TDS Applicability on Metal Scrap Sales:

   • Rate: TDS at 2% is required on the value of goods supplied. TDS of 2% will be applicable on supply of metal scrap by registered person in B to B supply.
   • Threshold: TDS is applicable only if the value of goods exceeds ₹2.5 lakhs (excluding GST).
   • Calculation: Deduct TDS on the value of goods alone, excluding any GST components (CGST/SGST/IGST/UTGST).
   • In case a GST Registered recipient deducts 2 percentage Tax Deducted at Source while making a payment to a supplier, who is later found to be non-existent or credit is doubtful because of the preceding GST supplier(s), how will the recipient ensure GST compliance and avail ITC credit?

3. TDS Compliance Requirements:

   • TDS Return: File the TDS return in Form GSTR-7 on or before the 10th of the following month. File a monthly TDS return in Form GSTR-7. Include details like the GSTIN of the deductee, invoice value, TDS amount, and any other necessary information.
   • TDS Certificate: Issue a TDS certificate (Form GSTR-7A) to the supplier, confirming the deduction. Issue TDS certificates to suppliers using Form GSTR-7A. This certificate provides proof of TDS deduction and is essential for the deductee to claim credit.
   • Claiming TDS: The supplier (deductee) can claim the TDS amount based on the details provided by the deductor in GSTR-7.  The TDS deducted will be credited to the deductee’s GSTR-2A form. Once the TDS return is filed, the credit will reflect in their electronic cash ledger, allowing them to utilize the TDS amount towards their GST liabilities.
4. GST Registration and Compliance:
   • The GST portal will soon allow scrap dealers (registered persons) to register for TDS compliance through FORM GST REG-07. This update is awaited for full compliance functionality.
   • As of October 13, 2024, the government released Notification 25/2024-Central Tax to facilitate compliance for businesses dealing with metal scrap under Section 51 of the CGST Act, 2017.
   • Registration Update: Register separately for TDS purposes using Form REG-07. In the “Constitution of Business” section, select “Others” and specify “Metal Scrap Dealers” in the provided text box.

GST Advisory for Reporting TDS Deducted by scrap Dealers in Oct 2024