Thursday, November 5, 2026

GST TDS Under Section 51: The Complete 2026 Guide to Scrap Purchases, RCM, Registration and Compliance

 By CA Surekha S Ahuja

From 1 November 2026, GST TDS has been extended to additional categories of specified goods, while corresponding reverse-charge and registration changes affect suppliers and buyers. Businesses dealing in used cooking oil, plastic scrap, tyre scrap, metal scrap and electronic waste must now review their contracts, vendor registration, tax deduction and monthly compliance processes.

The change is more significant than an increase in the list of goods subject to TDS.

A registered buyer purchasing specified goods from a registered supplier may have to deduct GST TDS. A purchase from an unregistered supplier may instead attract reverse charge. At the same time, suppliers of the specified goods can no longer rely on the earlier special registration exemption merely because their supplies were taxable under reverse charge.

The correct treatment depends on the goods, supplier's registration status, recipient's status, contract value and place of supply. Applying TDS indiscriminately to every scrap purchase is as incorrect as overlooking the reverse-charge liability on purchases from unregistered suppliers.

1. What changed from 1 November 2026?

Three notifications dated 27 October 2026 form the principal framework for the new compliance requirements.

NotificationWhat it changesEffective date
Notification No. 07/2026-Central TaxExpands the notified category of recipients required to deduct TDS under Section 51 to specified goods purchased from registered suppliers1 November 2026
Notification No. 04/2026-Central Tax (Rate)Adds specified goods purchased from unregistered suppliers by registered persons to the reverse-charge framework1 November 2026
Notification No. 06/2026-Central TaxRestricts the special registration exemption under Notification No. 5/2017-Central Tax for persons engaged in supplying the specified goods1 November 2026

The notifications operate independently and must not be confused:

  • Registered supplier to registered buyer: TDS under Section 51 may apply.

  • Unregistered supplier to registered buyer: Reverse charge may apply under Section 9(3), subject to the notified entry.

  • Supplier dealing in specified goods: The special registration exemption under Notification No. 5/2017-Central Tax is no longer available for the specified goods; the supplier must reassess registration under the applicable provisions.

Metal scrap was already covered by the earlier 2024 framework. The 2026 change extends the notified treatment to additional categories.

2. Which goods are covered?

Notification No. 07/2026-Central Tax substitutes clause (d) of Notification No. 50/2018-Central Tax.

The notified goods are:

GoodsCustoms Tariff classification
Used cooking oilHeading 1518
Waste and scrap of plasticsHeading 3915
Waste and scrap of tyresHeading 4004
Metal scrapChapters 72 to 81
Electrical and electronics waste and scrapHeading 8549

The notified category covers a registered person receiving any of these goods from another registered person.

Metal scrap under Chapters 72 to 81 was already included through Notification No. 25/2024-Central Tax dated 9 October 2024. The 2026 amendment adds the other four categories.

Classification is the starting point. Commercial descriptions such as waste, scrap, used material or recyclable goods are not sufficient by themselves. The actual nature of the goods and their correct Customs Tariff classification must support the conclusion.

For example, plastic waste falling under heading 3915 is covered. A product described merely as plastic residue or recycled plastic should not automatically be treated as covered without checking its classification.

3. When is GST TDS required? Apply these five tests

Test 1: Is the recipient a notified deductor?

Notification No. 07/2026-Central Tax covers any registered person receiving the specified goods from another registered person.

Consequently, the obligation is not confined to Government departments, public-sector undertakings or Government agencies. A private registered business purchasing the notified goods from another registered business must also examine Section 51.

The recipient's registration status and the nature of the goods must be established before deciding the deduction obligation.

Test 2: Is the supplier registered?

The registration status of the supplier determines which tax mechanism must be examined.

SupplierRecipientApplicable treatment
RegisteredRegisteredExamine TDS under Section 51
UnregisteredRegisteredExamine RCM under Notification No. 04/2026-Central Tax (Rate) and corresponding applicable tax notification
RegisteredBuyer outside the notified categorySection 51 TDS does not arise merely because the goods are scrap

Do not deduct TDS from an unregistered supplier merely because the goods fall under a notified tariff heading. The recipient must instead examine the applicable reverse-charge entry.

Test 3: Does the total taxable value under the contract exceed Rs 2,50,000?

Section 51(1) prescribes the threshold where the total value of taxable supply under a contract exceeds Rs 2,50,000.

The test is contract-wise, not invoice-wise.

Total taxable value under the contractTDS position
Rs 2,00,000No TDS
Rs 2,50,000No TDS
Rs 2,50,001Threshold crossed
Rs 5,00,000TDS applies, subject to the other statutory conditions

The word used in Section 51 is exceeds. A contract of exactly Rs 2,50,000 does not cross the threshold.

Practical implications:

  • Examine the total taxable value under the contract, not each invoice independently.

  • Aggregate supplies made under the same contract.

  • Review master agreements, purchase orders, rate contracts, amendments and linked supply arrangements.

  • Do not split invoices or purchase orders artificially to avoid the threshold.

  • Where the contract value is already above Rs 2,50,000, the deduction obligation is relevant from the first payment or credit under that contract, subject to the other conditions.

  • Where the contract is subsequently amended and its aggregate value crosses the threshold, document the amendment date, earlier credits and subsequent payment chronology. Do not assume that completed earlier payments can automatically be treated in the same manner as subsequent payments.

The threshold is not a per-invoice exemption.

Test 4: Exclude GST and cess from the TDS calculation

The explanation to Section 51(1) expressly excludes Central Tax, State Tax, Union Territory Tax, Integrated Tax and cess indicated in the invoice from the value of supply for TDS purposes.

TDS is calculated on the taxable value, not the gross invoice amount inclusive of GST.

Example: Delhi buyer purchasing plastic scrap from a Delhi supplier

Assume the contract value exceeds Rs 2,50,000 and the other statutory conditions are satisfied.

ParticularsAmount
Taxable valueRs 4,00,000
CGST @ 9%Rs 36,000
SGST @ 9%Rs 36,000
Total invoice valueRs 4,72,000
GST TDS @ 2% on taxable valueRs 8,000
Net payment to supplierRs 4,64,000

The buyer deducts Rs 8,000, not 2% of Rs 4,72,000.

Test 5: Apply the place-of-supply exclusion

The proviso to Section 51(1) provides an important exception.

No TDS is required where both:

  1. The location of the supplier; and

  2. The place of supply,

are in a State or Union Territory different from the State or Union Territory in which the recipient is registered.

Both elements must be tested.

Example A: TDS applies

  • Recipient registered in Delhi.

  • Supplier located in Haryana.

  • Place of supply is Delhi.

The supplier's location and place of supply are not both in a State different from Delhi. The statutory exclusion does not apply.

Example B: TDS does not apply

  • Recipient registered in Delhi.

  • Supplier located in Haryana.

  • Place of supply is Haryana.

Both the supplier's location and place of supply are in Haryana, which is different from the recipient's registration State, Delhi. The proviso applies and TDS is not required.

A buyer should therefore not decide the TDS treatment merely by comparing the supplier's GSTIN State code with its own. The place of supply must also be established.

4. What is the GST TDS rate?

The applicable aggregate deduction is 2%.

Nature of supplyTDS rate
Intra-State supply1% CGST + 1% SGST/UTGST = 2%
Inter-State supply2% IGST

The deduction is calculated on the taxable value excluding GST and cess.

The place-of-supply exclusion must be tested before applying the rate. An inter-State transaction does not automatically mean TDS is payable.

5. Reverse charge on purchases from unregistered suppliers

Notification No. 04/2026-Central Tax (Rate) amends Notification No. 4/2017-Central Tax (Rate) by adding specified goods to the reverse-charge framework.

The new entries are:

EntryHSNGoodsSupplierRecipient
2A1518Used cooking oilAny unregistered personAny registered person
3B3915Waste and scrap of plasticsAny unregistered personAny registered person
3C4004Waste and scrap of tyresAny unregistered personAny registered person
98549Electrical and electronics waste and scrapAny unregistered personAny registered person

The corresponding amendments under Notification No. 04/2026-Integrated Tax (Rate) and Notification No. 04/2026-Union Territory Tax (Rate) must also be considered for the applicable inter-State and Union Territory transactions.

Metal scrap was already covered under the earlier reverse-charge framework and should not be presented as a newly introduced 2026 category.

The recipient must discharge GST under the applicable reverse-charge mechanism. The rate depends on the correct classification and applicable rate notification; there is no single uniform rate for all these goods.

TDS and RCM are two different mechanisms

ParticularsGST TDSReverse charge
Governing provisionSection 51Section 9(3)
SupplierRegistered supplierUnregistered supplier under the notified entry
RecipientNotified registered recipientRegistered recipient specified in the notification
Tax paymentDeducted from supplier payment or creditPaid by recipient to Government
Supplier's treatmentTDS credit in electronic cash ledgerSupplier does not receive TDS credit for RCM
Recipient's treatmentDeduction and reporting obligationGST liability under RCM; eligible ITC subject to statutory conditions

The practical rule: first verify the supplier's registration status. If registered, examine TDS. If unregistered, examine RCM. Do not apply both mechanisms mechanically to the same purchase merely because the goods appear in both notification frameworks.

6. Registration implications for suppliers: Notification No. 06/2026-Central Tax

This notification requires careful attention.

Notification No. 5/2017-Central Tax had provided a special exemption from GST registration to persons exclusively engaged in making taxable supplies where the entire tax was payable by the recipient under reverse charge.

The exemption was already restricted for metal scrap through Notification No. 24/2024-Central Tax dated 9 October 2024.

Notification No. 06/2026-Central Tax dated 27 October 2026 substitutes the proviso to Notification No. 5/2017-Central Tax and provides that the special exemption will not apply to a person engaged in supplying:

  • Used cooking oil under heading 1518;

  • Waste and scrap of plastics under heading 3915;

  • Waste and scrap of tyres under heading 4004;

  • Metal scrap under Chapters 72 to 81; or

  • Electrical and electronics waste and scrap under heading 8549.

The amendment is effective from 1 November 2026.

What does this mean for suppliers?

A supplier dealing in these goods can no longer rely on the special exemption under Notification No. 5/2017-Central Tax merely because its supplies are covered by reverse charge.

However, withdrawal of this specific exemption should not be confused with a blanket statement that every supplier must register irrespective of all other statutory provisions.

The supplier must reassess its position under:

  • Section 22: turnover-based registration liability;

  • Section 23: persons not liable for registration and applicable exemptions; and

  • Section 24: compulsory registration categories.

The supplier should examine its aggregate turnover, nature of supplies, other business activities and any other applicable registration provision.

A supplier who previously relied on Notification No. 5/2017-Central Tax must reassess its registration position from 1 November 2026. Continuing to claim the withdrawn exemption without examining the revised law can create exposure.

7. Separate GST registration for TDS deductors: FORM GST REG-07

A person required to deduct tax under Section 51 must obtain registration as a TDS deductor under Section 24(vi), read with Rule 12 of the CGST Rules.

This is a separate registration requirement. An existing regular GST registration does not, by itself, replace the additional TDS registration.

The prescribed application is FORM GST REG-07. The registration certificate is issued in FORM GST REG-06 after verification.

GSTN Advisory No. 684 dated 1 November 2026 addresses the registration procedure for dealers in the newly notified categories.

The advisory instructs applicants dealing in the additional categories to:

  1. Open Part B of Table 2 in FORM GST REG-07.

  2. Select “Others” under the relevant Constitution of Business field.

  3. Specify the applicable category in the text box, such as:

    • Used Cooking Oil Dealers;

    • Waste and Scrap of Plastics Dealers;

    • Waste and Scrap of Tyres Dealers; or

    • Electrical and Electronics Waste and Scrap Dealers.

  4. Complete the remaining particulars and submit the application.

Businesses newly covered by the notification should not assume that their ordinary GSTIN automatically satisfies the TDS registration requirement.

Existing metal-scrap TDS deductors should also review their registration particulars and the GST portal requirements in light of the expanded categories.

8. When must TDS be deducted, deposited and reported?

Section 51(1) requires deduction from the payment made or credited to the supplier.

The trigger is the earlier of payment or credit. The deduction should therefore be integrated with both accounts payable and payment processing.

Waiting until the bank payment may result in a missed deduction where the supplier has already been credited in the books.

Deposit deadline

Under Section 51(2), the amount deducted must be paid to the Government within ten days after the end of the month in which the deduction is made.

Monthly compliance calendar

ComplianceProvision / formDue date
Deposit of TDSSection 51(2)Within 10 days after month-end
Monthly TDS returnSection 39(3), Rule 66, FORM GSTR-7On or before the 10th of the succeeding month
TDS certificateSection 51(3), Rule 66, FORM GSTR-7AMade available electronically on the portal on the basis of GSTR-7

An important change introduced through the Finance Act (No. 2), 2024 is that the TDS deductor must furnish GSTR-7 for every calendar month, whether or not any deduction has been made during that month.

Therefore, a nil GSTR-7 return should not be ignored merely because no TDS transaction occurred during the month. The applicable late-fee provisions and any specific waiver for nil returns should be checked separately.

The deductor should reconcile the amount deducted in the books, the amount deposited, the GSTR-7 return and supplier-wise details before filing.

9. How does the supplier claim TDS credit?

GST TDS is not input tax credit.

Section 51(5) provides that the supplier can claim credit of the amount deducted in its electronic cash ledger, once the deduction is reflected in the deductor's GSTR-7 return and the details are validated.

The distinction is important:

  • GST TDS is not ITC.

  • It is not credited to the electronic credit ledger.

  • It is reflected in the electronic cash ledger.

  • It can be used in accordance with the applicable GST provisions.

  • Excess or erroneous deduction is dealt with under Section 51(8), read with Section 54, subject to the statutory conditions.

Supplier's reconciliation checklist

The supplier should periodically verify:

  1. Whether the buyer deducted the correct amount.

  2. Whether the buyer deposited the deducted amount.

  3. Whether the deduction was reported against the correct GSTIN.

  4. Whether the amount appears in the electronic cash ledger.

  5. Whether the amount reconciles with the books and GST returns.

A deduction made by the buyer but not correctly reported or deposited can delay the supplier's ability to use the credit.

10. Consequences of non-compliance

GST TDS is not merely an accounting adjustment. Failure to deduct, deposit or report the tax can have statutory consequences.

DefaultRelevant provisionConsequence
Failure to deduct or short deductionSections 51(1) and 122(1)(v)Penalty exposure
Deduction made but amount not paid to GovernmentSections 51(2), 51(6) and 50(1)Tax recovery and interest
Amount in defaultSection 51(7), read with Section 73, 74 or 74A, as applicableDetermination and recovery proceedings
Delay in filing GSTR-7Sections 39(3) and 47, subject to applicable notificationsLate-fee exposure
Excess or erroneous deductionSections 51(8) and 54Refund subject to statutory conditions

Interest

Section 51(6) specifically provides for interest under Section 50(1) where the deductor fails to pay to the Government the amount deducted as tax.

Determination and recovery

Section 51(7) provides that determination of the amount in default is to be made in the manner specified in Section 73, Section 74 or Section 74A, as applicable.

For periods from FY 2024-25 onwards, Section 74A is the relevant determination provision for the applicable categories of tax defaults.

Penalty

Section 122(1)(v) specifically covers failure to deduct tax under Section 51(1), deduction of an amount lower than required and failure to pay the amount deducted to the Government.

The penalty is governed by Section 122(1), including the prescribed minimum and the amount linked to the tax involved, whichever is higher, subject to the statutory conditions.

A missed TDS deduction should not be treated as a routine vendor-payment error. It can result in interest, penalty and recovery proceedings.

11. Practical controls every scrap buyer should implement

The most effective compliance system builds the legal checks into vendor onboarding, purchase orders and payment processing.

StageControl
Vendor onboardingVerify GSTIN, legal name and registration status
Product classificationConfirm correct Customs Tariff heading and description
Purchase orderIdentify whether TDS or RCM may apply
Contract reviewMonitor total taxable value under the contract against Rs 2,50,000
Invoice bookingExclude GST and cess from the TDS base
Place of supplyVerify supplier location, place of supply and recipient's registration State
Accounts payableDeduct at the time of payment or credit, whichever is earlier
Tax paymentDeposit TDS within the prescribed period
Monthly returnFile GSTR-7, including nil returns
Supplier reconciliationVerify GSTR-7A and electronic cash-ledger credit

Transaction-level decision process

Step 1: Identify the goods and verify the tariff classification.

Step 2: Check whether the supplier is registered.

Step 3: If registered, determine whether the recipient is covered by the Section 51 notification.

Step 4: If unregistered, examine the applicable RCM entry and corresponding tax notification.

Step 5: For a TDS transaction, test whether the total taxable value under the contract exceeds Rs 2,50,000.

Step 6: Apply the place-of-supply exclusion.

Step 7: Calculate TDS on the taxable value excluding GST and cess.

Step 8: Deduct, deposit, report and reconcile within the prescribed timelines.

Step 9: Separately review the supplier's registration position after Notification No. 06/2026-Central Tax.

12. What businesses should do immediately

For buyers

  • Identify all purchases of the notified goods from 1 November 2026.

  • Segregate registered and unregistered suppliers.

  • Review contracts and purchase orders exceeding Rs 2,50,000.

  • Map the correct TDS or RCM treatment.

  • Obtain separate TDS registration through FORM GST REG-07 where required.

  • Configure the accounting system to deduct TDS at the correct event and on the correct value.

  • Establish monthly GSTR-7 and electronic cash-ledger reconciliation.

  • Review RCM reporting and payment separately from TDS compliance.

For suppliers

  • Verify the tariff classification of goods supplied.

  • Identify customers likely to deduct TDS.

  • Review whether supplies are covered by reverse charge.

  • Reassess registration eligibility after Notification No. 06/2026-Central Tax.

  • Reconcile TDS deductions appearing in the electronic cash ledger.

  • Maintain contracts, invoices, weighment records, delivery challans and classification documents.

CA S. Ahuja Perspective

The November 2026 changes are not simply an extension of GST TDS to four additional categories of scrap and waste. They create a connected compliance framework involving TDS on purchases from registered suppliers, reverse charge on specified purchases from unregistered suppliers and a revised registration position for suppliers who previously relied on the special exemption for exclusively reverse-charge supplies.

For businesses dealing in scrap, recycling, used materials and waste, the first question should not be whether the deduction rate is 2%.

The real question is whether the transaction has been correctly classified and placed under the right statutory mechanism.

A wrong decision at vendor onboarding can flow into the purchase order, invoice booking, payment, GSTR-7, RCM liability and supplier's cash-ledger reconciliation.

The safest approach is to classify first, verify the supplier's registration status, test the contract threshold, determine the place of supply and only then decide whether TDS or RCM applies.

Compliance is not achieved merely by deducting tax. It is achieved when the buyer deducts the correct amount, the supplier receives the proper credit and the transaction is supported by a defensible legal and documentary trail.