TCS on Sale of Scrap under GST Section 206C

Bio

Sandipan Mitra is the CEO and co-founder of Pice. He boasts eight years of experience in the B2B and fintech sector. Sandipan's journey includes significant roles at multiple Indian Unicorns Including Product at PayU, and as founding member / VP, Product at Open Financial Technologies.

  • 3 Jul 25
  • 10 mins
tcs on sale of scrap under gst section

TCS on Sale of Scrap under GST Section 206C

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avatar of sandipan mitra Sandipan Mitra
  • 08 Mins
  • 03-07-25

Key Takeaways

  • TCS on sale of scrap is charged at 1% under Section 206C of the Income Tax Act, and GST rates vary from 3% to 18% based on scrap type.
  • From April 1, 2025, Sections 206C(1H) and 206C(1G) are omitted, removing TCS on high-value goods sales and educational remittances via loans.
  • Only eligible sellers (business turnover > ₹1 crore or profession > ₹50 lakh) must collect TCS and issue Form 27EQ for scrap transactions.
  • Failure to file TCS returns on time results in a daily penalty of ₹200, while non-filing can lead to fines between ₹10,000 and ₹1,00,000.
  • Scrap buyers and sellers must maintain proper documentation and classification to stay compliant under updated TCS-GST frameworks.

Tax Collected at Source or TCS is an important tool to keep track of and to control big amounts in business transactions. Section 206C of the Income Tax Act of 1961 mentions that TCS is to be charged on sale of certain goods, including scrap. This guide reviews TCS applicability, rates on scraps, and compliance procedures.

It highlights TCS on sale of scrap under GST guidelines so that businesses are tax-compliant and avoid penalties. Such businesses must be particularly aware of Tax Collected at Source obligations throughout their transaction reporting.

So, keep reading this guide to know everything in detail.

TCS Rates for certain goods

TCS Rates for certain goods

Section 206C in the Income Tax Act 1961 has several taxed goods. The detailed table below states the tax rate for these items:

Nature of GoodsTax Rate
Alcoholic liquor for human consumption, Scrap, and Natural Minerals, either coal, lignite, or iron ore1%
Timber obtained under a forest lease, Timber obtained by any mode other than under a forest lease, and any other forest produce not being timber or tendu leaves2.5%
Tendu leaves5%

The rate of TCS on sale of scrap under GST, as mentioned in the table above, is 1% in the current tax regime. The updated rates for scrap material ensure more clarity for buyers and sellers engaged in the trade of scrap across industries. In the new GST tax regime that was implemented on 1st April 2025, the GST rates for different kinds of scraps are as follows:

Scrap ItemsRate of Tax of Scrap Material
Waste and scrap of precious metal or of metal clad with precious metal3%
Plastic Waste, Rubber Scrap, Hard Rubber Scrap, and Paper Waste5%
Scrap of Polyurethane, Other Plastic Scrap, Iron Scrap, Non-Ferrous Metal Scrap18%

Please note that the scrap sale attracts a specific TCS rate, which depends on the type of scrap and its classification under current tax rules.

Non-applicability of TCS u/s 206C (1)

The following table shows the items removed from TCS in the new GST regime. This move primarily supports businesses that rely on scrap sales for trading purposes or procurement needs.

Section NameItemsTCS Rate in Old Regime (Till 31st March 2025)TCS Rate in New Regime (From 1st April 2025)
206C(1G)LRS- Remittance out of education loan5%Removed (Omitted)
206C(1H)TCS collection for the sale of goods1%Removed (Omitted)

TCS Applicability on Remittances under LRS (Section 206C(1G))

TCS Applicability on Remittances under LRS (Section 206C(1G))

The government has changed TCS rules for money sent abroad under the 'Liberalised Remittance Scheme (LRS)', starting April 1, 2025. Individuals can now remit up to ₹10 lakh without triggering TCS, up from the previous ₹7 lakh limit. This change benefits people sending money overseas for education, treatment, or personal needs.

The TCS rate remains the same even after increasing the threshold for LRS remittances. The government aims to ease the financial load on families dealing with foreign education and healthcare costs. These changes improve compliance clarity and offer practical relief for frequent remitters.

While this doesn't affect TCS on sale of scrap under GST, it reflects broader tax simplification efforts. Businesses should stay updated on such tax changes to understand how they align with future compliance shifts.

The government is slowly reducing the burden of unnecessary tax overlaps on common taxpayers. While these changes do not affect TCS on manufacturer sale scrap, they signal ongoing reforms in India's tax collection approach.

Non-Applicability of TCS on Educational Remittances through Loans

From April 1, 2025, TCS does not apply to money sent abroad for education when financed through an educational loan. This change removes the earlier rule that such remittances over ₹7 lakh were taxed despite being loan-backed. Students and parents will now face less financial pressure when planning overseas education.

Clear evidence of payment through approved channels helps validate non-applicability under the amended provisions. The government eliminated Section 206C (1G) for such cases to reduce student loan burdens.

This measure promotes easier access to international education without adding tax complexity to borrowed funds. Educational institutions and banks should inform applicants about this new benefit for accurate planning.

End of TCS on Sale of Goods (Section 206C(1H))

The government removed Section 206C(1H), which previously required TCS on goods sold over ₹50 lakh in one financial year. This change took effect on April 1, 2025, ending confusion around overlapping tax deductions at source and collection at source obligations. Sellers will now enjoy smoother transactions and fewer compliance hassles while conducting large-scale sales.

This update primarily benefits medium-sized businesses that previously managed both TDS and TCS responsibilities. The removal frees up resources otherwise spent on double-tax calculations and reconciliations.

However, companies handling TCS on sale of scrap under GST must continue following the specific guidelines that still apply to them. This change streamlines payment type towards the sale of goods by eliminating redundant TCS obligations for high-value transactions. Businesses should still account for the time of payment and the type of payment made when calculating applicable tax dues.

Terminologies

Terminologies

Here are a few terminologies that you must be aware of while understanding TCS on the Sale of Goods:

Buyer

A buyer obtains specified goods through auction, tender, or any business or industrial use method. However, this excludes certain parties, such as:

  • Public sector units
  • Central or state governments
  • Foreign Embassies
  • Individuals buying goods for personal consumption

Only those purchasing for commercial purposes fall under this definition. This provides advantages to buyers who purchase for personal or retail use. It also helps determine TCS applicability, especially for large-scale transactions.

In cases like TCS, only qualifying buyers are liable for the collection and sale of scrap under GST. For scrap purchases, buyers must retain proper documentation, including Payment Links and payment modes used, to ensure audit readiness.

Seller

A seller is someone whose turnover exceeds the prescribed limits, which are ₹1 crore for business and ₹50 lakh for profession. They include entities as follows:

  • Companies
  • Firms
  • Cooperative societies
  • Central government
  • State government
  • Corporation
  • HUFs
  • Local authorities

These sellers must collect TCS when they sell specified goods. This classification ensures that only established and financially capable entities are obligated under the tax rules. For businesses dealing in scrap, this applies under TCS on sale of scrap under GST provisions.

Tax audit procedures will often verify the time of purchase, time of debiting, and corresponding tax payments made on transactions involving scrap.

Scrap

Scrap refers to waste generated during the mechanical or manufacturing process. They are worn-out or broken materials that are no longer usable in their original form. These may include:

  • Metal cuttings
  • Machine parts
  • Worn components

The government mandates TCS collection on scrap sales, as they are revenue-generating transactions. Sellers dealing in scrap must issue a TCS certificate in Form 27EQ, which lists all required tax details. Businesses selling scrap in bulk must understand TCS on the sale of scrap under GST to remain compliant with applicable tax rules and thresholds.

Sellers must ensure that the deduction for scrap is calculated based on the actual generation of power, production process, or residual value of the material.

Items like scrap valves or machine parts may vary in tax treatment depending on their categorisation under rates for scrap material.

Consequences of late filing – Section 271H

Consequences of late filing – Section 271H

If an organisation or individual fails to do TDS/TCS return filing to the government on time, then they have to pay a penalty under the following conditions:

  • A penalty of Rs. 200 per day is charged for every day of default.
  • A TDS/TCS return cannot be filed if the penalty has not been deposited.
  • The maximum penalty cannot exceed the total amount of TDS/TCS.

Maintaining accurate records, including the prescribed form for tax filing, is essential to avoid unnecessary penalties.

Consequences of non-filing – Section 271H

If an individual fails to file TDS or TCS returns on the collection or deduction of tax at source within the given time, they are open to penalties. A penalty of a minimum of Rs. 10,000 can be imposed, and the penalty amount may extend up to Rs. 1,00,000. The penalty is in addition to the late filing fee.

There are certain cases when no penalty will be imposed if:

  • A valid and reasonable cause backs the delay.
  • The TDS/TCS amount is deposited with the government.
  • Any late fees and interest are also paid to the government.
  • The return is filed within one year from the due date.
  • The Commissioner of Income Tax approves a waiver or reduction.

Proper trade representation is critical when filing TCS returns to avoid disputes over tax payment jurisdictions.

Conclusion

The sale of scrap includes multiple kinds of leftover material from industrial activities, such as used goods or waste materials, specifically collected for reuse. It is required to collect TCS on sale of scrap under GST regime. Recently, there have been specific exclusions and modifications to the rates under the GST regime.

This also applies to imports of metal scrap, which are subject to separate rules for TCS collection depending on the source and volume.

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FAQs

What is the applicable TCS rate on sale of scrap under GST?

Under the Income Tax Act Section 206C, TCS on scrap is charged at 1%. Additionally, GST applies depending on the type of scrap—3% for precious metal scrap, 5% for plastic or rubber scrap, and 18% for iron or non-ferrous metal scrap. Both TCS and GST are collected at the time of sale. Businesses must ensure classification accuracy to apply the correct rate.

Who is liable to collect TCS on scrap transactions?

Only sellers with annual turnover exceeding ₹1 crore (business) or ₹50 lakh (profession) are liable to collect TCS on specified goods like scrap. These sellers include companies, firms, government bodies, and cooperatives. The collection must be reported in Form 27EQ, and TCS certificates must be issued to buyers. Personal sales or sales to exempt buyers (e.g., governments, embassies) are excluded.

Has TCS on scrap changed in the new GST regime starting April 1, 2025?

The 1% TCS on scrap under Section 206C remains applicable even after April 1, 2025. However, other sections like 206C(1H) for goods sales and 206C(1G) for educational remittances have been removed. The GST rates on various scrap materials were also clarified in the new regime, ranging from 3% to 18%. Sellers must comply with both GST and TCS provisions unless specifically exempt.

What are the consequences of late or non-filing of TCS returns?

Late filing of TCS returns attracts a penalty of ₹200 per day under Section 271H, up to the total TCS amount. Non-filing can lead to a fine between ₹10,000 and ₹1,00,000, in addition to interest and fees. Relief from penalties is available if the delay is justified, the tax is paid, and returns are filed within a year. Timely compliance helps avoid legal and financial complications.

Is TCS applicable on scrap purchases made for personal use?

No, TCS is not applicable on scrap purchases made strictly for personal consumption. The law specifically exempts buyers such as individuals not engaged in business, public sector undertakings, government departments, and foreign embassies. Only commercial buyers are liable for TCS on qualifying transactions. Accurate buyer classification is essential to determine tax obligations.
About the author
Sandipan Mitra

Sandipan Mitra

Sandipan Mitra is the CEO and co-founder of Pice. He boasts eight years of experience in the B2B and fintech sector. Sandipan's journey includes significant roles at multiple Indian Unicorns Including Product at PayU, and as founding member / VP, Product at Open Financial Technologies.

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