GST Council Plans 2% TDS on B2B Waste and Scrap Transactions

Verification update, October 10, 2026: The GST Council recommended extending 2% tax deducted at source (TDS) and reverse charge to specified waste categories at its October 8 meeting. The Ministry of Finance’s official recommendations identify plastics, tyre waste, electrical and electronic scrap, and used cooking oil. The release expressly says implementing circulars, notifications or law amendments alone have legal force. This article does not establish an operative notification or effective date for the proposed extension. The Economic Times’ October 10 bureau report also describes the measures as proposals.

Key takeaways

• 2% TDS on registered-to-registered transactions: The Council has recommended withholding tax on specified waste and scrap supplies between GST-registered businesses.
• Four additional waste categories: The recommendation covers plastic waste, discarded tyres, electrical and electronic waste, and used cooking oil.
• Reverse charge for unregistered suppliers: Under the recommended framework, registered buyers would be responsible for paying the applicable GST on qualifying purchases from unregistered sellers, even when those sellers remain below the normal registration threshold.
• Not an additional 2% GST rate: TDS is a withholding mechanism. It should not be confused with the GST rate charged on the underlying supply.
• Greater compliance responsibility: Buyers may need to update accounting systems, supplier records, tax returns and payment processes.
• Implementation matters: The Council’s recommendation must be read alongside the applicable government notifications and implementation instructions to determine the effective date and precise requirements.

What has the GST Council recommended?

The Goods and Services Tax (GST) Council is the constitutional body that recommends GST rates, exemptions and administrative measures to the central and state governments. Its 57th meeting, held in New Delhi on October 8, 2026, focused substantially on compliance processes, tax administration and clarifications intended to reduce uncertainty for businesses.

One of the recommendations extends the existing tax-monitoring approach for metal scrap to additional waste and scrap categories.

Under the framework, specified waste and scrap supplied by one registered business to another registered business would attract 2% TDS. Where a registered business purchases the specified materials from an unregistered supplier, the registered buyer would instead be required to pay the applicable GST under the reverse charge mechanism.

The categories covered include:

• Plastic waste and scrap.
• Waste and scrap of tyres.
• Electrical and electronic waste and scrap.
• Used cooking oil.

The move builds on the framework introduced for metal scrap following the 54th GST Council meeting in 2024. The Council proposes extending a similar compliance approach to other material streams that can involve multiple intermediaries and fragmented supply chains.

The objective is to improve visibility into transactions involving waste materials and make it harder for taxable transactions to remain outside the formal reporting system.

However, the Council’s recommendation does not mean that every item described informally as scrap automatically falls within the new provisions. The relevant classifications, applicable notifications and conditions determine whether a transaction is covered.

How will the 2% GST TDS work?

TDS stands for tax deducted at source. In a business transaction, the buyer withholds a specified portion of the payment and deposits it with the government rather than paying the entire amount directly to the supplier.

For the proposed waste and scrap framework, the withholding rate is 2% on qualifying transactions between registered businesses.

Consider a hypothetical example in which a GST-registered recycling company purchases eligible plastic scrap from another GST-registered business for ₹1,00,000 before GST.

Illustrative 2% TDS calculation

Value of eligible scrap

₹1,00,000

Illustrative TDS at 2%

₹2,000

The example excludes GST charged on the supply and assumes the withholding base is ₹1,00,000. The applicable notification must be consulted for the legally prescribed calculation and reporting requirements.

In this example, the buyer withholds ₹2,000 from the relevant payment and deposits that amount as TDS, subject to the applicable rules. The supplier receives the remaining payment, with the final settlement also accounting for the GST invoice and any other contractual adjustments.

The withheld amount is reported through the prescribed tax process. The supplier can generally claim eligible credit for the TDS amount reflected in its electronic cash ledger, subject to the applicable GST rules.

This is why TDS should not be treated as an additional 2% GST rate. The underlying sale continues to be governed by its applicable GST classification and rate. TDS is a separate collection and reporting mechanism.

For businesses, the main operational change is the need to calculate withholding correctly, deposit the amount, file the required returns and ensure that the supplier receives the relevant tax documentation.

The exact treatment of the withholding base, invoiced GST, reporting and reconciliation should be confirmed against the final implementation rules rather than assumed from the headline rate alone.

What is the reverse charge mechanism for scrap purchases?

The reverse charge mechanism, commonly called RCM, changes who is responsible for paying GST on a transaction.

Under the usual forward-charge system, the supplier charges GST on the invoice and pays the tax to the government. Under reverse charge, the recipient of the supply is responsible for paying the applicable GST when the transaction falls within a notified category.

The Council has recommended applying this mechanism to specified waste and scrap supplied by unregistered persons to registered buyers.

An important element is that the registered buyer may have to pay GST under RCM even when the unregistered seller’s turnover is below the ordinary GST registration threshold.

This matters because waste collection frequently involves small suppliers who sell recovered materials to larger aggregators, recycling companies or manufacturers. The recommended approach would place the tax-payment obligation on the registered recipient for qualifying transactions.

Consider a registered recycling company purchasing eligible discarded tyres from an individual or small business that is not GST-registered.

Under the recommended approach, the registered buyer would determine the applicable GST treatment and pay the tax under RCM if the transaction falls within the notified rules. The seller would not simply charge the tax as an ordinary registered supplier would.

The buyer must also retain appropriate purchase records and report the transaction as required. Any input tax credit claim would remain subject to the normal eligibility conditions; payment under RCM does not automatically make every tax amount eligible for credit.

TDS versus reverse charge: What is the difference?

Feature	TDS at 2%	Reverse charge
Transaction covered	Specified supplies between registered businesses	Specified supplies from unregistered sellers to registered buyers
Main obligation	Withhold and deposit the prescribed amount	Pay the applicable GST as the recipient
Amount involved	Prescribed withholding percentage	GST rate applicable to the supply
Main purpose	Tax collection and transaction tracking	Ensure GST is paid on qualifying supplies
Supplier’s registration status	Registered	Unregistered
Key compliance task	Withholding, return filing and reconciliation	Tax payment, reporting and credit eligibility checks

The two mechanisms address different situations. TDS creates a recorded link between registered buyers and suppliers, while reverse charge makes the registered buyer responsible for tax on qualifying purchases from unregistered suppliers.

Why is the government targeting the recycling and scrap industry?

India’s recycling economy connects several layers of economic activity. Households and businesses discard materials; collectors and aggregators recover them; scrap dealers sort and process them; and recyclers or manufacturers use the recovered material as an input.

This network supports manufacturing, packaging, automotive production, electronics recovery and other industrial activities. Recycled materials can reduce the need for virgin raw materials, although the environmental and economic benefits vary by material and processing method.

The difficulty for tax administration is that these supply chains can be fragmented. A material may pass through multiple dealers before reaching a large recycling plant, and not every participant has the same level of accounting infrastructure or tax registration.

The government’s approach seeks to improve traceability by using registered businesses as important points of compliance.

A registered buyer typically maintains invoices, purchase ledgers, payment records and GST returns. Requiring such a buyer to withhold TDS or pay tax under RCM creates additional records that tax authorities can potentially reconcile against other reported transactions.

This does not establish that the entire scrap industry is non-compliant. Rather, it reflects an administrative approach to improving visibility in a sector where the volume of small transactions and the diversity of participants can make oversight more difficult.

The policy also aligns with a wider effort to standardize GST compliance across similar transactions. The earlier metal-scrap framework provides an existing model that the Council can extend to other specified waste streams.

Which businesses will be affected?

The effects will vary depending on the type of material handled, the GST registration status of the parties and the nature of the transaction.

1. Recycling companies

Businesses purchasing eligible waste from registered suppliers may need to deduct TDS, while qualifying purchases from unregistered suppliers may require RCM. Accounting teams will need to distinguish between these transaction types.

2. Scrap dealers and aggregators

Intermediaries handling eligible plastic waste, discarded tyres, electronic scrap or used cooking oil may face additional documentation and payment reconciliation requirements, depending on their registration status and buyers.

3. Manufacturers using recycled inputs

Manufacturers buying qualifying scrap for production may have to incorporate TDS or RCM checks into their procurement processes. The implications will depend on the specific material and applicable GST classification.

4. Accountants and tax professionals

Businesses may need to update tax codes, invoice checks, supplier onboarding procedures, return preparation and reconciliation workflows.

Smaller businesses may face a proportionally greater administrative burden because they have fewer employees and less sophisticated accounting systems. Larger businesses may find it easier to automate the process, but they will still need accurate product classifications and supplier records.

Will the new TDS increase costs for scrap dealers?

The immediate effect of TDS is generally on payment timing and cash flow rather than on the underlying GST rate.

When a buyer withholds part of a payment, the supplier receives less cash immediately and must account for the withheld amount through the applicable tax records. The amount can be reconciled under the GST framework, but the supplier may still face a timing gap between the deduction and its ability to use the credited amount.

For a business operating on thin margins, that timing difference can matter. Scrap dealers may need cash to purchase material from collectors, pay transport expenses, sort waste and settle payments with other intermediaries.

If more money is temporarily tied up in tax reconciliation, the business may need additional working capital or more frequent reconciliation of its electronic cash ledger.

The impact is not uniform. Businesses with reliable accounting systems and sufficient cash reserves may be able to accommodate the additional steps more easily than smaller operators that rely on rapid payment cycles.

Reverse charge creates a different cash-flow consideration. The registered buyer becomes responsible for paying GST on qualifying purchases from unregistered suppliers. The buyer must plan for that payment and assess whether input tax credit is available under the applicable rules.

It would be incorrect, however, to conclude that every scrap dealer will face a permanent 2% increase in tax costs. The withholding mechanism is distinct from the final tax liability, and the economic impact depends on compliance, credit availability, payment timing and contractual arrangements.

The broader commercial effect will become clearer when the applicable rules are implemented and businesses begin reconciling actual transactions.

What other GST clarifications did the Council make?

The 57th GST Council meeting also addressed several product classifications and compliance questions beyond waste and scrap.

These clarifications are relevant because businesses can face uncertainty when products sit near the boundaries of different tariff classifications or when the treatment of a transaction depends on the nature of the product and the way it is used.

Among the recommendations and clarifications announced were:

• Seaweed-extract biostimulants: Eligible products registered under the Fertiliser Control Order, 1985, are to be classified as fertilisers under HSN heading 3101. Products containing plant growth regulators do not qualify for the same concession.
• Second-hand car dealers: The Council clarified the treatment of eligible input tax credit on business inputs such as repair and maintenance services and spare parts when dealers use the concessional margin scheme. Input tax credit on the purchase of the second-hand vehicles themselves is not permitted when the scheme is used.
• Retreaded tractor tyres: The Council recommended aligning their GST treatment with that of new tractor tyres.
• Sublimation paper: The product has been classified under tariff heading 4809.
• Psyllium seeds: A separate nil-rate entry was recommended, irrespective of whether the seeds are fresh, chilled, frozen or dried.

These measures are separate from the proposed TDS and reverse charge rules for waste and scrap. They illustrate the Council’s broader focus on clarifying tax treatment and reducing disputes over classification.

For businesses, classification can affect the applicable tax rate, the reporting process and the availability of concessions. Companies should therefore review the specific wording of the relevant notifications rather than assume that a clarification for one product automatically applies to another.

What should businesses do next?

Companies that buy or sell eligible waste and scrap should prepare for the new compliance framework, while confirming the applicable implementation date and legal requirements.

First, classify the materials. Identify whether purchases involve plastic waste, discarded tyres, electrical and electronic scrap, used cooking oil or another category. Descriptions in commercial invoices should be consistent with the actual goods and the applicable tariff classification.

Second, verify supplier registration. Procurement teams should maintain accurate GST identification and registration records. A transaction with a registered supplier may be treated differently from one involving an unregistered supplier.

Third, update accounting systems. Businesses should prepare separate workflows for TDS and RCM rather than applying the same calculation to all scrap purchases. Systems may need to support withholding, tax deposits, return reporting and ledger reconciliation.

Fourth, review contracts and payment terms. Buyers and suppliers should clarify how withholding will be reflected in settlements and how tax documentation will be exchanged. This can help prevent disputes when the amount paid differs from the gross invoice value.

Fifth, check the implementation notifications. Council recommendations must be distinguished from the notifications and instructions that establish the operative legal requirements. Businesses should confirm the effective date, covered classifications, calculation rules and reporting obligations before changing their tax treatment.

The goal should be to establish a repeatable compliance process rather than handle each scrap transaction manually.

The Bigger Picture

The GST Council’s recommendation represents a further step toward formalizing India’s recycling and scrap economy through tax reporting and transaction-level monitoring.

The central mechanism is straightforward: registered buyers become key points of compliance, either by withholding 2% TDS on specified purchases from registered suppliers or by paying applicable GST under reverse charge on qualifying purchases from unregistered suppliers.

For the government, this approach could improve the ability to reconcile reported transactions and identify gaps in compliance. For businesses, it introduces additional administrative responsibilities and may affect short-term cash flow, particularly for smaller scrap dealers.

The longer-term outcome will depend on implementation. Clear product classifications, workable reporting processes and timely reconciliation will be important if the changes are to improve tax compliance without creating unnecessary friction in legitimate recycling activity.

Looking Ahead

Businesses operating in plastic recycling, tyre recovery, electronic-waste processing and used-cooking-oil collection should monitor the applicable GST notifications and implementation instructions. The Council’s recommendations establish the policy direction, but the final legal requirements and effective dates determine when individual businesses must change their procedures.

The immediate priority for buyers and suppliers is to prepare accurate supplier records, classify transactions correctly and ensure their accounting systems can distinguish TDS from reverse charge. As implementation progresses, the key indicators will be compliance costs, the speed of tax reconciliation and whether the expanded framework improves transparency across India’s waste and scrap supply chains.

Frequently asked questions

1. What is the GST Council’s proposed 2% TDS on scrap?

It is a recommendation to require GST-registered buyers to deduct 2% TDS on specified waste and scrap purchases from other registered businesses. The withholding mechanism is separate from the GST rate applicable to the underlying supply.

2. Which waste and scrap categories are covered?

The recommendation covers plastic waste and scrap, discarded tyres, electrical and electronic waste and scrap, and used cooking oil. Businesses should verify the precise product classifications and conditions in the applicable notifications.

3. What happens when a registered business buys scrap from an unregistered seller?

Under the recommended reverse charge mechanism, the registered buyer would pay the applicable GST on qualifying purchases, even when the unregistered seller is below the normal registration threshold.

4. When will the new rules take effect?

The Council announced the recommendations following its October 8, 2026 meeting. Businesses should check the relevant government notifications for the effective date and final compliance requirements rather than assume that the meeting date is the implementation date.