57th GST Council proposes 2% TDS on scrap and waste deals

The 57th GST Council has proposed a 2 per cent tax deducted at source on specified waste and scrap transactions between registered businesses, moving to plug tax leaks in the recycling sector.

The new rules, detailed in a set of guidelines issued by the finance ministry, cover plastic waste, discarded tyres, electronic scrap, and used cooking oil. Under the proposed framework, registered buyers must deduct the 2 per cent tax when buying from registered suppliers. If they buy from unregistered dealers, they must pay GST themselves under the reverse charge mechanism, even if the seller's turnover falls below the threshold that would normally require them to register.

The measures build on a similar tax-monitoring system introduced for metal scrap after the Council's 54th meeting, extending scrutiny deeper into the recycling chain.

A broader shift toward taxpayer trust

Beyond the scrap metal crackdown, the latest meeting marked a broader shift in how the tax authority operates, aiming to reduce the compliance burden that has historically bogged down Indian businesses.

The Council recommended automating registrations, cutting the frequency of tax returns for small firms, and moving to computer-based verification for refunds. In a major move to curb harassment, the Council recommended stripping GST officers of their arrest powers and tightening the rules that govern searches, inspections, and the seizure of goods.

A faceless assessment system will also be rolled out for companies registered under Central GST, mirroring the system already used for income tax. To give businesses more predictability, the Council decided to review GST rates only once a year, with any changes taking effect at the start of the financial year.

Relief for input tax credits

The Council also took aim at a long-running dispute over input tax credits. Under the current rules, businesses are denied tax credits if their suppliers fail to file their own returns—a system that has locked up valuable working capital for thousands of honest buyers.

To resolve this, the Council has tasked a committee with finding a practical solution, which the government aims to implement by 1 April.

Car dealers and product clarifications

Alongside the structural reforms, the Council cleared up several disputes over how specific goods are taxed.

Second-hand car dealers received a significant clarification. Dealers using the concessional GST margin scheme can now claim input tax credits on business expenses like spare parts, repairs, and maintenance. However, they are still barred from claiming credits on the purchase of the used cars themselves.

Other clarifications include:

• Biostimulants: Seaweed-extract biostimulants registered under the Fertiliser Control Order will be classified as fertilisers, while products containing plant growth regulators will not get the concession.
• Tractor tyres: The tax treatment of retreaded tractor tyres will be aligned with that of new tractor tyres.
• Psyllium seeds: These will be subject to a nil tax rate, whether they are fresh, chilled, frozen, or dried.
• Toys and paper: Toy-related rate entries will officially cover dolls and puzzles, while sublimation paper has been classified under a specific customs heading. Past disputes over biostimulants and sublimation paper will be settled on an "as is where is" basis.