Background:
Section 51 of the CGST Act, 2017 requires the persons specified therein, namely a department or establishment of the Central or State Government, local authority, Governmental agencies and such other persons or categories of persons as may be notified, to deduct tax at the rate of 1% (plus 1% State tax/UTGST, or 2% integrated tax on inter-State supplies) from the payment made or credited to the supplier of taxable goods or services, where the total value of such supply under a contract exceeds ₹2.5 lakh (excluding GST). The deductor must obtain a separate registration as a tax deductor in FORM GST REG-07 (Section 24(vi) read with Rule 12), deposit the tax deducted by the 10th of the following month through the return in FORM GSTR-7 (Section 39(3) read with Rule 66), and the deductee is entitled to claim credit of the tax deducted in its electronic cash ledger (Section 51(5)). The provisions of Section 51 were brought into force from 01.10.2018 vide Notification No. 50/2018-Central Tax dated 13.09.2018, which also notified, under Section 51(1)(d), the additional categories of deductors, namely (a) authorities, boards or bodies set up by an Act of Parliament or a State Legislature or established by any Government with 51% or more equity or control, (b) societies established by the Central or State Government or a local authority under the Societies Registration Act, 1860, and (c) public sector undertakings.
On the recommendations of the 54th GST Council, Notification No. 25/2024-Central Tax dated 09.10.2024 inserted clause (d) in Notification No. 50/2018-Central Tax with effect from 10.10.2024, notifying “any registered person receiving supplies of metal scrap falling under Chapters 72 to 81 in the First Schedule to the Customs Tariff Act, 1975 from other registered person” as a person required to deduct tax at source. This was a departure from the earlier scheme, under which TDS applied only to Government and Government-related deductors, and was introduced to create an audit trail of B2B transactions in metal scrap, alongside reverse charge on supplies by unregistered persons and withdrawal of the registration exemption for scrap suppliers.
The 57th GST Council recommended (para C1(5) of the Press Release) that TDS at 2% be introduced when waste and scrap of plastics, electrical and electronics waste and scrap, waste and scrap of tyres and used cooking oil are supplied by a registered person to a registered person, on the lines of the mechanism already in place for metal scrap. The FAQs issued by the CBIC (Q. 9, Q. 10 and Q. 14 on goods) explain that the recipient (buyer) is required to deduct tax at 2% from the payment made to the registered supplier and deposit it with the Government, file the TDS return in FORM GSTR-7 and issue the TDS certificate to the supplier, while supplies from unregistered suppliers attract reverse charge instead. The reverse charge and the withdrawal of the registration exemption have been notified separately vide Notification No. 04/2026-Central Tax (Rate) and Notification No. 06/2026-Central Tax, both dated 27.10.2026, which are covered in separate updates.
What the Notification provides:
Now, the CBIC vide Notification No. 07/2026-Central Tax dated 27.10.2026 (G.S.R. 935(E)), issued under Section 1(3) read with Section 51 of the CGST Act, 2017 on the recommendations of the GST Council, has substituted clause (d) of Notification No. 50/2018-Central Tax dated 13.09.2018 (last amended vide Notification No. 25/2024-Central Tax dated 09.10.2024) as under:
“(d) any registered person receiving supply of any of the following goods from another registered person, namely: – (i) used cooking oil falling under heading 1518 of the First Schedule to the Customs Tariff Act, 1975 (51 of 1975); (ii) waste and scrap of plastics falling under heading 3915 of the said First Schedule; (iii) waste and scrap of tyres falling under heading 4004 of the said First Schedule; (iv) metal scrap falling under Chapters 72 to 81 of the said First Schedule; or (v) electrical and electronics waste and scrap falling under heading 8549 of the said First Schedule”.
Consequently, with effect from 01.11.2026, every registered person who receives supply of any of the five categories of goods from another registered person is a person notified under Section 51(1)(d) and is required to deduct tax at source at 1% central tax and 1% State tax/Union territory tax (or 2% integrated tax, by virtue of Section 20 of the IGST Act) from the payment made or credited to the supplier, where the total value of the supply under a contract exceeds ₹2.5 lakh. The value for deduction excludes the central tax, State tax, Union territory tax, integrated tax and cess indicated in the invoice. In terms of the Explanation to Section 51(1), no deduction is to be made where the location of the supplier and the place of supply are in a State or Union territory different from the State or Union territory of registration of the recipient.
| Transaction in the specified goods | TDS under Section 51 | Other consequence |
| Registered supplier to registered recipient, contract value above ₹2.5 lakh | Recipient deducts 2% (1% + 1%, or 2% IGST) and deposits it through FORM GSTR-7 | Supplier charges GST on forward charge and claims the TDS in its electronic cash ledger |
| Registered supplier to registered recipient, contract value up to ₹2.5 lakh | No deduction | Forward charge by the supplier |
| Unregistered supplier to registered recipient | No deduction | Recipient pays tax under reverse charge (Notification No. 04/2026-Central Tax (Rate)) |
| Supply to an unregistered recipient | No deduction | Forward charge by the supplier, if registered |
The Notification is issued under the CGST Act and applies to Union territories by virtue of Section 21 of the UTGST Act and to inter-State supplies by virtue of Section 20 of the IGST Act; the corresponding State notifications are expected to be issued by the respective State Governments.
Effective date:
The Notification comes into force with effect from 1st November, 2026. Tax is to be deducted on payments made or credited to the supplier on or after 01.11.2026 in respect of supplies of the specified goods; payments for supplies made before that date but credited or paid on or after 01.11.2026 should be examined carefully, as the deduction under Section 51 is linked to the payment or credit to the supplier.
Key takeaways for taxpayers and the industry:
- Registered recipients (recyclers, biodiesel manufacturers, plastic granule units, tyre pyrolysis units, e-waste processors, traders): Every registered person purchasing the specified goods from registered suppliers must obtain a separate TDS registration in FORM GST REG-07 (unless already registered as a deductor for metal scrap), deduct 2% at the time of payment or credit, deposit it by the 10th of the following month through FORM GSTR-7 and ensure that the TDS certificate in FORM GSTR-7A is generated on the portal. Failure to deduct or deposit attracts interest under Section 50 and penalty under Section 122(1)(v), apart from the recovery of the amount under Section 51(6) and (7).
- Threshold and valuation: The ₹2.5 lakh threshold applies to the total value of supply under a contract, excluding GST; where purchases are made under running or open purchase orders, the aggregate contract value, and not the individual invoice value, determines applicability. The deduction is on the taxable value only.
- Suppliers (registered scrap dealers and aggregators): TDS deducted will be reflected in FORM GSTR-7A and credited to the electronic cash ledger on acceptance in the TDS/TCS credit statement on the portal, and can be used for payment of output tax or claimed as refund under Section 54 where it remains unutilised. Suppliers should reconcile TDS credits with their receivables and factor the 2% deduction into cash-flow planning.
- Interaction with reverse charge and registration: TDS applies only to B2B supplies between registered persons. Supplies received from unregistered suppliers are taxed under reverse charge, and suppliers who cross the threshold must register (Notification No. 06/2026-Central Tax), after which TDS becomes applicable to their supplies. Recipients should configure their ERP to apply either RCM or TDS on each purchase depending on the supplier’s registration status.
- Metal scrap continuity: TDS on metal scrap of Chapters 72 to 81, in force since 10.10.2024, continues without change under the substituted clause (d).
The Notification can be accessed at: https://a2ztaxcorp.net/wp-content/uploads/2026/10/N-No.-07-2026-Central-Tax.pdf
