What is GST Rate and HSN Code on Sale of Scrap materials?

The scrap materials market is vital for various industries in India, as they play a key role in the recycling process. However, dealing with scrap materials also involves understanding tax implications under the Goods and Services Tax (GST) system. In this article, we will explore the meaning of scrap materials, and their taxation under GST, and provide an overview of the GST rate on scrap materials with HSN codes. This knowledge is crucial for businesses involved in scrap material trading, manufacturing, or recycling.

What is the meaning of scrap

Scrap refers to leftover, discarded, or surplus materials that are no longer usable in their original form. These materials are often recycled or repurposed in various industries. Scrap can be generated from manufacturing processes, damaged goods, or obsolete products. It is typically considered as raw material for industries like metal recycling, plastic production, paper manufacturing, and more.

The term 'scrap' can refer to different types of waste materials, including metals like iron, steel, and copper, as well as non-metallic materials like paper, rubber, and plastic. For businesses in India, understanding the categorisation of scrap materials under GST is essential for tax compliance and efficient financial management.

What is scrap under GST

Under the Goods and Services Tax (GST) framework in India, scrap materials are treated as goods, and they are subject to GST when sold or traded. Scrap includes various leftover materials from industrial processes, used goods, or waste materials that are collected for reuse. However, the classification of scrap materials under GST depends on the nature of the scrap and the applicable HSN (Harmonised System of Nomenclature) code, which helps in determining the tax rate.

Scrap materials typically fall under the category of "waste and scrap" and are taxable under GST. The tax rate varies depending on the type of scrap, such as metal scrap, plastic scrap, and paper scrap. Therefore, businesses must accurately classify scrap items and apply the appropriate GST rate for compliance.

Understanding the specific GST rates on different types of scrap materials is critical for businesses engaged in scrap trading or recycling. You can also refer to GST resources to stay updated on the latest tax guidelines.

GST rate on scrap materials with HSN code

The GST rate on scrap materials is subject to classification based on their HSN code. The HSN code helps businesses identify the correct tax rate for different materials. Here is a table that outlines the GST rate applicable to various scrap materials, along with their HSN codes:

Material Type	HSN Code	GST Rate
Iron Scrap	7204	18%
Steel Scrap	7204	18%
Copper Scrap	7404	18%
Aluminium Scrap	7602	18%
Plastic Scrap	3915	18%
Paper Scrap	4707	5%
Rubber Scrap	4004	18%

The GST rate on scrap materials is primarily set at 18% for most metal and non-metal scrap items, with an exception for certain materials like paper scrap, which is taxed at 5%. These rates ensure that the taxation structure supports industries involved in the recycling and reuse of scrap materials, promoting sustainability and economic growth.

The HSN code is crucial for businesses in categorising and calculating the GST on scrap. You can refer to HSN Code resources for further details on how to identify the HSN codes of scrap materials you deal with.

How to calculate GST on scrap materials easily

Calculating GST on scrap materials involves multiplying the applicable GST rate by the sale price of the material. Here's a simple breakdown of the calculation process:

• Identify the scrap type and its corresponding HSN code: This helps determine the GST rate.
• Determine the sale price of the scrap: This is the price at which the scrap is sold or traded.
• Multiply the sale price by the GST rate: This will give the GST amount to be added.

Here’s a sample calculation:

Material Type	Sale Price	GST Rate	GST Amount
Copper Scrap	Rs. 10,000	18%	Rs. 1,800

In this example, if copper scrap is sold for Rs. 10,000, the GST will be calculated as Rs. 10,000 x 18% = Rs. 1,800.

To help make this process even easier, businesses can use an online GST Calculator to quickly determine the amount of GST applicable on scrap materials. The GST calculator simplifies the calculation process, ensuring accurate and timely tax filings.

Conclusion

The GST regime has brought clarity and structure to the taxation of scrap materials in India, enabling businesses to manage their tax liabilities effectively. By understanding the classification of scrap materials under GST, the applicable tax rates, and how to calculate GST on scrap, businesses can ensure compliance with tax laws and avoid penalties.

If you are involved in scrap trading, recycling, or manufacturing, it is essential to stay updated on the latest GST rules and rates. The right knowledge ensures that you pay the correct tax and maximise your business operations efficiently. For businesses seeking financial assistance or wanting to scale operations, obtaining a business loan can help fund investments in machinery, infrastructure, or other aspects of the scrap industry. With Bajaj Finserv Business Loan, you can get a loan of up to Rs. 80 lakh with competitive interest rate, convenient repayment tenure and quick loan disbursal.