For tax year 2026–27, the enacted normal scrap-sale TCS rate is 2%, not the historical 1%. But a disposal ledger labelled “scrap” does not establish that the goods satisfy the statutory definition, nor does every seller or buyer fall within the relevant defined population.
Enacted rate and collection trigger
The Income-tax Act, 2025 as amended by Finance Act, 2026, checked on 25 October 2026, provides section 394(1), Table serial number 4, for sale of scrap. Its amendment footnote substitutes 2% for 1% from 1 April 2026. The opening collection provision uses debiting the amount payable by the buyer to the buyer’s account or receipt of that amount, whichever is earlier. Do not count a later receipt of an already collected debit as another sale. The scrap entry does not specify an annual monetary exemption threshold; do not import the ordinary goods-purchase withholding threshold into it.
Prove goods and persons separately
Section 402(31) defines scrap by waste/scrap from manufacture or mechanical working that is definitely unusable as such because of breakage, cutting up, wear or other reasons. Mere age, a discount or the seller’s chosen label does not establish that definition. Reusable second-hand goods need their own classification. Preserve production/process records, condition evidence, sale description and the supported conclusion; this article does not decide disputed classification by a photograph alone.
Apply seller and buyer definitions
Section 402(33)(a) includes the listed public bodies, companies, firms and co-operative societies; individual/HUF coverage depends on preceding-tax-year business turnover exceeding ₹1 crore or professional receipts exceeding ₹50 lakh. The buyer definition in section 402(6), Table 2, also has exclusions, including a public sector company, the listed governments/foreign-state representations, a club and the stated retail personal-consumption buyer. Verify the exact person and conditions rather than assuming all scrap transactions are covered.
Resident use declaration is not a trading exemption
Section 394(2) provides no collection for its covered goods where the resident buyer furnishes the prescribed duplicate written declaration that goods will be used in manufacture, processing, production or power generation, not trading. Section 394(3) requires delivery of a copy to the prescribed authority by the seventh day of the month following receipt of the declaration. Establish the prescribed form and actual filing requirements for the transaction period. An oral assurance or an ordinary trader’s purchase does not meet the stated manufacturing-use facts.
Reconcile collection without inventing a GST base rule
The models use expressly assumed legally established TCS bases, normal-rate resident facts, valid PAN and no other relief or higher-rate complication. They do not determine whether GST, freight or other charges enter the base in a real invoice. Verify those items separately before applying the multiplication. TCS is a tax collection, not additional sales profit. Reconcile debit, receipt, collection, remittance, statement and buyer credit. A lower-collection certificate requires its own actual validity and scope review, not merely a pending application.
Six worked illustrations
All facts and amounts below are fictional. Assumptions describe the model, not additional statutory rules.
Illustrative example 1: Normal scrap base
A company sells independently established covered scrap to an eligible resident buyer. Legally established TCS base ₹5,00,000 × 2% = ₹10,000; combined base plus collection is ₹5,10,000, with unrelated taxes excluded from this model.
Illustrative example 2: Detect the old-rate shortfall
On base ₹8,00,000, old 1% gives ₹8,000 but enacted 2% gives ₹16,000. Difference ₹8,000 needs correction through the applicable compliance process; an old software label cannot preserve the old rate.
Illustrative example 3: No invented small-sale threshold
Covered base ₹20,000 gives ₹400 at 2%. The small amount alone does not create an exemption threshold in this scrap entry.
Illustrative example 4: Separate goods with different classification
A documented sale population contains covered scrap base ₹3,00,000 and separately established reusable goods ₹2,00,000 outside this scrap definition. Total ₹5,00,000 does not all enter this entry: scrap TCS is ₹6,000 on the stated facts. Other goods still need their own applicable tax analysis.
Illustrative example 5: Established manufacturing declaration
Covered goods base ₹4,00,000 is supplied to a resident buyer whose qualifying prescribed declaration and actual non-trading use satisfy section 394(2). Collection under that exemption is ₹0 rather than normal ₹8,000. The example assumes all declaration conditions are established.
Illustrative example 6: Compare individual-seller threshold facts
For a business-only individual seller, preceding-year turnover exactly ₹1,00,00,000 does not exceed ₹1 crore; ₹1,00,00,001 does. On the latter facts, assume all remaining definitions apply to scrap base ₹50,000: normal TCS ₹1,000. The former does not enter this seller definition solely through that business-turnover limb.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Fix the period | Debit/receipt dates and effective 2% law. |
| 2 | Classify the goods | Process origin and unusable-as-such evidence. |
| 3 | Identify seller category | Entity status or preceding-year turnover/receipts. |
| 4 | Test buyer inclusion | Buyer identity and statutory exclusion review. |
| 5 | Verify residence and PAN | Normal-rate assumptions and any higher-rate issue. |
| 6 | Review use declaration | Prescribed duplicate declaration and genuine non-trading use. |
| 7 | Track declaration submission | Receipt date and next-month seventh-day requirement. |
| 8 | Establish the actual tax base | Invoice components and supported treatment. |
| 9 | Deduplicate trigger events | Buyer debit versus receipt and prior collection. |
| 10 | Close buyer-credit records | Collection, remittance, statement and reconciliation. |
Sixteen practitioner FAQs
1. What is the enacted normal rate from April 2026?
2% under the amended scrap entry.
2. Can an old 1% master be retained?
No. Apply the law for the relevant period.
3. Is every old asset scrap?
No. Establish section 402(31)’s definition.
4. Does a low sale price prove scrap status?
No. Price alone does not prove the statutory facts.
5. Are reusable goods automatically included?
No. Classify them on their actual condition and statutory fit.
6. Is there an annual amount threshold in the scrap entry?
The cited entry does not specify one.
7. Does every individual seller qualify?
Check the preceding-year business/profession thresholds and applicable definition.
8. Does exactly ₹1 crore exceed ₹1 crore?
No. The business-turnover limb uses exceeds.
9. Are all buyers included?
No. Apply section 402(6)’s buyer definition and exclusions.
10. Can an ordinary trader use the manufacturing declaration?
The declaration requires the stated non-trading use; trading is excluded.
11. Must the buyer be resident for that route?
Section 394(2) specifies a resident buyer.
12. Is an oral assurance enough?
No. The prescribed written declaration requirements matter.
13. When is the declaration copy submission due?
Section 394(3) specifies the seventh day of the following month.
14. Does payment of an already collected invoice create another sale?
No. Reconcile the same debit and receipt without duplicate collection.
15. Do these examples settle GST-inclusive base treatment?
No. They use explicitly established bases and require separate component review.
16. Is TCS the seller’s extra business income?
Keep the tax-collection and remittance trail separate from sales revenue.
Conclusion
Section 394(1), Table 4, specifies 2% TCS on covered scrap sales from 1 April 2026. Establish the statutory seller, buyer and scrap classification before applying the rate or a resident manufacturing-use declaration.
Sources and primary references
Finance Act, 2026: section 85(c), section 1(2) and section 3 collection surcharge/cess provisions