What is the GST Rate and HSN Code on Sale of Scrap Materials in India?

May 15, 2025

India’s Goods and Services Tax (GST) regime brought standardization across various sectors, including the scrap materials industry. Scrap dealers, manufacturers, and recyclers are now required to comply with GST rules and use the correct HSN (Harmonized System of Nomenclature) codes when buying or selling scrap materials.

In this detailed guide, we’ll cover:

What qualifies as scrap under GST
Applicable GST rates on different types of scrap
Relevant HSN codes for scrap materials
Billing and compliance requirements for scrap dealers
FAQs related to GST on scrap business

Whether you are a small scrap collector or running a full-fledged recycling unit, understanding GST on scrap is crucial to avoid penalties and run your business smoothly.

What is Scrap Material as per GST?

Scrap under GST is defined as waste and residues resulting from manufacturing or other industrial processes. It includes materials such as:

Iron and steel scrap
Copper, aluminum, brass scrap
Paper and cardboard scrap
Plastic scrap
E-waste
Rubber scrap
Glass scrap

The sale or purchase of these items is taxable under GST, and proper invoicing using the right HSN codes and GST rates is mandatory.

GST Rates on Different Scrap Materials

GST rates on scrap materials vary depending on the type of scrap. Below is a categorized list of scrap types along with their applicable GST rates as per current norms (as of 2024):

Type of Scrap	HSN Code	GST Rate
Iron or steel scrap	7204	18%
Copper scrap	7404	18%
Aluminum scrap	7602	18%
Brass scrap	7402/7403	18%
Plastic waste and scrap	3915	18%
Paper waste or scrap	4707	12%
Glass waste and scrap	7001/7009	18%
Rubber scrap	4004	18%
E-waste	8548	5% (subject to conditions)

Note: GST rates may change based on government notifications. It's important to consult the official GST portal or your CA for the most recent rates.

HSN Codes for Scrap Materials – In Detail

HSN (Harmonized System of Nomenclature) codes are essential for identifying the type of goods. Using the correct code ensures transparency and compliance in GST returns and e-invoicing. Here's a breakdown:

1. Iron or Steel Scrap – HSN 7204

Covers re-melting scrap ingots, turning, boring, and other industrial scraps from steel manufacturing.

2. Copper Scrap – HSN 7404

Used in electrical and mechanical industries; often comes from wires, pipes, or industrial waste.

3. Aluminum Scrap – HSN 7602

Common in construction, automotive, and manufacturing sectors.

4. Plastic Scrap – HSN 3915

Includes plastic bottles, wrappers, packaging material waste.

5. Paper Scrap – HSN 4707

Comes from printing industries, old newspapers, cardboard, etc.

6. E-waste – HSN 8548

Applicable to electronic waste like discarded computers, TVs, mobile phones.

GST Compliance for Scrap Dealers

If you're involved in the sale or purchase of scrap, these are the key compliance measures:

✅ GST Registration:

If your annual turnover exceeds ₹40 lakhs (₹20 lakhs in special category states), registration under GST is mandatory.

✅ Proper Invoicing:

Use tax invoices with the correct HSN code and applicable GST rate mentioned clearly.

✅ ITC (Input Tax Credit):

Buyers of scrap can claim Input Tax Credit if the seller provides a valid tax invoice and is registered under GST.

✅ Monthly Returns:

You must file GSTR-1 and GSTR-3B monthly or quarterly, based on your turnover.

✅ E-Invoicing:

Mandatory if your turnover exceeds ₹5 crore. Even smaller businesses may soon fall under this, so it's wise to stay updated.

Special Cases: Reverse Charge Mechanism (RCM)

In some cases, Reverse Charge Mechanism (RCM) may apply, especially if a registered buyer purchases scrap from an unregistered dealer. In such scenarios:

The buyer pays GST directly to the government.
The buyer can then claim input credit.

Why GST & HSN Codes Matter in Scrap Business

Using correct GST rates and HSN codes:

Prevents penalties during audits
Helps in claiming input tax credit
Ensures transparency in accounting
Makes you eligible for e-commerce and export opportunities

Challenges Faced by Scrap Dealers

Despite clarity from the government, scrap dealers often face these issues:

Confusion in choosing the correct HSN code
Classification issues between raw material vs. scrap
Complex invoicing and accounting tasks
Dealing with unregistered vendors and RCM

It's advisable to use GST-compliant accounting software or consult a tax professional for smooth operations.

Conclusion

Understanding GST rates and HSN codes on the sale of scrap materials is crucial for staying compliant and avoiding tax issues. The scrap business, though informal in many regions, is gradually becoming regulated under the GST framework.

Whether you're selling iron scrap, plastic waste, or old newspapers, using the correct HSN code and GST rate will ensure your business operates legally and professionally.

Stay updated with the latest GST notifications and use technology to manage your invoicing and filing tasks efficiently.

FAQs

Q1. Is GST applicable on all types of scrap?
Yes, GST is applicable on most types of industrial and commercial scrap. Household or casual scrap sales may not attract GST unless conducted as a business.

Q2. What is the GST on iron scrap?
Iron scrap falls under HSN 7204 and attracts 18% GST.

Q3. Can a small kabadiwala or local scrap dealer be exempted from GST?
If the annual turnover is below the threshold limit (₹40 lakhs), they are not required to register under GST. However, buyers purchasing from them under RCM must pay GST.

Q4. Is HSN code mandatory on invoices?
Yes, it is mandatory to mention HSN codes if your turnover exceeds ₹5 crores. For others, a minimum of 4-digit HSN is usually required.

Q5. What happens if the wrong HSN code is used?
Wrong HSN codes can lead to mismatch in GST returns, notices from tax authorities, or denial of input credit.

If you need help with GST billing software, scrap category setup, or automation tools for your scrap business, feel free to get in touch!