Budget 2026 and Recycling: Tax Incentives, Customs Tweaks and What It Means for Indian Recyclers

Updated: September 03, 2026 · 17 min read

The Union Budget presented in February 2026 landed quietly for most Indian manufacturers — but for scrap traders, metal recyclers, and circular-economy businesses, three line items in the customs schedule and a GST Council technical note issued in January 2026 carry consequences that will show up on every import invoice from April onwards. With India’s Ministry of Steel pushing domestic scrap consumption to 70 million tonnes by 2030, and with NITI Aayog having already published its National Resource Efficiency Policy (NREP) framework, Budget 2026 is the first budget that explicitly wires fiscal levers — duty rates, GST treatment, DGFT notifications — to a circular-economy policy target. This explainer cuts through the Finance Bill language and tells you, specifically, what changed, what it costs, and what you must do before Q1 FY 2027.

The Customs Duty Cut That Every Scrap Importer Needs to Model Right Now

The single most commercially significant announcement for the recycling sector in Budget 2026 is the proposed reduction of basic customs duty (BCD) on ferrous and non-ferrous scrap from 5% to 2.5%, effective 1 April 2026. This applies across the key HS headings — 7204 (ferrous waste and scrap), 7401–7404 (copper waste and scrap), 7602 (aluminium waste and scrap), and 7902 (zinc waste and scrap). The move follows sustained lobbying by the Ministry of Steel and secondary steel associations who argued that a high duty differential between virgin metal imports and scrap imports was distorting the raw material mix of electric arc furnace (EAF) operators, particularly in Gujarat and Andhra Pradesh.

To calibrate the impact: India imported approximately 6.5 million metric tonnes of ferrous scrap in FY 2024-25, with a landed value averaging around ₹33,000 per tonne for shredded HMS 1&2 grades. At 5% BCD, the duty outgo per tonne was roughly ₹1,650. At 2.5%, it drops to ₹825 — a saving of ₹825 per tonne. For a medium-sized trader handling 5,000 tonnes a month, that is a monthly saving of ₹4.1 crore in duty liability, before accounting for IGST and compensation cess. This is not a marginal tweak — it restructures the landed cost model for every importer currently sourcing from the EU, Japan, and the United States.

Which Grades and Chapters Are Covered?

The Budget 2026 notification covers HS Chapter 72 (iron and steel scrap) and HS Chapter 74, 76, and 79 (copper, aluminium, and zinc scrap respectively). Stainless steel scrap under HS 7204 40 00 and E-grade copper scrap under HS 7404 00 22 are both included. Critically, the duty on lead-acid battery scrap (HS 7820, classified separately) has not been reduced in this round — it remains at 5% BCD, which matters for recyclers managing end-of-life battery streams under the Battery Waste Management Rules, 2022. If your import mix includes battery-derived lead scrap, your landed cost model for FY 2027 will need to treat that category separately.

GST on Scrap in FY 2026: What the Rate Clarifications Actually Say

Separate from the customs changes, the GST Council — in its technical note circulated to state tax commissioners in January 2026 — reaffirmed the rate structure for scrap and waste materials that has caused persistent confusion at the trader level. Processed metal scrap classifiable under HSN 7204 (iron and steel) continues to attract 18% GST. Unprocessed or unsorted scrap, where classification between HSN 7204 and HSN 7208/7213 (rolled products) is disputed, remains a litigation risk — the clarification does not resolve the classification boundary but does confirm that 18% applies once the material is definitively classified as scrap or waste.

The more impactful clarification for small and mid-tier scrap traders concerns the reverse charge mechanism (RCM) under Section 9(4) of the Central Goods and Services Tax Act, 2017. Where a GST-registered buyer purchases scrap from an unregistered supplier — which is common in the informal collection network — the registered buyer must discharge the GST liability on a self-assessment basis. The January 2026 note confirmed this position remains unchanged for FY 2026-27, and state GST enforcement wings in Maharashtra and Tamil Nadu have already flagged RCM non-compliance as a priority audit area for the current assessment cycle.

The HSN 4004 Problem for Rubber Scrap Recyclers

One area the GST clarification did address — and which has been disputed since 2022 — is rubber scrap under HSN 4004. The Council has confirmed that devulcanised rubber scrap attracts 5% GST, while non-devulcanised tyre-derived material classified under HSN 4012 99 attracts 18%. For tyre recyclers in Pune, Rajkot, and Chennai who process end-of-life tyres under the Hazardous and Other Wastes (Management & Transboundary Movement) Rules, 2016, this distinction will determine how they classify outward supplies — and misclassification carries interest at 18% per annum plus penalty of up to 100% of the tax amount under Section 122 of the CGST Act, 2017. For a recycler turning over ₹2 crore a month in rubber-derived material, that exposure is not theoretical. For a broader breakdown of GST implications on scrap, see our in-depth guide to GST on scrap sales in India: rates, HSN codes and the reverse charge trap.

DGFT Export Policy Notes: What Changed for Scrap Exporters

On the export side, the Directorate General of Foreign Trade (DGFT) has maintained its “restricted” classification for most categories of ferrous scrap under ITC (HS) Export Policy. This means that export of steel scrap — even domestically generated — requires a licence under the Foreign Trade Policy 2023 (FTP 2023), unless specifically exempted. Budget 2026 did not change the export policy for ferrous scrap; the Ministry of Steel has consistently opposed liberalisation of scrap exports, arguing that domestic EAF capacity must be prioritised.

What did change is the DGFT’s notification in December 2025 updating the ITC (HS) Schedule 2 (Export) to clarify that copper wire scrap generated from WEEE (waste electrical and electronic equipment) processing — classifiable under HS 7404 — is exportable without a licence, provided the exporter holds valid authorisation under the E-Waste (Management) Rules, 2022. This is a meaningful distinction for recyclers who process e-waste and recover copper conductors. Previously, many such exporters were obtaining licences unnecessarily or, worse, being flagged at ports for attempting unlicensed export. The December 2025 DGFT notification removes that ambiguity, provided the E-Waste Rules, 2022 authorisation is current and on file at the port of export.

Aluminium scrap exporters should also note that DGFT’s FTP 2023 mid-year review, published in October 2025, introduced a mandatory pre-shipment inspection requirement for aluminium scrap exports under HS 7602, to be conducted by BIS-empanelled inspection agencies. This requirement is already in effect. Exporters who have not yet registered their preferred inspection agency with BIS for this purpose face shipment delays that can add 5–12 days to export timelines — a significant carrying cost when aluminium prices are moving on LME.

NITI Aayog’s Circular Economy Push and Where Budget 2026 Money Is Going

Budget 2026 earmarked ₹1,200 crore under a newly designated “Green Material Economy” sub-head within the Ministry of Environment, Forest and Climate Change’s (MoEFCC) capital budget — a figure that represents a 38% increase over the FY 2025-26 allocation. This funding flows directly into three streams: extended producer responsibility (EPR) infrastructure grants for state-level collection networks, feasibility studies for industrial symbiosis parks (where waste from one industry becomes feedstock for another), and the operationalisation of the Resource Efficiency Cell announced by NITI Aayog as part of its NREP rollout.

NITI Aayog’s NREP, which was finalised in 2019 but has moved slowly through implementation, sets a target of reducing material intensity of GDP by 30% and achieving 50% circularity in steel, aluminium, paper, and plastic streams by 2030. Budget 2026 is the clearest signal yet that these targets are being linked to fiscal instruments, not just policy documents. For recycling businesses, the immediate implication is that MoEFCC grant applications for collection infrastructure will begin to open in Q2 FY 2027 — and businesses that have their EPR authorisations, pollution control board consents, and GST registrations in order will be better positioned to qualify.

The Hazardous Waste Compliance Trap That Customs Duty Cuts Don’t Remove

A lower customs duty makes scrap imports cheaper, but it does not make them simpler from a regulatory standpoint. This distinction matters enormously for importers of non-ferrous scrap who believe that a duty reduction signals regulatory relaxation. It does not. The Hazardous and Other Wastes (Management & Transboundary Movement) Rules, 2016 — notified under the Environment (Protection) Act, 1986 — continue to govern the import of all non-ferrous scrap that contains hazardous constituents. Under Rule 13 of these Rules, an importer must obtain prior informed consent from the Central Pollution Control Board (CPCB) before each consignment, and the goods are subject to inspection at the designated port of entry.

In practice, this means that copper scrap consignments arriving at Nhava Sheva or Mundra must be inspected by a CPCB-approved inspector, and any consignment that contains prohibited substances listed in Schedule VI of the 2016 Rules — including PCBs, mercury compounds, or radioactive contamination above threshold levels — will be re-exported at the importer’s cost. Recent CPCB enforcement actions in FY 2025-26 resulted in at least 14 copper scrap consignments being quarantined at Indian ports for failing Schedule VI compliance checks, with re-export costs averaging ₹18–22 lakh per consignment. Budget 2026’s duty cut saves you ₹825 per tonne; a non-compliant consignment costs ₹18 lakh or more to re-export. The arithmetic is self-evident.

For businesses that also handle e-waste streams, the E-Waste (Management) Rules, 2022 add a further layer: any metal recovery from WEEE that involves smelting or chemical processing requires a separate authorisation under Rule 7 of those Rules, distinct from the Hazardous Waste Rules import clearance. The two authorisations must both be current; CPCB has signalled that it will not accept one as a substitute for the other during inspections. Our CPCB-authorised e-waste recycling service operates under both frameworks.

Working-Capital Arithmetic: What a 2.5% Duty Rate Means for Your Balance Sheet

Beyond the per-tonne savings, the duty reduction has a second-order effect on working capital that finance heads should model explicitly. Under the current 5% BCD regime, importers paying duty at Nhava Sheva typically draw on working-capital credit lines to fund the duty outgo during the 30–45 day port clearance cycle. At ₹1,650 per tonne and a 5,000-tonne monthly import volume, the duty block on a working-capital line is ₹8.25 crore per month. At 2.5% duty, the block drops to ₹4.125 crore — releasing ₹4.125 crore of credit headroom that can be redeployed into domestic scrap procurement or hedging positions.

The table below summarises the key fiscal changes under Budget 2026 that affect the recycling and scrap trading sector, alongside the applicable regulation or policy instrument:

Parameter	Pre-Budget 2026	Post-Budget 2026	Governing Instrument
BCD on ferrous scrap (HS 7204)	5%	2.5%	Finance Bill 2026 / Customs Tariff Act, 1975
BCD on copper scrap (HS 7404)	5%	2.5%	Finance Bill 2026 / Customs Tariff Act, 1975
BCD on aluminium scrap (HS 7602)	5%	2.5%	Finance Bill 2026 / Customs Tariff Act, 1975
BCD on lead-acid battery scrap (HS 7820)	5%	5% (unchanged)	Battery Waste Management Rules, 2022 — policy alignment
GST on metal scrap (HSN 7204)	18%	18% (reaffirmed)	CGST Act, 2017 / GST Council Jan 2026 note
GST on devulcanised rubber scrap (HSN 4004)	Disputed	5% (clarified)	GST Council Jan 2026 technical note
MoEFCC Green Material Economy budget	₹870 crore (FY 2025-26)	₹1,200 crore (FY 2026-27)	Union Budget 2026 / NREP framework
DGFT export licence: WEEE-derived copper scrap (HS 7404)	Licence required (ambiguous)	Licence-free (with E-Waste Rules 2022 authorisation)	DGFT ITC (HS) Schedule 2 notification, Dec 2025

The 7-Step Budget 2026 Compliance Checklist for Indian Recyclers and Traders

The duty reduction and GST clarifications create both opportunity and audit exposure. Businesses that update their operational and compliance frameworks before Q1 FY 2027 will capture the benefit; those that do not will face either missed savings or, worse, regulatory liability. Here is what your team should action this quarter:

1. Renegotiate import contracts to reflect 2.5% BCD. Existing purchase agreements priced on 5% BCD landed cost need to be reviewed and amended before the April 2026 effective date. Engage your customs broker to confirm the applicable HS headings are covered by the Finance Bill 2026 notification.
2. Audit your HSN classifications for all scrap outward supplies. Given the GST Council’s January 2026 reaffirmation, verify that every outward supply invoice for metal scrap cites the correct HSN — 7204 for ferrous scrap, 7404 for copper, 7602 for aluminium. Misclassification at 18% vs 5% carries penalty exposure under Section 122 of the CGST Act, 2017.
3. Register your RCM liability for unregistered supplier purchases. If your yard buys scrap from kabadiwallas or informal collectors who are not GST-registered, confirm that RCM entries are being posted in GSTR-3B and that Input Tax Credit is being claimed correctly. Maharashtra GST enforcement has made this a priority audit area for FY 2026-27.
4. Renew or obtain CPCB authorisation under the Hazardous and Other Wastes (Management & Transboundary Movement) Rules, 2016. Specifically, check that your Rule 6 authorisation for import is current and that your Schedule VI compliance documentation (hazardous substance test reports) is not older than 6 months for each grade of scrap you import.
5. Register with BIS for the mandatory pre-shipment inspection of aluminium scrap exports. The DGFT FTP 2023 mid-year review requirement is already effective. If you export HS 7602 material, your BIS-empanelled inspection agency must be on record with DGFT before the next shipment.
6. Confirm E-Waste Rules 2022 authorisation if you export WEEE-derived copper scrap. The December 2025 DGFT notification removes the licence requirement under ITC (HS) Schedule 2 — but only if your Rule 7 authorisation under the E-Waste (Management) Rules, 2022 is valid and presented at the port of export.
7. Prepare your documentation baseline for MoEFCC grant applications. With ₹1,200 crore allocated to the Green Material Economy sub-head for FY 2026-27, grant applications for collection infrastructure are expected to open in Q2 FY 2027. Applicants will need current pollution control board consent, EPR registration (where applicable), and GST compliance certificates. Begin that documentation audit now. See also our post on consent to operate renewal traps from your state pollution control board — the deadlines are tighter than most assume.

For businesses managing mixed waste streams — including construction and demolition debris, industrial scrap, and end-of-life equipment — our full-service waste dealer and industrial waste management team can coordinate multi-stream compliance in a single engagement.

Related Articles

• GST on Scrap Sales in India: Rates, HSN Codes and the Reverse Charge Trap
• ESG Audit Failures in 2025: The Top 5 Recycling-Related Findings That Wrecked Ratings
• BRSR Core Assurance: The Waste and Circularity Metrics Your Auditor Will Test

Frequently Asked Questions

What is the new customs duty rate on metal scrap after Budget 2026?

Budget 2026 proposes reducing basic customs duty on ferrous scrap (HS 7204) and non-ferrous scrap including copper (HS 7404), aluminium (HS 7602), and zinc (HS 7902) from 5% to 2.5%, effective 1 April 2026 per the Finance Bill 2026. Lead-acid battery scrap under HS 7820 remains at 5%. IGST at 18% and applicable port charges continue to apply on top of the BCD, so the total landed cost reduction is approximately ₹825 per tonne for HMS-grade steel scrap at current prices.

Does the 2.5% customs duty reduction remove the need for CPCB clearance on non-ferrous scrap imports?

No. A lower duty rate is a fiscal change; it has no bearing on regulatory clearances. Imports of non-ferrous scrap remain subject to prior informed consent from the Central Pollution Control Board under Rule 13 of the Hazardous and Other Wastes (Management & Transboundary Movement) Rules, 2016. Port-of-entry inspection against Schedule VI prohibited substances is mandatory for every consignment. Non-compliant consignments are re-exported at the importer’s cost — recent enforcement actions have seen re-export costs of ₹18–22 lakh per consignment.

What GST rate applies to scrap purchases from unregistered dealers?

When a GST-registered buyer purchases scrap from an unregistered supplier, the reverse charge mechanism (RCM) under Section 9(4) of the Central Goods and Services Tax Act, 2017 applies. The registered buyer must self-assess and pay GST on the transaction value — 18% for metal scrap under HSN 7204 — and report it in GSTR-3B. Input Tax Credit can be claimed in the same return period. The GST Council’s January 2026 technical note reaffirmed this position and flagged it as an audit priority in Maharashtra and Tamil Nadu for the current assessment cycle.

Can I export WEEE-derived copper scrap without a DGFT export licence after the December 2025 notification?

Yes, subject to one condition: the exporter must hold a valid authorisation under Rule 7 of the E-Waste (Management) Rules, 2022, issued by the Central Pollution Control Board, and this authorisation must be presented at the port of export. The DGFT notification to ITC (HS) Schedule 2 (Export), issued in December 2025, removes the licence requirement for copper scrap under HS 7404 that is demonstrably derived from WEEE processing. Without a current E-Waste Rules 2022 authorisation, the licence requirement remains in force.

How much has MoEFCC’s circular economy budget increased in FY 2026-27?

Union Budget 2026 allocated ₹1,200 crore to the Green Material Economy sub-head within MoEFCC’s capital budget, up from ₹870 crore in FY 2025-26 — an increase of approximately 38%. These funds are earmarked for EPR infrastructure grants, industrial symbiosis park feasibility studies, and the Resource Efficiency Cell under NITI Aayog’s National Resource Efficiency Policy (NREP), which targets 50% circularity in steel, aluminium, paper, and plastic streams by 2030. Grant applications for collection infrastructure are expected to open in Q2 FY 2027.

Work With The National Recycling Corporation

Budget 2026 creates a genuinely improved fiscal environment for scrap importers and recyclers — but only for those whose compliance groundwork is already solid. A lower customs duty is commercially meaningless if a consignment is quarantined at Nhava Sheva, and a GST rate clarification helps nothing if your HSN classifications have not been audited since FY 2022-23. At The National Recycling Corporation, we work with manufacturers, importers, traders, and industrial clients across India to make scrap disposal and procurement both commercially attractive and regulatorily clean.

Our operations span Mumbai, Thane, Pune, Ahmedabad, Surat, Chennai, Bengaluru, and Hyderabad, with pan-India logistics coordination for large-volume or multi-location mandates. We provide GST-compliant invoicing for every transaction, certificates of recycling and destruction for BRSR-grade documentation requirements, and fair-market pricing for metal scrap indexed to LME benchmarks — so your procurement team is not negotiating blind. For businesses with EPR obligations, our team can also coordinate with CPCB-authorised disposal partners for compliant channelisation.

If you are reviewing your scrap and recycling contracts in light of Budget 2026 — whether as an importer recalculating landed costs, a manufacturer evaluating domestic scrap supply, or a sustainability head building your BRSR waste disclosure — contact us for a no-obligation consultation. Our team responds within one business day.

• Pan-India pickup and logistics for ferrous, non-ferrous, and mixed scrap streams
• GST-compliant purchase invoices and certificates of recycling for every lot
• LME-indexed pricing for copper, aluminium, brass, stainless steel, and mild steel scrap
• BRSR-grade waste disposal documentation for listed company sustainability disclosures
• Coordination with CPCB-authorised partners for hazardous waste and e-waste channelisation
• Single-window service for multi-stream waste mandates: metal, e-waste, rubber, plastic, and C&D waste

Sources and References

• Ministry of Steel, Government of India — scrap and secondary steel policy
• CPCB — Hazardous and Other Wastes (Management & Transboundary Movement) Rules, 2016
• CPCB — E-Waste (Management) Rules, 2022 and authorisation portal
• NITI Aayog — National Resource Efficiency Policy (NREP) framework
• DGFT — Foreign Trade Policy 2023 and ITC (HS) Schedule 2 (Export) notifications
• GST Council / GSTN portal — HSN classification and rate schedule for scrap
• London Metal Exchange — copper, aluminium, and zinc benchmark pricing
• Ministry of Environment, Forest and Climate Change — Budget 2026 Green Material Economy allocation