Ahead of the Indian government's budget announcement on February 1, the recycling industry's call has been unanimous- a decrease in the Goods and Services Tax (GST) rate on recyclable waste. Most recently, the Centre for Science and Environment (CSE) has strongly advocated for a reform in certain elements.

In a recent letter to Union Finance Minister Nirmala Sitharaman, CSE director general Sunita Narain has said, “We believe that India is moving towards a greener economy transformation through government policy across sectors like energy, industry, waste, transport, and agriculture. We believe that GST and fiscal structures could play a major role in accelerating this transition towards a greener economy.” 

The CSE letter to the minister states that currently, our tax system treats recycled materials in the same manner as virgin ones, effectively penalising the very sectors that can drive our transition to a circular economy.

Nivit K Yadav, programme director, industrial pollution, CSE, explains: “In our analysis, we have examined 12 major waste and recycling sectors, including metal scrap, plastic waste, e-waste, battery waste, paper, glass, tyres, and end-of-life vehicles. In each sector, the opportunity for reuse is enormous; there is also a potential to optimise material efficiency as well as reduce waste and pollution.” 

A report by CSE titled "Relax the tax", finds that the current GST structure on recyclable waste has resulted in a double loss, driving a large share of transactions into informal channels while simultaneously weakening recycling, resource security, and industrial competitiveness. The study demonstrates that reducing GST on recyclable waste to 5% or zero, combined with integration of informal supply chains, can convert this structural loss into a net fiscal gain of around ₹34,000 crore annually, with partial integration and over ₹90,000 crore with full integration. 

Additionally, the move can strengthenMSMEs, improve livelihoods for millions of informal workers, reduce dependence on virgin material imports, and align fiscal policy with the country’s circular economy and industrial priorities. 

Parth Kumar, programme manager, industrial pollution, CSE added that, “In another report on decarbonisation pathways forcement and iron and steel sectors, we find that the reuse of waste material – slag, fly ash or municipal waste in the case of cement, and steel scrap in the case of the iron and steel– offers a vital opportunity for waste reduction and decarbonisation. However, the current regime of GST at 18% for recycled and low-carbon materials is a huge disincentive.” 

Narain points out that “this reduction of GST rates could prove to be an incentive to drive greener production”. For example, in the cement sector, India currently produces multiple types of cement, which have varying CO₂ emissions, with OPC being the most emission-intensive cement; other types have lower emission intensity because of the use of waste as raw material in their production processes. 

“However, as GST does not differentiate between different cement types based on emission intensity, there is no incentive for industries and consumers to move towards green production and consumption,” says Narain. 

CSE, in its report on Decarbonizing India: The Cement Sector, has suggested an option where cement types with lower CO₂ emission intensity — like PPC, PSC, CC, and LC3 (as already defined by the government based on the type and proportion of waste material used for replacement of raw material) — could be provided with lower GST. This would, in turn, limit OPC production and boost the manufacturing and demand of low-carbon cement in India. 

The letter to the FM notes that “this rationalising of the tax on waste is not just about fiscal reform; it’s about acknowledging that waste is a resource”. 

“By ‘relaxing the tax’, we can level the playing field for green enterprises, secure our resource future, and protect millions of our most vulnerable workers,” says Narain in a statement.

Sanjay Mehta, the president of the Material Recycling Association of India, at the recently concluded IMRC Convention and Exhibition, stated that industry representatives have been contesting since its implementation, calling for a reduction to 5% in line with multiple research submissions to the government.

Mehta also underscored the human dimension of recycling, noting that nearly one-third of scrap collection comes from rag pickers, small workshops, households, and municipal sorting, many of whom operate outside formal systems due to high GST and compliance barriers. Lower taxes and the use of UPI-based payments at the first stage of scrap collection were proposed as tools to formalise the sector, improve traceability, and promote inclusion. He further urged the government to accelerate green steel procurement at both the central and state levels to support circularity and decarbonisation goals.

While formalisation of domestic scrap collection remains a priority, experts point out that supply constraints—particularly for critical minerals and batteries—will need targeted fiscal support in the near term.

 Anupam Agnihotri, the director of the Jawaharlal Nehru Aluminium Research, Development and Design Centre (JNARDDC), said Budget 2026 should consider exempting critical mineral scrap and end-of-life batteries from import duties as a targeted, time-bound measure to accelerate domestic recycling capacity under the National Critical Mineral Mission (NCMM).

“In the transition phase, domestic availability of organised scrap and end-of-life batteries remains limited. Duty exemptions help recyclers access affordable feedstock, improve plant utilisation and achieve economies of scale faster,” he said.

India had taken an important step in this direction in Budget 2025-26, which exempted basic customs duty on several critical mineral wastes and lithium-ion battery scrap. Extending and refining this approach in Budget 2026, while linking exemptions to registration under government schemes, environmental safeguards, traceability, and domestic value addition, could crowd in private investment and reduce reliance on imported refined minerals over the medium term.