Environment Minister Barbara Hendricks said the blueprint to overhaul an existing law aims to ensure that "in future, still fewer old appliances land in the household rubbish and instead are disposed of in an environmentally friendly way".
The bill foresees shops with a sales floor measuring more than 400 square metres (4,300 square feet) being required to take back old large electronic goods free of charge when a new version is bought.
The rules would also cover online traders.
The German government, which hopes the bill will pass into law towards the end of the year, said it would make it easier for consumers to dispose of goods such as old toasters or hairdryers.
"It protects the environment and spares scarce resources," it said in a statement.
The text would bring German legislation into line with a European directive dating from 2012.