GST Impact on Textile Industry in India

Textile industries play a very important role in the development of the Indian economy with respect to GDP, Export promotion, employment, etc. It is one of the oldest manufacturing industries in India. It is the second-largest industry after agriculture which provides skilled and unskilled employment. In this sector, 100% FDI is allowed by the Government under the Automatic Route. Textile Industry contributes more than 10% of Total Export.

Latest Update in Textile Industry

13th July 2023

• The GST Council’s decision to GST levy on jari threads from 12 to 5 per cent on Wednesday. Members of the Surat Jari Manufacturers Association, who were overjoyed by the decision, called on Surat MP Darshana Jardosh and the Union Minister of Textiles and Railways to press their demands. Read PR

28th September 2022

• The Hyderabad minister KT Rama Rao, for textiles and handlooms, has demanded the union government to withdraw the 5% GST on handlooms.

22nd February 2022

• The confederation of All Indian traders has written the proposal letter to the Nirmala Sitharaman for withdrawal of 12% GST rate on the textile products.

10th February 2022

• The communication of CAIT (Confederation of All India Traders) is demanding withdrawal of the 12% GST rate on textile products by communication sent to FM Nirmala Sitharaman Ji which was postponed through the 46th GST council meeting on 31st December 2021. Read more

02nd February 2022

• The minister of textiles has showcased the order related to the undersigned in the exercise of the powers vested under clause 6(1) (iii) and clause 5 for the Jute and Jute Textiles Control Order 2016. Read More

31st December 2021

• The 46th Council meeting recommendation has concluded to defer the decision to revise the GST (Goods and Services Tax) rates in textiles. Read more

28th December 2021

• Kashi ready-made garments association weavers and textile traders have given a proposal to the government about rolling back the high GST rate on various textile products.

17th December 2021

• Vijayawada Cloth Merchants’ Association textile has condemned the GST price hike on ready-made garments and footwear which will be 12% from the current rate of 5% w.e.f. 1st January 2021. “Celebrations became low-key affairs after Covid-19. This is not the right time to increase GST on clothes which is an essential commodity,” said Batchu Koteswara Rao, secretary of Cloth Merchants’ Association.

13th December 2021

• Aligarh cloth merchant association (ACMA) staged a peaceful protest against the Indian government regarding the rising 12% GST rate from 5% on textile fabrics effect from 1st January 2022.

30th November 2021

• FORTI has protested against the applicable new rate of GST 12% on garments and footwear. That will be effective from January. “The government also followed this announcement and after some time, while revising the rates of GST, it was reduced on many consumer goods, but now the GST Council has increased the rates on clothes and shoes. This is against the sentiment.” “We will also meet chief minister Ashok Gehlot and submit the demand for persuading the Centre to reduce the rates on the items,” said Raghav.

29th November 2021

• SIHMA has sent a letter to FM India about the new GST rate on women’s garments and footwear. The new rate is 12% and with effect from January 2022. “GST concession on products below Rs 1,000 should be restored to benefit the lower-income group. The concession can be offered to products below Rs 500. A pair of hosiery may cost Rs 500 and increased GST rates will further increase the cost,” he said.

24th November 2021

• PHDCCI said on Monday that the central government should reduce the new GST rates on the raw material of the textile industry including fabric and yarn to systematic resolve the inverted duty structure instead of hiking rates on products. “The amendment has been made to change GST rate from 5 per cent and 18 per cent to 12 per cent to overcome inverted duty structure from January 1, 2022. However, it is not the solution as, by increasing the GST rate on textile products from 5 per cent, the government has created more hurdles for the industry as this sector is majorly un-organised,” pointed out Bimal Jain, Chair, Indirect tax committee, PHDCCI.

Textile Industry is divided into Two Segment, firstly Unorganised and Secondly Organised. The unorganised sector consists of Handloom, handicraft, small and medium-scale mills and Organized Sector consist of spinning, apparel and garments segment which apply modern machinery and techniques. The rate structure for the textiles is decided at 5 percent and 18 percent for cotton fibre and man-made synthetic fibre respectively. While silk and jute are totally exempted from the GST purview. The GST rate on apparels is also decided on a category basis, as Apparels below INR 1000 will be attracting 5 percent GST while those above this mark will be taxed at 12 percent.

In its meeting held on 5th August by  GST council took some positive and relaxing decision for the textile industry. The council mentioned rules regarding e-way bill and rates. And at the same time, the rates of GST has been reduced from 18 percent to 5 percent on job work of all textiles and related products manufactured. The finance minister Arun Jaitley who also heads the GST council along with the representatives of states in general also finalized the e-way bill rules and regulations. In this new decided norm, the registration of goods worth more than INR 50,000 has been made mandatory before the transport is carried on and even that for more than 10-kilometre distance.

Mainly Two types of Indirect Taxes considered by the government is Central Excise Duties and Service Tax which was under wide use. Service is not levied on Textile since it comes under Goods. Under the current taxation system, textile products are mostly exempted or are taxed at a very low rate. State Governments have to stop levying Sales Tax after the discontinuation of Additional Excise Duty. From the tax rate structure, it is seen that cotton fibre will be gaining momentum by the GST rate decided for it. Overall it is concluded that the final rates are very much less than the previous scheme and will definitely benefit the whole industry in the long run.

Leaving behind the fragmented structure of the supply chain, the GST will consolidate this structure and will present a better supply chain management to the industry. The self-compliance necessity in the GST will also track down the revenue even if the tax rates are low for some general benefiting of masses.

SIGA Requested Govt to Simplify the Hard GST Law Instruction

The south India Garment Association (SIGA) has asked the government to simplify the cumbersome and harder Goods and Services Tax (GST) Law instruct the financial firm to uphold the renewal of credit excluding the complications which provides working capital at the much lower interest rate and implement the 12% high GST slab upon the garments whereas the transaction value exceeds ₹1,000.

Impact of GST Rise on Textile Industry

The GST council had announced earlier this year to increase the rate of GST on goods related to the textile industry. However, the finance minister, Smt. Nirmala Sithraman said that the council has decided to postpone the increase until further notice. Some natural fibers like cotton and wool were exempt from any tax liability but after the council meeting, it was decided that these will be taxed under GST from the date of the increase.

It is clear that the rate of GST on the textile industry will be increased sooner or later, so let’s have a look at the advantages of the increase and implementation of new taxes on textile products:

Easy Flow of ITC

A great portion of traders in the textile industry is not registered with GST due to which a barrier is created in the flow of Input Tax Credit. With the implementation of taxes on natural fibers, more and more traders will get themselves registered with GST which will stimulate the proper flow of ITC in the market and the traders will be benefited from it too.

• Reduced Manufacturing Costs
• Fringe taxes like Octroi and entry/luxury taxes will be converted into a single GST that will bring down the manufacturing cost of textile products.

ITC on Capital Goods

According to the current provisions of ITC, credit is not allowed on the procurement of the latest machines through imports. The excise paid on imports increases the price of procurement. If GST is introduced, it will be a compulsion to credit ITC which will reduce the cost of capital goods, indirectly.

Boost to Exports

The introduction of GST will help in registering more and more traders with GST. The registration of traders will take these traders to the export market. The traders hesitate to get their products for exports because of its extensive process but under GST, barriers like duty drawbacks will be removed and ITC too will ease the process of exports. Under the export promotion capital goods scheme, the exporters are given exemption of duty if the export value is six times the value of duty within six years from the export. This scheme will lose its value with the implementation of GST.

GST Rates & HSN Codes For Cotton Products like- Dhoti, Saree, Zari Border Saree, Zari Border Dhoti, Shirting, Casement, Viol, Sheeting, Suti, Cambric, Lawn, Latha, Lungi & furnishing fabrics.