The goods and services tax aimed to simplify and standardize the indirect taxes in India into a single cohesive unit by subsuming multiple state and central taxes. It benefited suppliers, consumers, and the government and transformed the indirect tax system. The introduction of GST has benefited the textile industry by eliminating multiple taxes and providing input tax credit. Prior to the implementation of GST, the textile industry was largely unorganized, which caused a considerable loss of tax revenue for the government. The government hoped to change this by applying GST on apparel, clothing and other textile products.
The textile industry is one of the most important industries in India. It is the second-largest sector of the economy of our country, next to agriculture, employing millions of people both in the skilled and unskilled sectors and contributing substantially to its per capita income. Indian apparel and textiles have global appeal and play an important role in exports, accounting for more than 14% of total exports. GST aimed to improve the cost-competitiveness of our textiles in global markets, thereby improving exports to a greater extent. The textile Industry contributes a large portion to GST and helps in the development of the economy of the country. Therefore, it is important for us to understand the impact of GST and other aspects of the tax on apparel, clothing, and textile products.
GST on apparel and clothing
Chapter 61 of the HSN code deals with knitted clothes and apparel. Chapter 62 covers non-knitted clothing and apparel. When the taxable value of the products does not exceed Rs. 1000/-, it is taxed at 5% GST. All clothes valued at more than Rs. 1000/- are subject to GST as per schedule II of chapter 62.
Based on the HSN classification, the GST rates for cotton, yarn, silk, wool, and nylon range from 0%, 5%, 12%, 18%, and 28%. These products are covered in different chapters of the HSN code.
GST on cotton
The HSN code for cotton is categorized under Chapter 52. So, cotton items such as khadi yarn, and Gandhi topi are free from GST, and 5% GST is applied to all other cotton products including:
- Cotton waste
- Cotton thread used for sewing
- Cotton yarn, other than khadi yarn
- Cotton fabrics
GST on silk
Chapter 50 of the HSN code is allotted for silk. GST is not applicable to raw silk, cocoons, silkworm eggs, or silk waste. A 5% tax is applicable for the following items:
- Silk yarn
- Woven fabrics of silk or silk waste
GST on wool
Chapter 51 of HSN code deals with wool, fine or coarse animal hair, horsehair yarn, and woven cloth. Waste wool, or fine or coarse animal hair or animal hair that has been carded or combed are exempt from GST.
The following items are subject to 5% GST
- Garneted stock of wool, or fine or coarse animal hair, shoddy wool
- Wool or coarse animal hair, carded or combed animal hair
- Yarns of wool or animal hair
- Fabrics of wool or animal hair
GST for nylon and artificial fibers
Chapter 54 of the HSN code categorizes nylon and other artificial fibers along with synthetic filaments and similar synthetic textile materials. Man-made textile fabrics are taxed at 5%, and 18% GST is charged on all other products, such as:
Synthetic filament yarns like nylon, polyester, acrylic, etc.
Artificial filament yarns like viscose rayon, etc.
GST rates for clothing and apparel based on HSN Code
|Items||HSN codes||GST applicable on the items of clothing and other items||Conditions under which applicable|
|Knitted clothing and accessories||61||5||If the taxable value is below Rs. 1000/-|
|Garments and accessories that are not knit or that were produced mechanically||62||5||If the taxable value is below Rs. 1000/-|
|Clothing and apparel, irrespective of how they have been made||61 & 62||12||If the taxable value is equal to or above Rs. 1000/-|
|Other textile-based products (for example, bed sheets and curtains)||63||5||If the taxable value is equal to or above Rs. 1000/-|
|63||12||If the value that is taxable is equal to or above Rs. 1000/-|
GST for clothing based on fiber of goods
The list of materials and the GST applicable to clothing and other items created with them is as follows:
|Name of material||HSN code assigned||GST rate applicable||Types of products|
|52||5||Includes all cotton goods.|
|50||5||Include all silk-based products.|
|Raw silk, wasted silk, silkworm laying||50||5||All silk-based products are charged the applicable GST rate.|
|Wool or wool products||5104||5||Stock of wool, fine, coarse animal hair, wool that is shoddy.|
|5105||5||Wool, fine, coarse animal hair that is either carded or combed.|
|5106 to 5110||5||Yarns of wool and or animal hair.|
|5111 to 51113||5||Fabrics made of animal hair or wool.|
|5101||Exempt||Wool that is either not carded or combed|
|5102||Exempt||Fine or coarse animal hair that has not been carded or combed.|
|5103||Exempt||Wool waste, fine or coarse animal hair|
|Nylon products and other products made from artificial fibers||54||5||Applicable to manmade materials only/|
|54||18||Synthetic filament yarns like acrylic, nylon, polyester, etc.|
|54||18||Products such as yarn, and viscose, among others|
|54||18||Sewing thread of man-made filaments.|
GST on footwear
Chapter 64 of the HSN code covers the GST on footwear. According to the chapter, if the value of the footwear is less than Rs. 500/-then the applicable tax rate is 5% and a rate of 18%.
Changes in the GST rate on textiles
The inverted duty structure, where the tax on raw materials was greater than the finished goods, caused the manufacturers not to be able to avail themselves of the input tax structure, caused a lot of problems in the textile industry. To rectify this, the GST council proposed in its 45th meeting to increase the GST rate on clothing from 5% to `12%, irrespective of the value of the clothes. The GST on textiles, including woven fabrics, synthetic yarn, blankets, accessories like table cloths, tapestries, rugs, etc., was to be increased to 12%.
But in the GST council’s 46th meeting, the council recommended deferring the earlier decision to change the rates in textiles recommended in the 45th GST council meeting. They decided that the existing rates in the textile sector were to be continued. The decision was taken after several representations from industry associations were received by the council on the issue.
Challenges faced by the textile industry
In spite of the positive impact of GST on the textile industry, they still face many challenges, including:
- High tax rates on job work: the tax rate on job work is fixed at 18% under GST. This has resulted in a demand for job work, especially from small manufacturers.
- Challenges in filing returns: small textile manufacturers lack the resources and find the process of compliance complex and challenging.
- High working capital requirements: the taxes on raw materials and finished goods require higher working capital, causing a strain on the finances of small textile manufacturers.
The textile industry is a very important industry in India, contributing significantly to GDP, creating employment opportunities, and enhancing exports, leading to economic growth in the country. The introduction of GST has benefitted the textile industry immensely as small and medium industries are brought into the fold of the formal economy. But there are also many challenges faced by them due to the tax burden, complexity of compliance, etc. The government has taken many measures to address the issue through many schemes and subsidies. The competitive prices will create opportunities in the domestic and global markets for Indian textiles and pave the way for sustained growth in the long term.
Frequently asked questions
What is meant by the inverted duty structure?
In the initial stages of GST implementation, the tax rate on textiles was 5%. The result was the tax rate on raw materials was greater than on completed goods. Because of this anomaly, people in the textile sector could not claim input tax credit or ITC.
How much is the GST on tailoring services?
Tailoring services attract a GST of 5%, and renting clothes also attracts the same rate of tax. The HSN code for tailoring services is 9988.