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Impact of GST on the Textile Industry

Seep Gupta
Seep Gupta at December 15, 2022

In this article, we will discuss GST on textiles and the impact of GST on textile industry.

During the pre-GST phase, several types of taxes, such as Central Excise Duty, Value Added Tax (VAT), Central Sales Tax (CST), Customs Tax, Entry Tax, etc., were imposed on the textile industry.

After the implementation and commencement of the Goods and Services Tax Act, all the taxes came under one single head i.e. GST, and this made the tax administration of the textile sector very easy and less complicated.

After the implementation of the GST regime, all the products of the textile industry fall under the tax slab of 5 per cent.

GST on Textile Industry

Goods and Services Tax applied to the textile sector is 15 percent. However, GST value differs according to the different fibres. The varied cloth GST rate as per the different fibres is given below:-

  • Man-made fibre- They are taxable at 18 per cent of the GST.
  • Man-made yarn- They are taxable at 12 per cent of the GST.
  • Man-made fabrics- They are taxable at 18 per cent of the GST.

These are the various parameters and specifications which differentiate the clothes GST rate.

However, at the 46th meeting of the GST Council, which was held in December 2021, the council decided that there would be no increase in the GST rate from 5 per cent to 12 per cent. The meeting also discussed ways how to sort out the issue of inverted duty structure, which is the major hindrance to the growth of the textile industry in India. However, the textiles GST will remain the same for now. The GST rate hike from 5 per cent to 12 per cent is to come into effect from January 1, 2022.

 

Impact of GST Rise on the Textile Industry

The tax rate under the GST regime will be higher than the current tax rate expectedly. Currently, natural fibres such as wool and cotton which are exempted from the tax would be taxed under the GST regime. Despite the high GST rate on the textile industry, GST has come off as a boon for textile industries in many ways. These are given below:-

  • GST will help and will provide a smoother ITC (Input Tax Credit) which will shift the textile industry to an organised sector. Currently, a major chunk of the textile industry comes and operates under the unorganised sector.
  • GST will eradicate other varieties of fringe taxes, which will eventually lead to the reduction of costs for manufacturers in the textile industry.
  • Under the GST regime, the ITC will be available for the tax paid on capital goods. Currently, the exporting costs for manufacturing garments or textile goods in the textile industry are very high.

Impact of GST Rise on Consumers

High GST or increased GST rate will severely affect the customers as it will lead to a sudden unexpected spike in the costs of the garments clothes and other textile goods.

Rahul Mehta, who is a CEO (Chief Executive Officer) of the Clothing Manufacturers Association of India, him, the textile industry will not be able to cope, and bear increased GST rates because it is still recovering from the heavy impact of the pandemic.

Also, according to the latest study by the Clothing Manufacturers Association of India, the hike or increased GST rate changes will result in the direct loss of 700,000 to 1 million jobs in the textile sector in India.

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