GST reforms India’s textile sector by reducing costs and streamlining credits, enhancing domestic and global competitiveness.
GST brought the textile value chain, from fibre to finished garments, under a unified tax with input tax credit. This guide explains the impact of GST on India’s textile sector and its businesses.
India’s textile industry is a major employer, providing jobs to many skilled and unskilled individuals nationwide. This sector contributes approximately 10% to the country’s total annual exports, a figure expected to grow with the implementation of the Goods and Services Tax (GST). GST will influence the entire cotton value chain within the textile sector, impacting various garments such as shirts, trousers, sarees, and other apparel and footwear. Many small and medium-sized enterprises (SMEs) currently choose to operate under an optional route that attracts zero central excise duty.
Data from the Ministry of Textiles (Government of India) shows that textile exports reached US$ 33,161.74 million in 2011-12. During the same period, the production of textile machinery was valued at Rs. 5,280 crore. For more information, refer to the official Ministry of Textiles website.
How GST Affects the Textile Sector
While the Goods and Services Tax may introduce a higher tax rate compared to previous regimes, and natural fibers like cotton and wool, previously tax-exempt, will now be subject to GST, the overall textile industry is projected to gain from its implementation. These benefits stem from several key modifications:
Alleviating Input Credit Chain Disruption
A considerable segment of India’s textile sector operates within the unorganized economy or under the composition scheme. This structure often leads to interruptions in the input tax credit (ITC) flow, as registered taxpayers cannot claim ITC for inputs sourced from composition scheme taxpayers or the unorganized sector. GST is designed to facilitate a more seamless input credit mechanism, encouraging a shift towards the organized sector.
Lowering Production Expenses
GST is anticipated to absorb various peripheral taxes, such as Octroi, entry tax, and luxury tax. This consolidation will contribute to reducing manufacturing costs for producers within the textile industry.
Enabling Input Credit for Capital Goods
Presently, acquiring advanced technology for textile manufacturing through imports incurs substantial costs because excise duties paid on these imports are not eligible for input tax credit. Under the GST framework, however, input tax credit will become available for taxes paid on capital goods, making technological upgrades more affordable.
GST Rates and HSN Codes for Textile Products
The following tables detail the GST rates and Harmonized System of Nomenclature (HSN) codes for various cotton and synthetic textile items, including but not limited to dhoti, saree, shirting, and furnishing fabrics.
| Cotton Composition | HSN Code | GST Tax Rate |
|---|---|---|
| Products with over 85% cotton content and a weight under 200 gm/sq mtr | 5208 | 5% |
| Products with over 85% cotton content and a weight exceeding 200 gm/sq mtr | 5209 | 5% |
| Products with less than 85% cotton content, blended with other fabrics, and a weight under 200 gm/sq mtr | 5210 | 5% |
| Products with less than 85% cotton content, blended with other fabrics, and a weight exceeding 200 gm/sq mtr | 5211 | 5% |
| All other cotton products | 5212 | 5% |
| Yarn Specification | HSN Code | GST Tax Rate |
|---|---|---|
| Synthetic monofilament of 67 decitex or more, with no cross-sectional dimension exceeding 1 mm; includes strips and similar synthetic textile materials with an apparent width not exceeding 5 mm. | 5407 | 5% |
| Artificial monofilament of 67 decitex or more, with no cross-sectional dimension exceeding 1 mm; includes strips and similar synthetic textile materials with an apparent width not exceeding 5 mm. | 5408 | 5% |
Enhancing Textile Product Exports
GST is anticipated to simplify the input tax credit claim process, thereby increasing the textile industry’s competitiveness in global markets. This perspective is echoed by Prabhu Dhamodharan, Secretary of the Indian Texpreneurs Federation (ITF). For more information, visit the ITF official website.
Presently, exporters are often deterred by the high procedural costs and delays associated with duty drawback mechanisms. With GST, the duty drawback system is expected to become less relevant. Instead, input tax credit will be issued as a direct refund, replacing the existing duty drawback schemes. This change is poised to significantly stimulate the export of textile products.
The Export Promotion Capital Goods (EPCG) scheme, which currently allows cotton-based textile exporters to claim duty exemptions if they achieve exports six times the duty value within six years, is also projected to diminish in importance under the new GST regime.
Conclusion
While the textile industry might experience some initial challenges, such as increased tax rates and the discontinuation of certain benefits within the cotton value chain, GST is generally expected to support its growth over time. It aims to integrate more taxpayers into a structured regulatory system, foster greater competitiveness in both international and domestic markets, and pave the way for sustainable, enduring expansion.
Frequently Asked Questions
What GST rates apply to textiles and garments?
Textiles and garments attract GST at rates that vary by product and price point, with different slabs for fibres, yarn, fabric and apparel.
How did GST benefit the textile industry?
GST enabled seamless input tax credit across the value chain, reduced cascading of taxes, and helped formalise a largely unorganised sector.
Does the inverted duty structure affect textiles?
Yes. In parts of the chain where inputs are taxed higher than outputs, an inverted duty structure can build up input tax credit, for which refunds may be claimed subject to conditions.
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