GST or Goods and Services Tax may have come into effect a few days ago, but its effect is far-reaching. Textile industry’s reaction to GST has been largely favourable. However, certain bits like high tax incidence on finished garments, etc. is something few people have clarity upon. So, we thought why not take this topic up and break it down in simplest terms for you. So, here’s all you need to know about GST on textiles in five easy points. Do give it a read.
GST On Textiles – All You Need To Know
To tell you about the GST rates textiles have been classified under, we will talk about four separate categories. Let’s talk about raw products first. Raw textiles have been placed under 5 per cent, 18 per cent and zero rate slabs. Cotton, wool (non-standard) and other natural fibres will be taxed 5 per cent. Wool (standard) and silk/jute will attract no taxes. Synthetic fibres fall in 18 per cent tax slab.
Finished garments of either fabric has been classified under 5 per cent and 12 per cent slabs. If the finished garment costs less than Rs 1,000, 5 per cent tax will be levied. Otherwise, there is 12 per cent tax on finished garments costing more than Rs 1,000.
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Products such as towels, carpets, etc made out of either fabric will attract 5 per cent tax. Products such as shoes, protective clothing, etc will attract 12 per cent tax, regardless of the fabric it is made from.
Lastly, products such as blankets, bed-linen and curtains will be taxed at 5 per cent if they cost under Rs 1,000. If they cost more than Rs 1,000, 12 per cent tax will be levied on them.
#2: Most-affected fabrics
As per Ministry of Textiles’ figures, wool and silk face the biggest impact from GST. Earlier, the indirect tax burden on these fabrics was in the range of 8-10 per cent. Post-GST, the impact on them has reduced to 5 per cent. Cotton, synthetic and blended fabrics have been relatively unaffected by the implementation of GST.
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#3: Effect on Finished Garments
Again, as per figures by Ministry of Textiles, it is the garments made from cotton and synthetic fabrics that see a big change. On finished products from either fabric, the tax incidence has come down to 5 per cent. However, as the prices cross Rs 10,000, the tax incidence on cotton/synthetic finished garments rises to 12 per cent. So, branded clothing buyers, beware!
#4: Real Beneficiary of GST on Textiles
In reality, the real beneficiary of the GST regime is the unorganised textile sector. This sector is responsible for providing raw materials to big brands who then charge a premium on finished products. With GST, the government is giving the unorganised textile units to enter the organised sector.
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#5: Why Tax Synthetic Textiles More?
If you recall, a lot of brands import their made-from-synthetic -fabrics garments to India. This happens despite India’s organised sector having improved a lot in this regard. So, as a short-term measure, it seems that taxing synthetic textiles more is a way to curb imports. While industry has expressed concern over the move, we expect that in future, rectification steps will be taken in this regard.
So, this is all you need to know about GST on textiles. Do feel free to mention your thoughts in the comments below. For more such stories, stay tuned to FinGyan.