The Industry-Wide Impact of GST on the Indian Textile Sector: A Comprehensive Overview
Table of Contents
Introduction
The Goods and Services Tax (GST) introduction in 2017 brought about significant changes to the Indian textile industry, recognized for its historical and cultural value.
This indirect tax system aimed to facilitate commercial transactions while streamlining the intricate tax system.
This shift also applied to the textile industry, which employs millions of people and contributes significantly to exports, making it one of the biggest drivers of the Indian economy.
Textile Industry Tax Structure Before GST
The textile sector was governed by a disjointed and complex tax regime before GST. At various points along the production and sales process, some taxes were imposed, including excise duties, entry taxes, central sales tax (CST), and value-added tax (VAT).
For producers and traders, the cumulative tax burden frequently resulted in increased costs. This tax system was inconsistent and opaque, with various states applying different rates.
GST Rates on Clothes and Textiles
The Sale of Clothes Is Taxable
Clothes sales are taxable under the Goods and Services Tax since they are regarded as supplies, regardless of whether they are sewn.
Raw Jute and Raw Silk at Zero Rate
No tax is applied to dealers or mills that deal in raw silk and jute. They are not required to register for GST or pay taxes because of their unique status.
GST on Raw Cotton: Basis of Reverse Charge
GST is paid by buyers on a reverse charge basis and is charged at a rate of 5% on transactions involving raw cotton.
Taxes on Services for Renting Clothes and Tailoring
GST is applied to tailoring and clothing rental services, meaning people or companies that provide these services must abide by the GST laws.
Availability of Composition Scheme
If clothing suppliers have an annual revenue of up to Rs. 1.5 crore (or Rs. 75 lakhs in the northeastern states), the composition scheme is a feasible choice for them. Similarly, a turnover of Rs.50 lakhs is the cap for renting clothes or providing stitching services.
GST Rates on Clothes and Apparel
Sr.No | Items | HSN Code | GST Rate | Conditions |
1 | Apparel and clothing accessories or cap/topi, knitted or crocheted | 61 or 6501 or 6505 | 5% | Sale value not exceeding ₹1000 per piece |
2 | Apparel and clothing accessories, not knitted or crocheted | 62 | 5% | Sale value not exceeding ₹1000 per piece |
3 | Other made-up textile articles | 63 (other than 6305 32 00, 6309) | 5% | Sale value not exceeding ₹1000 per piece |
4 | Handmade/hand-embroidered shawls | 6117, 6214 | 5% | Sale value not exceeding ₹1000 per piece |
5 | Worn clothing and other worn articles | 6309 or 6310 | 5% | – |
6 | Apparel and clothing accessories, knitted or crocheted | 61 | 12% | Sale value exceeding ₹1000 per piece |
7 | Apparel and clothing accessories, not knitted or crocheted | 62 | 12% | Sale value exceeding ₹1000 per piece |
8 | Other made-up textile articles (other than Worn clothing) | 63 | 12% | Sale value exceeding ₹1000 per piece |
GST Rate on Textile Materials
Sr. No | Items | HSN Code | GST Rate |
1 | Silk yarn | 5004 to 5006 | 5% |
2 | Woven fabrics of silk or silk waste | 5007 | 5% |
3 | Garnetted stock of wool, fine or coarse animal hair, shoddy wool | 5104 | 5% |
4 | Wool and fine or coarse animal hair, carded or combed | 5105 | 5% |
5 | Yarn of wool or animal hair | 5106 to 5110 | 5% |
6 | Woven fabrics of wool or animal hair | 5111 to 5113 | 5% |
7 | Cotton and Cotton waste | 5201 to 5203 | 5% |
8 | Cotton sewing thread (whether or not put up for retail sale) | 5204 | 5% |
9 | Cotton yarn [other than khadi yarn] | 5205 to 5207 | 5% |
10 | Woven fabrics of cotton | 5208 to 5212 | 5% |
11 | Flax, raw or processed but not spun; flax tow and waste (including yarn waste and garnetted stock) | 5301 | 5% |
12 | Textile bast fibers (Other than jute fibers, raw or processed but not spun); Tow and waste of these fibers (including yarn waste and garnetted stock) | 5303 | 5% |
13 | All goods, including yarn of flax, jute, other textile bast fibers, other vegetable textile fibers, and paper yarn. (other than coconut coir fiber) | 5305 to 5308 | 5% |
14 | Woven fabrics of vegetable textile fibers, paper yarn | 5309 to 5311 | 5% |
15 | Woven fabrics of manmade textile materials | 5407, 5408 | 5% |
16 | Woven fabrics of manmade staple fibers | 5512 to 5516 | 5% |
17 | Real zari thread (gold) and silver thread | 5605, 5600, 5610 | 5% |
18 | Jute twine, coir cordage or ropes | 5607 | 5% |
19 | Knotted netting of twine, cordage, or rope | 5608 | 5% |
20 | Products of coir | 5609 | 5% |
21 | Coir mats, matting, floor covering, and handloom durries | 5702, 5703, 5705 | 5% |
22 | Narrow fabrics consisting of warp without weft assembled through an adhesive (bolducs) | 5806 | 5% |
23 | All goods of Knitted or crocheted fabrics | 60 | 5% |
Documents that are Needed to Register Fabric Under GST
These are the documents needed for GST registration.
- An application photo the size of a passport
- Details regarding the application
- Details on the approved signers
- The corporation’s PAN card
- A company’s principal place of business is confirmed by
- title records,
- invoices for electricity, copies of municipal katas,
- Rental contracts, as well as
- invoices for property taxes (Anyone from the list above)
- Anybody can offer proof of their bank account information, including:
- A canceled check, a bank statement, or the first page of their passbook. (anyone)
- papers, including articles of incorporation, memorandums of understanding, and partnership agreements.
What is the procedure you must Follow for online GST registration?
The following are six simple steps in online GST registration that are easy to use.
Step 1
To register for GST, login to the GST Portal.
Step 2
To get a Temporary Reference number, undergo OTP verification.
Step 3
After this, the GST registration application, https://reg.gst.gov.in/registration/, has to be completed using TRN.
Step 4
Fill out the application form with all the information needed and attach the required documents.
Step 5
Check on your application status.
Step 6
Download the GST registration certificate after your verification process has come to pass.
Conclusion
There is no denying that the introduction of GST has changed the Indian textile sector. The industry still needs help with compliance and differentiating tax rates, even though taxation has become simpler and the cascade effect of taxes has decreased.
On the other hand, the long-term advantages, increased openness, reduced expenses, and a single market- pave the way for a more robust and globally competitive textile industry.
The government and textile associations must continue to communicate as the industry develops to guarantee that the GST framework fosters the expansion of this crucial economic sector.
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