Impact of GST on Textile Industry

‘Textile’, after food, is the second most basic requirement of the world. It can easily be said that each and every person in the world is a consumer of the textile sector. Importantly, high-quality fabric and affordable cost are India’s pointers which are attracting the global market towards India’s textile sector. Impact of GST on Textile Industry article share a detailed understanding & importance of textile industry in India

Some of the leading statistics for the textile sector of India are

  • The textile sector in India is the second largest employment provider, after the agricultural sector.
  • Textile sector offers employment to both skilled as well as unskilled labour. By and large, it provides employment to over 35 million people in India.
  • After seeing a whooping rise of 41%, India has recorded the highest textiles and apparel exports worth $44.4 billion.
  • Textile sector contributes around 10% to the total annual exports of India.

The textile sector being one of the strong pillars of the Indian economy, it is important to analyze and understand the impact of GST on Textile industry .

Recently, the existence of an inverted duty structure and recommended GST rate hike in all the products relevant under the textile sector has brought the said sector into the limelight.

The present article provides basics of the impact of Goods and Services Tax on the textile sector; proposal of GST rate hike and deferment thereof and GST rate as applicable to textile sector post proposed but deferred hike.

Impact of GST on Textile Industry & It's Importance

Impact of GST on Textile sector

In the pre-GST era, the textile sector had to go through and deal with various taxes like Central Excise Duty; Value Added Tax (VAT); Central Sales Tax (CST); Entry Tax; Customs Duty; etc. However, post-GST, subsuming all the taxes into a single tax, made the administration of the textile sector pretty simple.

Further, an uninterrupted input tax credit chain under GST also benefited the textile sector. Summing up thereby that there was a neutral effect of Goods and Services Tax on the textile sector.

However, along with GST, the problem of inverted duty structure started hindering a certain portion of the textile sector. Let us understand how –

From the implementation of GST, mostly all of the final products relevant to the textile sector fall under the tax slab of 5%.

However, it is important to note the variant tax slab of the following products-

  1. Man-made fibre – taxable at 18% GST;
  2. Man-made yarn – taxable at 12% GST; whereas,
  3. Man-made fabrics – taxable at 5% GST.

The above variation in levy of GST rates was the major concern to be dealt with by the textile sector post implementation of GST.

GST on Textile Industry : Hike Proposal & Deferment

GST on textile hike proposal

As seen above, the goods and services tax rate applicable to the textile sector is 5%. However, GST applicability on the inputs relevant to man-made fabrics varied between 5%, 12% and 18%.

Accordingly, the textile sector was facing the problem of inverted duty structure, wherein, GST on raw-material is more than that of GST on finished goods. The same was continuously pointed out and represented to the Government to come up with some possible solution.

Positive impact of GST on textile industry

The textile sector was at the assumption that the Government will uniformly apply 5% GST rate to all the relevant products. However, surprisingly and shockingly, for rationalizing the tax rates, the 45th GST council meeting recommended hiking of the GST rate from 5% GST rate to 12% GST rate.

It is important to note here that around only 15% of the textile sector, dealing in the manmade fabric sector and the yarn sector, were facing the problem of inverted duty structure. However, with the recommendation to hike the GST rate to 12%, 85% of the textile sector was going to have an adverse impact.

Naturally, the recommended GST rate change was badly opposed by the textile manufacturer, textile merchants and textile traders. Again, the round of representation started from the textile sector to the Government.

 Meanwhile, implementing the 45th GST council meeting recommendation, the Ministry of Finance issued a notification no. 14/2021- Central Tax (Rate) dated 18th November 2021. As per the notification rate of GST of the following tabulated items will be 12% (6% CGST + 6% SGST) effective from 1st January 2022

HSN Code

Description

5007

Woven fabrics of silk/ of silk waste

5111

Woven fabrics of carded wool/ of carded fine animal hair

5112

Woven fabrics of combed wool/ of combed fine animal hair

5113

Woven fabrics of coarse animal hair/ horse hair

5208

Woven fabrics of cotton (containing 85% or more by weight of cotton) weighing not more than 200g/m

5209

Woven fabrics of cotton (containing 85% or more by weight of cotton) weighing more than 200g/m

5210

Woven fabrics of cotton (containing less than 85% by weight of cotton, mixed mainly/ solely with man-made fibres) weighing not more than 200g/m

5211

Woven fabrics of cotton (containing less than 85% by weight of cotton, mixed mainly/ solely with man-made fibres) weighing more than 200g/m

5212

Other woven fabrics of cotton

5309

Woven fabrics of flax

5310

Woven fabrics of jute/ other textile bast fibres of heading 5303

5311

Woven fabrics of other vegetable textile fibres/ paper yarn

5401

Sewing thread of man-made filaments (whether or not put up for retail sale)

5402

Synthetic filament yarn not put up for retail sale (including synthetic monofilament of less than 67 decitex)

5403

Artificial filament yarn not put up for retail sale (including artificial monofilament of less than 67 decitex)

5404

Synthetic monofilament of 67 decitex or more (wherein no cross-sectional dimension exceeds 1mm strip and synthetic textile material of width not exceeding 5mm.)

5405

Artificial monofilament of 67 decitex or more (wherein no cross-sectional dimension exceeds 1mm strip and synthetic textile material of width not exceeding 5mm.)

5406

Man-made filament yarn put up for retail sale (other than sewing thread)

5407

Woven fabrics of synthetic filament yarn (including woven fabrics got from material heading 5404)

5408

Woven fabrics of artificial filament yarn (including woven fabrics got from material heading 5405)

5501

Synthetic filament tow

5502

Artificial filament tow

5503

Synthetic staple fibres (not carded) combed/ otherwise processed for spinning

5504

Artificial staple fibres (not carded) combed/ otherwise processed for spinning

5505

Waste of man-made fibres (includes yarn waste, noils and garnetted stock)

5506

Synthetic staple fibres (carded) combed/ otherwise processed for spinning

5507

Artificial staple fibres (carded) combed/ otherwise processed for spinning

5508

Sewing thread of man-made staple fibres (whether or not put up for retail sale)

5509

Yarn of synthetic staple fibres (not put up for retail sale)

5510

Yarn of artificial staple fibres (not put up for retail sale)

5511

Yarn of man-made staple fibres (put up for retail sale)

5512

Woven fabrics of synthetic staple fibres (containing 85% or more by weight of synthetic staple fibres)

5513

Woven fabrics of synthetic staple fibres (containing less than 85% by weight of such fibres, mixed mainly/ solely with cotton of a weight not more than 170 g/m2)

5514

Woven fabrics of synthetic staple fibres (containing less than 85% by weight of such fibres, mixed mainly/ solely with cotton of a weight more than 170 g/m2)

5515

Other woven fabrics of synthetic staple fibres

5516

Woven fabrics of artificial staple fibres

5608

Knotted netting of twine made up of fishing nets & other made up nets of textile materials

5801

Woven pile fabrics & chenille fabrics (other than fabrics of heading 5802/ 5806)

5806

Narrow woven fabrics/ narrow fabrics consisting of warp without weft assembled by means of an adhesive

6001

Pile fabrics (knitted or crocheted) (including long pile fabrics & terry fabrics)

6002

Knitted/ crocheted fabrics of a width not more than 30 cm (containing by weight 5% or more of rubber thread/ elastomeric yarn)

6003

Knitted/ crocheted fabrics of a width not more than 30 cm (other than those of heading 6001/ 6002)

6004

Knitted/ crocheted fabrics of a width more than 30 cm (containing by weight 5% or more of rubber thread/ elastomeric yarn)

6005

Warp knit fabrics other than those of headings 6001 to 6004

6006

Other knitted/ crocheted fabrics

6301

Blankets and travelling rugs

6302

Table linen, bed linen, toilet linen & kitchen linen

6303

Curtains, drapes and interior blinds.
Curtains or bed valances.

6304

Other furnishing articles (excluding heading 9404)

6305

Sacks & bags of such a kind used for the packing of the goods

6306

Tarpaulins, sunblinds & awnings, tents;
Sails for boats, landcraft or sailboards;
Camping goods.

6307

Other made up articles (including dress patterns)

6308

Sets (consisting of woven fabric & yarn)

6309

Worn clothing/ other worn articles

6310

Used/ new rags, twine, scrap, rope, cordage, cables and worn out articles of cordage, twine, cables or rope of textile materials

6405

Footwear (sale value not more than INR 1,000 per pair)

Post recommendation of 45th GST council meeting and the issuance of notification no. 14/2021- Central Tax (Rate) dated 18th November 2021, there was a lot of hue and cry in the textile sector.

Impact of GST Rise on Textile Industry

Thereafter, due to various representation and oppositions, implementation of the above rates, as notified vide notification no. 14/2021- Central Tax (Rate) dated 18th November 2021, was deferred. Meaning thereby that even after the effective date i.e. 1st January 2022, old GST rates as prevalent earlier continued to be operative to the textile sector.

GST on Textile Services & Rate Applicability

GST on Textile Industry Applicability

The 46th GST Council Meeting recommended to defer the GST rate hike as notified vide notification no. 14/2021- Central Tax (Rate) dated 18th November 2021. Accordingly, all the GST rates as applicable till 31st December 2021 continued to remain effective even after 1st January 2022.

Notably, there was no discussion as such in the 47th GST council meeting held on 28th and 29th June 2022. Hope the issue of inverted duty structure hindering the textile sector is sorted out by the Government soon.

For the purpose of easing up and summarizing thereof, the entire scenario, with zero conclusion, of inverted duty structure issue going on in the textile sector can be summed up in the following manner
  • Problem of inverted duty structure emerged with the implementation of GST on man-made fabrics and yarn sector;
  • Various representations were done to solve the problem of inverted duty structure;
  • Instead of getting solution, 45th GST council meeting recommended hiking of GST rate across the textile sector from 5% to 12% and the matter got more complicated;
  • Notification no. 14/2021- Central Tax (Rate) dated 18th November 2021 was issued which notified hiking of GST rate and the said hike in rates was going to be made effective from 1st January 2022;
  • After various outbursts, strikes and representations, again in the 46th GST council meeting it was decided that to delay the GST rate hike.

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CA Poonam Gandhi

About the author

Poonam Gandhi is a Chartered Accountant and a Lawyer. She is a Professional Freelance Content Writer/ Editor and an Educator.

She masters in creating result-oriented as well as Search Engine Oriented Content. Currently, she is associated with some of the topmost leading sites of India.

She holds more than 3 years of experience in the content field. Before entering the content writing field, she possessed a wide practice experience of more than 9 years, specifically, in the field of Indirect Taxation.

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