GST on Clothes/Garments in 2022 [Tax Rates, HSN Codes]
Many indirect taxes in India have been replaced by the Goods and Services Tax (GST). Such taxes are Value Added Tax (VAT), service tax, Excise Duty, etc. This makes GST a very comprehensive tax that affects various sections of the Indian economy. One of these sections is the textile industry that is affected by GST.
The textile industry will now be subjected to the rules and regulations of GST. This will remove the various complicated taxes associated with garments.
Let us go through this topic more deeply to understand the GST on clothing in 2022. You can also check out the various tax rates for garments here.
Impact of GST
The experts expect that the tax rate under GST for the textile industry would surpass the current tax rate. Also, previously, there was an exemption for natural fibres like wool and cotton from tax. However, a change will come to GST as the natural fibres will now be subject to taxation.
Despite this, the GST on clothes is likely to be beneficial for the textile industry. Let us understand this with the following reasons:
- Break in the Chain of Input Credit
The operation of a significant portion of the textile industry in India takes place under the composite scheme (unorganised sector). This leads to a gap in the flowing of the input tax credit. If the registered taxpayers can procure the inputs from the composition scheme, input tax would not be allowed.
The introduction of GST would mean a more efficient flow of the input credit system. Consequently, the balance would shift in favour of the organised sector.
- Reduction in the cost of manufacturing
GST is also likely to reduce the cost of manufacturing by subsuming various types of fringe taxes. Consequently, the prices for manufacturers in the textile industry would be reduced.
- Input Credit that is levied on capital goods
Manufacturing textile goods under the current system requires the procurement of the latest technology. However, the import of the technology is quite expensive. This is because the treatment of paid excise duty does not take place as an input tax credit.
Also read: Jeans manufacturers in India
With GST, things will be different. Under GST, there shall be the availability of input tax credit for the tax that has to be paid on capital goods.
GST rates on cotton products
Below is a representation of the GST Rates as well as HSN Codes for various cotton products.
Composition of Cotton | HSN Code | Rate |
Products whose composition is more than 85% cotton content while their weight is below 200 gm/sq mtr. | 5208 | 5% |
Products whose composition is more than 85% cotton content while their weight is above 200 gm/sq mtr | 5209 | 5% |
Products whose composition is less than 85% cotton content have a mixture of additional fabrics, and their weight is below 200 gm/sq mtr | 5210 | 5% |
Products whose composition is less than 85% cotton content have a mixture of additional fabrics, and their weight is above 200 gm/sq mtr | 5211 | 5% |
Cotton Products other than these | 5212 | 5% |
GST rates on synthetic filament yarn products
Below is a representation of the GST Rates and HSN Codes for various synthetic filament yarn products.
Specification of Yarn | HSN Code | Rate of GST |
67 Decitex of Synthetic Monofilament or more than it, no cross-sectional dimension of this filament is over 1 mm; strips & the Like of synthetic textile material must not have more than 5 mm of apparent width. | 5407 | 5% |
67 Decitex of Artificial Monofilament or more than it, no cross-sectional dimension of this filament is over 1 mm; strips & the Like of synthetic textile material must not have more than 5 mm of apparent width. | 5408 | 5% |
Boost to Textile Exports
GST would bring about streamlining of the entire process of claiming the input tax credit. This would facilitate the Indian textile industry to gain a competitive edge in the export market.
Currently, the inclination of traders or manufacturers of garments is not to the exporters. This is because of the processing delays of duty drawbacks. Another reason is the procedure costs which are quite extensive.
Under GST, the system of duty drawback will not remain as important as before. GST will ensure providing the Input tax credit as a refund rather than the current duty drawback schemes system. This is likely to promote the export of Indian textile industry garments.
There is the availability of export promotion capital goods scheme for all the textile exporters that are cotton-based. Under this scheme, an exemption to duty paid may be provided to the exporters if they export six times the duty value. However, they must do so within a limited period of the next six years. The experts expect that this scheme would lose its importance under GST.
Also Read:
1) GST on used vehicles
2) GST on Indian Hospitality Industry
3) GST on Food items
4) GST rates on Diamond jewellery
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FAQs
Q. Who is affected by the GST on garments?
Ans. The GST on clothes will be on consumers, clothing manufacturers, clothing retailers, importers, and skilled and unskilled workers associated with the textile industry.
Q. Will there be some drawbacks of GST on garments?
Ans. Yes, the GST on clothes will be negative in some respects. This is because of the removal of cotton value chain benefits. Also, the higher tax rate is a drawback.
Q. Will GST lead to a reduction in production costs?
Ans. Yes, GST will lead to a reduction in production costs. This is because the GST on clothes will bring about reduced input costs. This is because GST will consume complex taxes like luxury tax, entry tax, OCTROI, etc. These complicated taxes have been responsible for significantly increasing the input costs.