GST Impact on Textile Industry in India

Textile industries play a very important role in the development of the Indian economy with respect to GDP, Export promotion, employment, etc. It is one of the oldest manufacturing industry in India. It is the second largest industry after agriculture which provides skilled and unskilled employment. In this sector, 100% FDI is allowed by the Government under the Automatic Route. Textile Industry contributes more than 10% of Total Export.

Textile Industry is divided into Two Segment, firstly Unorganised and Secondly Organised. The unorganised sector consists of Handloom, handicraft, small and medium-scale mills and Organized Sector consist of spinning, apparel and garments segment which apply modern machinery and techniques. The rate structure for the textiles is decided at 5 percent and 18 percent for cotton fibre and man-made synthetic fibre respectively. While silk and jute are totally exempted from the GST purview. The GST rate on apparels is also decided on a category basis, as Apparels below INR 1000 will be attracting 5 percent GST while those above this mark will be taxed at 12 percent.

In its meeting held on 5th August by  GST council took some positive and relaxing decision for the textile industry. The council mentioned rules regarding e-way bill and rates. And at the same time, the rates of GST has been reduced from 18 percent to 5 percent on job work of all textiles and related products manufactured. The finance minister Arun Jaitley who also heads the GST council along with the representatives of states in general also finalized the e-way bill rules and regulations. In this new decided norm, the registration of goods worth more than INR 50,000 has been made mandatory before the transport is carried on and even that for more than 10-kilometre distance.

Mainly Two types of Indirect Taxes considered by the government is Central Excise Duties and Service Tax which was under wide use. Service is not levied on Textile since it comes under Goods. Under the current taxation system, textile products are mostly exempted or are taxed at a very low rate. State Governments have to stop levying Sales Tax after the discontinuation of Additional Excise Duty. From the tax rate structure, it is seen that cotton fibre will be gaining momentum by the GST rate decided for it. Overall it is concluded that the final rates are very much less than the previous scheme and will definitely benefit the whole industry in the long run.

Leaving behind the fragmented structure of the supply chain, the GST will consolidate this structure and will present a better supply chain management to the industry. The self-compliance necessity in the GST will also track down the revenue even if the tax rates are low for some general benefiting of masses.

Impact of GST Rise on Textile Industry

The GST council had announced earlier this year to increase the rate of GST on goods related to the textile industry. However, the finance minister, Smt. Nirmala Sithraman said that the council has decided to postpone the increase until further notice. Some natural fibers like cotton and wool were exempt from any tax liability but after the council meeting, it was decided that these will be taxed under GST from the date of the increase.

It is clear that the rate of GST on the textile industry will be increased sooner or later, so let’s have a look on the advantages of the increase and implementation of new taxes on textile products:

Easy Flow of ITC

A great portion of traders in the textile industry is not registered with GST due to which a barrier is created in the flow of Input Tax Credit. With the implementation of taxes on natural fibers, more and more traders will get themselves registered with GST which will stimulate the proper flow of ITC in the market and the traders will be benefited from it too.

• Reduced Manufacturing Costs
• Fringe taxes like Octroi and entry/luxury taxes will be converted into a single GST that will bring down the manufacturing cost textile products.

ITC on Capital Goods

According to the current provisions of ITC, the credit is not allowed on the procurement of the latest machines through imports. The excise paid on imports increases the price of procurement. If GST is introduced, it will be a compulsion to credit ITC which will reduce the cost of capital goods, indirectly.

Boost to Exports

The introduction of GST will help in registering more and more traders with GST. The registration of traders will take these traders to the export market. The traders hesitate to get their products for exports because of its extensive process but under GST, barriers like duty drawback will be removed and ITC too will ease the process of exports. Under export promotion capital goods scheme, the exporters are given exemption of duty if the export value is six times the value of duty within six years form the export. This scheme will lose its value with the implementation of GST.

GST Rates & HSN Codes For Cotton Products like- Dhoti, Saree, Zari Border Saree, Zari Border Dhoti, Shirting, Casement, Viol, Sheeting, Suti, Cambric, Lawn, Latha, Lungi & furnishing fabrics.

GST Impact on Textile Industry in India