OF GOODS & SERVICE TAX ON TEXTILE INDUSRY
sector is one of the oldest industries in Indian economy. Even today, textiles
sector is one of the largest contributors to India’s exports with approximately
13 per cent of total exports. The textiles industry is also labour intensive
and is one of the largest employers. The textile industry has two broad
segments. First, the unorganised sector consists of handloom, handicrafts and
sericulture, which are operated on a small scale and through traditional tools and
methods. The second is the organised sector consisting of spinning, apparel and
garments segment which apply modern machinery and techniques such as economies
The textile industry
employs about 45 million people directly and 20 million people indirectly.
India’s overall textile exports during FY 2015-16 stood at US$ 40 billion.
Taxation Industry is the Industry which is very lucid in
every segment & that is vertically integrated from raw material to finished
Products (From fibre to retail).
Before discussing Impact of Goods & Service Tax on
Textile Industries we should have understanding about former Tax structure. What
was Tax liability in the sector of textile prior to GST & whether the new
structure of Tax for textile industries would aid in the growth of industry or
In the previous Tax structure there were different Acts
under which tax was levied such as when the goods were manufactured then tax
was levied under Central Excise Act, similarly on different level and for different
stages tax is levied under different acts in the previous regime of tax.
Textile Sector can be decided in to different segment for
the computation of taxability under the former regime.
Cotton Value Chain (fibre to yarn)
Yarn to Fabric (Natural & Man Made)
Fabric to Garments
Export of Textile Product
Transpiration of textile product ( raw
material to finished product)
Value Chain (Fibre to Yarn)- The process of yielding cotton
from the fibre at different stages is known as the cotton value chain. These
the previous regime Cotton Value chains were exempted from Excise duty and Some
of the states levy tax on the Sales of the garments of cotton.
Now, talking about the present structure GST is
applicable of cotton value chain which have raised many eyebrows toward the government
as it may have negative impact on textile sector specially on cotton value chain,
currently supply of unprocessed cotton to the mills and from ginning mills to spinning
mills are currently exempted and further
supply of cotton to traders and for the
job worker are taxable under GST former will taxed under supply of goods and
later will be taxed as supply of service.
to Fabric – There will not be a major change in the segment of
processing of yarn to fabric as in the former regime also the excise duty was applicable.
Now in GST as the Excise duty is subsumed so this segment will attract tax at
the rate of 4-5%.
including textiles are being subject to lower rate of VAT / Sales tax in many
states. For small players, the option of paying taxes at concessional rates is
also provided under composition scheme in many states. In GST garment
are liable to be taxed under two categories garment which are below Rs.1000 are
taxed at the rate of 5 % which is same in comparison to the former tax
structure but the garment above R.1000 are now taxed at the rate of 12 % which
is much higher in comparison to the
previous tax structure, previously Excise duty and CST was applicable.
Export of Textile Products – The
exports will be zero rated under the GST as there will be transparency and
availability of full ITC for exporters which is currently being provided by
duty drawback schemes.
Transportation of Textile product – GST will also companies reduce logistics
cost by 1.5-2.5% as they reconfigure their supply chains and bring in three key
structural changes to the logistics industry.
of GST on overall Textile Industries –
Tax Regime (GST)
and Jute- 0 %
– 12.5 %
< Rs.1000 Excise duty- 0% VAT/CST- )0-5 % 5% Garments > Rs.1000
According to the table textile commodities will fall under the 0% to 18% tax
will have a positive Impact on the textile industries because GST is more
structured then the former regime. Now in the new regime there are less compliance
in comparison with the previous structure one more positive impact of GST will
be that ITC is available at every stage of the supply so it will benefit the manufacturer
and supplier of the textile industry. If there are some positive effects of GST
then there are negative aspect of GST as well one of them is in the previous
regime cotton value chain were exempted but in the new tax structure tax is levied
on these products also at the rate of 5% due to this it will change the cost of
finished product, another GST has failed to
resolve the issue of differential duty structure in the industry as well as the
issue of fibre neutrality.