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Published : January 8, 2024, Updated : January 23, 2024

GST on Clothes: Applicability, Rate and HSN Code

GST on Clothes: Applicability, Rate and HSN Code

The Indian textile industry stands as a cornerstone in the nation’s economic development, exerting significant influence on employment, GDP, and export promotion. Known to be one of the oldest sectors, it proudly holds the position of the second-largest industry following agriculture, providing employment opportunities for both skilled and unskilled workers. The industry’s impact is multi-faceted, contributing not only to economic growth but also shaping the socio-economic fabric of the nation.

The dynamic nature of the textile sector in India has witnessed shifts in GST rates on clothing since the inception of the Goods and Services Tax (GST) law. These adjustments reflect the evolving tax structure within the textile industry. As a vital player in the country’s economic landscape, changes in GST rates have implications for businesses and consumers alike.

The complexities of the tax system in the textile sector necessitate periodic revisions to align with industry dynamics, ensuring fair practices and fostering sustained growth.

In navigating these changes, the Indian textile industry continues to be a linchpin in the nation’s economic narrative, adapting to evolving policies while retaining its crucial role in employment generation, GDP contribution, and export advancement.

GST Taxes for Clothes and Textiles

Let’s understand GST taxes for clothes and textiles.

Taxable Nature of Clothes Sale

The sale of clothes, regardless of whether they are stitched or unstitched, falls within the taxable ambit of GST as it is considered a supply under the Goods and Services Tax.

Nil Rate for Raw Jute and Raw Silk

Dealers or mills dealing with raw jute and raw silk benefit from a nil rate of tax. This special status exempts them from the obligation of GST registration or the need to pay taxes.

GST on Raw Cotton – Reverse Charge Basis

Buyers engaging in transactions involving raw cotton are required to pay GST at a rate of 5%, and this is done on a reverse charge basis.

Taxation of Tailoring and Clothes Renting Services

Services related to tailoring and the renting of clothes attract GST, implying that individuals or businesses offering these services must comply with the GST regulations.

Composition Scheme Availability

For suppliers of clothes, the composition scheme is a viable option if their annual turnover is up to Rs.1.5 crore (or Rs.75 lakhs in north-eastern states). Similarly, the turnover limit for cloth renting or stitching services is set at Rs.50 lakhs.

Buy One, Get One Free’ Offers and GST

In scenarios involving ‘Buy one, get one free’ offers, GST is not levied on the items provided without consideration. It’s important to note that in such cases, the benefit of input tax credit is not available to the extent of the free items, making it a unique consideration in GST calculations.

Also Read: HSN Codes: What You Need to Know for Trade and Taxation

GST Rates and HSN code on Apparel & Clothing

Let’s understand GST rates and HSN code on apparel and clothing.

1. HSN Code Classification

In the world of HSN codes, clothes have their own chapters. When it comes to comfy knitted wear, they’re in Chapter 61. Now, if we’re talking about clothes without the cozy knitted touch, you’ll find them neatly placed under Chapter 62. It’s like giving each type of clothing its own special section in the code book!

2. GST Rates Discrepancy

Here’s a tax puzzle: the stuff used to make clothes has higher GST rates than the actual finished outfits. But here’s the hitch – because of this, the folks in the clothing business can’t grab the benefit of input tax credit. It’s like trying to get a discount but hitting a roadblock in the tax world!

3. Government’s Response

The Indian government saw the tax trouble in the clothing world and decided to fix it. They planned to make changes to how GST works for clothes, starting in January 2022. It’s like them saying, “Let’s make things better for everyone in the fashion game!

4. Proposed GST Rate Increase

There was a proposal to increase the GST rate on clothes from 5% to 12%. The purpose behind this move was to address problems arising from inverted duty structures impacting the textile value chain. The aim was to create a more balanced and effective taxation system for the textile industry.

5. Industry Response

The industry expressed disapproval of the suggested GST rate hike from 5% to 12%. Consequently, no official notification was issued to implement the proposed new rate. The industry’s response played a crucial role in the decision-making process, indicating a lack of consensus on the suggested tax adjustment.

6. Overall GST Rate Adjustment

The proposed adjustment, effective January 2022, aimed for a uniform GST rate of 12% on all clothes, irrespective of their value. This meant that whether a garment cost less than Rs.1,000 or more, the intended change was to apply a consistent 12% GST rate to simplify the taxation structure for clothing.

7. Previous Slabs

In the past, if you bought clothes under Rs.1,000, the GST rate was 5%. But there was a plan to change that. The proposal aimed to make things uniform, setting a standard 12% GST rate for all kinds of garments, regardless of their price. It was a way of keeping things straightforward when it came to taxing your favorite outfits.

8. Scope of GST Rate Increase

Here’s what was on the horizon: a plan to bump up the GST rate not just for clothes but for various textile items. The proposal suggested an increase from 5% to 12% for products like woven fabrics, synthetic yarn, pile fabrics, blankets, tablecloths, serviettes, tapestries, and rugs. It was a broader move, extending beyond clothes, to create a more consistent tax structure within the textile sector.

9. Non-Implementation

Here’s the latest: the plan to increase the GST rate on clothes hasn’t happened yet. Right now, the existing rate of 5% still stands, specifically for garments that cost Rs.1,000 or less. So, until there’s an official green light for the change, if you’re grabbing clothes in that price range, the current 5% GST rate is what applies at the checkout.

10. Higher Value Garments

If you spend more than Rs.1,000 on a fancy outfit, the idea was to charge a 12% GST on it. So, for those pricier clothes, they wanted to keep it simple – a flat 12% tax rate.

11. Tailoring Services GST

When it comes to getting your clothes tailored, here’s the scoop: tailoring services have their own code, 9988. And for this kind of service, the GST rate set was 5%. So, if you’re heading to the tailor to get that perfect fit, you can expect a 5% GST added to the bill – just a little something for their stitching skills.

12. Consistent Rates for Clothing Renting

Here’s the lowdown on renting clothes: the GST rates for renting are consistent with what we talked about earlier. So, whether it’s tailoring or renting, the rules stay the same. If you’re renting an outfit, you’re looking at the same GST rates as any other clothes – whatever applies to the value or service you’re getting. It’s a one-size-fits-all approach in the tax world!

13. Pending Changes

Currently, there’s a bit of a wait-and-see situation in the industry. The proposed changes to GST rates on clothing haven’t been put into action yet. Everyone is hanging tight, anticipating more information and the actual implementation of these changes. It’s like the industry is in a pause mode, ready to adapt once there’s a clear signal on how the new GST rates for clothing will play out.

Final Words

The journey of GST on clothes has been a dynamic one, with proposed changes aiming for a simplified and uniform tax structure. While industry responses have influenced decisions, the anticipated adjustments are yet to come into effect. As of now, the familiar 5% GST rate prevails for garments below Rs.1,000, providing a stable environment for both businesses and consumers.

The textile industry remains resilient, adapting to potential changes on the horizon, symbolizing its integral role in India’s economic fabric. We await further updates, ready to navigate the evolving landscape of GST in the world of fashion.

FAQs

Is GST applicable on clothes?
Yes, clothes are subject to GST in India, meaning that the Goods and Services Tax is applicable to clothing purchases.
What is the GST rates for garments (stitched or readymade clothes)?
The GST rate for stitched or readymade clothes is 5%, as determined by tax regulations in India. This percentage represents the Goods and Services Tax applied to the purchase of garments in their finished or ready-to-wear form.

What is the GST rate on tailoring services?
The GST rate on tailoring services was lowered from 18% to 5% by the GST Council’s decision. This adjustment reflects a reduced Goods and Services Tax applied to the provision of tailoring services in India.

How much is GST on clothes in India?
The GST on clothes in India varies from 5% to 12%, contingent on the item’s value. This range signifies the Goods and Services Tax applicable to clothing purchases, with the rate determined based on the assessed value of the garments.

Also Read: Demystifying HSN Codes: Impact on Your Business and Its Significance

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