Delhi, December 5, 2024 The planned changes to the GST rate on ready-made clothing have sparked worries from the Confederation of Indian Textile Industry (CITI), which has warned of the possible wide-ranging effects on employment, the textile sector, and the economy as a whole. Clothes up to ₹1,500 would still be subject to a 5% GST charge under the proposed structure. But clothing that costs between ₹1,500 and ₹10,000 would see a sharp hike to 18%, while clothing that costs more than ₹10,000 will be subject to the highest tax rate of 28%.
GST Issues in the MMF Industry
Additionally, CITI has called attention to the ongoing problem of an inverted duty structure (IDS) in the man-made fibre (MMF) sector, where different GST rates along the value chain restrict working capital and expansion.
Segment Cotton MMF
Fibre 5% 18%
Yarn 5% 12%
Fabrics (woven, knitted) 5% 5%
Garments* 5% or 12% 5% or 12%
Home Textiles & Made-ups* 5% or 12% 5% or 12%
GST rate is 5% if the product value is <₹1,000, otherwise charged at 12%.
In order to alleviate the IDS problem in the MMF industry without affecting government income, CITI restated its earlier suggestions to lower the GST rates on raw materials like PTA and MEG from 18% to 12%. CITI is concerned that the planned increase may cause a stir in the formal retail industry, leading to customers and companies towards unofficial and uncontrolled routes.
Job Losses and Sectoral Effects
Numerous employment in the textile sector, which is already struggling financially, might be lost, especially in small and medium-sized businesses (SMEs) that produce clothing, spin, and weave. The proposed GST hike is expected to heighten price inflation, disproportionately affecting price- sensitive consumers. CITI has urged the government to reconsider the proposed GST rate hike and adopt a balanced approach that fosters growth in the textile sector while ensuring consumer affordability.
“When demand is already under strain, more taxes on clothing associated with festivals and festivities may cut down consumption. Millions of people in India depend on the textile industry for their livelihoods, thus this might have a knock-on effect on the economy. Policies need to foster its expansion rather than erect obstacles,” remarked CITI Chairman Sh. Rakesh Mehra.