At the outset, CITI would like to thank the Government for the landmark decision to rationalize the Goods and Services Tax (GST) structure into two slabs of 5% and 18% by removing the 12% and 28% slabs. This reform is a highly progressive step that will not only simplify the existing tax regime but also bring ease of compliance for businesses across the value chain.
At present, the textile & apparel sector is facing several challenges related to the existing GST structure which is not only affecting its growth but also restricting certain segments from realizing their full potential and hence needs to be addressed on a fast-track basis.
The various issues related to GST in the Textile & Apparel value chain and suggestions thereof are given below:
1. Inverted Duty Structure (IDS)-related:
a. MMF value chain Issue: While cotton value chain is under 5% GST slab, MMF value chain faces issue of IDS with fibre being charged at 18% GST, yarn at 12% and Fabric at 5%. This IDS is not only leading to capital blockage in the MMF industry but the prevailing disparity in GST slabs between the cotton and MMF (man-made fibre) value chains continues to adversely impact the balanced growth of the textile and apparel (T&A) industry.
Suggestion: With the Government’s proposal to move towards two principal GST slabs, it is suggested to adopt a uniform 5% GST rate across cotton, MMF, and blended products. This will:
• Eliminate IDS and the need for complex refunds,
• Promote balanced, fibre-neutral growth,
• Enhance domestic and export competitiveness,
• Be revenue-neutral, as fabrics are already taxed at 5%.
Additional Concern: It may also be noted that if fibre continues to be taxed at 18% while the GST rate on yarn and subsequent stages is reduced to 5%, it will result in huge accumulation of credit. Fibre manufacturers are largely large-scale players with better financial capacity, whereas yarn manufacturers are comparatively smaller entities who will not be able to absorb or withstand such accumulation. This imbalance will create severe strain on the financial viability of spinning units and discourage investments in the MMF segment.
Hence, a uniform GST rate of 5% across the entire MMF value chain is requested.
b. Textile Machinery
Issue: At present, various textile and auxiliary machineries used in conjunction with other textile machines are placed under 18% and 12% GST rates. As the final product is charged at GST rate of 5% or 12% (5% for garments priced below Rs.1000 and 12% for those priced above Rs. 1000), it is leading to IDS. Further, as per GST laws, refund of accumulated ITC is not allowed on capital goods (Section 54(3)), unlike inputs used for manufacturing, so such ITC remains blocked in the books of the manufacturer, affecting liquidity.
Suggestion: To stimulate fresh investments in the Textile & Apparel industry, it is earnestly requested that the GST rate on textile machinery and auxiliary equipment be reduced from the current 18%/12% to 5%.
c. Reverse Charge Mechanism (RCM) on Cotton Purchase
Issue: At present, Ginners are required to pay 5% GST under Reverse Charge Mechanism (RCM) on purchase of kapas. As the major byproduct of ginning and oil milling process – oil cake – is exempted from GST, it breaks the input–output tax chain leading to unutilized ITC. Moreover, as refund of such unutilized ITC is not permitted, the credit keeps piling up year after year, creating significant blockage of working capital.
Suggestion: To support ginning industries, it is requested to either levy a GST of 5% on oil cakes or allow refund of the ITC so that it does not lead to working capital blockage.
2. Abolition of Filing of GST ITC-04 returns by the Hosiery and Textiles Industry
Issue: In the Hosiery and Textile Industry most manufacturing work is done through the Job Work system and in job work, multiple HSN Code items are sent together for job working like fabric, elastic, plastic, boxes & others packing materials.
Job work is done mostly by small and tiny units for whom getting the data collated and filing ITC 04 is not only very difficult but next to impossible. Given the challenges being faced by the smaller units, Government was kind enough to exempt the Hosiery & Textile Industry from filing of Form GST ITC-04 in respect of Job work for the year 2017-2018 and 2018- 2019. However, thereafter, only extension in filing of deadline was provided by the Government.
Suggestion: There are multiple checks in the textile industry as all the raw materials come from interstate paying IGST and all goods are accordingly moving through the proper books of accounts. It is therefore requested to “ABOLISH” the need to file the GST ITC-04 return by the Hosiery and Textiles Industry forever for improving the ease of doing business.
3. Increasing threshold for 12% GST for apparel products
Issue: Currently, apparel products priced below Rs.1,000 attract a GST rate of 5%, while those priced above ₹1,000 are charged at 12%. Many essential garments, such as winterwear, fall above the ₹1,000 threshold not because they are luxury items, but due to higher production costs. The higher GST rate on such products is dampening consumer demand.
Suggestion: It is recommended that the GST threshold for garment products be raised from the current Rs.1,000 to at least Rs.10,000. This adjustment would ensure that only genuine luxury garments fall under the higher GST bracket, while essential apparel remains affordable and accessible.
