Understanding GST Rates and HSN Codes for Clothing and Textiles
This article delves into the applicability of Goods and Services Tax (GST) on various clothing and textile products in India. It examines the current GST rates, including proposed changes and their impact on the industry, alongside the relevant HSN codes for classification. The discussion also covers taxability for raw materials, tailoring services, and the composition scheme for businesses in the apparel sector.
India's textile sector is vital to its economy, offering significant employment and contributing to GDP and exports. As one of the nation's oldest and second-largest industries after agriculture, it employs both skilled and unskilled workers. Since the implementation of GST, tax rates on apparel and textiles have undergone several revisions, reflecting the dynamic nature of the industry's tax framework. Currently, the proposed GST rate for all clothing items stands at 12%.
Taxability of GST on Clothing and Textiles
The sale of both stitched and unstitched garments is subject to Goods and Services Tax (GST) as it constitutes a supply. Conversely, raw jute and raw silk are exempt from GST, meaning businesses dealing solely in these materials do not need to register for GST or remit taxes. A 5% GST on raw cotton is payable by buyers under the reverse charge mechanism. Tailoring and garment rental services are also subject to GST. Businesses supplying clothing can opt for the composition scheme if their annual turnover does not exceed INR 1.5 crore (or INR 75 lakhs in North-Eastern states). For services like cloth renting or stitching, the composition scheme turnover limit is INR 50 lakhs. In 'Buy one, get one free' promotions, GST is not levied on the complimentary item, and input tax credit cannot be claimed for that portion.
GST Rates and HSN Classification for Apparel
For classification purposes, knitted apparel and clothing fall under Chapter 61 of the HSN code, while non-knitted items are categorized under Chapter 62. A significant challenge for the textile industry arises from the higher GST rate on raw materials compared to finished goods, which restricts the availability of input tax credit. Although the Indian government proposed changes to GST on clothing to address this inverted duty structure, aiming to increase rates from 5% to 12% across the board starting January 2022, these revisions have not yet been implemented due to industry opposition. Consequently, the earlier GST structure remains in effect: a 5% GST applies to garments valued up to INR 1,000, while items priced above INR 1,000 are subject to a 12% GST. This differential also extends to various textiles like woven fabrics, synthetic yarn, and home accessories such as blankets and rugs, where the proposed increase from 5% to 12% is currently on hold. Tailoring services are taxed at 5% under HSN code 9988, and clothing rental services follow the same GST rates as applicable to the garments themselves.