Will Textile Sector Get a Uniform 12% GST Rate Soon?
The 12% GST rate on textile sector is back in the spotlight. As per recent reports, the GST Council may reconsider this long-pending move in its upcoming meeting, likely in September 2025. If approved, this will mark a significant shift from the current multi-rate system.
Let’s break down what this means for textile traders, manufacturers, and the compliance ecosystem.
Current GST Structure for Textile Industry
At present, the textile value chain is taxed at multiple rates:
| Product Category | Current GST Rate |
|---|---|
| Cotton fibre, yarn | 5% |
| Synthetic yarn | 12% |
| Woven fabric (cotton/poly) | 5% or 12% |
| Readymade garments (MRP ≤ ₹1000) | 5% |
| Readymade garments (MRP > ₹1000) | 12% |
This dual-rate system has led to:
- Inverted duty structure in some cases
- ITC accumulation for manufacturers using synthetic input
- Compliance complications for MSMEs and exporters
What Will Change with a 12% Uniform Rate?
If approved, the 12% GST rate on textile sector would apply across fabric, yarn, and apparel (including below ₹1000 MRP). Here’s what the shift may lead to:
✅ Benefits:
- Elimination of inverted duty structure
- Simplified invoicing and rate classification
- Better ITC flow for synthetic-based production
- Improved GST compliance and fewer disputes
❌ Challenges:
- Price rise for economy garments
- Possible consumer pushback for mass-market brands
- Need for inventory repricing across dealers and retailers
Legal & Policy Background
The 12% uniform GST rate on textiles was originally proposed in 2021 and notified via Notification No. 14/2021-Central Tax (Rate) dated 18.11.2021. However, it was put on hold following industry protests and rolled back before implementation on 1 January 2022.
Since then, multiple Council meetings have discussed the issue, but no consensus was reached—until now.
According to official GST Council meeting minutes, the issue is back on the agenda for the September 2025 round, possibly as part of broader rate rationalisation.
Expert View: What Should You Do Now?
Chartered Accountants advising textile clients should:
- Analyse stock levels that may be impacted by rate hike
- Reassess costing models for low-margin products
- Educate clients on impact of uniform rate if implemented
- Stay alert for official Council minutes or notifications
If implemented mid-year, businesses may face transitional challenges such as rate adjustments for in-process stock and pending purchase orders.
What Efiletax Recommends
If you operate in the textile supply chain:
- Register for GST, if not already compliant
- Recalculate margins considering higher output tax
- Use Efiletax GST software to auto-validate ITC claims and handle rate updates
- Prepare for stock valuation and billing reconfigurations
Frequently Asked Questions (FAQs)
Q1. Is the 12% GST on textile confirmed?
Not yet. It’s expected to be discussed in the September 2025 GST Council meeting.
Q2. Will this apply to garments below ₹1000?
Yes, that’s the likely scenario based on past proposals.
Q3. What happens to inventory bought at 5%?
Transitional provisions may apply. You’ll need to adjust pricing and ITC carefully.
Q4. Can I claim ITC on synthetic yarn if rate becomes 12%?
Yes. This is one of the key reasons behind the uniform rate—to streamline ITC.
Summary
The GST Council is likely to propose a uniform 12% GST rate on the textile sector in September 2025. This move aims to address the inverted duty structure and simplify compliance, but may lead to cost hikes for garments priced below ₹1000.
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