GST on Textile Industry India 2026 — GST 2.0 Rate Changes, Fabric, Garments, Yarn
The textile industry received one of the most significant GST overhauls under GST 2.0 (effective September 22, 2025). The changes address the long-standing inverted duty structure in the man-made fibre chain and simplify the rate structure for garments. Here is the complete guide.
GST 2.0 Changes for Textiles (Effective September 22, 2025)
Garments and Apparel
| Item | Old Rate | New Rate (Post Sept 2025) |
|---|---|---|
| Garments up to ₹1,000/piece | 5% | 5% (unchanged) |
| Garments ₹1,000–₹2,500/piece | 12% | 5% (reduced) |
| Garments above ₹2,500/piece | 12% | 18% (increased) |
| Made-ups (bed sheets, towels) up to ₹2,500 | 12% | 5% (reduced) |
| Made-ups above ₹2,500 | 12% | 18% (increased) |
Key change: The threshold for the lower 5% rate was raised from ₹1,000 to ₹2,500 per piece. This makes affordable apparel cheaper for middle-class consumers. Premium garments above ₹2,500 now attract 18% (up from 12%).
Man-Made Fibre Chain — Uniform 5%
The inverted duty structure in the man-made fibre chain has been corrected:
| Item | Old Rate | New Rate |
|---|---|---|
| Man-made fibres (polyester, nylon, acrylic) | 18% | 5% |
| Man-made yarns | 12% | 5% |
| Man-made fabrics | 5% | 5% (unchanged) |
| Synthetic non-woven fabrics | 12% | 5% |
Why this matters: Previously, fibres were taxed at 18% but fabrics at 5%, creating an inverted duty structure where manufacturers accumulated ITC they couldn't use. The uniform 5% rate across the entire chain eliminates this problem.
Natural Fibre Chain
| Item | GST Rate |
|---|---|
| Raw cotton | 5% |
| Cotton yarn | 5% |
| Cotton fabric | 5% |
| Silk fabric | 5% |
| Wool fabric | 5% |
| Jute fabric | 5% |
Natural fibre rates remain largely unchanged.
GST on Footwear (Related Changes)
| Item | Old Rate | New Rate |
|---|---|---|
| Footwear up to ₹1,000/pair | 5% | 5% (unchanged) |
| Footwear ₹1,000–₹2,500/pair | 12% | 5% (reduced) |
| Footwear above ₹2,500/pair | 12% | 18% (increased) |
GST on Leather and Handicrafts
| Item | Old Rate | New Rate |
|---|---|---|
| Leather goods | 12% | 5% |
| Handicrafts | 12% | 5% |
| Toys | 12% | 5% |
ITC for Textile Manufacturers
With the uniform 5% rate across the man-made fibre chain, ITC accumulation issues are largely resolved:
- Fibre manufacturers: Pay 5% GST on inputs, charge 5% on output — balanced ITC
- Yarn manufacturers: Pay 5% on fibre, charge 5% on yarn — balanced ITC
- Fabric manufacturers: Pay 5% on yarn, charge 5% on fabric — balanced ITC
- Garment manufacturers: Pay 5% on fabric, charge 5% or 18% on garments
Garment manufacturers selling premium garments (above ₹2,500): Charge 18% GST, pay 5% on fabric inputs — significant ITC accumulation. Claim ITC refund if accumulated ITC exceeds output tax.
GST Registration for Textile Businesses
| Situation | Registration Required? |
|---|---|
| Annual turnover > ₹40L (goods) | Yes |
| Annual turnover ≤ ₹40L | No (optional) |
| Inter-state supply | Yes (regardless of turnover) |
| Composition scheme | Yes (if turnover ≤ ₹1.5 crore) |
Composition Scheme for Textile Traders
Small textile traders with turnover up to ₹1.5 crore can opt for the composition scheme:
- Pay 1% GST on turnover (for traders)
- No ITC
- Simplified quarterly filing
- Cannot make inter-state supplies
HSN Codes for Textile Products
| Product | HSN Code |
|---|---|
| Cotton fabric | 5208–5212 |
| Man-made fabric | 5407–5408, 5512–5516 |
| Knitted fabric | 6001–6006 |
| Garments (woven) | 6201–6217 |
| Garments (knitted) | 6101–6117 |
| Footwear | 6401–6405 |
| Bed linen, towels | 6301–6310 |
Impact of GST 2.0 on Textile Industry
Winners:
- Consumers buying garments below ₹2,500 (cheaper by 7%)
- Man-made fibre manufacturers (ITC accumulation resolved)
- MSME garment units (lower input costs)
- Exporters (better ITC refund mechanism)
Losers:
- Premium garment buyers (18% vs 12% — 6% more expensive)
- Luxury apparel brands (higher tax burden)
Frequently Asked Questions
Is GST applicable on handloom products?
Handloom products (fabric and garments) attract the same GST rates as other textiles — 5% for fabric, 5% for garments up to ₹2,500, 18% for garments above ₹2,500.
What is the GST rate on school uniforms?
School uniforms are garments and attract GST based on their price — 5% if below ₹2,500 per piece, 18% if above ₹2,500.
Can a small tailor shop claim ITC on fabric purchases?
Yes, if the tailor is GST-registered. ITC on fabric (5% GST) can be claimed against output GST on tailoring services (5% GST).
Is GST applicable on second-hand clothing?
Second-hand clothing sold by registered dealers attracts GST on the margin (selling price minus purchase price). Unregistered individuals selling old clothes are not subject to GST.
Textile manufacturer, trader, or garment exporter needing GST compliance help? I handle GST registration, ITC reconciliation, and refund applications for textile businesses. WhatsApp for a quote.
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