A JOURNAL OF COMPOSITION THEORY ISSN : 0731-6755

GST-A TRANSITION FOR THE TEXTILE SECTOR IN INDIA

Prof. Dr R. A. RATHI
Associate Professor , SCS, Jain Deemed to be university, Bengaluru

Prof. SHILPA SAMPATH KUMAR

Assistant Professor, SCS, Jain Deemed to be university, Bengaluru

ABSTRACT
To overcome the burden of various direct and indirect taxes and increasing corruption
thereby the Central Government has decided to make one tax system i.e. Goods and Services
Tax (GST).GST referred as Goods and services tax is major taxation scheme developed for
achieving economic growth and removing cascading effects of current tax structure. It is a
comprehensive indirect, multi-stage, destination- based tax that will be levied on every value
addition. It is tax system that will incorporate all indirect taxes of State and central
Governments and whole economy into seamless nation in national market. This is the biggest
reform proposed in the tax system of our country in post-independence era. India’s textiles
sector is one of the oldest industries in Indian economy. The Indian Textile Industry
contributes approximately 4 per cent to India’s Gross Domestic Product (GDP), and 14 per
cent to overall Index of Industrial Production (IIP).The impact of GST on the textile sector
will be significant. GST will fundamentally change the way the textile sector is presently
taxed in India. This study examines the implications of GST for the Indian textile industry. It
also highlights changes required in the support policies of the government as and how Indian
textile industry is preparing for transition to GST.
Keywords: Goods and Services Tax, Cascading, Destination- based tax, Gross Domestic
Product
1. INTRODUCTION:
Taxation of textile sector is impervious and non-neutral across its various segments. Many
textile outputs are either exempt under the central and state tax regimes or are subjected to
relatively low tax rates. Most of the indirect taxes fall on inputs, both goods and services, and
therefore remain hidden, if un-rebated. On the whole, the textile sector is lightly taxed and
extensively subsidized. Textile exports are supported through payments of un-rebated taxes
on textile inputs and other subsidies. Textile units have historically enjoyed exemptions given
to small industries. India has a comparative advantage in garment manufacturing because of it
is labour abundant. The garmenting process in India is labour intensive unlike China were it
is more mechanized. While the recession of 2008 onwards was an external shock, the current

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demonetization efforts were a domestic shock. Here again the effect was more pronounced on
the smaller players in the MSME bracket than the large scale firms. With GST rollout
scheduled to commence on July 1, India's textile sector is racing against time to align itself
with the new indirect tax regime. While the near-term disruptions could take a potential toll
on the financial performance of most players, the textile industry as a whole is poised to grow
as organized units gain market share back from their unorganized counterparts, which
currently constitute nearly 60-70 percent of the industry size.
Indian textiles industry
The growth of the Indian textiles and apparel industry is associated to the overall growth of
the Indian and the world economy. Demand for finished textile products largely depends on
population, purchasing power of the consumer and trend in fashion. But being a part of the
manufacturing sector, it also contributes to the overall GDP growth. The Indian Textile
Industry contributes approximately 4 per cent to India’s Gross Domestic Product (GDP), and
14 per cent to overall Index of Industrial Production (IIP).The industry accounts for nearly 15
per cent of total exports. The industry has leveraged its strong manufacturing position to
improve its export performance. India is one of the largest exporters of readymade garments
and made-ups to the world. India is considered as the second most preferred sourcing
destination for major global retailers because of the availability of all types of raw material,
availability of manpower at economic rate, vertical & horizontal integration of the industry,
flexibility of the manufacturing process, capability of catering to smaller lot size etc.

2. LITERATURE REVIEW
Lakshmi T and Rajeshkumar S (2018), observed that the prices of readymade garments
will rise to a great extent as now there will be GST on job work which was previously part of
manufacturing process now will be taxed separately.
Nitin (2014) studied, “Goods and Service Tax- A Way Forward” and concluded that
implementation of GST in India will help in removing economic biases by current indirect
tax system and is expected to encourage unbiased tax structure which is indifferent to
geographical locations.
Poonam (2017) in her study had mentioned that GST would be a very important step in the
field of indirect taxation. The cascading and double taxation effects can be reduced by
combing central and state taxes. Consumer’s tax burden will approximately reduce to 25% to
30% when GST is introduced. After implementation of GST concept, Indian manufactured

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products would become more and more competitive in the domestic and international
markets.
Shefali Dani (2016) has proposed that GST regime is a half-hearted attempt to rationalize
indirect tax structure. Approximately more than 150 countries have implemented GST
concept. As per researcher government of India must study the GST regime set up by various
countries and also their consequences before implementing GST.
3. RESEARCH METHODOLOGY
This is a conceptual research paper to study the concept of GST and its impact on
textile sector. In this context the objectives of the study are:
3.1 OBJECTIVESOF THE STUDY:
1.To cognize the concept of GST.
2. To study the pertinent issues in current taxation and GST under textile industry.
3. To study the transition of textile industry to GST in the Indian economy
4. To examine the impact on textile sector under GST regime.
4. LIMITATIONS OF THE STUDY
The research paper is a conceptual wherein concept, issues and impact of GST on textile
industry has been studied through the literature available and views of industry experts.
Observations and interviews with traders and manufacturers could result in some different
impacts as felt by the industry.
5.1GOODS AND SERVICES TAX (GST)
GST constitutes the last step of a long journey of reforms of indirect taxes in India. GST will
replace a number of central and state taxes. The important taxes that may be subsumed in
GST are cenvat and service tax at the central level and state VAT/sales tax, central sales tax,
and entry tax at the state level accompanied by a number of additional or special duties and
cesses and surcharges. The final design of the GST and the related constitutional amendment
are yet to be finalized. However, the impact of GST on the textile sector will be quite
noteworthy.GST is based on the grounds of VAT. Same set of system is also available in the
respect of the taxes paid in the previous level against GST charged at time of sale. Following
are some of the module of GST.
Components: GST will be basically divided into two components i.e. namely, Central Goods
and Service Tax and also State Goods and Service
Applicability: GST will be also applicable to all the Goods and Services sold and provided in
India, only except from the list of exempted goods which fall outside its purview.
Payment: At central and State level GST will be paid separately.

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Credit: The facility of Input Tax Credit at Central level will only be available in respect of
Central Goods and Service tax.

GST Rates Across Categories

GST Rates Across Categories for Textile Industry
Silk / Wool Wool carded – Other Natural
Fiber Type Cotton Synthetic Jute Standard combed Fibres
Raw Material 5% 18% 0.00% 0% 5% 5%
Yarn (Spinning) 5% 18% 5.00% 5% 5% 5%
Yarn (Knitting /
Weaving) 5% 5% 5% 5% 5% 5%
Garments
Upto Rs.1000 5% 5% 5% 5% 5% 5%
Exceeding Rs.1000 12% 12% 12% 12% 12% 12%
Carpets, Towels 12% 12% 12% 12% 12% 12%
Technical Textiles 12% 12% 12% 12% 12% 12%
Made Ups
Upto Rs.1000 5% 5% 5% 5% 5% 5%
Exceeding Rs.1000 12% 12% 12% 12% 12% 12%
Source: Ministry of Textiles
There couldn't have been anything better. 5% uniform rate in yarn, fabrics and 1000 Rs
garments will mean no change in prices for the consumers too. Majority of output in
unorganized garmenting sector falls in this MRP range. Yarn and fabrics' prices will be
unaffected too. The positive impact of GST will be largely felt by companies engaged in
manufacturing and/or dealing with fibre and yarn components, since the presence of
unorganised units is relatively large compared to the fabric and garment units.
Tax Rate Comparison for Fabrics
Particulars Current rate (VAT+Excise duty+ Central GST Rate
sales tax)
Cotton 5-7% 5%
Synthetic 11-14% 13-14%
Blended 11-14% 13-14%
Wool 8-10% 5%
Silk 8-10% 5%
Source: Ministry of Textiles

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As seen in the table above, on combination of all taxes involved till the fabric manufacturing
stage (including the partial input credit set-offs, wherever applicable), GST rates seem more
or less in line with the existing indirect tax structure in case of cotton and synthetic fabrics,
implying that the new law is unlikely to have any material consequence on these fronts. For
businesses involved in manufacturing woollen and silk fabrics, the announced rates come
across as a positive sign.
Tax Rate Comparison For Garments
Particulars Current rate (VAT+Excise duty+ Central GST Rate
sales tax)
Cotton -less than 7-8% 5%
Rs. 1000
Cotton –more 8-9% 12%
than Rs. 1000
Synthetic 8-10% 5%
&Blended-less
than Rs. 1000
Synthetic & 9-11% 12%
Blended-more
than Rs. 1000
Source: Ministry of Textiles
Though the GST rates on garments costing more than Rs 1,000 may result in a price rise and
seem slightly negative for the garment manufacturers, tailwinds in the consumer unrestricted
spending India will make it easier for these players to pass on the tax increase to the final
buyers.
The shift from unorganised to organised is the biggest long-term benefit from GST,
notwithstanding the short-term inventory adjustment. The only sub-segment that, seems to be
adversely impacted is the man-made textiles space, where tax rates have been slogged on
man-made fibre and yarn under GST. Increasing use and popularity of synthetic textiles
domestically and globally, backed by recent progression and growing competitiveness of
India’s organised units in comparison to the Chineseplayers in international markets, is one of
the key reasons that needs some attention towards getting this issue addressed.
5.2 IMPLICATIONS OF GST FOR THE TEXTILE INDUSTRY

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The main implications of GST compared to the present domestic indirect tax regime in the
context of Textiles can be divided into two parts: (a) main and immediate effect, which may
be adverse in nature and (b) other longer term positive effects
(a) main and immediate effect
 The textile prices would go up as the CGST and SGST rates are likely
to be higher than the corresponding textile sector which will adversely
affect demand for textile products. Demand for clothing is income
elastic since the demand elasticity is less than one, the fall in quantity
demanded will be less than the increase in prices due to the rate
increase resulting in higher revenues
 If the GST rate applicable to all textile segments is 12% the adverse
effect of a price rise on demand will be just neutralized by a positive
income effect. But demand in the case of Khadi and Handloom,
Cotton Textiles and Carpets would be adversely affected while there
will be a net positive effect on the other sectors. This will lead to
substitution effects within the textile sector encouraging greater use of
man-made fibres.
(b)
 GST is likely to have a fibre-neutral rate structure unless differentiation is
introduced by explicit choice
 Textile outputs will be taxed if domestically consumed and input taxes paid
will be rebated making the tax-regime transparent
 Exports will be zero-rated and all input taxes paid will be rebated by the tax
authorities
 Fiscal barriers to inter-state movement of textile inputs and outputs like the
CST and the entry tax will be eliminated
 Taxes on other longer term positive effects capital and machinery will be
fully rebated
 For the industry, compliance costs will be lower
5.3 POLICY OPTIONS
1. The three segments that would be in a relatively disadvantageous position are: Khadi and
Handlooms, Cotton textiles, and carpet weaving. The main policy options, which may be
considered for specific segments or all segments of textiles are as follows:

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 Zero rating
 Exemption
 Lower rate of tax
 Standard rate of tax with appropriate subsidies
2.The second option is exemption for selected segments. Exemption does not mean no
incidence of tax since it results in blocked input taxes. The tax impact of exemption becomes
dependent on the nature of supply chain.For example, vertical integration may reduce the
magnitude of blocked input taxes.
3.A desirable option is to subject the textile segments to the lower rate of tax, which may be
possible in a dual rate regime or a low single rate. A GST regime with a single rate results in
a clean tax system. It can be accompanied by an appropriate subsidy regime to support
weakest segments of the textile industry. In the case of textiles, additional resources will be
released to finance such subsidies as many of the existing support schemes will not be
required once zero-rating of exports becomes integral to the tax system as under GST.
5.4 PREPARING FOR TRANSITION TO GST: TEXTILE INDUSTRY
1. The textile industry in India is undergoing a major transformation in terms of product
development and technological up-gradation. There is also increased competition to
Indian exports from other major textile producers in the world.
2. The global fibre consumption trend in future is likely to further move in favour of
man-made fibres due to limitation of growth of cotton worldwide on account of
limited availability of land for cotton cultivation. Huge additional capacities are
required in the man-made fibre industry so it is desired that incentives are provided to
the industry to speed up the process of capacity build-up, to make sure adequate
supply of fibres to the user industry.
3. Most policy support will have to be designed in a manner such that benefits are
common to all manufacturing segments or sectors and not specific to particular
products.
4. Both the government (textile ministry and state textile departments) and textile
industry should prepare for the transition to GST. Adequate preparation for the
implementation of GST, not only by the central and state governments, but also by the
industry, that is producers, wholesalers and retailers is a prerequisite for the success of
GST in India

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6. CONCLUSION
From above it can be concluded that introduction of GST will bring in a great deal of changes
in the textile business of India with an overall positive impact on the sector. There are few
drawbacks of GST for the textile industry which is due to higher tax rate and removal of
benefits under cotton value chain.GST implementation is expected to produce the ease of
doing business and to lead India into a simple, transparent and tax friendly system. GST in
the Indian framework will plug revenue leakages in current system and at the same time will
provide relief to taxpayer in terms of reduced tax burden, elimination of cascading effect and
seamless flow of input crediton most of the commodities, in addition to unleashing a stream
of commercial benefits hitherto untouched by the VAT system and would essentially lead to
Economic Development. GST will support the industry in the long run by registering more
taxpayers under this system. Smaller players like textile processing, job workers, fabric
manufacturers or garment units will have to maintain their records properly. Textile industry
hopes will become more competitive in both the global and domestic markets and sustain a
long-term growth.
7. SCOPE FOR FURTHER RESEARCH
The present study is a conceptual study on impact of GST on textile industry. A
separate study could be undertaken to study the view of traders and manufacturers to
study the practical implications of GST and the ways to overcome the burden of GST.
Another study could be undertaken to find measures to make industry more
competitive.
REFERENCES:
1. Allen, Kumar, Nitin. Goods and Services Tax in India: A Way Forward. Global
Journal of Multidisciplinary Studies. 2014; 3(6):216-225.
2. Dani, S. (November 20, 2016). A Research Paper on an Impact of Goods and
Service Tax (GST) on Indian Economy. Business and Economics Journal
3. Dr.Lakshmi T and Rajeshkumar S “In Vitro Evaluation of Anticariogenic
Activity of Acacia Catechu against Selected Microbes”, International Research
Journal of Multidisciplinary Science & Technology, Volume No. 3 , Issue No. 3,
P.No 20-25, March 2018.
4. Poonam, M. (2017). GOODS AND SERVICES TAX IN INDIA: AN. 6th
International Conference on Recent Trends in Engineering, Science and
Management, 9.

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5. Textiles under GST: Relief on one hand, a whammy on the

otherhttps://cleartax.in › ... › Impact of GST on Textile IndustryAug 3, 2017 -
6. www.textileassociationindia.org/
7. Ministry of Textiles: Report on ‘Implications of Goods and Services Tax (GST)
for Indian Textiles Sector’ textiles India, 2017.

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