CA Dilip Jain

CA Dilip Jain


Introduction: Textile Industry in India is one of key sector in Indian economy with a direct linkage to the overall growth of Indian and Global Economy. It Contributes 14 per cent to Industrial Production and 4 Percent to GDP. With over 45 million people, the Industry is one of the largest sources of employment generation in the country. The Industry accounts for nearly 15 per cent of total exports. The Indian Textile industry is amongst very few Industries that are vertically integrated from raw material to finished products.

The Textile and Apparel Industry can be broadly classified into two segments:

1. Yarn and Fibre

2. Processed Fabrics, Readymade Garments & Apparels.

Current Taxation:

  • Central Excise Duty: The domestic textile industry has an optional route to pay zero excise duty across various stages of the value chain, provided they don’t claim the Input Tax Credit (ITC) at any stage. Cotton based industry are exempt from payment of excise and apparels have been attracting excise duty at effective rate of 1.2% (@ 2% with abatement @ 40%). Tax payable at the time of removal.
  • Job Work Under Central Excise :In terms of the Rule 4(1A) of Central excise rules, every person who gets the goods, falling under Chapter 61 or 62 or 63 of the First Schedule to the Tariff Act, produced or manufactured on his account on job work, shall pay the duty leviable on such goods
  • Value Added Tax: VAT is levied by State Governments on Sale of Textile and Apparels with Availability on Input Tax Credit of Vat Paid on Purchases. For Example, Currently under Chhattisgarh Vat, Vat Rate is 4% for Textile Fabric.
  • Central Sales Tax: It is currently charged at the rate of 2% on the value of sale of goods. Tax payable at the time of sale.
  • Entry Tax: Entry tax is an account based tax levied and collected by state governments on entry of goods into a local area for consumption, use or sale therein.
  • Custom Duty: Custom duty on exports is normally nil rated except for raw cotton and cotton waste, imports are leviable to CVD and special CVD.

Post GST:

  • An important determinant of the tax incidence under GST will be the GST rate applicable to the textile segments. While the final GST rates are yet to be announced, even at the 12% lower rate recommended by the Dr.  Arvind Subramanian Committee, the textile sector is likely to be negatively impacted. The Cotton Value of Chain is likely to be worse affected as it is currently attracting Zero central Excise Duty and tax in Inputs may not be more than 2-4%.
  • Currently the Vat Rate on apparels is 4.5% and 1.2 percent effective excise duty on branded goods with MRP more than Rs 1000, the overall tax incidence on the finished goods is lower than 12% , which is the lowest rate being proposed in India.
  • With Input tax credit chain becoming more transparent and integrated, the tax credit for exporters will become easier and full credit of indirect taxes can be claimed.
  • Fiscal barriers for inter-state movement to be removed: Reduce time of movement and logistic costs, stocking costs and carrying costs.
  • With textile sector coming under GST, textile players which are oriented towards domestic markets will be able to set-off the GST paid on domestic capital goods (but not the import duty) as their sales will be subject to GST. Accordingly, this will reduce the cost of capital investments.
  • Recently the Textile Association from South India has urged the union government to make a uniform levy of 5% on all textile and clothing products under GST.  They also want the government to continue the duty drawback benefits for garments and made up exports.

Conclusion: The expected rate of GST would be 12%. Net of credit maybe still 6-9%. To some extent final cost would  increase. However GST would help exporters. The cash dealing would significantly reduce.

More Under Goods and Services Tax


  1. Dilip Kumar Bothra says:

    For sewing machine Excsie Duty Rate is 12.5% and in some cases 6 %. For details u can refer heading number 8452, 8440 of CETA Act, 1985.

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June 2021