GST Applicability & Tax Rates on Fashion and Apparel

GST Applicability & Tax Rates on Fashion and Apparel

Introduction

The Goods and Services Tax (GST) is a comprehensive tax reform in India that was introduced on July 1, 2017. It replaced a complex system of indirect taxes and aimed to simplify the tax structure. The fashion and apparel industry is a significant sector in the Indian economy, and understanding the GST applicability and tax rates for this sector is crucial for both businesses and consumers. In this article, we will delve into the applicability of GST on fashion and apparel and explore the various tax rates applicable to different products within this industry.

GST Applicability in the Fashion and Apparel Industry

Registration Under GST:

Businesses engaged in the fashion and apparel industry must register under GST if their aggregate turnover exceeds the threshold limit. As of cutoff date in January 2022, the threshold limit was set at Rs. 20 lakhs for most states, while special category states had a lower limit of Rs. 10 lakhs. 

Composition Scheme:

Under GST, small businesses in the fashion and apparel industry can opt for the Composition Scheme if their aggregate turnover is below a certain threshold. This scheme allows them to pay tax at a fixed rate of their turnover, simplifying compliance. As of January 2022, the threshold limit for the Composition Scheme was Rs. 1.5 crores.

Exemption Threshold:

GST offers an exemption threshold, which means businesses with an aggregate turnover below a specified limit are exempt from paying GST. This exemption threshold varies from state to state, and it's vital for businesses in the fashion and apparel industry to understand the threshold applicable to their location.

GST Tax Rates on Fashion and Apparel

The GST tax structure is divided into several tax rates, including 0%, 5%, 12%, 18%, and 28%. The specific rate applicable to a particular product within the fashion and apparel industry depends on various factors such as the product's value, material, and intended use. Let's explore the tax rates for different categories of fashion and apparel products.

Clothing:

Clothing is a major segment of the fashion and apparel industry. GST rates on clothing vary based on factors such as the material and price of the garments. As of January 2022, the tax rates were as follows:
  1. 5% GST: Most clothing items fall under this category, including traditional and ethnic wear, casual clothing, and uniforms.
  2. 12% GST: Clothing made from synthetic fibers, branded apparel, and readymade garments priced above a certain threshold may attract a 12% GST rate.
  3. 18% GST: Luxury clothing, such as designer wear and high-end fashion items, may be subject to an 18% GST rate.

Footwear:

The footwear segment within the fashion and apparel industry also has varying GST rates, mainly depending on the material and price of the shoes.
  1. 5% GST: Most footwear, including everyday shoes, sandals, and flip-flops, attract a 5% GST rate.
  2. 12% GST: Footwear made of leather and priced above a specific threshold may be subject to a 12% GST rate.
  3. 18% GST: Luxury and designer footwear may fall under the 18% GST category.

Accessories:

Accessories like handbags, wallets, belts, and hats have their own GST rates.
  1. 18% GST: Most accessories, including handbags and wallets, fall under the 18% GST category.
  2. 12% GST: Some accessories, such as belts and hats, may attract a 12% GST rate.

Textiles and Fabrics:

Textiles and fabrics used in the fashion and apparel industry have varying GST rates based on their nature and usage.
  1. 5% GST: Most textiles and fabrics fall under the 5% GST category. This includes raw materials used for clothing production.
  2. 12% GST: Certain specialized textiles and fabrics may be subject to a 12% GST rate.
  3. 18% GST: Some high-end or luxury textiles may fall under the 18% GST category.
It's important to note that GST rates and exemptions may change over time due to amendments in the GST structure and government policies.

Input Tax Credit (ITC) in the Fashion and Apparel Industry

One essential aspect of GST for businesses in the fashion and apparel industry is Input Tax Credit (ITC). ITC allows businesses to claim a credit for the GST paid on inputs and raw materials used in the production of goods. This credit can be used to offset the GST liability, reducing the overall tax burden.
However, there are certain conditions and restrictions related to claiming ITC.

Impact on Consumers

Consumers in the fashion and apparel industry are also affected by GST, primarily through the pricing of products. The GST rates applicable to clothing, footwear, and accessories directly impact the final retail prices. Understanding the GST rates can help consumers make informed purchasing decisions and budget accordingly.

Conclusion

The fashion and apparel industry in India is subject to the Goods and Services Tax (GST), which has brought about significant changes in the tax structure. The GST rates applicable to different categories of fashion and apparel products are based on factors like the material, price, and intended use of the items. It's essential for businesses in this industry to stay updated on the latest GST regulations and compliance requirements to ensure smooth operations. Additionally, consumers should be aware of the GST rates to make informed purchasing decisions.



Created & Posted by Sony Garg
Accountant at TAXAJ

TAXAJ is a consortium of CA, CS, Advocates & Professionals from specific fields to provide you a One Stop Solution for all your Business, Financial, Taxation & Legal Matters under One Roof. Some of them are: Launch Your Start-Up Company/Business, Trademark & Brand Registration, Digital Marketing, E-Stamp Paper Online, Closure of Business, Legal Services, Payroll Services, etc. For any further queries related to this or anything else visit TAXAJ

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