Govt May Introduce Flat 12% GST on Textiles to Fix Duty Issues

The government may soon propose a uniform 12% Goods and Services Tax (GST) across the entire textile sector, according to news reports from Moneycontrol. The plan could be taken up by the GST Council before September as part of the next phase of GST reforms. 

Currently, different parts of the textile value chain are taxed at different rates. For instance, cotton at 5%, yarn at 12%, and synthetic fibres at 18%. Moreover, garments priced below ₹1,000 are taxed at 5%, while those above ₹1,000 attract a 12% GST. This uneven structure has caused issues for businesses and investors.

Why is 12% GST on Textiles Necessary?

The lower GST on cotton was originally meant to help farmers, as cotton is a farm product. In India’s tax system, farm produce is usually taxed at lower rates to keep prices affordable and support rural livelihoods. However, the current rate mismatch has led to what is called an “inverted duty structure.”

This structure creates several problems:

• Businesses pay higher taxes on raw materials than on finished goods
• Working capital gets stuck due to refund delays
• Pricing across the value chain becomes distorted
• It reduces the incentive for investment

Can 12% GST on Textiles Replace All Existing Rates?

As part of the reform, the Centre may propose a flat 12% GST rate across all textile products. This includes both raw cotton and finished garments. The proposal may also remove the ₹1,000 price threshold for garments, applying the 12% tax across all price points.

This would make compliance simpler, reduce reliance on refunds, and improve cash flow for businesses.

How Will 12% GST on Textiles Benefit Consumers of Mass-Used Synthetics?

Synthetic textiles, which are widely used by the masses, are currently taxed more heavily. For instance, chemicals and fibres at 18%, and yarn at 12%. The flat 12% rate will also apply to synthetics, correcting the tax imbalance and making products more affordable.

Such changes could improve global competitiveness, reduce hidden costs, and attract new investments in textile manufacturing.

If you are an investor or looking to enter the textile space, it’s a good time to review textile-linked stocks through your demat account for potential opportunities.

Conclusion

A flat 12% GST across the textile value chain could simplify taxes, support industry growth, and make Indian textiles more competitive globally. By correcting the inverted duty structure, the move may attract new investments, especially in synthetics and blended fabrics.

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