Government May Propose 12% Uniform GST on Entire Textile Value Chain

The GST Council is likely to take up a proposal before September 2025 to implement a uniform 12% Goods and Services Tax (GST) across the entire textile value chain. This reform, reportedly backed by the Centre and forming part of the Group of Ministers’ (GoM) rate rationalisation report, aims to resolve the long-standing issue of inverted duty structure affecting the sector.

Current Tax Structure & Challenges

Presently, the GST rates across the textile value chain are as follows:

• Cotton: 5%
• Yarn: 12%
• Synthetic fibres and inputs: 18%
• Garments below ₹2,000: 5%
• Garments above ₹2,000: 12%

This uneven tax structure has led to significant issues such as working capital blockage due to refund claims and reduced competitiveness in exports, particularly in the synthetic segment.

Rationale for Change

A senior official explained that while cotton was taxed at 5% under the “farm produce logic” to benefit the agricultural sector, this is no longer effective under GST. “Cotton at 5% is not delivering the intended benefit. The proposal is to bring everything to 12%,” the official said.

Uniform Rate Proposal

The reform suggests:

• Removing the ₹2,000 price threshold on garments.
• Levying a flat 12% GST on all textile products and raw materials—cotton, yarn, synthetics, garments, and chemicals.

This move would:

• Simplify compliance,
• Minimise working capital issues caused by inverted duty refunds,
• Enhance pricing transparency, and
• Encourage investments in the textile sector.

Mass Consumption and Competitiveness

Currently, synthetic textiles (used widely in mass consumption) attract higher tax rates, making blended textiles more expensive. “Chemicals and fibres are taxed at 18%, yarn at 12%. This inverted structure pushes costs up and discourages investment,” the official noted.

The flat 12% rate across all categories seeks to address these inefficiencies and boost the sector’s global competitiveness.