When buying clothes or starting a clothing business in India, understanding the tax system is crucial. In 2024, the Goods and Services Tax (GST) continues to play a significant role in shaping the textile and garment industry. From tax rates to the complex world of HSN codes, we’ll break down everything you need to know about GST on clothes and garments in simple language.

What is GST and Why Does it Matter for Clothes?

The Goods and Services Tax (GST) is a comprehensive, multi-stage, and destination-based tax that is levied on every value addition. It replaced many indirect taxes, making the tax system simpler for businesses and consumers alike. Whether you’re buying a t-shirt, a saree, or any other garment, GST is applied at various rates depending on the type of clothing and its price.

How Does GST Impact the Clothing Industry?

Before the introduction of GST, various state taxes like VAT (Value Added Tax), excise duty, and service taxes were applied on clothes and garments. This led to complicated taxation, where businesses often paid different taxes based on where they operated. GST brought uniformity across the country, simplifying taxes and reducing the cascading effect of tax-on-tax. Now, there’s a consistent rate on clothes and garments nationwide, making it easier for businesses and consumers to understand the taxes applied.

Taxation of Clothes and Garments Under GST in 2024

In 2024, the GST rates on clothes and garments largely depend on the type of material, its value, and how the clothing is used. Here’s a quick breakdown:

• For garments valued below ₹1,000: A GST rate of 5% is applied.
• For garments valued above ₹1,000: A GST rate of 12% is applied.

These rates cover most ready-made garments, including shirts, dresses, jeans, and more.

Why the Difference in GST Rates?

The government distinguishes between different price points to ensure that basic, affordable clothing is taxed at a lower rate while more expensive garments are taxed higher. This is done to support small-scale manufacturers and consumers who prefer budget-friendly clothing options.

HSN Codes for Clothes and Garments

HSN (Harmonized System of Nomenclature) codes are crucial for identifying goods under GST. They help streamline the tax system by categorizing goods uniformly. For clothes and garments, HSN codes play an important role in defining what type of clothing is being taxed and at what rate.

Common HSN Codes for Clothing in 2024

Here are the most commonly used HSN codes for clothes and garments:

• HSN Code 6101-6117: Covers knitted or crocheted clothing such as t-shirts, sweaters, dresses, and underwear.
• HSN Code 6201-6217: Covers non-knitted garments like suits, trousers, shirts, and coats.
• HSN Code 6301-6310: Covers other textile products like bed linen, curtains, and more.

For example:

• HSN Code 6105: Applies to men’s or boys’ shirts made of cotton, subject to 5% or 12% GST depending on their value.
• HSN Code 6204: Applies to women’s or girls’ suits, ensembles, or dresses, again subject to GST rates depending on their value.

Why Are HSN Codes Important?

HSN codes simplify the GST filing process. When businesses file their GST returns, they need to mention the correct HSN code for the garments they sell. Incorrect codes can lead to fines, delays, or even rejected returns. For consumers, understanding these codes helps ensure that you’re paying the correct tax when you buy clothes.

GST on Clothing Raw Materials in 2024

It’s not just the finished garments that are subject to GST—raw materials used in the production of clothes also fall under the GST regime. The tax rates vary depending on the type of material.

• Cotton Fiber: 5% GST
• Synthetic Yarn: 12% GST
• Silk and Wool: Exempted from GST
• Fabrics (knitted or non-knitted): 5% GST for fabrics priced below ₹1,000, and 12% for those priced above ₹1,000.

This affects not just clothing manufacturers but also impacts the pricing of garments for consumers.

Impact of GST on Small and Medium Enterprises (SMEs)

The GST system was initially seen as a mixed bag for small and medium-sized clothing manufacturers. On one hand, it simplifies the tax structure, but on the other hand, it adds a layer of compliance for businesses. SMEs need to register for GST, file returns regularly, and stay updated with the latest tax changes.

However, in 2024, many businesses have adapted to the system and have seen benefits, such as:

• Input tax credit: This allows manufacturers to claim credit for the GST they pay on raw materials, reducing their overall tax burden.
• Easier interstate trade: Since GST is uniform across the country, businesses can easily expand beyond their local markets without worrying about varying state taxes.

Challenges for Small Businesses

Despite these benefits, there are still some challenges:

• Increased compliance costs: Small businesses may need to hire professionals to handle GST returns, adding to their expenses.
• Cash flow issues: The need to pay GST upfront, before receiving payments from customers, can cause cash flow challenges.

GST on Clothing Accessories

Clothing accessories like belts, scarves, and hats are also subject to GST. Here’s how it works in 2024:

• Belts, Ties, and Scarves: 18% GST
• Hats and Headgear: 12% GST
• Footwear: 5% GST for footwear priced below ₹1,000, and 18% GST for those priced above ₹1,000.

These accessories often come with higher tax rates compared to garments because they’re seen as non-essential items.

GST Exemptions in the Textile Sector

While most clothing and textile products are taxed under GST, some exemptions exist in the textile sector:

• Khadi garments: Pure khadi garments are exempt from GST as part of the government’s effort to promote traditional and hand-woven fabrics.
• Handloom products: Many handloom products, including fabrics, are either exempt or taxed at a lower rate to support artisans and the traditional weaving industry.

Changes in GST for Clothes in 2024

GST rates for clothes have largely remained the same in 2024, but businesses need to keep an eye on potential changes that may happen throughout the year. For example, discussions about reducing or increasing rates for certain materials or products have been ongoing. It’s crucial for businesses to stay updated with government notifications regarding tax changes.

In addition, GST compliance has become more streamlined with the introduction of online tools and portals that make it easier to file returns, track payments, and claim refunds. As more businesses adopt these digital platforms, the overall process of dealing with GST becomes more manageable.

How to File GST for Clothing Businesses

Filing GST for a clothing business requires registering under the GST regime and filing regular returns. Here’s a quick overview:

1. GST Registration: Every business with an annual turnover above ₹20 lakhs (₹10 lakhs for special category states) must register for GST.
2. Filing Returns: Businesses need to file monthly or quarterly returns depending on their turnover. These returns include sales, purchases, and the GST collected.
3. Claiming Input Tax Credit: Clothing businesses can claim input tax credit on the GST paid for raw materials, reducing their overall tax burden.
4. Paying GST: GST must be paid monthly based on sales and purchases. Businesses can pay GST online through the official GST portal.

Penalties for Non-compliance

Failing to comply with GST regulations can lead to penalties. For late filing of returns, there’s a fine of ₹100 per day, up to a maximum of ₹5,000. Interest on late payments is also charged at 18% per annum.

Tips for Consumers: How to Check GST on Clothes

As a consumer, you may wonder how to know if you’re being charged the right GST on clothes. Here’s what you can do:

• Check the invoice: Ensure that the correct GST rate (5% or 12%) is applied based on the garment’s price. The HSN code should also be mentioned on the invoice.
• Look for GSTIN: A valid GST invoice will have the seller’s GSTIN (GST Identification Number) mentioned.
• Ask for clarification: If you’re unsure about the GST rate on a particular item, don’t hesitate to ask the retailer for a breakdown of the charges.

Conclusion

GST on clothes and garments in 2024 is an essential aspect of the Indian textile industry. While it has simplified taxation and brought consistency, businesses must stay compliant and updated with the latest regulations. For consumers, understanding the basics of GST rates and HSN codes can help ensure you’re not overpaying on your clothing purchases.

As we move forward, the impact of GST on the clothing sector will continue to evolve, potentially leading to further changes in tax rates or exemptions. Both businesses and consumers should remain informed to navigate the complex but vital world of GST on clothes.