Textile industry in India provides employment to a large number of skilled and unskilled workers. It contributes about 10% of the total annual export, and this value is likely to increase under GST. Most of SME’S choose Cotton value chain in the textile industry. It attracts zero central excise duty under optional route provided they don’t claim the Input Tax Credit (ITC).
Classification of Textile and Apparel Sector
- Yarn & Fibre (Natural & Man-made)
- Processed Fabrics, Ready-made garments & Apparels
Rates on Textile and Apparel Industry
Benefits to Textile and Apparel Sector
Input Credit System
A large portion of the textile industry in India operates under the unorganized sector or composition scheme. GST would enable a smoother input credit system, which would shift the balance towards the organized sector. ITC will be provided as a refund under GST instead of current duty drawback schemes.
Reduction in manufacturing costs
GST is also likely to include the various fringe taxes like Octroi, entry tax, luxury tax etc. which would help reduce costs for manufacturers in the textile industry.
Input Credit allowed on capital goods
Obtaining the latest technology for manufacturing textile goods is expensive as the excise duty paid is not allowed as input tax credit under current system. Whereas under GST, there will be input tax credit available for the tax paid on capital goods.
Export of textile products to get a boost
GST will streamline the process of claiming Input Tax Credit (ITC) and allowing the textile industry to be more competitive in the export market.
An important effect of GST would be to improve agreement. The value chain under the GST will be fully traceable. Improved compliance will lead to more revenues as long as that rate is not extremely high.
There are few drawbacks for the textile industry which is due to higher tax rate and removal of benefits under cotton value chain. GST will support the industry in the long run by registering more taxpayers under this system. Smaller players like textile processing, job workers, fabric manufacturers or garment units will have to maintain their records properly. Textile industry hopes will become more competitive in both the global and domestic markets and sustain a long-term growth.
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