How GST 2.0 is Changing Tax Rates for Fabric, Apparel, and Garments

The textile industry is one of the largest in the country and is ever-growing with the rise of new garment startups and SMEs in the manufacturing domain. Recently, Next-gen GST reforms have been introduced by the Hon’ble Prime Minister during the 56th Meeting of the GST Council, chaired by the Finance Minister. To rationalize GST for the textile industry, the Finance Ministry has taken various key steps in strengthening the industry realm, bringing handmade garments to the limelight, and making a balance by removing structural anomalies. Now, all the readymade garments under Rs 2500 will attract only 5% GST, while on 2500+ priced apparels, consumers need to pay 18% GST. According to the government, these GST rates are a relief for the middle class and the best resource to boost the garment industry for manufacturers.

For industrial growth, you can pair your business strategies with this GST 2.0 reform using the Apparel Manufacturing ERP software. It will provide a fairer taxation system, empowering small and SME businesses digitally by providing digital filing of GST with quick cash flow. It will boost customer demand, which will strengthen state revenues and make India strong in garment production.

Here, in this blog, we will know more about GST 2.0, its changing tax rates for the apparel and garment industries, and the common man.

The Positive Move of the Government- Relief for the Common Man and Small Businesses

One of the top highlights of these next-generation GST reforms is the increase of the 5% GST limit for every readymade garment from Rs 1000 to Rs 2500. Apart from general consumers, textile retailers and manufacturers will benefit from this new tax reform long time after the implementation of GST in 2017. The business processing will become clearer for every textile business, and industries will surely attain new heights in the time to come with GST 2.0 smart-sync with the garment ERP solution.

For many years, from the time of inception of the GST regime, garments costing above Rs 1000 were taxed higher 12% rate, which discourages business efficiency and affordability in mid-range fashion. By bringing every readymade garment under the Rs 2500 price tag, the GST council has made diverse apparel categories remain under the bracket of 5% GST, providing quick accessibility to consumers for a variety of apparel that are made and processed by top brands and labeled with a price tag of Rs 2500 or below.

Helps in Avoiding Tax Anomalies across the Value Chain

For several years, the garment manufacturing industries, both automated ERP-based or manual, have demanded uniform GST rates to avoid numerous tax anomalies between finished garments and raw fabrics. The recent decision of the central government aligns with GST 2.0 the cotton and fiber manufacturing sectors to come under 5% GST bracket. It helps them reduce confusion for the apparel manufacturing industries while filing taxes online.

With 5% GST for everyone, it means from fabric processing to yarn/fabric and to finished clothes, most of the processed, finished goods now enjoy a lower GST of 5%. These next-gen Goods and Services Tax reforms of GST 2.0 will reduce various sorts of input credit blockages, which helps them minimize further manufacturing costs and ease compliance using the Garment manufacturing ERP software.

The Factor of Industrial Disappointment

The decision of the GST council for the garment or textile industries to apply 5% GST on garments below Rs 2500 and to impose 18% above Rs 2500 price tag is seen as an unfair move by some industries. They think that this tax system will affect their premium and luxurious garment manufacturing like wedding wear, formal clothes, and occasional dresses. The CMAI (Cloth Manufacturers Association of India) has highlighted their point that the majority of garment chains will get the benefit of 5% and finished garments of above Rs 2500 tag will remain an exception. It will affect the consumer market in the time to come.

Various garment associations, including CMAI, have raised their voice and call this move an “anomaly” and requested the government, or the GST council, to revise their decision with fruitful moves for all. As per the GST 2.0, they send a proposal to either put 5% tax for all garment manufacturers or apply 18% for readymade garments tagged above Rs 5000 or move. According to them, applying an 18% tax on just

an Rs 2500 readymade garment is not a luxury price point that will attract inflation in the garment industry and market as well.

Impact of Next-Gen Tax Reform on Garment Consumers

A variety of customers are in the country, some like premium clothing, while some want to stick to their ordinary ones, but the reality is majority of consumers are middle class. Let’s know what the GST council has given to the general people:

Affordable Clothing: people are now getting more ready to use garments which fall under 5% GST.

A Relief on Price factors: Middle-class people get more benefits because they can easily shop for premium garments without going to higher tax rates.

Luxury feel: On shopping above Rs 2500, a luxurious feel will be there for every customer with 18% GST.

Why Choose GST Ready ERP for Garment Manufacturing from Absolute ERP?

Absolute ERP is one of the leading ERP solution providers in India, and its GST-ready utilities make the business future-ready with high-end and transformative solutions in tax filing, rebate, and business profitability. One should choose Absolute ERP to extend advantages in tax submission to the government and to follow standard norms to make genuine clothing for the end users.

Summary

The Next-gen tax reform implemented by the government has attracted mixed perceptions from buyers and garment manufacturers. However, the government has given some relief to middle-class people, but luxury garment manufacturers are disappointed with market fluctuation in the time to come. These days, garment manufacturers are syncing their business goals with the industrial benefits of GST 2.0 by integrating it with manufacturing ERP applications for the garment production units.