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Impact of GST on Textile Industry

Impact of GST on Healthcare

Before GST Scenario

Tax type

Impact

Service Tax

Textile related Job-work is exempted from Service Tax

Excise Duty

Only on Yarn and Branded Garment

VAT

Only on Yarn and Garment

Impact of GST on Textile Industry

It is expected that the tax rate under GST would be higher than the current tax rate for the textile industry. Natural fibers (cotton, wool) which are currently exempt from tax, would be taxed under GST. Despite this, the textile industry as a whole would benefit from the introduction of GST due to following changes-:

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Break in input credit chain

A significant portion of the textile industry in India operates under the unorganized sector or composition scheme, thus creating a gap in flow of input tax credit. Input tax credit is not allowed if the registered taxpayers procure the inputs from composition scheme taxpayers or the unorganized sector. GST would enable a smoother input credit system, which would shift the balance towards the organized sector.

Reduction in manufacturing costs

GST is also likely to subsume 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

Currently, the import cost of procuring the latest technology for manufacturing textile goods is expensive as the excise duty paid is not allowed as input tax credit. Whereas under GST, there will be input tax credit available for the tax paid on capital goods.       

Tax slabs for Textile Industry Value Chain

Sr.No

Particulars

Rate of GST

1.

Cotton

5%

2.

Cotton Yarn

5%

3.

All type of fabrics (With no ITC Accumulation)

5%

4.

Synthetics Yarn

18%

5.

Readymade Garments (more than Rs.1000)

12%

6.

Readymade Garments (upto Rs.1000)

5%

7.

Silk and Jute Fiber

NIL

8.

Embroidery, Dyeing & Printing Job Work

5%

Credit of Stock: As on 30.6.2017

  • Who can take credit of Excise / VAT

Any Person who will obtain the Registration, whether earlier registered or not, will be eligible totake credit either on actual basis or on deemed basis. A person who was not liable to be registered under the existing law shall be entitled to take, in his electronic credit ledger, credit of eligible duties in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the appointed day :

How to ensure all stocks are considered:

  1. Take the stock of all raw material, work in progress and Finished goods lying within factory
  2. Details of stock lying with Job worker / agent / depot (Bleach, Dyeing, Felt, Finishing, Printing etc.)
  3. Take the stock of packing material
  4. Take the stock of chemicals
  5. Identify the invoices of supplier for such stock.

100% Credit of Stock will be available if –

  1. The invoice contains the name of your entity and duty paid on such goods.
  2. Duty as mentioned on the invoices can be taken as credit within 90 days by filling the stock statement. (GST TRANS 1)
  • Credit available even without Tax Invoice

Partial CREDIT OF EXCISE DUTY / VAT for CLOSING STOCK under Transition Provisions

A registered person who was not registered under the existing law shall be allowed to avail of input tax credit on goods held in stock

• On which central excise or

• Additional duties of customs

• VAT is leviable in respect of which he is not in possession of any document evidencing payment of any duty or tax

CREDIT OF EXCISE DUTY / VAT IN STOCK : Such credit shall be allowed at the rate of 60% on such goods which attract central tax at the rate of 9% or more and 40% for other goods of the central tax applicable on supply of such goods after the appointed date and shall be credited after the central tax payable on such supply has been paid.

 

Export of textile products to get a boost

GST would streamline the process of claiming input tax credit thus allowing the textile industry to be more competitive in the export market. The same opinion is shared by the secretary of ITF (Indian Texpreneurs Federation) Prabhu Dhamodharan.

*Official website of ITF -: http://www.itf.org.in

Currently, manufacturers/traders are not inclined towards exports due to the extensive procedure costs and delays made in the processing of duty drawback.

Under GST, the system of duty drawback will lose its significance. Input tax credit will be provided as a refund under GST instead of current duty drawback schemes. This would be a significant boost for promoting the export of textile products. Further, this Refund would be credited automatically on filing of form and return and no need to go to any department. Hence, the refund will be more user friendly, easy and hassle free.  

Export promotion capital goods scheme is available for all the cotton-based textile exporters. Under this scheme, exporters can claim the exemption for duty paid if they export six times the value of duty within a period of next six years. It is expected that this scheme would lose its significance under GST.

Unregistered Person will be thrown out of the Market

Due to strict and stringent provisions under GST regime like payment of GST under RCM (Reverse Charge Mechanism), the person who is not registered or not complying with the provisions of GST will not be preferred and will be eliminated gradually and only prudent businessmen will be survived. Because of this, the problems of cheating, embezzlement etc. will be reduced eventually and this will certainly rise the standard of faith and trust which will lead the industry to its peak.  

Conclusion

There may be a few drawbacks under GST for the textile industry due to the higher tax rate and removal of benefits under cotton value chain, but it is safe to say that GST will help this industry in the long run by getting more registered taxpayers under a well-regulated system. It can also be hoped that GST will help the textile industry to get more competitive in both the global and domestic markets and create opportunities for sustainable, long-term growth.

Authored by:

CA Hardik Shah - Proprietor of Hardik P Shah & Co – +91 9825510422 / +91 9375533336

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