GST Council defers rate hike for textile industries

December 31, 2021

GST rate hike from 5 percent to 12 percent on textiles sheltered under the monetary threshold effective 1st January, 2022 deferred.

The GST rate on certain textile products such as Chapter 63 are levied based on the threshold of taxable supply pertaining to such products. For instance, for products falling under Chapter 63, where the value of taxable supply is INR 1,000 or less the rate of GST is 5 percent and for others 12 percent. This sometimes resulted in an inverted duty scenario wherein the product may have been purchased by paying 12 percent GST but after discounts is sold at a price lower than 1,000 and GST on such products is collected at only 5 percent. 

The GST Council in its 45th Council meeting held on 17th September, 2021 recommended a rate hike on footwear and textiles to correct the inverted duty levy on these products. Pursuant to the same, Notification No 14/2021-Central Tax (Rate) dated 18th November, 2021 was issued to give effect to this change from 1st January, 2022 whereby the rate of textiles whose taxable value is INR 1,000 or less would now be taxed at 12 percent at par with other products of this category. This means, irrespective of the taxable value a common rate of 12 percent would be charged on these products.

This move elicited an evident backlash from the textile industry who placed a number of representations before the government to cease the hike in rate. 

The said matter was taken into consideration in the 46th GST Council Meet, chaired by the Finance Minister Nirmala Sitharaman, on Friday triggered by a letter written to the honourable Finance Minister by the Gujarat FM. Per the decision taken in this meeting, the rate hike on textile now stands deferred and no change in rate on textiles would be witnessed effective 1st January, 2022. However, footwear will be taxed at new rates from this date.