Lower goods and services tax (GST) rates have come as a relief to India’s textile and apparel industry, which had been struggling under higher US tariffs. While consumers are expected to benefit from raising the 5 per cent GST threshold from ₹1,000 to ₹2,500, the industry has welcomed the removal of the inverted duty structure. The move makes the entire value chain, starting from fibre, uniformly taxed at 5 per cent, and adopts a fibre-neutral policy by equating man-made fibre (MMF) with cotton.
However, garments priced above ₹2,500 are set to cost more, as GST has risen from 12 per cent to 18 per cent. This could hit the middle class during the upcoming winter season. The industry has urged the government and GST Council to reconsider this segment.
Experts suggest the reforms are a lifeline for micro, small and medium enterprises (MSMEs), which dominate the sector. The reduction of GST on packaging — from 12 per cent to 5 per cent — is also expected to help.
“The decision will ensure higher disposable income for consumers, more demand for garments, and improved cash flow for companies. It was a long-standing demand of the industry to remove the inverted duty structure in MMF yarn and fabric. Now, the entire chain is at 5 per cent, the same as cotton,” an industry expert said. “With the new structure, garments above ₹2,500 will get 6 per cent more expensive,” he added.
“In the entire value chain from fibre to garment, items priced above ₹2,500 are the only products not at 5 per cent. We earnestly request the Council to remove this anomaly and either place all garments, irrespective of price, at 5 per cent or fix a more reasonable and realistic price level,” the Clothing Manufacturers Association of India (CMAI) said in a statement. “Garments above ₹2,500 are also widely consumed by the middle class, especially woollen garments, occasion wear, traditional clothing, handlooms, and embroidered clothes produced by artisans. All of these will see a sharp price increase due to the GST hike. CMAI thus strongly urges the GST Council and government to review this aspect.”
The decision on MMF, along with other changes, is expected to boost revenue and bring relief to the 2.72 million MSMEs operating in textile and apparel manufacturing.
“We thank and welcome the rectification of GST inversion in the MMF value chain by aligning MMF fibre and yarn at 5 per cent, down from 18 per cent and 12 per cent earlier. It addresses the long-standing blockage of working capital for thousands of spinners and weavers. With over 70–80 per cent of textile and apparel units in India being MSMEs, this reform will directly benefit a large segment of the industry by easing liquidity pressures and enhancing competitiveness,” said chairman of the Confederation of Indian Textile Industry.
Almost 28 per cent of India’s textile and apparel exports go to the US. In 2024–25, exports to the US were close to $11 billion. The GST reforms are expected to bring relief to companies and help them shift focus to the domestic market after the US tariff shock.
According to another industry expert, GST relief will ease the burden on everyday shoppers by making essential clothing and footwear more affordable while supporting MSMEs in Tier-II and Tier-III cities. “In smaller towns, even modest savings can encourage more frequent purchases, directly benefiting local retailers and small manufacturers. The ripple effect is that while consumers gain better value for money, the apparel ecosystem at the grassroots enjoys steadier demand and healthier cash flow, creating a true win–win for both sides,” he said.
