The government today announced sweeping reforms under GST 2.0, simplifying the tax structure and bringing major relief to India’s textile and apparel sector. The move, approved during the 56th GST Council meeting, is aimed at reducing costs across the value chain while also shifting the burden towards higher-end consumption.
Under the new system, the GST Council has collapsed the earlier four-tier structure (5%, 12%, 18%, 28%) into a simpler two-rate regime: 5% for essential and mass-consumption goods, and 18% for standard goods, with a 40% slab reserved for luxury and sin items. The changes will come into effect from September 22, 2025.
Relief for Affordable Apparel and Footwear
One of the biggest announcements concerns clothing and footwear. All items priced up to Rs 2,500 will now attract a 5% GST, down from the previous 12% rate. This is expected to make affordable apparel and footwear more accessible to Indian consumers ahead of the festive season.
The Clothing Manufacturers Association of India (CMAI) welcomed the move:
“Clothing Manufacturers Association of India (CMAI) wholeheartedly welcomes the latest changes made in the GST Rates, especially relating to the Textile Industry. The Government has accepted two major requests of the Industry – the removal of the Inverted Duty Structure by making the entire Value Chain from Fibre onwards charged at one rate – 5% – and adopting a fibre-neutral policy, by equating the MMF and Cotton fibre chains. The increase of the 5% limit from Rs 1000 to Rs 2500 is also an extremely positive move.”
Industry Voices
According to Suditi Industries, the reduction of GST on apparel from 12% to 5% is expected to provide a twofold boost:
- Stronger Consumption: Lower taxes are likely to fuel festive season demand, benefitting both Suditi’s mill operations and retail presence.
- Improved Margins: Reduced tax outflow will lift profitability, providing flexibility for reinvestment and expansion.
Harsh Agarwal, CEO of Gini & Jony, said:
“This is a pivotal time for Suditi. With the integration of Gini & Jony, we are no longer just a textile manufacturer—we are transforming into a consumer-facing retail powerhouse. The upcoming GST reforms and strengthening domestic consumption create a strong runway for growth.”
The Retailers Association of India (RAI) also welcomed the new two-slab framework, calling it a step towards simpler and fairer taxation that will lower consumer prices and boost retail growth. However, it raised concerns over the higher 18% tax on items above Rs 2,500:
Despite the positive changes, RAI has highlighted some concerns regarding specific categories and structural issues:
Structural Flaws in Price-Based GST Slabs
RAI strongly recommends moving to a flat GST rate across product categories rather than relying on price-based thresholds, which:
- Create distortions and promote grey market activity
- Lead to misreporting and compliance challenges
- Harm organised retail, especially for mid- and premium-priced products
- Discourage domestic manufacturing, undermining Make in India
- Create artificial barriers that force consumers to downgrade instead of expanding natural demand
Garments and Footwear Above Rs 2,500
Placing these in the 18% GST slab could:
- Hurt middle-class affordability
- Weaken the organised retail and garment sector
- Impact categories such as wedding apparel, winter wear, artisan-made, festive, and traditional products
RAI’s Recommendation:
All garments and footwear should ideally be taxed at 5%, or at the very least, a more reasonable price threshold should be established.
From the luxury space, Devansh Jain Nawal, CEO & Co-Founder of Culture Circle, said,
“At Culture Circle, we’re thrilled about this development as it aligns perfectly with our mission of making authentic luxury accessible to Gen Z consumers. This policy shift will boost domestic consumption, encourage more international brands to enter India, and strengthen our position as Asia’s largest authenticated luxury marketplace. We expect 30-40% growth in luxury footwear sales post-implementation, driving significant expansion in our sneaker and streetwear categories. This is exactly the catalyst India’s fashion industry needed.”
Textile Value Chain Gains
Sidharth Khanna, President of NITMA, highlighted the structural reforms for man-made fibres (MMF):
“We are pleased to share that the long-standing issue of the inverted duty structure in GST for MMF textiles has been successfully addressed. This reform includes:
- Reduction of GST on Manmade Fibres from 18% to 5%
- Reduction of GST on Manmade Yarns from 12% to 5%
- Finished textile products like carpets, rugs, and bath linens brought down to 5%
“These changes will significantly lower costs across the MMF and Technical Textiles value chain, enhancing efficiency and export competitiveness.”
He further noted that the removal of import duty on cotton until December 31, 2025, arrives at a critical time, helping exporters navigate global challenges such as U.S. tariffs and trade volatility.
Wider Retail and FMCG Impact
Paresh Parekh, Partner and National Leader for Tax – Consumer Products and Retail Sector at EY India, said,
“GST reforms and rate rationalisation for consumer and retail sector, including everyday household daily items, FMCG goods, electronics etc is an extremely needed, welcome, timely and bold move from Government. The tax cuts are expected to directly lower consumer prices, offering significant relief to households, especially in rural and semi-urban areas where FMCG spending is sensitive… Additionally, administrative measures such as faster three-day GST registrations for non-risky businesses and a 7-day refund window for export-oriented sectors—including textiles—are expected to significantly ease compliance and cash flow issues.”
Calls for Review
While the textile industry broadly welcomed the reforms, CMAI made a final appeal:
“In the entire Value Chain from Fiber to Garment, garments above Rs 2500 are the only products which are not at 5%. We earnestly request the Council to remove this anomaly, and either place all Garments, irrespective of the price, at 5%, or fix a more reasonable and realistic price level. Garments above the price of Rs 2,500 are also consumed in large numbers by the common man and middle class, especially woollen clothing, occasion wear, Indian Traditional clothing, Handlooms, embroidered clothes produced by artisans and traditional weavers are all priced above this limit of Rs 2,500 – all of which will see a significant price increase due to this change of GST Rate.”
