Garments to Cost More as GST Hikes to 18%, Middle-Class Concerns Rise

The GST Council's decision to raise the GST rate on garments and clothing accessories priced above Rs 2,500 per piece from 12% to 18% will make these items more expensive, potentially affecting middle-class affordability and weakening the organised retail and garment sectors, according to industry bodies.

The Retailers Association of India (RAI) and the Clothing Manufacturers Association of India (CMAI) expressed concerns about the hike, despite welcoming the simplified two-slab GST structure and the elimination of the inverted duty structure across the textile value chain. They noted that garments priced above Rs 2,500 are widely purchased by the middle class and common consumers, including woollen clothing, occasion wear, traditional Indian attire, handlooms, and embroidered garments crafted by artisans.

The GST Council, in its meeting on Wednesday, approved the increase in GST to 18% for apparel, clothing accessories, and other made-up textile articles with a sale value exceeding Rs 2,500 per piece. In contrast, GST on footwear priced below Rs 2,500 per pair was reduced from 12% to 5%, while footwear above this threshold remains at 18%.

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RAI stated that taxing garments and footwear above Rs 2,500 at 18% could reduce affordability for the middle class and harm the organised retail and garment sectors. It suggested that all garments and footwear should ideally be taxed at 5%, or a higher, more reasonable price threshold should be set.

CMAI echoed this sentiment, highlighting that garments priced above Rs 2,500, such as traditional and artisanal clothing, are commonly consumed by the middle class. It urged the GST Council to address this issue by either applying a uniform 5% GST rate across all garments or setting a more realistic price threshold to avoid significant price hikes.

RAI also renewed its call to lower GST on commercial rentals for retail outlets from 18% to 5%, arguing that this would enhance retail viability and further address inverted duty structures in key sectors.

Both organisations praised the streamlined two-slab GST framework, noting that it simplifies taxation and promotes fairness. The removal of the inverted duty structure, with a uniform 5% GST rate across the textile value chain from fibre onwards and a fibre-neutral policy equating man-made fibres with cotton, was also welcomed. These reforms are expected to reduce consumer prices, boost demand, improve ease of doing business for retailers and MSMEs, and support growth in the retail sector.

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