The document discusses the impact of GST on India's apparel industry. It provides an example comparing the cost of a garment under the GST and non-GST regimes. Under GST, the total tax paid is lower (Rs. 16 vs Rs. 58.23) and the final price is cheaper (Rs. 166 vs Rs. 208.23) due to elimination of taxes on taxes. GST is expected to bring transparency by allowing input tax credits, though it may initially increase tax burdens for textile businesses if GST rates are higher than current rates. Overall, GST could lead to growth in the textile sector by removing fiscal barriers and encouraging modernization.

1. Apparel Costing
Project Based Learning
Review Article
Influence of GST in Apparel Industry
Submitted By,
N Saranya
(16BFT1006)

2. Abstract:
It so happened and from the July of 2017 the price of majority of the products got
shuffled up. Starting from basic handloom products to the luxury products the prices either
hiked or flunked due to the unexpected implication of GST. But out of all these, there floats
one question in minds of all people, Is GST, a profit/loss? Is this a service to the poor, or a
result of the external affairs of government? In order to answer few of these ‘Why is it so’
questions, here comes an elaborate analysis of how a garment is priced before and after
GST and the change that is brought because of GST.
Launch of GST:
The GST was launched at night time on one Gregorian calendar month 2017 by the
President of Republic of India, Pranab Mukherjee, and also the Government of Republic of
India. The launch was marked by a historic time of day (30 June – 01 July) session of each
the homes of parliament convened at the Central Hall of the Parliament. Though the session
was attended by high-profile guests from the business and also the show business together
with rattan Tata, it had been boycotted by the opposition thanks to the anticipated issues
that it had been sure to lead for the center and socio-economic class Indians. it's one among
the few time of day sessions that are control by the parliament - the others being the
declaration of India's independence on fifteen August 1947, and also the silver and golden
jubilees of that occasion. once its launch, the GST rates are changed multiple times, the
latest being on 18 January 2018, where a panel of federal and state finance ministers
decided to revise GST rates on 29 goods and 53 services.
Impact in Textile Industry:
Textile industries play an awfully vital role within the development of the Indian
economy with relation to GDP, Export promotion, employment, etc. It is the one among the
oldest producing business in Republic of India. It is the second
largest business when agriculture that provides adept and unskilled employment. In this
sector, 100 percent FDI is allowed by the govt. beneath the automated Route.
Textile business contributes over 100 percent of Total Export. Textile business is split into 2
section, first of all Unorganized and second unionized. The unorganized sector consists of
loom, handicraft, little and medium-scale mills and arranged Sector comprises spinning,
attire and clothes section that apply fashionable machinery and techniques. The rate
structure for the textiles is set at 5% and 18% for cotton fiber and unreal artificial fiber
severally. While silk and jute square measure altogether exempted from the GST scope. The
GST rate on apparels is additionally selected a class basis, as Apparels below federal agency
a thousand are attracting 5% GST whereas those higher than this mark can be taxed at 12
percent.
Components of GST:
• CGST: Collected by the Central Government on an intra-state sale (E.g.: transaction
happening within Maharashtra)

3. • SGST: Collected by the State Government on an intra-state sale (E.g.: transaction
happening within Maharashtra)
• IGST: Collected by the Central Government for inter-state sale (E.g.: Maharashtra to
Tamil Nadu)
The Change GST has brought:
Transaction New Regime Old Regime
Sale within the State CGST + SGST VAT + Central
Excise/Service tax
Revenue will be
shared equally
between the Centre
and the State
Sale to another State IGST Central Sales Tax +
Excise/Service Tax
There will only be one
type of tax (central) in
case of inter-state
sales. The Center will
then share the IGST
revenue based on the
destination of goods.
Calculation Before GST:
Action Cost 10% Tax Total
Manufacturer 1,000 100 1,100
Warehouse adds label and repacks @ 300 1,400 140 1,540
Retailer advertises @ 500 2,040 204 2,244
Total 1,800 444 2,244

4. Calculation After GST:
Action Cost 10% Tax Actual
Liability
Total
Manufacturer 1,000 100 100 1,100
Warehouse adds label and repacks @ 300 1,300 130 30 1,430
Retailer advertises @ 500 1,800 180 50 1,980
Total 1,800 180 1,980
GST in Apparel Industry:
Before we buy an apparel product, there are various hands that the product travels
through. This flow cycle of the product is as follows:
Purchase of raw materialsProduction or manufactureWarehousing of finished
goodsSale to wholesalerSale of the product to the retailerSale to the end consumer.
Taken in such a situation, there happens overlapping of taxes which at the end causes the
consumer to pay tax for the tax they have already paid. This in return causes an unwanted
increase in cost with profit neither for the retailer nor the manufacturer. With the
introduction of GST, this issue has been totally overcome as GST helps in reducing cascading
of taxes.
The GST Story:
For a better practical understanding, lets analyse how the pricing is done under GST and
non-GST regime.
Price of the Garment:
GST Regime: Rs.166
Non-GST Regime: Rs. 208.23
Now let’s see how this difference arises:

5. GST Regime Non- GST Regime
Manufacturer buys raw materials at Rs.100
(incl 10Rs tax)
Manufacturer buys raw materials at Rs.100
(incl 10Rs tax)
Manufacturer adds a value of Rs.30 to the
dress. Gross Value: Rs.130+ He has to pay a
tax of Rs.13
Manufacturer adds a value of Rs.30 to the
dress. Gross Value: Rs.130
Rs.13 in taxes can be offset against the
taxes paid on raw materials.
So the effective tax will be Rs.13- Rs.10 =
Rs.3
Sold to the manufacturer at the rate of
Gross Value+ Tax = Rs. 143
The dress is sold to the wholesaler at Rs.
130.
Wholesaler adds a margin of Rs.20 to the
dress, so the value of the dress is Rs.150.
Wholesaler adds a margin of Rs.20 to the
dress. So, the price becomes Rs. 163.
A 10% tax here will be RS. 15. Rs.15 will be
offset against Rs.13 tax paid.
GST incidence on the retailer will be Rs.2
Now adding up along with 10% tax
(Rs.16.30), the price becomes Rs.179.30
Retailer now buys the dress at Rs.150 and
adds a value of Rs. 10, increasing its cost to
RS.160.
Now the retailer buys the garment and adds
a margin of Rs.10 which makes up to
Rs.189.30 along with 10% interest thus
making up to Rs. 208.93.
A tax of 10% here will be Rs. 16 offsets
against Rs.15 paid earlier. So, the tax to be
paid is Re.1. After all the interests paid, the
cost of the garment is made up to Rs. 166.
Now on this total 208.93 Rs, the total tax
paid is Rs. 58.23
Now on the total Rs.166 the tax paid is
Rs.16

6. Advantages of GST:
GST can in the main take away the Cascading impact on the sale of products and
services. Removal of cascading impact can directly impact the value of products. Since tax
on tax is eliminated during this regime, the value of products decreases. GST is also mainly
technologically driven. All activities like registration, come back filing, application for refund
and response to note must be done on-line on the GST Portal. This will speed up the
processes.
 Removes Cascading Effect
 Higher Threshold for Registration
 Composition scheme for small business
 Online simpler procedure under GST
 Lesser Compliances
 Defined Treatment for e-commerce
 Increased efficiency for logistics
 Regulating the unorganised sectors
Effect of GST in Apparel Industry:
In ICRA's read, a twelve-tone system(lower rate) suggested by the Dr. Arvind Subramanian
Committee is probably going to possess a negative impact on the textile sector, particularly
the cotton price chain, that is presently attracting zero central excise duty (under
nonobligatory route); not like the semisynthetic fibre sector, where the fibre attracts excise
duty at the manufacturing stage (unlike cotton). Hence there's AN incentive for the
downstream players in manmade sector to avail the Input Credit Tax (ITC).
ICRA points out that the foremost of the cotton based mostly textile players within the price
chain operate through the no obligatory route, thereby resulting in lower duties. The key
reasons for identical square measure exemption on cotton and therefore the lower ITC for
cotton spinning mills; as a result, the cotton yarn makers want the optional duty route
without claiming ITC and pay zero excise duty.
Mr. Anil Gupta, VP, company Sector Ratings, ICRA Ltd said, "With an optional duty structure
at the cotton yarn stage itself, the downstream sectors, i.e. weaving, process and clothes
additionally operate underneath the no obligatory route. This is mirrored within the but 1
Chronicles effective excise duty rate applicable to ~480 spinning and weaving firms rated by
ICRA, which accounted for ~Rs 57000 crore revenue during FY2015."
On the positive side, under GST, textile players which are oriented towards domestic
markets will be able to ITC on domestic capital goods (but not the import duty) as their sales
will be subject to GST. Accordingly, this may cut back the price of capital investments and
therefore are going to be positive for the players operational in domestic markets.

7. "With GST on textile, the textile price chain can become a lot of unionized because it can
build GST non-compliant suppliers uncompetitive vis a vis GST-compliant supplier, because
the patrons will not be ready to take ITC," he adds.
"Due to the reduced advantage of cotton yarn vis a vis artificial yarn, there is a gradual shift
within the domestic textile business, that presently operates with a fibre mixture of cotton:
manmade of 60:40; as against a world average of cotton: manmade of 40:60. However, the
higher than impact are obsessed on the ultimate rates which is able to be applicable to the
arena," he reiterated.
The exports are zero rated beneath the GST as there'll be transparency and handiness of full
ITC for exporters that is presently being provided by duty downside schemes. Accordingly
the duty-drawback will lose its relevance under GST; however sectors where the drawback
rates are higher than actual indirect taxes on inputs may face profitability pressures, an ICRA
assessment states. Textile industries play an awfully necessary role within the development
of the Indian economy with relation to gross domestic product, Export promotion,
employment, etc. It is the one in every of the oldest producing business in Asian nation. It is
the second largest business once agriculture which offer ball-hawking and unskilled
employment. In this sector, 100% FDI is allowed by the govt beneath the automated Route.
Textile business contributes quite 100% in Total Export. Textile business is split into 2
phases, first of all Unorganized and second Organized. Unorganized sector consists of loom,
handicraft, tiny and medium-scale mills and arranged Sector accommodates spinning, attire
and clothes phase that apply fashionable machinery and techniques. Mainly 2 sorts of
Indirect Taxes square measure Central Excise Duties and repair Tax. Service isn't levied on
Textile since it comes beneath product. Under current taxation system, textile product
square measure largely exempted or square measure taxed at terribly low rate. State
Governments have stop levying excise once the conclusion of further Excise Duty.
Some Pertinent Issue in Current Taxation Under Textile Industry
Input Tax Credit Breakup: The textiles industry comprises of both regular and composition
taxpayers. Most of the business ar being in Composition phase. Numerous transactions
within the textiles business be due the unorganized to the organized sector and
contrariwise. Where Regular/Registered payer purchase merchandise from composition
Taxpayers, they are not eligible for Input Tax Credit, thus breaking the Credit chain. Input
reduction paid on the previous group action is enclosed within the price of the merchandise
creating the merchandise pricey. Small Business Compliance Cost: composition theme payer
is hesitant to hitch Credit chain because it will increase the compliance price of participating
skilled to fulfill their Tax obligation.
All different Taxes to be enclosed in GST: provide chain of Textile business is loaded with
input and output across state boundaries to succeed in the final word client. Octroi and
Entry Tax are the bottlenecks, credit of that aren't allowable, thus form the part of the cost.

8. Subsume of tariff, entry tax, entertainment tax, luxury tax, etc. into GST can take away the
cascading result at the distribution stage.
GST Implication
After the application of GST, there will be an increase in the effective tax rate to have a
negative impact on the textile sector as compared to current taxation. As CGST and SGST
rates are probably to be beyond the present textile sector rate, this will result in the higher
revenue to the Central and State Government and Textile Prices will increase. Services are
used in Input; this effect would be nullified as all input tax will be rebated. In the current
taxation, taxes are being paid on input are being added to price because the finished
product are exempted from Taxes. In GST, Textile Output will be taxed and Input Tax will be
rebate whether in the case of export or for domestic use making taxation transparent Taxes
paid on purchase and installation of capital quality and instrumentation is claimed as Credit
credit. This will cause up-gradation and growth of the Textile Industries with latest Improve
technologies.
Compliance cost will be improved and reduced
Fiscal barriers will be removed with the movement of Textile Input and output taxes from
one state to another Under GST, All Fiber will be treated in same way. No discrimination
between cotton fiber and man-made fiber is there till now in the defined GST Structure
Summary
Overall GST will necessarily change the current structure of Textile Industries. GST can end
in transparency; the tax burden will shift to the ultimate consumer by claimthe credit of
taxes paid on input. Still, GST rate is to be determined, it may lead to the higher tax burden
on textile units. But the impact on demand are going to be less or neutral. It will encourage
widespread development and growth in Indian Textile sector. The future for the textile
business appearance promising, buoyed by each robust domestic consumption additionally
as export demand.
Research&Findings:
Considering the comfort zone and affordability of people, GST has been implemented in a
different way for different classes of society. The basic materials range from 0% GST to the
luxury products ranging at 18% GST. Few of the ranging values of GST are tabulated below:
Description GST Rate (in %)
Articles of apparel and clothing accessories,
knitted or crocheted, of sale value not
exceeding Rs. 1000 per piece
5

9. Articles of apparel and clothing accessories,
knitted or crocheted, of sale value
exceeding Rs. 1000 per piece
12
Handmade/hand embroidered shawls of
sale value not exceeding Rs. 1000 per piece
5
Handmade/hand embroidered shawls of
sale value exceeding Rs. 1000 per piece
5
Footwear below Rs.500 5
Footwear above Rs.1000 18