Textiles Under GST 2026: Rates, HSN Codes and ITC

What is the GST rate on textiles and garments in India in 2026? Under GST 2.0, garments priced up to Rs 2,500 per piece are taxed at 5% GST. Garments above Rs 2,500 per piece attract 18% GST. All fabric is at a flat 5%, and both natural and man-made fibre yarn are at 5%. Man-made fibre raw material remains at 18%.

India's textile and garment sector is one of the largest contributors to GST revenue, and the rate structure has seen multiple revisions since 2017. The introduction of GST 2.0 on September 22, 2025 brought the most significant simplification yet: the old multi-tier system collapsed into a cleaner two-rate split at the Rs 2,500 per piece threshold for garments, with fabric and yarn largely settling at 5%.

Whether you are a fabric weaver in Surat, a garment manufacturer in Tiruppur, or a retail trader in Hyderabad, this guide covers the exact rates, HSN codes, ITC mechanics, and compliance obligations you need to get right.

GST Rate Structure for Textiles Under GST 2.0

The rate structure effective September 22, 2025 simplified textile taxation into predictable slabs. Here is the complete breakdown.

Garments and Ready-Made Clothes

Tax Rate Chart

GST on Garments (Ready-Made Clothes) 2026

Rate depends on sale value per piece, not per metre or per kg

Garments with sale value up to Rs 2,500 per piece

2.5% CGST + 2.5% SGST : Chapters 61, 62, 63 items

5%

Garments with sale value above Rs 2,500 per piece

9% CGST + 9% SGST : applies from the first rupee, not just the excess

18%

Source: GST 2.0 rate notifications effective September 22, 2025; CBIC Notification

Critical point: the 18% rate on garments above Rs 2,500 applies to the entire value of the garment, not just the amount exceeding Rs 2,500. If a shirt is sold for Rs 2,600, the entire Rs 2,600 is taxed at 18%.

Fabric

Under the previous structure, certain man-made fibre (MMF) fabric attracted 12%. GST 2.0 brought all fabric to a uniform 5%, resolving the inverted duty problem that plagued MMF weavers for years.

Yarn and Fibre

Tax Rate Chart

GST on Yarn and Fibre 2026

Natural and man-made fibre yarn unified at 5% under GST 2.0

Natural fibre yarn (cotton, silk, wool, jute)

2.5% CGST + 2.5% SGST

5%

Man-made fibre yarn (polyester, nylon, acrylic)

Reduced from earlier 12% or 18% on some MMF yarn categories

5%

Man-made fibre raw material (polymer chips, PTA, MEG)

9% CGST + 9% SGST : upstream petrochemical inputs

18%

Source: GST 2.0 rate notifications; CBIC rate schedule for Chapters 54-55

The reduction of MMF yarn from 18% (on some categories) to a uniform 5% was the single biggest relief for the textile value chain. Earlier, MMF yarn taxed at 18% fed into fabric taxed at 5%, creating a persistent inverted duty structure where manufacturers accumulated ITC they could not utilise. That bottleneck is now resolved.

How the Rs 2,500 Threshold Works

The threshold applies to transaction value per piece, not MRP, not per metre, and not per kg. Understanding the nuances prevents classification disputes.

Value Determination Rules

Practical implications for retailers:

1. Discounts reduce the taxable value. If your billing system applies a trade discount before invoicing, and the post-discount value falls at or below Rs 2,500, the 5% rate applies. The discount must appear on the invoice, not as a post-sale credit note.

2. Sets and combos take the aggregate price. A three-piece suit set sold for Rs 5,000 as a single SKU attracts 18% on the full Rs 5,000, even if each individual piece would cost less than Rs 2,500 if sold separately.

3. Mixed invoices are fine. If one invoice contains five garments, three priced below Rs 2,500 and two above, you apply 5% on the first three and 18% on the other two. Line-item-level rate assignment is standard practice.

HSN Codes for Textiles: Chapters 50 to 63

The Harmonised System of Nomenclature (HSN) codes for textiles span 14 chapters. Every textile invoice must carry the correct HSN code; the digit requirement depends on your turnover.

Complete Chapter Reference

Classification tip: Chapters 61 and 62 cover finished garments (the Rs 2,500 threshold applies here). Chapter 63 covers made-up articles like bedsheets and curtains. Chapters 50 to 60 cover raw materials, yarn, and fabric (all at 5%).

Input Tax Credit (ITC) for Textile Businesses

Unlike restaurants (which operate on 5% without ITC), textile businesses at both 5% and 18% rates are entitled to full ITC. This is a significant advantage that keeps the credit chain intact across the production stages.

The ITC Chain: Fibre to Garment

The textile value chain has distinct stages, and ITC flows through each:

ITC Rules Specific to Textiles

Inverted Duty Structure: When to Claim Refund

The most common inverted duty scenario in textiles occurs at the yarn-manufacturing stage:

• Input: MMF raw material at 18% GST
• Output: MMF yarn at 5% GST

The manufacturer accumulates excess ITC that cannot be set off against output liability. Section 54(3) of the CGST Act permits a refund of this accumulated ITC. File the refund application using Form GST RFD-01 on the GST portal. The refund is calculated using the formula in Rule 89(5):

Maximum Refund = (Turnover of inverted-rated supply / Adjusted Total Turnover) x Net ITC, minus Tax payable on inverted-rated supply

File refund applications promptly; do not let multiple quarters of excess ITC accumulate without action.

Job Work in Textiles: 5% GST

Job work is a critical part of the textile supply chain. A manufacturer sends raw materials (fabric, yarn, half-finished garments) to a job worker for processing (dyeing, printing, cutting, stitching, embroidery, washing), and the job worker returns the processed goods.

GST Rate on Textile Job Work

All job work on textiles falling under Chapters 50-63 attracts 5% GST under SAC 9988, per Notification No. 20/2017-Central Tax (Rate).

Job Worker vs. Contractor: Accounting Difference

Job Worker (material ownership with sender):

• Sender provides fabric/yarn (owns it)
• Job worker processes and returns goods
• GST @ 5% charged by job worker under SAC 9988
• Sender claims ITC on job work charges
• Job worker does NOT charge tax on materials (sender owns them)
• Invoicing: Invoice shows service charges only (dyeing, printing, labor)

Contractor (material ownership with contractor):

• Contractor buys fabric, processes, and sells finished goods
• Contractor issues sales invoice (HSN for finished garments)
• GST charged based on output product rate (5% or 18% depending on garment value)
• Invoicing: Invoice shows material + service cost bundled

Job Work Challan and Tracking

When sending materials for job work, a Job Work Challan must be issued (not an invoice). This documents:

• Description and quantity of goods sent
• Date of sending and expected return date
• Job worker's name and GSTIN (if registered)
• Nature of job work (dyeing, printing, etc.)
• Job work value (for ITC computation at return)

The challan is not a tax-bearing document; no GST is charged on the challan itself. When the job worker returns the goods and issues a service invoice (or issues a combined purchase-service invoice if they also provide materials), GST @ 5% applies to the service portion only.

ITC on Job Work

If you send goods for job work and receive an invoice from a GST-registered job worker:

• The 5% GST on the service invoice is eligible for ITC
• Claim ITC in your GSTR-3B in the month you receive the invoice
• Keep the job work invoice and supporting challan for audit defense

If the job worker is unregistered, no GST is charged; no ITC available.

Example: Fabric Dyeing Job Work

A fabric mill sends 1,000 meters of raw cotton fabric (cost: Rs 2 lakh) to a dyeing unit for processing.

Job Work Challan Issued:

• 1,000 meters cotton fabric
• Expected return: within 10 days
• Job work: dyeing at Rs 20/meter

Dyeing Unit Issues Invoice:

• Service: dyeing of 1,000 meters @ Rs 20/meter = Rs 20,000
• GST @ 5% = Rs 1,000
• Total: Rs 21,000

Fabric Mill's ITC:

• Claim Rs 1,000 ITC on the dyeing service
• The fabric mill now owns Rs 2 lakh of dyed fabric (their purchase price + dyeing cost)
• When they sell the dyed fabric, GST @ 5% on the sale price

Composition Scheme for Textile Traders

Small textile traders who do not need ITC and operate within a single state can opt for the Composition Scheme under Section 10 of the CGST Act.

Key Exemptions and Special Rates

Not everything in textiles is taxed at 5% or 18%. A few categories carry special treatment.

Export compliance: If you export garments or fabric, you have two options:

1. Supply under Letter of Undertaking (LUT): No GST is charged on the export invoice. File LUT in Form GST RFD-11 before the start of the financial year.
2. Supply with IGST payment: Charge IGST on the export invoice and claim refund after the goods are exported.

Most exporters prefer the LUT route to preserve working capital.

E-Invoice and Compliance Requirements

E-Invoice Mandate

From April 2026, textile businesses with aggregate turnover exceeding Rs 5 crore in any financial year from 2017-18 onwards must generate e-invoices through the Invoice Registration Portal (IRP).

HSN Code Compliance on Invoices

Incorrect or missing HSN codes on invoices can trigger notices during assessment. For textile businesses dealing in multiple product types (yarn, fabric, garments, made-up articles), maintaining an accurate HSN master in your billing software is essential.

Return Filing Obligations

Regular textile businesses file:

• GSTR-1 (outward supply details): by the 11th of the following month
• GSTR-3B (summary return with tax payment): by the 20th of the following month (staggered dates for certain states)
• GSTR-9 (annual return): by December 31 of the following financial year
• GSTR-9C (reconciliation statement): required if turnover exceeds Rs 5 crore

Rate History: How Textile GST Rates Evolved

Understanding the history helps context for current clients who may still have old-rate invoices in their books.

Deadline Timeline

GST Rate Timeline for Textiles

Key milestones from GST launch to the current structure

1. July 1, 2017

   GST launch: garments up to Rs 1,000 at 5%, above Rs 1,000 at 12%

   Fabric at 5%, MMF yarn at 12% or 18% depending on type

2. January 2022

   GST Council proposed uniform 12% on all textiles

   Proposal deferred after strong industry pushback from Surat, Tiruppur, and Kolkata

3. September 22, 2025

   GST 2.0: garments split at Rs 2,500 threshold (5% / 18%)

   All fabric at 5%, all yarn at 5%, MMF raw material at 18%

4. April 1, 2026

   E-invoice mandate extended to Rs 5 crore turnover businesses

   Textile businesses above threshold must generate e-invoices for all B2B transactions

Source: GST Council meeting records; CBIC notifications; Finance Act 2025

Practical Scenarios for Textile Businesses

Scenario 1: Retail Garment Shop in Hyderabad

A garment retailer sells a mix of budget and premium clothing. In a single sale:

• 3 cotton kurtas at Rs 1,200 each: 5% GST on each (total tax = Rs 180)
• 1 designer saree at Rs 4,500: 18% GST (tax = Rs 810)
• 1 pair of jeans at Rs 2,500: 5% GST (tax = Rs 125), since Rs 2,500 is "up to" the threshold

Total GST collected: Rs 1,115. The retailer claims ITC on all purchases from wholesalers.

Scenario 2: MMF Yarn Manufacturer

A polyester yarn manufacturer in Surat buys polymer chips (PTA, MEG) at 18% GST and sells yarn at 5%.

• Monthly input purchases: Rs 50 lakh (GST paid: Rs 9 lakh at 18%)
• Monthly yarn sales: Rs 65 lakh (GST collected: Rs 3.25 lakh at 5%)
• Excess ITC accumulated per month: Rs 5.75 lakh

This manufacturer should file refund claims under Section 54(3) every quarter to recover the accumulated ITC and maintain working capital.

Scenario 3: Garment Exporter Using LUT

An exporter ships Rs 2 crore worth of garments per month under LUT.

• GST charged on exports: Rs 0 (zero-rated under LUT)
• ITC on domestic purchases (fabric, trims, job work): Rs 8 lakh per month
• Refund claim: Rs 8 lakh per month under Section 54(3) for zero-rated supplies

The exporter must file LUT (Form GST RFD-11) before the start of each financial year and maintain shipping bill documentation for refund verification.

How Tax Garden Helps Textile Businesses

Tax Garden works with textile manufacturers, traders, and exporters across Hyderabad to handle the full compliance cycle:

• HSN mapping and rate verification across your product catalogue
• Monthly GSTR-1 and GSTR-3B filing with ITC reconciliation against GSTR-2B
• Inverted duty refund applications for yarn and fabric manufacturers
• E-invoice setup and ongoing generation for businesses crossing the Rs 5 crore threshold
• Export compliance including LUT filing, shipping bill reconciliation, and IGST refund claims
• Composition scheme advisory for small retailers evaluating the trade-off between 1% composition and regular ITC-eligible filing

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Sources and verification: Rate structure sourced from GST 2.0 notifications effective September 22, 2025, issued by CBIC. HSN classifications follow the Customs Tariff Act schedule aligned with WCO Harmonised System. ITC provisions referenced from Sections 16 to 18 of the CGST Act, 2017. Composition scheme details from Section 10, CGST Act and Notification 14/2019-CT. E-invoice thresholds from CBIC Notification applicable from April 2026. Export zero-rating provisions from Section 16, IGST Act, 2017. All rates and thresholds verified as of June 2026.

Frequently Asked Questions

Is 18% GST on a Rs 2,600 shirt charged only on the amount above Rs 2,500?

No. From 22 September 2025, garments with a sale value up to Rs 2,500 per piece are taxed at 5%, and those above Rs 2,500 are taxed at 18% on the entire value. A shirt sold at Rs 2,600 carries Rs 468 of GST, while a pair of jeans sold at exactly Rs 2,500 carries 5%, or Rs 125.

Does a discount decide whether a garment falls in the 5% or 18% slab?

Yes, if it is given on the invoice. The rate follows the actual transaction value per piece, not the MRP. A garment tagged at Rs 2,800 but billed at Rs 2,400 after a discount shown on the invoice is taxed at 5%. A discount given later through a credit note does not change the rate charged on the original invoice.

What GST rate applies to fabric and yarn now?

Fabrics are taxed at 5%, and both natural fibre yarn and man-made fibre yarn such as polyester and nylon are also at 5% from 22 September 2025. Upstream petrochemical inputs such as PTA, MEG and polymer chips remain at 18%, which is why yarn makers can still build up unused input tax credit.

Can a polyester yarn manufacturer get a refund of excess input tax credit?

Yes. When inputs taxed at 18% produce yarn taxed at 5%, the unused credit can be claimed as an inverted duty refund under Section 54(3) by filing Form RFD-01. The refund is capped by the Rule 89(5) formula, which uses the ratio of inverted-rated turnover to total turnover. File for each period promptly, since each claim has a two-year time limit.

What GST does a job worker charge for dyeing or stitching fabric owned by the manufacturer?

Job work services on textiles of Chapters 50 to 63, such as dyeing, printing, cutting, stitching and embroidery on goods owned by another registered person, are taxed at 5%. The job worker charges GST only on its processing charges, not on the value of the fabric. The manufacturer sends the goods under a delivery challan and claims credit on the job work invoice.