Looking for expert help with Income tax and GST for clothing and footwear shop owners India? The team at Tax Garden, based in Kondapur, Hyderabad, helps Indian SMEs stay compliant. End-to-end filings, notices, and deadline tracking, all in one place.
Key Takeaways
- Clothes (Chapters 61 and 62) and footwear (Chapter 64) are 5% GST up to Rs 2,500 per piece or pair, and 18% above it, on the full value (Notification 9/2025-Central Tax (Rate)).
- The rate is decided per piece, after any discount shown on the bill. A Rs 2,800 tag billed at Rs 2,380 is a 5% sale.
- Leather belts, wallets and bags are 18% whatever the price. Cotton and jute handbags are 5%.
- Composition at 1% beats the regular scheme for a 5% shop only if your stock costs less than about 75% of your GST-inclusive sales.
- Under Section 44AD, UPI and card sales are deemed 6% profit and cash sales 8%. Advance tax is one instalment by 15 March.
What is the GST rate on clothes and footwear in India? From 22 September 2025, garments and clothing accessories with a sale value up to Rs 2,500 per piece, and footwear up to Rs 2,500 per pair, attract 5% GST. Above Rs 2,500, the whole piece or pair attracts 18%. Source: Notification 9/2025-Central Tax (Rate), Schedule I S. No. 388, 389, 392 and Schedule II S. No. 197, 198, 202 to 206.
A clothing or footwear shop lives on price points. Most of your racks sit well under Rs 2,500, a few premium pieces sit above it, and festival discounts move items across the line every October. Each of those decides the GST rate on the bill. Your choice of GST scheme and how you report income for AY 2026-27 then depend on your margin and how much of your sales come in cash. This guide covers both for a garment, saree, kidswear or footwear shop. If you run a general store, our kirana store tax guide fits better; for fabric and yarn rates, see our textiles GST guide.
What GST rate applies to what you sell?
Two rates cover almost everything. The Rs 2,500 line is the only test you need for garments and footwear. Accessories made of leather are the main exception: they sit in the 18% schedule with no price test.
Comparison
GST Rates for Clothing and Footwear Shop Items (from 22 September 2025)
| Item | HSN | GST rate |
|---|---|---|
| Knitted garments (T-shirts, innerwear, socks, hosiery), up to Rs 2,500 per piece | Chapter 61 | 5% |
| Woven garments (shirts, trousers, kurtas, suits), up to Rs 2,500 per piece | Chapter 62 | 5% |
| Any garment above Rs 2,500 per piece | Chapters 61, 62 | 18% |
| Footwear (shoes, sandals, chappals, slippers), up to Rs 2,500 per pair | Chapter 64 | 5% |
| Footwear above Rs 2,500 per pair | 6401 to 6405 | 18% |
| Parts of footwear, insoles, heel cushions | 6406 | 18% |
| Made-up textile articles and sets, up to Rs 2,500 per piece | Chapter 63 | 5% |
| Leather belts, leather jackets and other leather apparel | 4203 | 18% |
| Handbags, wallets, travel bags (leather, plastic, most textiles) | 4202 | 18% |
| Handbags and shopping bags of cotton or jute | 4202 22 20, 4202 22 30 | 5% |
| Shoe polish and creams | 3405 | 18% |
Source: Notification 9/2025-Central Tax (Rate), Schedule I S. No. 289, 290, 388, 389, 390, 392; Schedule II S. No. 70, 145, 146, 197, 198, 199, 202-207
The rate change on 22 September 2025 moved the line from Rs 1,000 to Rs 2,500, so check older supplier bills. Your input tax credit (ITC) on old stock stays at what the supplier charged. Your sale today is billed at the current rate.
How does the Rs 2,500 test work at the counter?
The notification applies the test to the sale value per piece or per pair. Three situations come up every day:
- Discount on the bill. A discount shown on the invoice at the time of sale is not part of the value of supply (Section 15(3)(a), CGST Act). Say a kurta is tagged Rs 2,800 and you give 15% off in the Diwali sale. The bill value is Rs 2,380, so the kurta goes at 5%, not 18%.
- Mixed bills. A customer buys a Rs 1,200 shirt and a Rs 3,500 blazer. Set the rate line by line: 5% on the shirt, 18% on the blazer. Your billing software needs both rates on the same invoice.
- Buy one get one free. CBIC Circular 92/11/2019-GST says this is not a free supply. It is two items for one price, taxed as a composite or mixed supply under Section 8 of the CGST Act, and you keep ITC on the stock used. Free gifts given without any sale are different: ITC on them is blocked (Section 17(5)(h)).
The notification does not say whether "sale value" is before or after GST. Most items are nowhere near the line, but if you price tags between Rs 2,500 and about Rs 2,650, settle this with your tax consultant before the festive season.
When do you need GST registration?
If you only sell goods, registration is required once aggregate turnover crosses Rs 40 lakh in most states. Telangana and several other states kept the Rs 20 lakh limit (Notification 10/2019-Central Tax). So a Hyderabad saree shop with Rs 25 lakh of sales must register. Selling to a buyer in another state needs registration from the first rupee (Section 24(i), CGST Act). If you sell on Amazon, Flipkart or Myntra as well, read our e-commerce seller tax guide. Need to register? See our GST registration service.
Regular scheme or composition: which leaves you more money?
Under the composition scheme, a trader pays 1% of turnover (0.5% CGST plus 0.5% SGST, Rule 7, CGST Rules), up to Rs 1.5 crore turnover. You can't charge GST on your bill, can't claim ITC and can't sell to other states (Section 10(2)(c), CGST Act).
A clothing shop is a better fit for composition than most retailers. Customers are households who don't need ITC, and most stock carries only 5%. Here's one month at Rs 4,20,000 of GST-inclusive sales, all at 5% (Rs 4,00,000 plus Rs 20,000 GST under the regular scheme):
Comparison
One Month, Rs 4.2 Lakh of Sales at 5%: Regular vs Composition
| Item | Regular scheme | Composition (trader) |
|---|---|---|
| Tax on sales | Rs 4,20,000 x 5/105 = Rs 20,000 | 1% x Rs 4,20,000 = Rs 4,200 |
| Shop A: stock bought Rs 2,60,000 + 5% GST | Rs 13,000 ITC; pays Rs 7,000 in cash | Rs 13,000 becomes cost |
| Shop A: total GST borne | Rs 20,000 | Rs 17,200 |
| Shop B: stock bought Rs 3,40,000 + 5% GST | Rs 17,000 ITC; pays Rs 3,000 in cash | Rs 17,000 becomes cost |
| Shop B: total GST borne | Rs 20,000 | Rs 21,200 |
Source: Rule 7, CGST Rules 2017; Notification 9/2025-Central Tax (Rate). Figures are illustrative.
Under the regular scheme the total is always the output tax, Rs 20,000, because ITC just offsets part of it. Under composition it's 1% of sales plus all the GST paid on stock. For a shop selling only 5% goods, the two meet when purchases (before GST) are about 75% of GST-inclusive sales. Shop A, a garment shop buying at 62%, saves Rs 2,800 a month under composition. Shop B, a footwear shop on thinner margins buying at 81%, is Rs 1,200 a month better off on the regular scheme. If a big share of your sales is premium stock at 18%, redo the sum: the break-even for 18% goods is about 79%. Our composition scheme guide covers the other conditions.
Returns, exchanges and credit notes
Clothes and shoes come back for size exchanges all the time. If a registered customer returns goods, or you cut the price after billing, issue a credit note under Section 34 of the CGST Act and report it in GSTR-1. For supplies made in FY 2025-26, the credit note must be declared by 30 November 2026 or the date you file the FY 2025-26 annual return, whichever is earlier (Section 34(2)). After that you can't reduce your output tax for it. A straight size swap at the same price is a fresh sale of the same value, so no net tax changes.
How is your income taxed for AY 2026-27?
Step-by-Step Guide
Choosing How to Report Your Shop Income
Check Section 44AD eligibility
Resident individual, HUF or partnership firm (not LLP). Turnover up to Rs 2 crore, or up to Rs 3 crore if cash receipts are within 5% of total receipts.
Split receipts by mode
Receipts by UPI, card, cheque or bank transfer count at 6%. Cash receipts count at 8%.
Compare with your real margin
If your books show less than the deemed profit, declaring actual profit may cost less tax, but brings books and audit duties.
Pay advance tax
Under Section 44AD, the whole year's advance tax is due in one instalment by 15 March (Section 211).
File the right form
ITR-4 for Section 44AD if total income is within Rs 50 lakh and other conditions are met; ITR-3 if you keep full books.
Source: Sections 44AD, 87A and 211, Income-tax Act 1961; Finance Act 2025
Example 1 (neighbourhood footwear shop, new regime): Turnover Rs 90 lakh, of which Rs 63 lakh by UPI and card and Rs 27 lakh in cash. Cash is 30% of receipts, so the Rs 2 crore limit applies, and the shop is within it.
- Deemed profit: 6% of Rs 63 lakh (Rs 3,78,000) plus 8% of Rs 27 lakh (Rs 2,16,000), so Rs 5,94,000.
- Tax: 5% on the Rs 1,94,000 above Rs 4 lakh is Rs 9,700.
- The Section 87A rebate (income up to Rs 12 lakh) wipes it out. Tax payable: nil.
Example 2 (garment showroom, new regime): Turnover Rs 2.6 crore, with Rs 10 lakh (3.8%) received in cash. Cash is within 5%, so the Rs 3 crore limit applies.
- Deemed profit: 6% of Rs 2.5 crore = Rs 15,00,000, plus 8% of Rs 10 lakh = Rs 80,000. Total Rs 15,80,000.
- Tax: nil up to Rs 4 lakh, Rs 20,000 on Rs 4-8 lakh, Rs 40,000 on Rs 8-12 lakh, and 15% of Rs 3,80,000 = Rs 57,000. Total Rs 1,17,000.
- No 87A rebate, as income is above Rs 12 lakh. Add 4% cess of Rs 4,680. Tax payable: Rs 1,21,680, paid as advance tax by 15 March 2026.
Notice what cash costs you. Had the showroom taken Rs 30 lakh in cash instead (11.5% of receipts), it would lose the Rs 3 crore limit and fall outside Section 44AD at Rs 2.6 crore turnover. Pushing customers to UPI and card keeps you inside the scheme and lowers deemed profit. Leaving Section 44AD after using it bars you from it for five years, with books and a tax audit needed whenever income exceeds the basic exemption limit (Section 44AD(4) and (5), Section 44AB(e)). See our Section 44AD guide and old vs new regime guide.
Common mistakes clothing and footwear shops make
- Still using the old Rs 1,000 line. Since 22 September 2025 the split is at Rs 2,500. A Rs 1,800 pair of shoes is now 5%, not the old 18%, and a Rs 1,800 shirt is 5%, not the old 12%.
- Charging 18% only on the excess. Above Rs 2,500, 18% applies to the whole piece or pair.
- Billing leather belts and wallets at 5%. Leather accessories (4203) and most bags and wallets (4202) are 18% at any price.
- Missing the credit note deadline. A return credit note declared after 30 November of the next year no longer reduces your GST.
- Taking Rs 2 lakh or more in cash from one customer. A wedding-season order paid in cash of Rs 2 lakh or more for one transaction breaks Section 269ST. See our cash transaction limits guide.
How Tax Garden helps clothing and footwear shops
We file GSTR-1 and GSTR-3B for garment and footwear retailers, with 5% and 18% sales split correctly and sale returns reported in time. See our GST return filing service. We also prepare your ITR and check whether Section 44AD or actual books gives the lower lawful tax; see our ITR filing service and pricing.
