Looking for expert help with Income tax and GST for handloom weavers 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
- Handloom fabric of cotton, silk, wool, jute or man-made fibre is 5% GST (Notification 9/2025-CT(R), Schedule I). A saree is fabric, so it's 5% at any price. There's no GST exemption just because cloth is handwoven.
- Weaving charges for job work on textiles are also 5% (Notification 11/2017-CT(R), S. No. 26(ii)(g), as substituted from 22 September 2025).
- A weaver who only sells cloth registers above Rs 40 lakh, or Rs 20 lakh in Telangana. A job weaver earning weaving charges uses the Rs 20 lakh services limit.
- Handloom products can go to other States, and to expo stalls, without registration within the limit (Notifications 3/2018-Integrated Tax and 56/2018-Central Tax). Every inter-State consignment still needs an e-way bill.
- Income tax: Section 44AD deems 6% of digital receipts and 8% of cash receipts as profit, for turnover up to Rs 2 crore (Rs 3 crore with cash within 5%).
What is the GST rate on handloom sarees and fabric in 2026? 5%. Woven fabrics of cotton, silk, wool, other vegetable fibres and man-made fibres are all in Schedule I (2.5% CGST plus 2.5% SGST) of Notification 9/2025-Central Tax (Rate), from 22 September 2025. A saree is classified as fabric (CBEC Circular 1054/03/2017-CX), so the rate doesn't change with price. Only khadi fabric sold through KVIC and KVIC-certified outlets is nil.
A Pochampally or Gadwal weaving family usually runs on two kinds of money. Some looms weave the family's own sarees, sold to shops in Hyderabad, Bengaluru or Chennai. Others weave on piece rates for a master weaver who supplies the silk and zari. Each of those carries a different GST limit, and the master weaver has a third set of rules for yarn sent out to looms. This guide covers all three for individual weavers, master weavers and the CAs who keep their books. It uses GST law in force from 22 September 2025 and income tax for FY 2025-26 (AY 2026-27) under the Income-tax Act 1961, with the Income-tax Act 2025 numbers that apply from 1 April 2026. If you run a shop that buys and sells handloom sarees, our handloom saree shop guide is the one for you.
Handloom GST rate and HSN code for what you weave
Almost everything a handloom unit makes is 5%. The one place the rate jumps is stitched made-ups and garments priced above Rs 2,500 a piece.
Comparison
GST on Handloom Products from 22 September 2025
| Product (HSN) | GST | Notification entry |
|---|---|---|
| Woven fabrics of silk, including silk sarees (5007) | 5% | 9/2025-CT(R), Schedule I, S. No. 326 |
| Woven fabrics of cotton, including cotton sarees (5208 to 5212) | 5% | Schedule I, S. No. 334 |
| Woven fabrics of wool (5111 to 5113) | 5% | Schedule I, S. No. 330 |
| Woven fabrics of jute and other vegetable fibres (5309 to 5311) | 5% | Schedule I, S. No. 339 |
| Woven fabrics of man-made fibre (5407, 5408, 5512 to 5516) | 5% | Schedule I, S. No. 342 and 348 |
| Handloom durries, cotton handloom rugs and mats (5702, 5705) | 5% | Schedule I, S. No. 362 and 363 |
| Bedsheets, towels and other made-ups (Chapter 63), up to Rs 2,500 a piece | 5% | Schedule I, S. No. 390 |
| Bedsheets, towels and other made-ups (Chapter 63), above Rs 2,500 a piece | 18% | Schedule II, S. No. 199 |
| Stitched garments, not knitted (Chapter 62), up to / above Rs 2,500 a piece | 5% / 18% | Schedule I, S. No. 389 / Schedule II, S. No. 198 |
| Khadi fabric sold through KVIC and KVIC-certified outlets (50 to 55) | Nil | 10/2025-CT(R), S. No. 145 |
Source: Notifications 9/2025 and 10/2025-Central Tax (Rate), both 17 September 2025, in force 22 September 2025. Saree classification: CBEC Circular 1054/03/2017-CX.
Two points matter in practice:
- Handwoven doesn't mean exempt. The nil list in Notification 10/2025-CT(R) covers khadi yarn and Gandhi topi (S. No. 144) and khadi fabric sold through KVIC channels (S. No. 145). Ordinary handloom cloth, however traditional, is 5%.
- A saree stays fabric even when embroidered or fitted with a fall. Circular 1054/03/2017-CX classifies sarees under the fabric chapters, not as made-ups under Chapter 63. So the Rs 2,500 split doesn't apply to a Rs 40,000 Gadwal silk saree; it's 5%. A stitched dupatta set or a bedsheet is a made-up, and that's where the price test comes in.
Your yarn is 5% too: silk yarn (S. No. 325), cotton yarn (S. No. 333) and man-made filament yarn (S. No. 341). Our spinning mill guide has the full yarn table. If you're registered and buy silk yarn straight from the unit that twisted it, you pay that 5% yourself under reverse charge (Notification 4/2017-CT(R), S. No. 4); our silk reeling and twisting guide explains how.
GST on weaving charges and textile job work
When a master weaver gives you silk and zari and pays you per saree woven, you're doing job work. You don't own the cloth; you're selling a service. From 22 September 2025, job work "in relation to textiles and textile products falling under Chapters 50 to 63" is at 2.5% CGST plus 2.5% SGST, so 5% (Notification 11/2017-CT(R), S. No. 26(ii)(g), substituted by Notification 15/2025-CT(R)).
The registration limit is different for job work. Section 22(1) of the CGST Act sets Rs 20 lakh as the base limit. The higher Rs 40 lakh limit is only for a supplier "engaged exclusively in the supply of goods". Weaving charges are a service, so a job weaver uses Rs 20 lakh, not Rs 40 lakh (some special category States have a lower limit).
Example: a weaver in Nalgonda district runs four looms on piece rates and earns Rs 18,00,000 of weaving charges in FY 2026-27. That's below Rs 20 lakh, so no registration and no GST on the charges. If the charges reach Rs 24,00,000, the weaver registers and charges 5%, which is Rs 1,20,000 for the year, collected from the master weaver on top of the charges.
A weaver who sells some sarees of their own and also weaves on piece rates is not "exclusively" in goods. The Rs 20 lakh limit applies to the combined turnover, even in a Rs 40 lakh State.
Do you need GST registration to sell your own cloth?
If you only sell cloth and other goods you weave, the limit depends on your State:
- Rs 40 lakh for goods-only suppliers in States covered by Notification 10/2019-Central Tax.
- Rs 20 lakh in States left out of that notification. Telangana is one of them, so a Pochampally, Gadwal or Narayanpet weaver registers at Rs 20 lakh.
- Online marketplaces: Notification 34/2023-Central Tax lets you sell on Amazon, Flipkart or Meesho without registering if you're within the Section 22(1) limit, sell in only one State, make no inter-State supply, and get an enrolment number on the GST portal against your PAN before your first sale.
Sending handloom cloth to other States, or selling at an expo
Section 24(i) normally makes registration compulsory for any inter-State taxable supply. Handloom products have their own exemption. The table in Notification 3/2018-Integrated Tax lists, at S. No. 9, "Textile (handloom products)" under HSN "including 50, 58, 62, 63", along with hand printing (S. No. 10), zari thread (S. No. 11), carpets, rugs and durries (S. No. 12) and hand embroidery (S. No. 13). The exemption applies "when made by the craftsmen predominantly by hand even though some machinery may also be used". Powerloom cloth isn't covered.
- Notification 3/2018-Integrated Tax: no registration for inter-State sales of these goods.
- Notification 56/2018-Central Tax: the same relief for a casual seller, which covers a stall at a handloom expo or crafts mela in another State. It applies only if you're also using 3/2018-IT.
Both work only while the "aggregate value of such supplies, to be computed on all India basis" stays within the Section 22(1) limit. Both require a PAN and an e-way bill. A proviso to Rule 138(1) of the CGST Rules makes the e-way bill compulsory for these inter-State handicraft consignments "irrespective of the value of the consignment". So a Rs 15,000 parcel of sarees to a Chennai shop needs one. As an unregistered person, you first enrol on the e-way bill portal in Form GST ENR-03.
Our GST registration limit guide lists the States on each limit, and the e-way bill guide walks through the portal. If you're over the limit, our GST registration service files the application.
Master weavers: sending yarn to looms
A registered master weaver can send silk, cotton and zari to weavers without paying GST on that movement. Section 143 of the CGST Act allows it, on these conditions:
Step-by-Step Guide
Sending Yarn to Job Weavers Under Section 143
Issue a delivery challan
Each lot of yarn goes out under a serially numbered challan with HSN, quantity and value (Rules 45(1) and 55, CGST Rules). No tax invoice and no GST on this movement.
E-way bill for inter-State looms
If the weaver is in another State, an e-way bill is needed whatever the value (proviso to Rule 138(1)). Within the State, the normal value limit applies.
Get the cloth back within one year
Woven fabric must come back, or be sold from the weaver's place, within one year of the yarn going out (Section 143(1)). The Commissioner can extend this by up to one more year on sufficient cause.
If it doesn't come back
The yarn is treated as supplied to the weaver on the day it was sent out. Declare it in GSTR-1 and pay tax with interest (Section 143(3), Rule 45(4)).
File ITC-04
Report challans sent and received in Form GST ITC-04 by the 25th of the month after the period: yearly if last year's turnover was up to Rs 5 crore, half-yearly above that (Rule 45(3)).
Source: CGST Act 2017, Section 143; Rules 45, 55 and 138, CGST Rules 2017
You claim input tax credit on the yarn when you buy it, even if your supplier sends it straight to the looms (Section 19(1) and (2)). For yarn sent directly to a weaver, the one-year clock starts when the weaver receives it (proviso to Section 19(3)). The weaving charges you pay to a registered job weaver carry 5% GST, and that's creditable too. Charges paid to an unregistered weaver carry no GST, so there's no credit to claim. Keep a loom-wise register of yarn sent, cloth received and wastage, because Section 143(2) puts the job of accounting for the yarn on you. Our job work guide covers the wider rules.
Refunds: your output is 5%, and so are yarn and job work. Credit piles up mainly from dyes and chemicals at higher rates. Woven fabrics were once barred from inverted duty refunds by Notification 5/2017-CT(R), but Notification 20/2018-CT(R) lifted the bar for credit on supplies received from 1 August 2018. Under Rule 89(5), only credit on inputs counts towards the refund, not credit on job work or other input services.
Composition or regular scheme?
A weaver who sells woven cloth can opt for composition as a manufacturer, paying 0.5% CGST plus 0.5% SGST on turnover in the State (Rule 7, CGST Rules), up to Rs 1.5 crore of turnover (Notification 14/2019-Central Tax). It rarely fits a handloom business:
Comparison
Composition vs Regular GST for a Handloom Weaver
| Point | Composition (manufacturer) | Regular scheme |
|---|---|---|
| Tax rate | 1% of turnover, paid from your margin | 5% collected from the buyer |
| Credit on yarn, zari and dyes | Not allowed | Allowed |
| Sales to shops in other States | Not allowed (Section 10(2)(c)) | Allowed |
| Stall at an out-of-State expo | Not allowed (Section 10(2)(f)) | Allowed |
| Job weaver earning weaving charges | Not eligible: Section 10(2)(a) bars service suppliers from this scheme | Allowed |
Source: CGST Act 2017, Sections 10(2)(a), (c) and (f); Rule 7, CGST Rules 2017; Notification 14/2019-Central Tax
Most handloom cloth is sold to shops in other cities, and composition rules that out. Take a weaver selling Rs 60,00,000 of sarees a year within Telangana alone. Composition tax is 1% of Rs 60 lakh, so Rs 60,000 from the weaver's own pocket, and the GST paid on yarn and dyes becomes a cost. On the regular scheme the buyer pays the 5% and the weaver deducts the credit on yarn and dyes. See our composition scheme guide for the other conditions.
Income tax: Section 44AD for weavers
Profit from selling woven cloth, and weaving charges earned on piece rates, are both business income. If you're a resident individual, HUF or partnership firm (not an LLP), Section 44AD of the Income-tax Act 1961 lets you skip detailed profit accounts for FY 2025-26:
- Turnover limit: Rs 2 crore, or Rs 3 crore if cash receipts are within 5% of turnover.
- Deemed profit: 6% of receipts by bank, UPI or other digital modes, and 8% of the rest.
- No depreciation on top. Section 44AD(2) treats deductions under Sections 30 to 38 as already allowed, so your looms and jacquards get no separate depreciation.
- Five-year lock: opt out after using 44AD and you can't return to it for the next five years (Section 44AD(4)).
From 1 April 2026 (FY 2026-27 onwards) the same scheme is in Section 58 of the Income-tax Act 2025, with the same 6% / 8% rates and Rs 2 crore / Rs 3 crore limits.
Step-by-Step Guide
Working Out a Master Weaver's 44AD Profit (Proprietor, FY 2025-26)
Split your receipts
Turnover Rs 80,00,000: Rs 60,00,000 by bank and UPI, Rs 20,00,000 in cash. Cash is 25% of turnover, so the Rs 2 crore limit applies; Rs 80 lakh is within it.
Apply the deemed rates
6% of Rs 60,00,000 = Rs 3,60,000. 8% of Rs 20,00,000 = Rs 1,60,000. Deemed profit: Rs 5,20,000.
Work out tax (new regime)
Slabs for FY 2025-26: nil up to Rs 4 lakh, 5% from Rs 4 to 8 lakh. Tax on Rs 5,20,000 = 5% of Rs 1,20,000 = Rs 6,000.
Apply the Section 87A rebate
Total income is within Rs 12 lakh, so the rebate (up to Rs 60,000) wipes out the Rs 6,000. Tax payable: nil.
File the return anyway
Total income of Rs 5,20,000 is above the Rs 4 lakh basic exemption limit, so the ITR must still be filed.
Source: Income-tax Act 1961, Sections 44AD, 87A and 115BAC; Income-tax Act 2025, Section 58. Assumes no other income.
Asking shops to pay by UPI or bank transfer instead of cash cuts the deemed rate on that money from 8% to 6%. If a bad season left your real margin below 6%, keep full books and declare actual profit instead; check the audit rules with your CA first. See our Section 44AD guide and the Section 87A rebate guide. Our ITR filing service prepares the return.
Common mistakes weavers make
- Assuming handloom cloth is GST-free. Only khadi sold through KVIC channels is nil. Handloom sarees and fabric are 5%.
- Using the Rs 40 lakh limit for weaving charges. Job work is a service. The limit is Rs 20 lakh, even in Rs 40 lakh States.
- Sending sarees to another State without an e-way bill. The handloom exemption from registration comes with a compulsory e-way bill for every inter-State consignment, at any value.
- Billing a silk saree at 18% because it costs over Rs 2,500. The price test is for made-ups and garments. A saree is fabric and stays at 5%.
- No challans for yarn sent to looms. Without a challan trail and ITC-04, the department can treat yarn that hasn't come back within a year as sold to the weaver, with tax and interest.
- Opting for composition while selling to other States. Section 10(2)(c) bars any inter-State sale under composition.
How Tax Garden helps handloom weavers
We start by checking which limit you fall under: goods only, weaving charges, or both, and whether the handloom exemption covers your sales to other States. If you need a GSTIN, our GST registration service files it. For registered master weavers, our GST return filing service handles GSTR-1, GSTR-3B, yarn challans and ITC-04. At year end we compare Section 44AD with your actual profit and file your ITR. Call or WhatsApp us on 9640290977.
