Income Tax and GST for Leather Tanneries and Footwear Manufacturers (AY 2026-27)

Looking for expert help with Footwear and leather GST rate? 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

• Footwear up to Rs 2,500 a pair is 5% GST; above Rs 2,500 it's 18% on the full value (Notification 9/2025-CT(R), Sch I S. No. 392, Sch II S. Nos. 202-206). The rate notifications of 27-28 October 2026 don't change this.
• Raw hides, tanned leather and finished leather are all 5% (Sch I S. Nos. 278-288). Leather bags, wallets and belts are 18% at any price.
• Tanning job work for a registered owner is 5%, but job work on shoes, uppers and leather goods is 18% (S. No. 26 of 11/2017-CT(R), as substituted by 15/2025-CT(R)).
• Uppers, soles and synthetic tanning chemicals are 18%, so a footwear unit selling at 5% often builds up credit it can claim back as an inverted duty refund.
• Cash for raw hides is allowed only when paid to the producer; pay traders and job workers through the bank (Section 36(4), Income-tax Act 2025).

What is the GST rate on footwear and leather? Footwear with a sale value up to Rs 2,500 per pair is taxed at 5% GST and pairs above Rs 2,500 at 18%, under Notification 9/2025-Central Tax (Rate) in force from 22 September 2025. Raw hides, skins and tanned or finished leather (Chapter 41) are 5% at any value. Leather bags, wallets, belts and other leather articles are 18%.

A tannery in Kanpur or Vaniyambadi, a shoe factory in Agra or Ambur and a chappal unit in Kolhapur deal with the same GST questions: which rate goes on each pair, what to charge when you tan hides or stitch uppers for someone else, and why your credit ledger keeps growing. Many units do two things at once, selling their own range and taking job work from bigger brands or exporters. This post covers GST rates, job work, refunds, registration and income tax for FY 2025-26 (AY 2026-27) under the Income-tax Act 1961, with the Income-tax Act 2025 sections that apply from 1 April 2026. It's for owners of tanneries, footwear units and leather goods workshops and the accountants who file for them. If you run a retail shoe shop, our clothing and footwear shop guide fits you better.

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What GST rate do you charge on each product?

For footwear, the Rs 2,500 line is per pair, and it's the sale value on your invoice that counts. Leather itself has no price line: every grade from salted hide to finished leather is 5%. Leather goods are different again, at 18% whatever the price.

Tax Rate Chart

GST Rates for Tanneries and Footwear Units (from 22 September 2025)

Raw hides and skins (4101-4103)

9/2025-CT(R) Sch I, S. Nos. 278-280

5%

Tanned, crust and finished leather (4104-4115)

9/2025-CT(R) Sch I, S. Nos. 281-288

5%

Footwear (Chapter 64) up to Rs 2,500 per pair

9/2025-CT(R) Sch I, S. No. 392

5%

Footwear (6401-6405) above Rs 2,500 per pair

9/2025-CT(R) Sch II, S. Nos. 202-206

18%

Uppers, soles and other footwear parts (6406)

9/2025-CT(R) Sch II, S. No. 207

18%

Leather bags, wallets, belts, apparel (4202, 4203, 4205)

9/2025-CT(R) Sch II, S. Nos. 145-147

18%

Tanning job work for a registered owner (9988)

11/2017-CT(R) S. No. 26(ii)(d)

5%

Job work on footwear or leather goods

11/2017-CT(R) S. No. 26(iv), proviso to (ii)(d)

18%

Source: CBIC Notifications 9/2025-CT(R) and 11/2017-CT(R) as substituted by 15/2025-CT(R); CT(R) list checked up to 10/2026-CT(R) (27-28 October 2026), none of which amends these entries

Example: you invoice a distributor for 1,000 pairs of sandals at Rs 900 a pair and 200 pairs of leather formal shoes at Rs 3,000 a pair.

The 18% on the formal shoes applies to the full Rs 3,000, not just the Rs 500 above the line. A pair at exactly Rs 2,500 stays at 5%, because the entry reads "not exceeding Rs.2500 per pair". Watch your price list near the line: a Rs 2,450 pair carries Rs 122.50 of GST, while a Rs 2,550 pair carries Rs 459.

If you also make leather wallets, belts or bags, those lines go at 18% on the same invoice. Only gloves specially designed for sports (4203) stay at 5% under Sch I S. No. 291.

What GST do you pay on hides, chemicals, parts and machines?

Hides and leather are cheap on GST at 5%. Most of the other things a tannery or shoe unit buys are 18%. All entries below are from Notification 9/2025-CT(R):

Why your credit keeps growing. Say a shoe unit buys bought-out uppers and soles worth Rs 6,00,000 (18% GST, Rs 1,08,000) and finished leather worth Rs 2,00,000 (5% GST, Rs 10,000) in a month. It sells shoes worth Rs 20,00,000, all under Rs 2,500 a pair, at 5%, so output tax is Rs 1,00,000. Credit on inputs is Rs 1,18,000, which leaves Rs 18,000 unused every month.

Section 54(3)(ii) of the CGST Act allows a refund of credit that builds up because inputs carry a higher rate than output. Footwear and leather were never on the barred list in Notification 5/2017-CT(R). The Rule 89(5) formula counts credit on inputs only, so credit on services (rent, transport, job work) and on new machines stays in your ledger. Our inverted duty refund guide walks through the RFD-01 steps.

Job work: tanning for others and stitching for brands

This is where most leather units get the rate wrong. The 5% job work entry covers hides and leather, but its proviso takes footwear and leather goods out.

Tanning job work. Section 2(68) of the CGST Act defines job work as a process on goods "belonging to another registered person". If a registered leather exporter sends you 2,000 salted hides to tan into wet blue at Rs 250 a hide, you bill Rs 5,00,000 plus 5% GST of Rs 25,000. Do the same work for a hide trader without a GSTIN and it's no longer job work: item (vii) applies at 18%, so Rs 90,000.

Footwear and leather goods job work. Stitching uppers, closing, lasting or finishing shoes for a brand falls under item (iv) at 18%, even though the finished shoe may sell at 5%. A unit billing Rs 3,00,000 of upper-stitching charges to a registered brand charges Rs 54,000, not Rs 15,000. The brand takes credit for it, so billing 18% doesn't make you costlier to a registered customer; under-charging 5% leaves you paying the difference later with interest.

Step-by-Step Guide

Sending Leather or Cut Components Out for Job Work

1

Issue a delivery challan

Send the hides, leather or cut components without tax under a delivery challan (Rule 55, CGST Rules). Your credit on those inputs stays with you (Section 19).

2

E-way bill for inter-State moves

For an inter-State consignment to a job worker, you or the registered job worker generate the e-way bill whatever the value (Rule 138(1), proviso).

3

Bring the goods back within one year

Inputs must return, or be supplied from the job worker's premises, within one year (Section 143(1)). If not, they're treated as supplied by you on the day they were sent (Section 143(3)).

4

Job worker bills its charges

A registered job worker charges 5% for tanning or 18% for footwear and leather goods work, and quotes your GSTIN. You take credit on that bill.

5

File ITC-04

Report goods sent and received: half-yearly by 25 October and 25 April if annual turnover exceeds Rs 5 crore, otherwise yearly by 25 April (Rule 45(3)).

Source: CGST Act Sections 2(68), 19 and 143; CGST Rules 45, 55 and 138; Notification 11/2017-CT(R) S. No. 26 as substituted by 15/2025-CT(R)

Our job work GST guide covers the challan format and how to treat leather waste and scrap.

Registration, composition and exports

Goods-only units. If you only make and sell your own leather or footwear within your State, you can wait until Rs 40 lakh under Notification 10/2019-Central Tax, except in the States that opted out: Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Puducherry, Sikkim, Telangana, Tripura and Uttarakhand. Those use Rs 20 lakh, or Rs 10 lakh where the special category proviso applies. Section 24 makes registration compulsory from the first inter-State sale of goods, whatever your turnover. Our registration limit guide has the detail, and our GST registration service files the application for you.

Job-work units. Tanning or stitching for others is a service. The Rs 40 lakh option in Section 22(1) is only for suppliers "engaged exclusively in the supply of goods", so a job-work unit registers above Rs 20 lakh.

Composition. Under Notification 14/2019-Central Tax, a unit whose aggregate turnover in the previous year didn't exceed Rs 1.5 crore can opt for composition, or Rs 75 lakh in Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura and Uttarakhand. Footwear and leather aren't on the excluded list, which covers items such as ice cream, pan masala, tobacco and aerated water. A manufacturer pays 0.5% CGST plus 0.5% SGST on turnover (Rule 7, CGST Rules). You can't make any inter-State supply (Section 10(2)(c)) or take input tax credit (Section 10(4)). For a chappal unit selling to local shops it can work; for a unit whose inputs are mostly 18%, losing credit usually costs more than composition saves. Our composition scheme guide covers the conditions.

Exports. A large share of Indian leather and footwear goes abroad. Export of goods is a zero-rated supply (Section 16(1)(a), IGST Act). Under Section 16(3), you can export under a Letter of Undertaking without paying IGST and claim a refund of the unused credit on leather, chemicals, parts and services. One exception matters to tanneries: Section 54(15) of the CGST Act bars the refund of unused credit, and of IGST paid, on a zero-rated export of goods that is subject to export duty. Before you count on a refund for exporting hides, skins or semi-processed leather, check whether your item carries export duty in the Customs tariff. Our export refund guide covers the LUT filing and RFD-01 steps. If your aggregate turnover in any year since 2017-18 crossed Rs 5 crore, your B2B and export invoices must be e-invoices (Notification 10/2023-Central Tax); see our e-invoicing guide.

Income tax for tanneries and footwear units

Cash for raw hides. Under Section 36(4) of the 2025 Act (Section 40A(3) of the 1961 Act), an expense paid in cash to one person above Rs 10,000 in a day isn't deductible. Rule 26(1)(e)(ii) of the Income-tax Rules 2026 makes an exception for purchases of "the produce of animal husbandry (including livestock, meat, hides and skins)" paid to the producer. A hide trader or collection agent isn't the producer, so pay traders by bank transfer or UPI and keep the producer's name and address on every cash voucher.

TDS when you pay job workers. Tanning, stitching or finishing done to your order is "work" under a contract. If your unit is a company, firm, co-operative or other designated person, deduct TDS under Section 194C of the 1961 Act for FY 2025-26, and Section 393(1), Table Sl. No. 6(i) of the 2025 Act from 1 April 2026. A proprietor or HUF must deduct only if its business turnover exceeded Rs 1 crore in the previous year (Section 402(11)(l) of the 2025 Act). The rate is 1% for an individual or HUF job worker and 2% for others, once one bill exceeds Rs 30,000 or the year's payments exceed Rs 1,00,000. If a stitching firm bills your company Rs 3,00,000 of charges, you deduct Rs 6,000. Our Section 194C guide covers the rules, and our TDS filing service files the quarterly returns.

TDS on buying hides and leather. If your turnover in the previous year exceeded Rs 10 crore, you deduct 0.1% on purchases from one seller above Rs 50 lakh in the year: Section 194Q of the 1961 Act, Section 393(1) Table Sl. No. 8(ii) of the 2025 Act. Our Section 194Q guide has worked examples.

Extra depreciation on new machines. Section 33(8) and (9) of the 2025 Act give a manufacturer additional depreciation on new plant or machinery, on top of normal depreciation. Example: you install a new tanning drum and a sole-attaching machine costing Rs 15,00,000 together in tax year 2026-27. If they're put to use for 180 days or more that year, the additional deduction is 20%, so Rs 3,00,000. If put to use for less than 180 days, you get Rs 1,50,000 this year and Rs 1,50,000 next year. Second-hand machines, office appliances and road vehicles don't qualify.

Section 44AD. For FY 2025-26, a resident individual, HUF or partnership firm (not an LLP) can declare 6% of turnover received by bank transfer, UPI or account payee cheque, and 8% of the rest, under Section 44AD of the 1961 Act. The limit is Rs 2 crore, or Rs 3 crore if cash receipts don't exceed 5% of turnover. From 1 April 2026 it's Section 58(2), Table Sl. No. 1 of the 2025 Act. A chappal unit with turnover of Rs 1,50,00,000, all received by bank, declares at least Rs 9,00,000. Our Section 44AD guide explains the five-year lock-out if you opt out.

Tax audit. Accounts must be audited if turnover exceeds Rs 1 crore, or Rs 10 crore where cash receipts and cash payments each stay within 5% (Section 44AB of the 1961 Act; Section 63(1) of the 2025 Act). A tannery that buys hides in cash from producers can lose the Rs 10 crore limit even when those payments are allowed as expenses.

Paying MSE suppliers late. If your leather or component supplier is a micro or small enterprise, paying later than the time limit in Section 15 of the MSMED Act, 2006 means you can't deduct that bill until the year you pay it (Section 43B(h) of the 1961 Act; Section 37(2)(g) of the 2025 Act). Our Section 43B(h) guide has the detail.

Comparison

Tannery vs Footwear Unit: GST and Income Tax at a Glance

Parameter	Tannery (hides and leather)	Footwear unit (own brand)
Output GST	5% on all Chapter 41 leather	5% up to Rs 2,500 a pair, 18% above
Job work you do for a registered owner	5% (item (ii)(d))	18% (item (iv))
Main 18% inputs	Synthetic tanning agents, finishing chemicals, machinery	Uppers, soles, footwear parts, machinery
Inverted duty refund	Possible when chemical credit exceeds 5% output tax	Common for units selling mostly under Rs 2,500 a pair
Cash purchases	Allowed above Rs 10,000 only to the hide producer (Rule 26(1)(e)(ii))	Limit of Rs 10,000 a day per person applies (Section 36(4))
Composition	Possible up to Rs 1.5 crore, intra-State only	Possible up to Rs 1.5 crore, intra-State only

Source: Notifications 9/2025, 11/2017 and 15/2025-CT(R), 14/2019-CT; CGST Act Sections 10, 54; Income-tax Act 2025 Section 36(4); Income-tax Rules 2026 Rule 26

Common mistakes leather and footwear units make

1. Billing shoe or upper job work at 5%. The proviso to item (ii)(d) excludes Chapters 42 and 64. It's 18%.
2. Charging 5% on leather bags and belts. Leather goods of 4202, 4203 and 4205 are 18% at any price.
3. Taxing only the excess over Rs 2,500. A Rs 2,800 pair is 18% on Rs 2,800.
4. Tanning for an unregistered trader at 5%. Without a registered owner it's not job work, so 18% applies.
5. Letting inverted credit pile up. A refund under Section 54(3)(ii) must be filed within two years from the due date of the GSTR-3B for the period in which the claim arises (Section 54(1) and Explanation 2(e)). Miss that and the claim for that period is time-barred.
6. Paying hide traders in cash. The Rule 26 exception covers the producer only.

How Tax Garden helps tanneries and footwear units

We register your unit, set up billing that applies 5% or 18% per pair and product, keep your job work challans, e-way bills and ITC-04 in order, and file GSTR-1 and GSTR-3B through our GST return filing service. We file inverted duty and export refunds so your credit doesn't sit idle. On the income tax side, we deduct and file TDS on job worker payments, track cash purchases from hide producers, claim extra depreciation on new machines and file your return through our ITR filing service, with books kept by our accounting and bookkeeping service. Call or WhatsApp us on 9640290977.

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