GST cut on textiles boosts MSMEs, premium fashion takes a hit

India’s textile sector is set for a major reset as the 56th GST Council Meeting, held on 3 September 2025, unveiled sweeping reforms under the government’s Next-Generation GST framework. Effective from 22 September 2025, these changes promise to simplify tax structures, cut costs, and stimulate demand across the textile value chain—from artisans and MSMEs to exporters and global brands.

While reduced GST on mass-market garments, fibres, and handicrafts has been welcomed as a game-changer, concerns remain over the higher tax burden on premium apparel.

India’s textile industry has greeted the outcomes of the 56th Meeting of the GST Council, held in New Delhi on 3 September 2025, with optimism. The Council’s recommendations—part of the government’s widely publicized “Next-Generation GST Reforms”—are intended to simplify tax slabs, reduce costs for manufacturers, and stimulate domestic demand, especially in fashion and handicrafts. These reforms will be effective from 22 September 2025

Key changes for textiles & apparel

1. Readymade Garments & Made-Ups: Goods priced at ₹2,500 or less per piece will be taxed at 5%, up from the previous ceiling of ₹1,000.
   For items priced above ₹2,500, GST rises to 18%, marking a jump from the earlier 12% slab. This change impacts stitched garments, lehengas, and other premium fashion wear.
2. Man-Made Fibres (MMF) & Yarns: GST rates on MMF fibres have dropped from 18% to 5%, and on MMF yarns from 12% to 5%. These adjustments are meant to correct the inverted duty structure that long plagued synthetic textile manufacturers, especially smaller enterprises.
3. Carpets, Handloom, Handicrafts & Sewing Machines:

• Carved goods such as carpets and various floor coverings (HS codes 5701–5705) will now attract 5% GST instead of 12%.
• Handicrafts and handwoven carpets (under HS 5705) now taxed at 5%, a move expected to benefit traditional artisans.
• Sewing machines (both industrial and domestic, HS 8452) will also see the rate reduced to 5%, supporting tailoring units and local manufacturing.

Sudhir Sekhri, Chairman at Apparel Export Promotion Council (AEPC) shared his views with us stating:

“We welcome the Government’s latest GST reforms. These GST reforms marks a big step in making India as a developed economy. These measures are progressive and forward looking as it will ease compliance, improve liquidity for exporters, and strengthen India’s textile & apparel value chain. Apparel industry hails it as a decisive steps towards boosting Make in India & enhancing export competitiveness. AEPC thanks the visionary leadership of Hon’ble Prime Minister, Shri Narendra Modi, for supporting the apparel and textile industry with simplified, industry-friendly measures.”

Complementary reforms & mechanisms

To make the rate cuts effective, the GST Council has also issued several facilitation measures:

• Simplified refund processes, especially for inverted duty structure and zero-rated supplies, using system-driven risk evaluation.
• Removal of the ₹1,000 threshold for small consignments via courier/post, easing compliance for small businesses and online sellers.
• A Simplified Registration Scheme for low-risk and small suppliers, especially those supplying through electronic commerce operators.

Balancing heritage & market ambition

These reforms align with India’s 5F formula—from “Farm-to-Fibre-to-Factory-to-Fashion-to-Foreign”—which aims to transform the country into a global textile powerhouse. The rate cuts for MMF, carpets, handicrafts, and yarns are expected to support India’s rural artisan ecosystem while reducing production costs and boosting exports.

But the tax hike for higher-priced ready-made garments has raised concerns over affordability, especially for clothing items like lehengas or festive wear which often combine fabric cost, handwork, and embellishments. The government has noted that the higher rates apply only to “premium” apparel, where pricing exceeds ₹2,500, keeping most everyday garments in the lower bracket.

Shobhit Bhushan, Managing Director at Fluidic Fashion Pvt Ltd welcomed the new GST reform stating –

“The reduction of GST to 5% from 18% is a transformative step for the textile sector. It will significantly cut production costs, easing input and raw material expenses while improving profit margins and competitiveness. By making apparel up to ₹2,500 more affordable, it will also spur domestic demand, especially in the mass-market segment. For MSMEs, which form the backbone of our industry, the simplified structure reduces compliance hurdles and improves cash flows.

On the global front, lower GST strengthens India’s export competitiveness, helping us move closer to the government’s vision of a $350 billion textile economy by 2030. However, the increase to 18% GST on garments above ₹2,500 could push prices upward in the premium category, raising concerns about affordability in this space.”

A Snapshot: What to Watch, How It Affects Key Stakeholders

The GST changes approved in September 2025 are, by many accounts, a landmark in reforming India’s taxation of textiles. They promise cost savings, rationalization of slabs, and stronger support for grassroots manufacturing and craft traditions. However, the increased tax on garments above ₹2,500 will require careful handling to avoid hurting the middle-class consumer and the premium fashion market.

As these rules go into effect on 22 September 2025, vigilance will be key—businesses need to correctly classify goods under HS codes, update billing systems, and ensure that tax savings are passed on to consumers. The government has put in place complementary measures to ease the transition; now it’s up to stakeholders to make them count.

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Read more:

GST overhaul 2025: Impact on fashion & textiles

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FAQs

1. What are the new GST rates for textiles and garments under GST Reforms 2025?
   From 22 September 2025, garments priced up to ₹2,500 attract 5% GST, while apparel above ₹2,500 is taxed at 18%. GST on man-made fibres has been reduced from 18% to 5%, and on yarns from 12% to 5%. Carpets, handicrafts, and sewing machines also now fall under the 5% slab.

2. How will GST Reforms 2025 impact textile MSMEs and small garment makers?
   Lower GST on affordable apparel and yarns reduces input costs, easing working capital pressures for MSMEs. However, higher GST on premium garments may challenge small boutique players targeting higher-income consumers.

3. Will GST Reforms 2025 reduce prices for consumers?
   Yes, most mass-market apparel, handlooms, and handicrafts will see lower prices due to the 5% rate. Consumers can expect more affordable daily wear, uniforms, and traditional textiles. Premium wear like lehengas and high-end fashion, however, will become costlier with 18% GST.

4. What does the reduction in GST on man-made fibres (MMF) mean for the textile industry?
   The cut to 5% removes the inverted duty structure, making synthetic fabric production more competitive. This benefits MSMEs, exporters, and large manufacturers, while also supporting India’s vision of becoming a $350 billion textile economy by 2030.

5. When will the new GST rates for textiles and apparel be implemented?
   The revised rates announced in the 56th GST Council Meeting will be effective from 22 September 2025, just ahead of the festive season.