GST on Textiles — Fibre 5%, Yarn 12%, Fabric 5%, Garments 5/12%

The government had notified a uniform 12% rate on ALL textiles from January 1, 2022 — to correct the inverted duty structure (fabric at 5%, yarn at 12%). But massive industry opposition from Gujarat (Surat powerlooms), Tamil Nadu (Tirupur garments), and trader associations forced a rollback. The 46th GST Council (pre-ponement meeting on Dec 31, 2021) decided to DEFER the rate change — maintaining status quo (5% for fabric, 5% for garments ≤₹1000). Reason: The textile industry employs 45 million+ workers (second largest employer after agriculture), and a sudden rate hike would cause inflation in basic clothing — politically sensitive. The inverted duty problem remains unresolved.

The ₹1000 threshold is based on TRANSACTION VALUE (actual selling price) — NOT MRP. Example: A shirt with MRP ₹1,200 sold at discount for ₹899 → GST at 5% (because transaction value ≤₹1000). Same shirt sold at ₹1,050 → GST at 12%. For sets/combos: value is per piece. A pack of 3 t-shirts sold at ₹2,400 → per piece value = ₹800 → 5% GST. But a single designer kurta sold at ₹1,500 → 12%. For B2B (wholesale): transaction value between related parties must be at arm's length — cannot artificially reduce below ₹1000 to avail 5%. Accessories (belts, bags, shoes) have separate rates — not covered by this threshold.

ALL sarees attract 5% GST (regardless of fabric type) — as long as transaction value is ≤₹1000 per piece. For sarees >₹1000: 12% GST. This covers: (1) Cotton sarees: 5% (HSN 5208/6206). (2) Silk sarees (Banarasi, Kanchipuram, Paithani): 5% if ≤₹1000, 12% if >₹1000. (3) Synthetic/polyester sarees: 5%/12% same threshold. (4) Blended sarees: same. In practice: most premium silk sarees (Kanchipuram ₹5,000-₹50,000+) attract 12%. Budget cotton sarees (<₹1000): 5%. Zari/gold thread ON the saree: part of saree value (not separate). Separately sold blouse piece: own classification (5% if fabric).

Technically YES — Section 54(3) of CGST Act allows ITC refund for inverted duty structure. But there's a CATCH: The refund formula (Rule 89(5)) uses 'Net ITC' which excludes ITC on input SERVICES and capital goods — only input GOODS qualify. For fabric manufacturers: they buy yarn at 12% (input goods — qualifies for refund calculation) and sell fabric at 5%. So they CAN claim refund on the inversion. However: refund processing is slow (3-6 months), documentation is heavy, and many small manufacturers don't file due to compliance cost. Estimated blocked ITC in textile sector: ₹5,000-8,000 Cr annually. The proper solution is rate rationalization — which keeps getting deferred.