HSN Code for Clothes: How the GST Rate is Determined
Updated: Aug 2
When it comes to employment, GDP, export promotion, and other aspects of the Indian economy, the textile industry is crucial. It's one of the nation's oldest sectors, employing both skilled and unskilled workers, and ranking second in size only to agriculture. Because of the tax structure in the textile business, the GST rates on garments have altered several times since the GST statute was introduced. In this article, we will discuss the HSN code for clothing and understand how the GST rate is determined on various clothing items.
Table of Contents
GST Applicability on Clothing and Textiles
Clothes sales are taxable under the Goods and Services Tax since they are regarded as supplies, regardless of whether they are sewn or not.
GST is paid by buyers on a reverse charge basis and is charged at a rate of 5% on transactions involving raw cotton.
There is no tax applied to dealers or mills that deal in raw silk and jute. They are not required to register for GST or pay taxes because of their unique status.
GST is applied to tailoring and clothing rental services, meaning that people or companies that provide these services have to abide by the GST laws.
If clothing suppliers have an annual revenue of up to Rs. 1.5 crore (or Rs. 75 lakhs in the northeastern states), the composition scheme is a feasible choice for them. Similarly, a turnover of Rs. 50 lakhs is the cap for renting clothes or providing stitching services.
When there are "buy one, get one free" deals, GST is not applied to the things that are given away for free. It's crucial to remember that in these situations, the input tax credit benefit is not available to the same amount as the free items, making it a special factor to account for when calculating GST.
Structure of HSN Codes
Breakdown of the Digit System:
2-Digit Codes: The HSN system begins with 2-digit codes that represent broad categories of goods. For instance, the code "61" covers knitted or crocheted apparel and clothing accessories.
4-Digit Codes: These codes provide further specification within the 2-digit categories. For example, "6101" denotes men's or boys' knitted or crocheted overcoats, jackets, and similar items.
6-Digit Codes: These codes offer even more detail, often distinguishing between different types of items within the 4-digit category. For instance, "6101.20" specifies men's or boys' knitted or crocheted jackets of cotton.
8-Digit Codes: The most detailed level, these codes provide the finest classification of goods, including specific subcategories. For example, "6101.20.10" could refer to men's cotton jackets with specific features or patterns.
Each level of HSN code adds granularity to the classification system, ensuring precise identification of goods for tax purposes.
Challenges in Determining GST Rates for Clothes
Complexity in Classification: Determining the correct GST rate for clothing items can be challenging due to the diverse nature of garments. Different fabrics, styles, and uses require careful classification. For example:
Fabric Differences: Cotton, wool, synthetic fibers, and blends each fall into different HSN codes and may attract varying GST rates.
Garment Types: Casual wear, formal attire, and luxury clothing items are categorized differently, affecting the applicable GST rate.
Changes in GST Rates: Government updates and amendments to GST rates can create confusion and require businesses to stay vigilant. Recent changes might include:
Rate Adjustments: Shifts in GST rates for specific clothing categories can affect pricing and compliance.
New Provisions: Introduction of new tax slabs or exemptions specific to the textile sector can complicate GST calculations.
Common Mistakes and Misclassifications: Misclassifications of HSN codes or misunderstanding of GST rates can lead to:
Incorrect Tax Calculation: Applying the wrong GST rate can result in underpayment or overpayment of taxes.
Penalties and Interest: Businesses may face penalties for incorrect GST filings or discrepancies in tax payments.
Inaccurate Invoicing: Errors in HSN code usage can lead to compliance issues and difficulties in claiming input tax credits..
HSN Code and GST Rate for Clothes
Clothes have their own chapters in the realm of HSN codes. They are in Chapter 61 when it comes to cosy knit apparel. Now, if we're discussing clothing that doesn't have a warm, knit feel to it, those are properly categorised under Chapter 62. The following table shows the HSN codes for different clothing items.
Products Description | HSN Codes | Rates (%) |
Articles of apparel and accessories, not knitted or crocheted, with sale value below Rs. 1000 per piece | 62 including HSN codes 6201, 6202, 6203, 6204, 6205, 6206, 6207, 6208, 6209, 6210, 6211, 6212, 6213, 6214, 6215, 6216, 6217 | 5% |
Articles of apparel and accessories (cap/topi included on 27/07/2018) not knitted or crocheted, with sale value below Rs. 1000 per piece | 62 including HSN codes 6201, 6202, 6203, 6204, 6205, 6206, 6207, 6208, 6209, 6210, 6211, 6212, 6213, 6214, 6215, 6216, 6217 | 12% |
Handmade/hand embroidered shawls with sale value below Rs. 1000 per piece | 6214 | 5% |
Handmade/hand embroidered shawls with sale value above Rs. 1000 per piece | 6214 | 12% |
Chapter 63 of the HSN code lists a variety of textile products under the heading "other made-up textile articles, sets, worn clothing and worn textile articles; rags." These products include curtains, bedsheets, used clothing, and other textiles. The sale price of the products determines the GST rate for this chapter. A GST rate of 5% is imposed if the textile product's retail value is less than Rs. 1000. A GST rate of 12% is payable if the selling value exceeds Rs. 1000. The following textile items are classified as HSN code chapter 63 items.
Terry towelling or comparable terry textiles are used to make kitchen, bathroom and bed linens, whether they are knitted or crocheted.
Traveling rugs and blankets.
Curtains, including drapes; interior blinds; bed valances or curtains.
Additional furnishings include tablecloths and table covers, napkins, pillowcases and pillow slips, bedspreads, and counterpane cushions, mosquito netting, and towels other than terry.
Sacks and bags used to pack things.
Awnings, sunblinds, and tarps; tents; sails for boats, sailboards, or other watercraft; camping supplies.
Used apparel and other used items.
Rags—new or used—scrap twine, cordage, rope, and cables, as well as worn-out textile goods made of twine, cordage, rope, or cables.
Additional items include clothing patterns; floor, dish, and dust cloths; life jackets and lifebelts; sets made of woven fabric and yarn, with or without accessories, for creating carpets, tapestries, embroidered tablecloths or serviettes, or other similar textile items displayed in packaging for retail sale.
The industry is unable to claim the input tax credit since the GST rate on raw materials used to make clothing is higher than the GST rate on completed goods. The Indian government has proposed amendments to the GST on clothing starting in January 2022 to address this issue, but they have not yet been put into effect. It was suggested to increase the GST rates on clothing from 5% to 12% starting in January 2022. To solve the problems caused by inverted duty structures, which have an effect on a segment of the textile value chain, the GST rate on clothes has been raised. The industry did not appear to approve of the change, though, and as a result, no notice of the new rate's implementation was given.
More Updates
The GST rate on clothing as a whole was set to be 12% starting in January 2022, regardless of value. This means that instead of the previous GST rate of 5% on clothing priced up to Rs.1,000, the GST rate on clothing of any value, whether below or over Rs.1,000, is 12%.
The goods and services tax (GST) pertaining to textiles, which include woven fabrics, synthetic yarn, pile fabrics, blankets, and accessories including tablecloths, serviettes, tapestries, and rugs, was scheduled to rise from 5% to 12%. However, the same is not announced, therefore for the smaller value slab of Rs. 1,000 or less, the current rate of 5% is still in effect.
Additionally, where the value of the clothing exceeds Rs. 1,000, the applicable rate of GST is 12% GST. Under HSN code 9988, the GST rate for tailoring services is 5%. Clothing rentals are subject to the same fees as stated above.
Recent Updates and Changes in HSN Codes and GST Rates
Government Notifications: Recent updates to HSN codes and GST rates are crucial for accurate tax compliance:
New Code Announcements: The introduction of new HSN codes or modifications to existing ones may affect how clothing items are classified and taxed.
Rate Changes: Adjustments to GST rates for various categories of clothing can impact businesses' pricing strategies and tax calculations.
Industry-Specific Clarifications: The textile and clothing industry may have specific provisions or exemptions that affect GST rates:
Exemptions and Concessions: Special tax rates or exemptions for certain types of garments, such as those used for children or in specific regions.
Clarification Circulars: Government circulars providing detailed guidance on GST applicability for different clothing items can help businesses ensure compliance and avoid errors.
Conclusion
The GST journey on clothing has been dynamic, with suggested modifications seeking to create a unified and simplified tax structure. Decisions have been impacted by industry comments, although the expected changes have not yet been implemented. For clothing under Rs.1,000, the standard 5% GST rate is still in effect as of right now, creating a stable environment for both consumers and companies.
FAQ
Q1. What is the Harmonized System Nomenclature (HSN) and how does it apply to clothing?
The Harmonized System Nomenclature (HSN) is an international system for classifying goods. It provides a standardized coding system for goods, including clothing, to facilitate international trade and tax compliance. For clothing, HSN codes help categorize garments based on their type, fabric, and use, determining the applicable GST rate.
Q2, How are 2-digit, 4-digit, 6-digit, and 8-digit HSN codes used to classify different types of clothing?
2-Digit Codes: Represent broad categories of goods, such as "61" for knitted or crocheted apparel.
4-Digit Codes: Provide further specification within the broad category, like "6101" for men's or boys' knitted jackets.
6-Digit Codes: Offer detailed classification, e.g., "6101.20" for cotton jackets.
8-Digit Codes: Provide the most specific classification, identifying exact subcategories, such as "6101.20.10" for men's cotton jackets with specific features.
Q3. What are some examples of clothing items classified under the HSN code 6101 for knitted or crocheted apparel?
Examples include T-shirts, sweaters, pullovers, and cardigans made from knitted or crocheted fabrics for men, women, and children.
Q4. How do GST rates vary for different categories of clothing, such as casual wear, formal wear, and luxury items?
GST rates vary based on the type and use of clothing. Casual wear may attract a lower GST rate (e.g., 5% or 12%), while luxury items and formal wear could be taxed at higher rates (e.g., 18% or 28%). The rate depends on factors like fabric and market value.
Q5. What are the common challenges businesses face when determining the correct GST rate for clothing items?
Challenges include accurately classifying diverse garments, understanding variations in fabric types, and staying updated with frequent changes in GST rates and categories.
Q6. How do changes in GST rates affect the pricing and compliance of clothing businesses?
Changes in GST rates can impact pricing strategies, cost calculations, and overall compliance. Businesses must adjust their pricing, invoicing, and tax reporting processes to reflect new rates and avoid penalties.
Q7. What are some common mistakes made in classifying clothing items under HSN codes, and how can they be avoided?
Common mistakes include incorrect application of HSN codes, misinterpretation of garment types, and failure to update with new classifications. Avoid these by consulting the latest HSN code list, understanding specific garment details, and seeking expert advice.
Q8. How do recent government notifications impact the HSN codes and GST rates applicable to the clothing industry?
Government notifications may introduce new HSN codes, adjust existing rates, or provide clarifications on classifications. These changes can affect how clothing items are categorized and taxed, requiring businesses to adapt their practices.
Q9. What industry-specific clarifications are available for the textile and clothing sector regarding GST compliance?
Industry-specific clarifications may include exemptions, special provisions for certain types of garments, and detailed guidance on GST applicability. These clarifications help businesses navigate complex GST regulations in the textile sector.
Q10. How much is the GST on clothes in India?
Depending on the item's worth, the GST on clothing in India ranges from 5% to 12%. The range represents the Goods and Services Tax that applies to clothing purchases. The rate is established by taking the assessed worth of the apparel into consideration.
Q11. Is GST applicable on clothes?
In India, clothing is indeed liable to GST, which means that purchases of apparel are subject to the Goods and Services Tax.
Q12. What are the GST rates for stitched or readymade garments?
According to Indian tax laws, the GST rate on sewn or ready-made clothing is 5%. When buying finished or ready-to-wear clothing, the Goods and Services Tax is represented by this proportion.
Q13. What is the GST rate on tailoring services?
The GST Council decided to reduce the 18% GST rate on tailoring services to 5%. This adjustment takes into account the lower Goods and Services Tax that is imposed on tailoring services done in India.
Q14. What are the rules for GST HSN codes?
The turnover to be referenced to for reporting invoices in FY 2021–22 must be the annual aggregate turnover for the preceding fiscal year, specifically FY 2020–21. Under GST, the taxpayer is required to submit these HSN codes on each tax invoice they produce. When importing or exporting goods subject to the GST, the entire eight-digit HSN code must be used.
Q15. What is the GST rule for clothing in India?
For textile products, the regular rate of GST is 12%; however, if the cost of clothing and shoes is less than ₹1,000, the rate of GST is 5%.
Q16. Can separate GST rates apply to the same HSN code?
A product or service's HSN code is used to calculate the GST rate; a single HSN code may not have more than one rate. Even though they may be comparable or related, distinct goods and services may have different HSN codes, and as a result, they may be subject to various GST rates.
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