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5% GST on fabrics to stay

Jul 24, 2017

The Government has ruled out relief to the textile industry, which has sought abolition of the 5 per cent GST imposed on fabrics.

“The main demand of the textile traders is not to put any tax on fabrics. However, the same cannot be accepted,“ finance minister Arun Jaitley said in a written reply to a question in the Rajya Sabha.

The Government said zero GST on fabrics will break the input tax credit chain and as a result, manufacturers of garments made-ups won’t get credit of tax on previous stages. Another consequence of scrapping GST on fabrics, the Government said, is that it will result in zero rating of imported fabrics, while domestic fabrics will continue to face input taxes. This will make domestic industry lose competitiveness to imports.

“Generally, the GST rates are equal or lower than the pre-GST tax incidence. And therefore, the price of fabrics is not likely to go up,” Jaitley said, explaining why the 5 per cent rate cannot be removed.