In a significant move that promises to reshape the textile industry landscape, the GST Council has approved a major restructuring of tax rates, potentially benefiting a wide range of textile companies. The new tax structure, set to take effect from September 22, 2025, introduces a simplified two-slab system of 5% and 18%, eliminating the current 12% and 28% slabs, while introducing a new 40% slab for luxury and sin goods.

Key Changes in GST Rates

The textile sector stands to gain substantially from these revisions:

• Man-made fibre: GST rate reduced from 18% to 5%
• Man-made yarn: GST rate cut from 12% to 5%
• Yarn and sewing thread made from man-made filament: Now taxed at 5%
• Finished textile products (including carpets, rugs, bath linen, and apparel priced up to ₹2,500 per unit): GST rate lowered from 12% to 5%

Impact on the Textile Value Chain

The reduction in GST rates is expected to have a cascading positive effect across the entire textile value chain. By easing input costs, the new tax structure aims to enhance the competitiveness of Indian textile products in both domestic and international markets.

Companies Poised to Benefit

Several key players in the textile industry are likely to see positive impacts from these GST rate cuts, including:

• Welspun Living
• Indo Count
• KPR Mills
• Gokaldas Exports
• Vardhman Textiles
• Nitin Spinners

These companies, spanning various segments of the textile industry from yarn production to finished garments, are expected to experience reduced tax burdens and potentially improved profit margins.

Industry Outlook

The GST rate reductions come as a welcome move for the textile sector, which has been facing challenges due to global economic uncertainties and fluctuating raw material costs. By simplifying the tax structure and reducing rates on key inputs and finished products, the government aims to stimulate growth and enhance the sector's competitiveness.

The new GST structure could lead to:

• Reduced production costs
• Improved cash flows for businesses
• Enhanced export competitiveness
• Potential for increased domestic demand due to lower prices

As the implementation date approaches, textile companies are likely to reassess their pricing strategies and supply chain operations to fully leverage the benefits of the new tax regime. The industry will be watching closely to see how these changes translate into market dynamics and consumer behavior in the coming years.

This GST overhaul represents a significant policy shift aimed at boosting one of India's largest employment-generating sectors. As companies adapt to the new tax environment, the full impact of these changes on the textile industry's growth and competitiveness will unfold in the months following implementation.

Textile stocks experienced a significant rally, with gains of up to 9%, following the government's announcement to remove import duty on cotton for a specific period. The duty exemption, which will be in effect from August 19 to September 30, has sparked optimism in the sector.

Market Reaction

Several textile companies saw substantial increases in their stock prices:

Impact of Duty Removal

The removal of the import duty on cotton addresses industry demands to ease cost pressures. Previously, cotton imports attracted an 11% duty, which had been weighing on sector margins. This move is expected to provide relief to textile and garment exporters who have been facing various challenges.

Challenges in the Textile Sector

The textile industry has been grappling with several issues, including:

• A 50% tariff on US shipments
• Increased competition from countries like Bangladesh and Vietnam

The cotton duty, which was imposed in February 2022, had significantly reduced the US share in India's cotton imports. The share dropped from 40-50% to about 19% in FY25.

Government's Vision for the Textile Sector

The Ministry of Textiles has set ambitious targets for the industry:

• Expand the sector to $350 billion by 2030
• Achieve $100 billion in exports
• Current market size: $180 billion

This duty exemption aligns with the government's efforts to boost the textile sector and enhance its global competitiveness.

Conclusion

The temporary removal of the cotton import duty is expected to provide a much-needed boost to the textile industry, potentially improving profit margins and competitiveness in the global market. However, the long-term impact of this short-term measure remains to be seen, and industry stakeholders will be closely monitoring developments beyond the duty-free period.