GST Anomaly Fixed: Uniform 5% Tax To Boost India's Textile Sector—Here's How

The Finance Minister has addressed one of the most persistent challenges in the textile sector, the inverted duty structure. For years, the man-made fibres and yarn were taxed at higher rates than finished fabrics in the GST system, creating inefficiencies, locking up working capital, and hurting India’s competitiveness.

This imbalance raised production costs and discouraged large-scale investment in the man-made textile segment, even as global demand for these products was growing. Cotton textiles are made from natural cotton fibre, while 'Man-Made' textiles are produced from synthetic or regenerated fibres like polyester, nylon, or viscose.

Since the introduction of GST in 2017, the man-made fibre (MMF) value chain was fragmented with different rates at each stage. Creating an inverted duty structure. Industry players consistently flagged this as a drag on working capital, profitability, and competitiveness.

In 2022, the government attempted to correct this by introducing a uniform 12% GST across the man-made fibre value chain. While that move simplified compliance, it raised the tax rate for fabric and apparel, sparking tension from both manufacturers and consumers.

But the move triggered protests, especially from MSMEs and traders, since it would raise the tax burden on low-value apparel and fabrics (which were at 5%). On December 31, 2021, just before the implementation date, the government rolled back the hike for textiles and restored the earlier structure.

This meant the inverted duty continued. Now fast forward to September 2025, in a major shift, the government has opted for a more industry-friendly solution. Fibre and yarn GST have been slashed to 5%, aligning them with fabric, which continues at 5%.

With effect from September 22, 2025, the entire man-made textile chain from fibre to yarn to fabric, will operate under a uniform 5% tax structure.

This change is expected to significantly ease cost pressures, release working capital previously stuck in refunds, and provide a much-needed boost to domestic manufacturers.

It also strengthens India’s ability to compete globally, where pricing efficiency is critical in the textile and apparel trade.

By fixing the inverted duty structure with a lower and uniform rate, the government has delivered a structural reform that aligns tax policy with industry needs.

The ripple effect will be seen in the stock market as well. Companies with significant exposure to man-made fibre, yarn, and fabric stand to benefit. These include KPR Mill, Alok Industries, Vardhman Textiles, Garware Technical, Ganesha Ecosphere, Welspun Living, Siyaram Silk, Trident, Arvind Ltd, and Raymond.

For one of India’s largest employment-generating sectors, this correction marks a turning point reducing costs, improving efficiency, and supporting the country’s ambition of becoming a global textile powerhouse.

After years of distortions and a failed attempt at uniformity in 2022, the government has finally delivered a simpler GST regime for textiles. By bringing all man-made fibres, yarns, and fabrics to 5%, the sector gets a much-needed relief, and investors will be closely watching how listed players capitalise on this rationalisation.