GST Council lowers tax rate on textile job work to 5%

Following pleas made by several textile bodies like The Southern India Mills’ Association (SIMA), the Goods and Services Tax (GST) Council has slashed tax rate on textile job work from the earlier decided 18 per cent to 5 per cent. This will benefit powerloom and handloom weavers, and processing and dyeing units that carry out production on job work basis.

In its request sent out to the Union finance minister Arun Jaitley, textiles minister Smriti Irani and other, SIMA said, “Over 80 per cent of manufacturing activities in textile industry are carried out on job work basis especially by powerloom weavers, handloom weavers, knitters, processing units, dyeing units and garment/made-up manufacturers.”

SIMA appealed for classifying all textile job works under 5 per cent GST rate to enable the job workers to take the input tax credit (ITC) on other inputs.

 At its 16th meeting, the Council also increased the upper limit for the ‘composition scheme’ to Rs 75 lakh from the earlier Rs 50 lakh. Now traders and manufacturers with an annual turnover of Rs 20 lakh to Rs 75 lakh can opt for the scheme and pay tax at one per cent and two per cent respectively.

The ‘composition scheme’ exempts tax payers with an aggregate turnover in a financial year up to Rs 20 lakh — Rs 10 lakh in North-East and special category states — from GST. An entity whose aggregate turnover in the preceding financial year is less than Rs 75 lakh — earlier Rs 50 lakh — can opt for a simplified ‘composition scheme’ where tax will be payable at a concessional rate on the turnover in a state.

“The decision to lower rates was taken with the objective to maintain the equivalence with the current tax rates or due to the change in utilisation behaviour,” Jaitley told press persons after the meeting.

The higher upper limit for the composition scheme will help small and medium enterprises. “It eases the burden on these categories as they are mass job creators,” Jaitley said. “Similarly, to promote outsourcing in the employment-intensive sectors of textiles, leather, diamond processing and jewellery, the Council approved a rate of 5 per cent on job work,” he added.