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Published on:
February 20, 2023
By
Paramita

Impact of GST on Agricultural/ Cloth/ Footwear Items

The Goods and Services Tax (GST) was implemented in India on July 1, 2017, with the aim of simplifying the taxation system and making it more transparent. The new tax regime replaced multiple indirect taxes, such as VAT, service tax, central excise duty, etc., and was expected to have an impact on various sectors of the economy, including agriculture, cloth, and footwear.

Impact of GST on Agricultural Items

Under the GST regime, most agricultural items are exempted from tax. This means that farmers and traders who deal in agricultural products do not have to pay any tax on the sale of their produce. However, certain processed agricultural products like packaged food items, oilseeds, and pulses attract a GST of 5%.

The GST on fertilizers and pesticides has been reduced from the earlier tax rate of 12% to 5%. This has made these products cheaper for farmers and is expected to boost agricultural productivity. Furthermore, the GST council has also exempted the tax on the sale of cattle feed, which has reduced the cost of livestock rearing.

However, the implementation of GST has also led to an increase in the cost of certain agricultural machinery and equipment. For example, the GST rate on tractors has increased from 0% to 12%. This has made it difficult for farmers to purchase new tractors, and many have resorted to second-hand vehicles.

Impact of GST on Cloth Items

Cloth is an essential commodity in India, and the textile industry is one of the largest employers in the country. Under the GST regime, the tax rate on clothes has been fixed at 5%, which is lower than the earlier tax rate of 6-7%. This has made clothes cheaper for consumers and is expected to boost demand for textiles.

However, there is a lack of clarity on the classification of various textile items under the GST regime. For example, the GST on silk and cotton fabrics is 5%, while that on man-made fibers is 18%. This has led to confusion among textile manufacturers and traders, who are struggling to comply with the new tax rules.

The GST council has also exempted the tax on the sale of khadi products, which is expected to boost the handloom industry in the country.

Impact of GST on Footwear Items

The GST rate on footwear has been fixed at 5%, which is lower than the earlier tax rate of 9-10%. This has made shoes and other footwear items cheaper for consumers and is expected to boost demand in the footwear industry.

However, the GST regime has also led to an increase in the cost of certain types of footwear. For example, the GST rate on leather footwear costing more than Rs. 1,000 has increased from 6% to 18%, which has made these products more expensive for consumers.

Furthermore, there is a lack of clarity on the classification of various types of footwear under the GST regime. For example, the tax rate on chappals and sandals made of rubber or plastic is 5%, while that on sneakers and sports shoes is 18%. This has led to confusion among footwear manufacturers and traders, who are struggling to comply with the new tax rules.

Conclusion

The GST regime has had a mixed impact on the agricultural, cloth, and footwear sectors in India. While the tax exemption on most agricultural items has reduced the cost of farming, the increase in the tax on tractors has made it difficult for farmers to purchase new vehicles. Similarly, while the reduction in the GST rate on clothes and footwear has made these products cheaper for consumers, the lack of clarity on the classification of various items has created confusion among manufacturers and traders.

Overall, it is expected that the GST regime will continue to evolve over time and that the government will address the concerns of various sectors to ensure the smooth implementation of the new tax regime.

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