What changed for garment and footwear GST in 2025
The 56th GST Council meeting, held on 3 September 2025, rewrote the tax structure for apparel and footwear. Effective 22 September 2025, articles of apparel, clothing accessories and footwear with a sale value not exceeding ₹2,500 per piece or per pair attract 5% GST. Anything with a sale value above ₹2,500 attracts 18%.
Before this change, the threshold sat at ₹1,000 and the higher slab was 12%. So the affordable band has widened considerably — a ₹1,800 shirt that earlier fell in the 12% bracket now attracts only 5% — but premium items have moved up from 12% to 18%. For a clothing or footwear shop owner, the practical effect is simple: one category in your store now carries two different GST rates, and the price on each individual item decides which one applies.
How the ₹2,500 rule works, with worked examples
The test is the sale value of each piece or pair — the actual transaction value you charge the customer for that item. Take a kurta sold at ₹1,999. That is below ₹2,500, so it attracts 5% GST: ₹99.95 in tax, making the invoice total roughly ₹2,099 if your price is tax-exclusive. Now take a sherwani sold at ₹2,999. That crosses the threshold, so the entire ₹2,999 is taxed at 18% — ₹539.82 — for a total of about ₹3,539.
Two details trip people up. First, an item sold at exactly ₹2,500 stays in the 5% slab, because the rule says "not exceeding ₹2,500". Second, when an item crosses the threshold, 18% applies to the full sale value, not just the portion above ₹2,500. There is no split calculation where the first ₹2,500 is taxed at 5% and the balance at 18%. One rupee over the line and the whole item moves to the higher rate.
Discounts can change the GST rate
Because the rule looks at sale value and not MRP, a genuine discount can pull an item from 18% down to 5%. Say a jacket carries an MRP of ₹2,800 but you sell it at ₹2,400 during a season-end sale. The sale value is ₹2,400, which does not exceed ₹2,500, so the item attracts 5% GST — even though its printed MRP is above the threshold.
The condition is that the discount must be real and reflected on the invoice at the time of sale. The taxable value is what the customer actually pays for that piece, shown line by line on the bill. This is not a loophole to play games with — printing an inflated MRP and pretending a permanent "discount" invites scrutiny. But ordinary trade discounts, festive offers and clearance markdowns are all legitimate, and the GST rate follows the discounted price, not the tag.
Mixed carts: every line item is judged separately
A common doubt at the counter: what happens when one bill has items on both sides of the threshold? The answer is that each line item is tested on its own. The cart total is irrelevant to the rate.
Suppose a customer buys jeans at ₹1,800, a blazer at ₹4,500 and a pair of shoes at ₹2,200 in a single bill. The jeans attract 5% (₹90), the blazer attracts 18% (₹810) and the shoes attract 5% (₹110). The invoice simply shows different rates against different lines, exactly the way a kirana bill mixes 0%, 5% and 18% items. Your billing software should handle this automatically once each item carries the right rate — you should never be averaging rates or applying one rate to the whole cart.
Fabrics vs readymade garments
The ₹2,500 rule applies to made-up articles — readymade garments, clothing accessories and footwear. Fabrics are treated differently: woven and knitted fabrics attract 5% GST regardless of value. A customer buying suit-length fabric worth ₹4,000 pays 5% on it; the same money spent on a stitched suit above ₹2,500 attracts 18%.
If you run a shop that sells both fabric and readymades, keep the two clearly separated in your item master with their correct HSN codes — fabrics under the textile chapters, garments under chapters 61 and 62, and footwear under chapter 64. Getting the HSN classification right is what makes the rest of the rate logic fall into place on your returns.
Setting up two rates for one category in billing software
Since the same shelf can hold 5% and 18% items, your billing setup needs to work at the item level, not the category level. There are two clean ways to do it. If your software supports slab-based GST, configure the apparel and footwear categories so the rate is picked automatically from the sale price: up to ₹2,500 applies 5%, above it applies 18%, recalculated after line discounts. If it does not, assign the rate item by item — and remember to re-check items whose selling price hovers near ₹2,500, because a discount can flip the rate mid-billing.
RetailDek supports per-item GST rates, so a saree at ₹1,899 and a lehenga at ₹6,500 can sit in the same category and still bill at 5% and 18% correctly, with the rate applied on the discounted sale value. If you want to sanity-check a bill by hand first, the free GST calculator at retaildek.com/tools/gst-calculator/ lets you work out CGST and SGST splits for both inclusive and exclusive prices.
Common billing mistakes to avoid
A few errors show up again and again in garment shops after the rate change. Charging GST based on MRP instead of the discounted sale value — you end up collecting 18% on an item that legally attracts 5%, which either overcharges the customer or eats your margin. Splitting the calculation — taxing ₹2,500 at 5% and only the excess at 18% — which understates tax on every premium item. Applying one flat rate across the store because "we are a clothing shop", which was already wrong under the old ₹1,000 rule and is more costly now that the upper rate is 18%.
Also watch for inclusive-price back-calculation. If your tags are GST-inclusive, the threshold still applies to the sale value; make sure your software derives the taxable value correctly for each slab. And when filing returns, keep 5% and 18% sales separated by HSN in your outward supplies. Fixing these habits now is far cheaper than reconciling mismatches at return time or facing a demand notice later.