India Issues Tax Benefits for Garment Companies

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Apr. 15 – In the annual budget presented by the finance minister, branded garment companies can get the benefit of CENVAT (central and value added tax) credit. It means the garment companies will be taxed on inputs.

In the budget, the ministry has projected 10 percent excise duty on readymade garments and textile made ups which is under a reputed banner or brand name. Additionally, the government has also widened the advantages of excise duties to small scale readymade garment companies.

Small scale garment companies which have turnover of less than Rs.1.5 crore will not be liable to pay excise duty. But they are also not allowed to take the benefits of CENVAT credit. The excise duty will be charged on the 60 percent of the cost on the retail cost. Additionally the optional excise duty scheme would also be continued.

Previously readymade garment companies were not liable from excise duty, on the clause that no credit of duty on inputs is taken by the garment companies. If it were to be taken valid rate was 4 percent for goods made of cotton, not containing any other textile material and 10 percent for others under the optional duty system. According to the finance minister official, this is initial ground work for the goods and service tax implementation.

Also, with the CENVAT credit based system, the readymade garment industry will be able to get the advantage of the tax the industry pays on inputs. Apart from this, the brand owners will be the one who will be liable the tax not the manufacturers. Also, job workers can pay the duty on behalf of brand owners but are not responsible for the excise duty.

The main aim for these amendments is to lower the burden of tax and encourage small scale garment companies because the service tax will be collected on the accrual basis.

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