GST on clothes and footwear: 5% or 18%, and how to get it right on every bill

Since September 2025 the rate depends on the price of each piece, not the bill. Here is how the ₹2,500 rule works with GST-inclusive tags, discounts and mixed bills.

If you run a clothing or footwear shop, GST used to mean remembering one cut-off: ₹1,000. Since 22 September 2025 the rule is simpler on paper, but it still trips up shops every day, mostly because of GST-inclusive price tags and discounts.

The rule in one line

Readymade garments and footwear are taxed at 5% when the value of a piece (or pair) is ₹2,500 or less, and 18% above ₹2,500. The old 12% rate and the ₹1,000 cut-off are gone. This came from the 56th GST Council meeting, which cut most goods to two rates, 5% and 18%.

Three words in that rule matter:

Per piece. The rate is decided for each item, not for the whole bill. A ₹12,000 bill of six ₹2,000 shirts is all at 5%.
Value. The ₹2,500 limit is on the price before GST.
The value actually charged. If you give a discount on the bill, the rate is worked out on what the customer actually pays for that piece.

GST-inclusive tags: the ₹2,625 line

Most shops print tags with GST included. Because the ₹2,500 limit is on the value before GST, a piece stays at 5% while its tag price is up to ₹2,625 (₹2,500 plus 5%).

Tag price (GST included)	Value before GST	Rate	GST in the price
₹1,299	₹1,237.14	5%	₹61.86
₹2,600	₹2,476.19	5%	₹123.81
₹2,625	₹2,500.00	5%	₹125.00
₹3,000	₹2,542.37	18%	₹457.63
₹4,999	₹4,236.44	18%	₹762.56

The awkward band: ₹2,626 to ₹2,950. Take a ₹2,800 tag. At 5% its value would be ₹2,666, above the limit, so 5% doesn't fit. At 18% its value would be ₹2,373, below the limit, so 18% doesn't fit either. Tags in this band have no clean answer. The safe course is to charge 18%, and many shops simply re-price these items to ₹2,625 or below. Ask your CA which they prefer for your shop.

Discounts can change the rate

Because the rate follows the value actually charged, a discount can move a piece from 18% to 5%.

A ₹3,000 kurta is at 18% (₹457.63 of GST). With 15% off, the customer pays ₹2,550. That is a value of ₹2,428.57 at 5%, so the GST is now ₹121.43.

This works the same way for a discount on the whole bill: share it across the items first, then decide each item's rate on its share. Billing software should do this for you. Doing it by hand at a busy counter is how mistakes happen.

Bills with both rates

A bill can mix 5% and 18% items. Each line shows its own rate, and the GST summary at the bottom shows the tax for each rate separately, split into CGST and SGST for a sale inside your state:

5% items: 2.5% CGST + 2.5% SGST
18% items: 9% CGST + 9% SGST

When goods are delivered to another state, the same amount is charged as IGST instead.

A quick checklist for your shop

Check your tags around ₹2,500 to ₹2,950. Decide what to do with the awkward band before a customer asks.
Don't type GST rates by hand. Set the rule once per category and let the system pick the rate for each piece.
Make sure discounts are applied before the rate is chosen.
Print HSN codes on your bills, such as 6109 for T-shirts or 6403 for leather footwear.
Be careful with old articles. Many guides online still show 12% and ₹1,000. Those rates ended in September 2025.

This is a plain-language guide, not tax advice. Rates can change, so confirm anything unusual with your CA.