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Khadi is a type of hand-woven fabric made from yarns spun from natural fibers such as cotton, silk, and wool. It is a symbol of Indian heritage and self-reliance. The Khadi and Village Industries Commission (KVIC) is a statutory body under the Ministry of Micro, Small and Medium Enterprises (MSME) that promotes the development of khadi and other village industries.

GST on Khadi Products

Khadi products attract a concessional GST rate of 5% if they are sold by KVIC-registered entities. If Khadi products are sold by unregistered entities, they attract the standard GST rate of 12%.

Advantages of GST on Khadi Products

  1. Uniform Tax Structure: GST replaced various indirect taxes with a single tax system, eliminating the complexities of multiple taxes like excise duty, VAT, and service tax. This simplification benefits Khadi manufacturers by streamlining their tax compliance and reducing administrative burdens.

  2. Input Tax Credit (ITC): Under GST, Khadi manufacturers can claim ITC on the GST paid for inputs, including raw materials, machinery, and services. This can reduce the overall cost of production, making Khadi products more competitive in the market.

  3. Reduced Tax Burden: GST often leads to a lower overall tax burden compared to the pre-GST tax regime for Khadi products. This can potentially result in cost savings for manufacturers and consumers alike.

  4. Market Expansion: The GST system facilitates inter-state trade, making it easier for Khadi products to reach a broader market. This can enhance the visibility and accessibility of Khadi products, promoting growth in the sector.

  5. Online Sales: GST has encouraged the growth of e-commerce, which can benefit Khadi products by providing them with a platform to reach a global audience.

  6. Export Opportunities: GST has provisions for the export of goods and services. Khadi manufacturers can take advantage of these provisions to explore international markets and boost exports.

Disadvantages of GST on Khadi Products

  1. Tax Rate Variation: Khadi products are subject to different GST rates based on their value and whether they are handmade or machine-made. This complexity can lead to confusion and administrative challenges for manufacturers.

  2. Compliance Costs: Compliance with GST regulations can be costly, especially for small-scale Khadi producers who may lack the resources to navigate the complexities of the tax system. This can increase the cost of doing business.

  3. Impact on Consumers: Depending on the GST rates applied to Khadi products, consumers may experience price fluctuations. Higher tax rates can make Khadi products less affordable, potentially reducing consumer demand.

  4. Transition Challenges: The transition from the previous tax regime to GST was initially challenging for many Khadi manufacturers, particularly those in rural areas. Adapting to the new tax system required adjustments in accounting practices and compliance procedures.

  5. Lack of Clarity: Some aspects of the GST framework may not have clear provisions for Khadi products, leading to ambiguity in tax treatment. This can result in disputes and uncertainties.

  6. Increased Competition: While GST facilitates market expansion, it also means increased competition for Khadi products. Manufacturers may need to adapt to meet higher quality and production standards to remain competitive.

Here are some additional things to keep in mind about GST on khadi products

  • The GST rate on khadi products is subject to change.
  • The GST registration process for khadi products is the same as the GST registration process for other goods and services.
  • Khadi products that are sold online are subject to GST, even if they are sold by KVIC-registered entities.


To conclude, the GST on khadi products is a complex issue with both advantages and disadvantages. The concessional GST rate on khadi products is a way to promote the growth of the khadi industry and make khadi products more affordable for consumers. However, the GST registration process can be complex and time-consuming, which can be a barrier for small khadi weavers. The government is constantly evaluating the GST rates on khadi products and may make changes in the future.


  • GST Registration: Auriga Accounting or a similar firm can assist Khadi product manufacturers and sellers in the GST registration process. They can ensure that businesses are registered correctly, considering factors such as turnover, location, and product classification.

  • GST Compliance: They can help businesses understand and comply with GST regulations, including proper invoicing, filing of returns, and maintaining records. Compliance is crucial to avoid penalties and legal issues.

  • GST Classification: Identifying the correct GST rate and classification for Khadi products can be complex. Accounting firms can help businesses determine the appropriate tax rates and ensure accurate tax calculations.

  • Input Tax Credit (ITC) Management: Accounting professionals can guide Khadi manufacturers on how to claim Input Tax Credit on GST paid for inputs, which can help reduce the overall tax liability.

  • GST Returns Filing: Auriga Accounting can assist in preparing and filing GST returns on time, ensuring that businesses meet their tax obligations without errors or delays.

  • Audit Support: In case of GST audits by tax authorities, accounting firms can provide support by gathering necessary documentation, responding to queries, and representing businesses during the audit process.

  • Tax Planning: They can provide tax planning strategies to minimize the impact of GST on Khadi products, such as exploring exemptions, deductions, and concessions available under GST law.

  • Compliance Training: Offering training and workshops to educate Khadi businesses about GST compliance, ensuring that staff and management are well-informed about tax obligations and procedures.

  • IT System Integration: For businesses transitioning to GST or upgrading their accounting systems, accounting firms can provide guidance on integrating GST requirements into their IT systems and software.

  • Regular Updates: Staying current with GST changes is crucial. Accounting firms can keep their clients informed about the latest GST updates, notifications, and changes in rates or regulations.