Image Source: Indian Retailer
India’s sweeping tax reforms, effective from September 22, 2025, have sent ripples through the global fashion industry. While the government aims to make daily essentials more affordable with reduced levies, the new Goods and Services Tax (GST) rules significantly hike the tax on apparel priced above Rs 2,500 (approximately $29). This policy shift has set alarm bells ringing among international fashion giants such as Zara, Lacoste, Levi’s, Nike, H&M, and Uniqlo, which rely heavily on India’s booming, price-sensitive middle-class youth market.
Key Highlights Of The New Apparel Tax
Apparel costing Rs 2,500 and below will attract a reduced GST rate of 5%, catering largely to budget and mass-market segments.
Clothing and fashion items priced above Rs 2,500 will now attract an 18% GST, up from the earlier 12%, significantly increasing their retail price.
The move affects premium and luxury brands most, directly impacting sales of products such as Lacoste T-shirts which often cost close to $100 and jackets by Superdry priced above $170.
Local garment manufacturers have also raised concerns, warning that this tax hike could negatively affect both domestic demand and export competitiveness amid existing challenges from US tariffs on Indian textile exports.
The wedding apparel market—a significant driver of high-value sales in India—stands to be impacted, with families potentially downgrading quality due to increased taxation on designer wear.
High-end luxury brands including Louis Vuitton, Dior, and Versace will also face the 18% tax, although the ultra-rich clientele may remain largely unaffected.
How The Tax Hike Threatens Growth Of Global Brands
India’s apparel market, valued at around $70 billion, counts 18% of sales from premium branded apparel. Companies like Zara, Levi’s, and Lacoste have seen rapid growth driven by ambitious urban youth who view branded clothing as a lifestyle symbol. However, the new GST rates threaten to dampen this momentum due to:
Price Sensitivity Of Indian Consumers: Despite aspirations for premium brands, most Indian consumers remain cautious about increased prices, which can lead to reduced footfalls and sales volume.
Slim Retail Margins And High Overheads: Fashion retailers in India operate on wafer-thin margins, compounded by elevated retail rents and operating costs. The tax increase adds pressure on profitability.
Increased Competition From Local Players: Smaller local brands and unbranded apparel, which are typically taxed at much lower rates, become more attractive to price-conscious buyers.
Impact On Wedding And Festival Shopping: The Indian market’s unique reliance on weddings and festivals for high-value purchases may see families scaling back on lavish spending due to elevated taxes on premium apparel.
Industry And Market Responses
Executives in the fashion retail sector have voiced their apprehensions openly. An anonymous CEO of a foreign brand lamented that the Rs 2,500 mark no longer carries a luxury connotation but represents the basic price point for many consumers, making the tax hike a challenging obstacle. The Clothing Manufacturers Association of India called the new rates “a death knell” for the apparel industry, warning of widespread repercussions across both urban and rural markets.
Contrasting Gains In Other Sectors
Interestingly, while the fashion industry braces for impact, other domains have welcomed the GST reforms. For instance, the government cut tax rates on premium SUVs to a flat 40% from previous rates as high as 50%, leading to record sales for luxury carmakers like Mercedes-Benz. The tax benefits on essentials, electronics, and electric vehicles signal a targeted approach to boost consumption in specific sectors while tightening duties in others considered non-essential or luxury.
Looking Ahead: Challenges And Opportunities
Despite immediate concerns, India’s long-term allure as a fashion market remains strong, evidenced by international brands like Lululemon Athletica planning their India debut in 2026. The tax reform underscores a maturing marketplace where affordability and consumer aspirations must be balanced carefully. Brands may need to recalibrate pricing strategies, increase localization, enhance value propositions, or innovate product lines to sustain growth.
Conclusion
India’s new apparel tax is a double-edged sword—while it promises benefits to everyday consumers through reduced taxes on essentials, it sends a warning signal to global fashion brands catering to premium and luxury segments. Companies like Zara and Lacoste face the challenge of navigating a more price-sensitive landscape where higher GST rates could constrain demand growth. This reform reflects India’s evolving economic priorities, pushing fashion retailers to adapt strategies in one of the world’s fastest-growing apparel markets.
Sources: Reuters, India Today, Storyboard18, NDTV, Economic Times, Financial Express
Advertisement
Advertisement
