The new GST regime brings in a number of changes that affect multiple industries throughout the country. The handicraft industry, in particular, is experiencing some of the growing pains that are inevitable with this type of tax overhaul. Let’s have a look at the impact of GST on handicrafts industry in India.
Handicrafts in the Pre-GST Regime
Under the previous tax system, handicrafts were tax exempt in 15 of India’s 29 states. They faced a 5% value added tax in eight states and similarly low rates of taxation in the rest of the country. With the new GST system, almost all of those rates were due to increase.
Handicrafts’ Role in the Economy
The president of the Southern Handicrafts Industry Association, P. Subramanian, had an interview with the Times of India. He explained that most handicrafts have been passed on over centuries. He called them “traditional arts” that reflect the country’s rich “cultural heritage.” He said, even more importantly, handicrafts are a huge part of the country’s economy. This sector boasts the second largest course of employment in India. And it has enjoyed growth since independence. In fact, in small towns and rural areas, about 70% of the population relies on agriculture and handicrafts.
In July 2017, the handicrafts industry was affected by the GST. It experienced a 20% decrease in sales. If that continues, it could devastate small businesses and rural economies.
The Debates on GST and Handicrafts
Originally, the GST council sorted most handicrafts into the 12 and 18% GST rate slabs. But after an outcry from industry representatives, the council reclassified many items. In particular, at the end of 2017, the council lowered the proposed GST on cane and bamboo furniture from 12 to 18%. Leather and coir products moved from the 12 to 5% tax slab. Then, at the beginning of 2018, the council met again and decided to make even more changes.
During the first meeting of the year, the council lowered the tax rates on 29 goods and 53 services. It then moved 177 items down from the 28% tax slab. At the same time, the council created a working definition of handicrafts. This includes 40 different types of goods such as hand-embroidered shawls, bamboo furniture, and hand-woven tapestries. Representatives from the handicraft industry want all these items sorted into the 5% tax slab or exempted from tax all together. But at the time of writing, the GST council has been reluctant to take this step.
There is also continuing debate on what constitutes a handicraft. Many people in the industry consider handwoven sarees, leather bags, and wooden furniture to be handicrafts. But the GST council didn’t include any of this items in the handicraft category. It argued that it wasn’t necessary to include sarees in the list because they were already in the low 5% tax slab. The council also argued that leather handbags and wooden furniture were items of mass consumption. Whereas textile handbags are handicrafts.
Tips for People Who Make Handicrafts
If you make handicrafts, you may want to continue following these debates. Depending on your opinion on the issue, you may even want to get involved with industry efforts to reduce GST on handicrafts. Additionally, even if you make items that have been sorted into relatively high tax slabs, there are things you can do to lower your tax liability. In particular, remember to claim input tax credits. Basically, if you pay GST on products you buy for your business, you can claim a credit on those amounts against your GST.
The handicraft industry is as old as civilization in India. But it can still benefit from modern technology. Need help calculating GST for your clients, tracking input credits, and filing your GST returns ? Try a cloud-based accounting software such as QuickBooks.