The ₹2,500 GST Cliff: How India’s Apparel Tax Quietly Subsidises Fast Fashion

When Cheap Clothes Aren’t Really Cheap: A Closer Look at India’s Apparel GST

Most of us think of tax as something that’s added after a product is made.
But in reality, tax policy quietly shapes what gets made in the first place.

In India, apparel is taxed under a simple-looking rule:

• 5% GST if a garment costs ₹2,500 or less

• 18% GST if it costs more than ₹2,500

At first glance, this feels fair. Lower-priced clothes should be taxed less to keep them affordable.

But when you look closer, this structure creates an unintended—and deeply unfair—outcome:

It rewards fast fashion and penalises better-made, longer-lasting clothing.

To understand why, we need to talk about a simple idea that rarely shows up on price tags.

A simple idea: who actually pays the real cost?

When a jacket costs ₹1,999 or ₹3,499, that number doesn’t reflect all the costs involved in making it.

Some costs are paid directly by the brand and the customer.
Others are quietly passed on to society, cities, rivers, and the future.

Economists call these:

• Internalised costs – costs paid upfront by the brand

• Externalised costs – costs pushed onto everyone else

Let’s translate that into everyday language.

What are internalised costs? (The honest costs)

Internalised costs are the costs a brand chooses to pay upfront.

For clothing, this can include:

• Better-quality fabrics that last longer

• Natural fibres that biodegrade better

• Smaller batches instead of mass overproduction

• Stronger stitching, better zips, better construction

• Cleaner dyeing and processing

• Fairer labour practices

These things cost more to do, but they reduce damage later.

When a brand absorbs these costs instead of cutting corners, the garment naturally costs more.

That’s not “premium for the sake of premium.” That’s honest pricing.

What are externalised costs? (The hidden bill)

Externalised costs are costs that don’t show up on the bill, but are still very real.

In apparel, these include:

• Clothes that wear out quickly and end up in landfills

• Synthetic fabrics shedding microplastics into rivers during washing

• Water pollution from dyeing and processing

• Energy and emissions from overproduction

• Municipal waste systems handling discarded clothing

Fast fashion keeps prices low largely by not paying these costs upfront.

Instead, the costs show up later as:

• Polluted rivers

• Overloaded landfills

• Public cleanup costs

• Health and environmental damage

In simple terms:

Cheap clothes are often cheap because someone else pays later.

How the ₹2,500 GST rule changes what gets made

In India, the jump from 5% to 18% GST is not small.

A jacket priced at ₹2,500:

• GST = ₹125

The same jacket priced at ₹3,200:

• GST = ₹576

That difference alone can make or break a sale.

So what happens?

Brands feel strong pressure to design down to ₹2,500.

That often means:

• Switching to cheaper synthetic fabrics

• Reducing fabric weight

• Cutting back on construction quality

• Designing for trends, not longevity

Not because brands don’t care—but because policy makes durability harder to sell.

The irony: responsible clothing is taxed more

Here’s the contradiction built into the system:

• A ₹2,400 synthetic, short-life garment → 5% GST

• A ₹3,500 durable, natural-fabric garment → 18% GST

The second garment often:

• Lasts longer

• Creates less waste

• Sheds fewer microplastics

• Reduces long-term environmental harm

Yet it is treated as “luxury” and taxed more.

From a societal perspective, this is backwards.

Why this matters in India specifically

India already generates millions of tonnes of textile waste every year, most of which is not formally recycled.

We also face:

• Stressed water systems

• Overburdened waste infrastructure

• Limited sewage treatment capacity for microplastics

India is uniquely positioned to lead in:

• Natural fibres

• Skilled small-batch manufacturing

• Repair-friendly, long-lasting clothing

But policy nudges the industry toward:

• Volume over value

• Disposability over durability

• Short-term affordability over long-term cost

This isn’t about making clothes expensive

Let’s be clear:

This is not an argument against affordability.

It’s an argument against a system that:

• Treats all “cheap” clothing as equal

• Ignores how that cheapness is achieved

• Punishes brands that price responsibly

Affordability achieved by cutting corners isn’t affordability. It’s deferred payment.

A better way forward

We don’t need to choose between affordable clothing and responsible clothing.

Some better ideas:

• Smoother GST rates without sharp cliffs

• Incentives for durability and repairability

• Policies that tax pollution, not honest pricing

• Stronger textile recycling and wastewater treatment

The principle is simple:

Don’t punish brands for paying the real cost upfront.

Why we’re talking about this

At The Rugged Soul, we believe clothing should:

• Be worn longer

• Age better

• Leave a lighter footprint

That means we sometimes cost more upfront. Not because we want to—but because we choose not to push our costs onto someone else.

We believe consumers deserve transparency. And we believe policy should support—not undermine—that choice.

When better-made clothing is taxed more than disposable clothing, the message is clear: Make it cheaper now, even if the country pays later.

If we want a future with less waste, cleaner water, and clothing that lasts, we need policies that reflect real costs—not just low price tags.