India’s recent overhaul of its consumer tax structure has lowered costs for a wide range of goods, from everyday soaps to high-end SUVs. However, global fashion companies such as Zara, Levi Strauss, and Lacoste are unsettled due to increased taxes on apparel priced above 29 dollars.
According to Datum Intelligence, the premium clothing market represents nearly 18 percent of India’s 70-billion-dollar apparel sector, fueled by rising disposable incomes and the growing aspirations of brand-conscious youth. The reform, the most significant in the last eight years under Prime Minister Narendra Modi’s administration, reduces the levy on garments below 2,500 rupees (29 dollars) to 5 percent. At the same time, clothing priced higher than that threshold is now taxed at 18 percent.
This policy change adds extra strain on international players including PVH Corp, Marks and Spencer, Gap, Under Armour, Nike, H&M, and Japan’s Uniqlo. Industry insiders caution that higher taxation could weaken sales as young buyers often view branded apparel as a lifestyle upgrade, but remain highly sensitive to price changes.
“The apparel business already runs on slim profit margins, and operational costs such as rentals are very steep,” said the head of a foreign garment brand active in India, who requested anonymity due to potential government pushback. “The growth we were projecting earlier will no longer materialize.”
He added that garments priced around 2,500 rupees should not be considered luxury anymore, calling this price point part of the basic category.
Local manufacturers also face pressure, with many already struggling as their thriving export business to the United States is affected by steep tariffs imposed by President Donald Trump, reaching up to 50 percent.
While the tax reform has significantly eased levies on essential consumer goods and electronics, it has also benefited the automobile industry, particularly premium carmakers. Taxes on luxury SUVs have been cut to a flat 40 percent, down from as high as 50 percent earlier, giving a boost to brands like Mercedes-Benz, which has been reporting record-breaking sales amid rising consumer demand.
On the other hand, the higher rate on apparel is raising serious concerns among industry bodies. The Clothing Manufacturers Association of India has warned that garments priced above 2,500 rupees are widely bought by middle-class consumers, and the new tax policy could deal a severe blow to the sector, describing it as a potential death knell for the industry.