Polyester Yarn GST Rate: HSN Code & Tax Details Explained

GST Rate on Polyester Yarn at a Glance

Polyester yarn attracts a GST rate of 12% in India. This applies to most forms of polyester yarn used in textile manufacturing, including partially oriented yarn (POY), fully drawn yarn (FDY), and texturised polyester yarn. The rate falls under the broader textile yarn category governed by Chapter 54 of the GST HSN schedule.

This 12% rate has been in effect since the GST Council's rationalisation exercise, which aligned yarn rates across man-made fibre categories to reduce the inverted duty structure that previously plagued the textile sector.

HSN Code for Polyester Yarn

Polyester yarn is classified under HSN Chapter 54, which covers man-made filament yarns and strips. The specific HSN codes vary based on the type and form of the yarn:

When filing GSTR-1 or raising a tax invoice, using the correct 8-digit HSN code is mandatory for businesses with annual turnover above ₹5 crore, and a 4-digit code is required for those between ₹1.5 crore and ₹5 crore.

Tax Breakdown: CGST, SGST, and IGST

The 12% GST on polyester yarn is split depending on the nature of the transaction:

• Intra-state supply: CGST 6% + SGST 6% = 12% total
• Inter-state supply: IGST 12%
• Exports: Zero-rated (0% GST with or without bond/LUT)

For example, if a yarn trader in Surat sells polyester FDY to a buyer in Ahmedabad (intra-state), the invoice will show CGST @6% and SGST @6%. If the same trader sells to a buyer in Ludhiana (inter-state), IGST @12% applies on the full transaction value.

Input Tax Credit (ITC) on Polyester Yarn

Registered manufacturers and traders in the textile chain can claim Input Tax Credit on polyester yarn purchases, subject to standard ITC conditions under Section 16 of the CGST Act. This is particularly relevant for:

• Weavers purchasing yarn to produce fabric (HSN 5407/5408 – taxed at 5% or 12%)
• Knitting units buying polyester yarn for hosiery goods
• Garment manufacturers using polyester blended yarn

However, a key concern for small weavers and processors is the inverted duty structure: when the output product (e.g., grey fabric at 5%) is taxed lower than the input (polyester yarn at 12%), ITC accumulates and cannot be fully offset. In such cases, a refund of accumulated ITC can be claimed under Section 54(3) of the CGST Act.

The GST Council has been deliberating further rationalisation to address this issue, particularly for the powerloom sector which employs over 4.5 million workers across India.

History of GST Rate Changes on Polyester Yarn

The GST rate on polyester yarn has not always been 12%. Understanding the history helps businesses track ITC adjustments and compliance timelines:

The reduction from 18% to 12% effective 1 January 2022 was part of a broader rationalisation that also revised rates on fibre, fabric, and garments. However, the revision on garments (proposed 12% on items below ₹1,000) was rolled back after industry protests, while the yarn rate revision held.

Compliance Requirements for Polyester Yarn Dealers

Businesses dealing in polyester yarn must fulfil specific GST compliance obligations:

Mandatory Registration

Any supplier with aggregate turnover exceeding ₹40 lakh (₹20 lakh for special category states) must register for GST. Yarn traders operating in major textile hubs like Surat, Ludhiana, Tiruppur, and Erode typically exceed these thresholds quickly.

Invoice Requirements

• HSN code must be mentioned on every B2B tax invoice
• Separate CGST and SGST or IGST amounts must be shown clearly
• E-invoicing is mandatory for businesses with turnover above ₹5 crore
• E-way bill required for movement of yarn valued above ₹50,000

Return Filing

Regular taxpayers must file GSTR-1 (outward supplies) and GSTR-3B (summary return with tax payment) monthly or quarterly, depending on their turnover. Composition dealers cannot supply polyester yarn inter-state or claim ITC.

Practical Example: Calculating GST on a Polyester Yarn Invoice

Consider a yarn manufacturer in Surat selling 500 kg of polyester POY (HSN 5402 33 00) at ₹120 per kg to a weaver in the same state:

1. Basic value: 500 kg × ₹120 = ₹60,000
2. CGST @6%: ₹3,600
3. SGST @6%: ₹3,600
4. Total invoice value: ₹67,200

The weaver can claim ₹7,200 as ITC against their output tax liability on fabric sales. If the fabric is taxed at 5%, excess ITC can be carried forward or refund claimed for the inverted duty portion.

Common Mistakes to Avoid

Businesses in the polyester yarn trade frequently encounter compliance issues due to the following errors:

• Wrong HSN code: Using Chapter 55 codes (staple fibre) for filament yarn (Chapter 54) or vice versa can trigger GST notices
• Applying old 18% rate: Some older accounting software or templates may still carry the pre-January 2022 rate
• Missing e-way bills: Yarn shipments above ₹50,000 without an e-way bill attract penalties under Rule 138 of CGST Rules
• Not reconciling GSTR-2B: ITC claims not matching supplier filings in GSTR-2B are being increasingly flagged by the GST portal's automated systems
• Ignoring ITC reversal on exempt supplies: If some yarn is used for exempt goods, a proportional ITC reversal under Rule 42 is mandatory