India’s fashion industry is bracing for turbulent times, as the government’s decision to increase taxes on apparel threatens to squeeze both retailers and consumers. Executives across the sector warn that higher levies will dent sales in a market where aspirational young shoppers treat branded clothing as an essential lifestyle upgrade but remain highly price-sensitive.
Two senior garment industry executives dealing in global labels noted that the move is particularly harsh at a time when businesses are already navigating wafer-thin margins. “Retail operates on extremely slim profits, and overheads like rentals are some of the highest in Asia,” one chief executive of a leading foreign brand operating in India told this newspaper on condition of anonymity. “The growth we anticipated just months ago is now unlikely to materialize under this burden.”
The executive also pointed out that premium-priced products can no longer be treated as luxuries. “At today’s cost of living, a price point of 2,500 rupees is considered basic. This is not about indulgence anymore.”
A Double Hit for Domestic Manufacturers
The tax hike is not just a challenge for international retailers; it has also become a double blow for domestic apparel makers. Many Indian companies had been thriving on exports, particularly to the U.S. market. However, that business is reeling under the weight of the steep 50% tariffs imposed under former President Donald Trump’s trade policies.
As a result, Indian garment exporters now find themselves squeezed between rising domestic levies and shrinking overseas demand. Industry bodies warn that the combined effect could put tens of thousands of jobs at risk.
Mixed Bag of Tax Reforms
Ironically, India’s broader reform agenda has eased levies on several other categories. Consumption taxes on essentials and electronics have been slashed, while the luxury SUV segment even received an unexpected benefit this week—tax rates were trimmed to 40% from as high as 50%. Carmakers such as Mercedes-Benz have already reported record-breaking sales in India, buoyed by surging consumer demand in the premium car segment.
The contrast between tax cuts for SUVs and hikes for apparel has raised eyebrows among industry watchers. The Clothing Manufacturers Association of India (CMAI) has gone so far as to call the policy “a potential death knell” for the sector, arguing that garments priced above 2,500 rupees are not limited to the wealthy but are consumed in significant numbers by the middle class.
Brands Already Impacted
The scale of the impact can be seen on major fashion platforms. Superdry India’s website, for instance, lists over 875 new arrivals, the majority of which fall under the new 18% tax slab. Jackets retailing for more than $170 and shirts tagged at $60 are now set to become even costlier. Similarly, Lacoste India’s online store features T-shirts priced as high as $99, with not a single item below the new taxable threshold of $29.
The policy shift also extends to luxury fashion houses. Labels such as Louis Vuitton, Dior, and Versace—all of which have established growing footprints in India—will now see their collections taxed at the higher rate.
A Looming Challenge for Weddings
The impact goes beyond casual or lifestyle fashion. Weddings, a multi-billion-dollar industry in India, are set to face new cost pressures. Urban families often spend thousands of dollars on bridal sarees, sherwanis, and men’s jackets, seeing clothing as a central element of the celebration.
CMAI has voiced concerns that the new tax slab could dampen this cultural tradition. “Placing wedding attire in the 18% tax bracket will leave parents feeling they have no choice but to compromise on their child’s big day,” the association said in a press statement.
Market Reactions and the Road Ahead
Several domestic companies, including Arvind Fashions—which holds Indian franchise rights for Tommy Hilfiger and Calvin Klein—face a dual challenge. While its retail arm struggles with higher domestic costs, its export-focused affiliate Arvind Ltd must contend with falling margins in the U.S., where it earns roughly 30% of its revenues. The company has yet to formally respond to the policy changes, but insiders admit that the outlook is bleak.
At the same time, global players continue to bet on India’s long-term promise. Lululemon Athletica, the Canadian sportswear giant, has already announced plans to enter the market in 2026, signaling confidence in India’s expanding consumer base. But industry veterans caution that without a balanced tax structure, India risks discouraging both international investment and local entrepreneurship.
Conclusion
For now, higher taxes are creating uncertainty in a sector that employs millions and caters to a rapidly evolving demographic. While affluent customers may continue to splurge on luxury abroad, middle-class families and price-conscious youth—the backbone of India’s fashion retail growth story—are likely to cut back.
Unless policymakers revisit the levy, experts fear the apparel industry could enter a prolonged slump, widening the gap between winners in the automobile sector and struggling garment retailers. As one executive bluntly put it: “This is not about luxury anymore. This is about survival.”