The next time you are browsing the aisles in a mall shopping for clothes, look carefully to see whether it’s priced below Rs 2,500 or above, because going even a rupee above the threshold attracts an 18% GST, compared with 5% on apparel priced at or below Rs 2,500.
According to a recent report by CareEdge Ratings, the structure has turned value fashion into one of the fastest-growing segments of India’s apparel industry, as retailers increasingly cluster products below the Rs 2,500 mark to drive volumes and protect demand.
Value fashion gains as tax bites premium pricing
The report notes that apparel priced below Rs 2,500 benefits from a reduced effective GST rate of 5%, compared with 12% earlier for items priced between Rs 1,000 and Rs 2,500. This has given retailers room to lower prices or offer better value to consumers, supporting higher sales volumes in the value segment.
By contrast, garments priced above Rs 2,500 now fall under the 18% GST bracket, up from 12% earlier. CareEdge Ratings describes the impact on mid- and high-priced apparel as neutral to negative, as price-sensitive consumers shift towards more affordable alternatives, forcing brands to either discount or absorb part of the tax burden, putting pressure on margins.
The Rs 3.5 lakh crore value segment expands
India’s value fashion market was estimated at Rs 3.5 lakh crore in FY24 and is expected to grow at a compound annual growth rate of 7% to reach Rs 5 lakh crore by FY30, the report said. This growth is being driven by rising brand awareness and fashion consumption in Tier 2 and Tier 3 cities, where affordability remains a key decision factor.
Brands such as Zudio, Max Fashion and Reliance Retail’s Yousta have expanded rapidly in these markets, positioning themselves as organised alternatives to local retailers by offering private-label products priced largely within the lower tax bracket.
Industry growth tilts towards affordable formats
India’s overall apparel market was valued at Rs 9.3 lakh crore in FY25 and is projected to reach Rs 16 lakh crore by FY30, expanding at a CAGR of about 7%, according to CareEdge Ratings. As per the report, organised retail accounts for about 41% of the market and is expected to grow faster, at 10-13%.
Furthermore, Tier 2 and Tier 3 cities are expected to account for around 23% of total apparel demand, with organised value retailers leading the transition from unorganised to organised formats in these markets.
What it means for investors
For investors, the report highlights value fashion as a structurally advantaged segment. While premium apparel continues to depend on in-store experience and selective demand, the real growth is concentrated in affordable categories, which essentially pulls the most volume growth. As a major chunk of the consumption comes from Tier-2 and Tier-3 cities, retailers built around the cheaper price points are better positioned to scale.
India’s apparel market is set to grow to Rs 16 lakh crore by the end of the decade, as per the CareEdge report; the Rs 2,499 price tag is no longer just a consumer-facing number. It has become a design constraint, a pricing strategy and a competitive moat for value fashion retailers operating in a tax-sensitive market.