The last time India's GST slabs for clothing changed, the industry didn't feel one festive season — it felt two, running in parallel. The 12% slab was scrapped in September 2025 and replaced with a per-piece split: 5% on any single garment sold up to ₹2,500, 18% above that. One tax code, two completely different festive seasons depending on what price tag was on the garment.
The Retailers Association of India's numbers from that first festive window — the 87-day stretch from August 1 to October 26, 2025 — show exactly how that split played out.
| Segment | GST rate (per piece) | How the 2025 festive season went |
|---|---|---|
| Value apparel (≤₹2,500) | 5% | Stronger — chains including V-Mart, V2 Retail and Vishal Mega Mart had gone in expecting roughly 20% growth |
| Premium apparel (>₹2,500) | 18% | Softer — RAI described demand at this tier as having cooled relative to value |
| Footwear (overall) | Mixed by price point | +12% category growth, outpacing apparel's +9% |
Crisil's read on the rule change was that it would add roughly 200 basis points to organised apparel retail's revenue growth for the fiscal year — a real but modest tailwind, and one concentrated almost entirely in the segment taxed at 5%.
The listed bellwether is already showing the strain
Trent — the Tata group retailer behind Zudio and Westside — is as close to a real-time read on this split as the market gets, since Zudio sits squarely in the value tier the GST change favoured. Its first-quarter FY27 numbers (for the quarter to June 2026) show the shape of the problem even before any rate hike entered the picture: standalone sales grew 19% year-on-year, which sounds strong, but same-store sales — the figure that strips out the effect of simply opening more shops — grew only in the low single digits. Retail space expanded roughly 33% over the same period, while revenue per square foot actually fell by 11–12%. Gross margin did improve, to 46.6% from 45.1%, which suggests Trent is managing input costs and markdowns well even as same-store footfall growth cools.
Read together, that's a retailer whose headline growth is increasingly a story about opening new stores rather than more customers in existing ones spending more per visit — a pattern worth watching heading into the festive quarter that actually tests same-store demand.
Now a second variable: the cost of festive credit just rose
On October 7, the RBI raised the repo rate 25 basis points to 5.50%, its first hike since February 2023, and explicitly ruled out near-term cuts. Apparel doesn't finance purchases the way auto does — nobody takes out a car-style loan for a kurta — but a meaningful share of festive clothing spend in India runs through credit cards, buy-now-pay-later plans and personal loans, especially for the premium tier already showing softer demand under the 18% slab. A rate hike raises the cost of carrying a balance on exactly those instruments, right as Diwali approaches (this year falling on November 8, with the festive window running roughly November 6 to 10).
The mechanism is indirect but real. Credit card issuers and BNPL providers fund their own books partly through short-term borrowing, and a repo hike raises their cost of funds the same way it raises a bank's. That cost either gets passed through as a higher revolving-credit rate — most Indian credit cards already charge well above the repo rate, so a 25-basis-point move barely registers against a 3%-a-month finance charge — or it shows up more subtly, in tighter underwriting on new BNPL limits extended right before the peak shopping weeks. Premium apparel, concentrated above the ₹2,500 per-piece line that now carries the 18% rate, is exactly the ticket size where a shopper is more likely to split a purchase across a BNPL plan or a card EMI rather than pay outright — which is also exactly the segment RAI's 2025 numbers already flagged as the softer one.
The segment that isn't exposed at all
It's worth being precise about where this squeeze doesn't reach, because that's most of the festive apparel market by volume. Value-tier purchases — the ₹2,500-and-under garments taxed at 5% that drove most of 2025's festive growth — are overwhelmingly cash-and-debit transactions rather than financed ones. A shopper buying a few hundred rupees of festive clothing at a value chain isn't reaching for a BNPL plan or revolving a card balance; the GST cut already lowered the price, and the transaction clears in full at the till. If this festive season splits the way last year's did, the segment carrying both headwinds — the higher tax rate and the costlier credit — is a narrower slice of the market than the segment carrying neither.
None of this is a prediction that festive apparel sales will fall — overall festive retail still grew 11% in 2025 under a less favourable financing backdrop, and most of that demand doesn't touch a credit instrument at all. It's a report on two separate policy developments — last year's GST reshuffle and this week's rate hike — that both happen to bear down hardest on the same segment: premium, discretionary apparel bought on credit, in a season retailers already can't afford to read as a given.
NEEDS HUMAN REVIEW: Trent's Q1 FY27 same-store-sales and margin figures are drawn from secondary analyst commentary rather than the company's own investor-relations filing; worth cross-checking against Trent's official quarterly results before publication. Diwali's exact 2026 date also has one minor conflicting source (November 10 vs. the more widely supported November 8) and should be verified against an official panchang before the date is repeated elsewhere on the site.
