Applicable Rates of GST on Medicines in India

Medicines are essential for treating illnesses and maintaining good health. With GST, India now follows a unified tax system that replaces multiple indirect taxes on drugs. The key goal of GST on medicines is to simplify pricing, ensure transparency, and make essential treatments more affordable. This blog explains the tax rates, exemptions, HSN codes, and impact of GST on medicine costs, helping both sellers and buyers understand the system better.

What is GST on Medicines?

Under the Goods and Services Tax (GST) regime, medicines in India are taxed at varying rates, ranging from 0% to 18%, based on their classification. Essential and life-saving drugs, such as insulin and oral rehydration salts, attract a 5% GST rate.

Non-essential medicines, including Ayurvedic, Unani, and Siddha preparations, are taxed at 12%. Certain items, like nicotine polacrilex gum, are subject to an 18% GST rate. Medicines are categorized under specific HSN codes, primarily within Chapter 30, to determine applicable GST rates. This structured approach aims to balance affordability for essential healthcare products with revenue generation from non-essential items.

HSN Code and GST Rates on Medicines and Pharmaceuticals

It is important to understand the HSN code as it helps to determine GST rates that are applied on medicines and related products. Listed below are the HSN code and the GST rates on medicines and pharmaceuticals:

You can know more about HSN code and GST rates on official GST portal

(https://services.gst.gov.in/services/searchhsnsac)

NIL GST Rates on Medicines and Medical Goods

Listed below are the medicines and medical Goods that have NIL GST rates:

• Human Blood and its components by products used in medicines.
• All kinds of contraceptives.
• Sanitary Napkins or Tampons.

5% GST Rate on Medicines and Medical Goods

Listed below are some of the medical products on which 5%GST is levied:

• Animal or Human Blood Vaccines.
• Insulin.
• Oral Rehydration Salts.
• Diagnostic kits for detection of all types of Hepatitis.
• Cyclosporin
• Medicaments used in biochemic systems and not bearing a brand name.
• Drugs or medicines including their salts and esters and diagonistics test kits, specified in list 1 of the central excise notification 12/2012 such as Dopamine Penicillamine, influenze vaccine, protamine, BCG vaccine amongst 200+ other specified drugs.
• Formulation manufactured from bulk drugs specified in List 2 of the central excise notification 12/2012 such as streptomycin, pyrazinamide, hydriocortisone, quinine amongst 20+ other specified drugs
• Artificial kidneys
• Artificial limbs
• Disposable Sterilized or micro barrier of artificial kidney
• Orthopedic appliances that include crutches surgical belts and trusses; splints and other fracture appliances; artificial parts of the body.
• Coronary Stents/ Stent systems for use with cardiac catheters
• Ostomy appliances
• Milk food for babies
• Covid-19 diagnostic test kits
• Parts of wheelchairs, tricycles, braillers, crutches, walking frames, etc.

12% GST Rate on Medicines and Medical Goods

Listed below are some of the medicines and medical products that have 12% GST:

• Medicaments in measured doses for therapeutic use, including ayurvedic, homoeopathic, unani, siddha, and biochemic systems
• Enzymes and prepared enzymes
• Photographic film and plates for x-rays for medical use
• Antisera, blood fractions, and modified immunological products
• Breathing appliances and gas masks (excluding basic protective masks)
• Blood glucose monitoring systems (glucometers) and test strips
• Wadding, bandages, gauze, coated with pharmaceutical substances for retail sale
• Diabetic foods
• Surgical rubber gloves or medical examination gloves
• Contact lenses, spectacle lenses, and corrective spectacles
• Medicaments mixed for therapeutic or prophylactic use, not for retail sale
• Animal blood for therapeutic or diagnostic use
• Organs and extracts used for organo-therapeutic purposes
• Tooth powder
• X-ray machines and other surgical, dental, or veterinary apparatus
• Instruments and appliances used in surgical, medical, or dental sciences
• Medical grade oxygen and hydrogen peroxide
• Feeding bottles and nipples
• Mechano-therapy, aerosol therapy, and respiration apparatus
• Toxins, cultures of microorganisms (excluding yeasts)
• Pharmaceutical goods like sterile surgical catgut, adhesives, laminaria, etc.
• Other personal-use drugs and medicines

18% GST on Medicines and Medical Products

Listed below are some of the medicines and medical products that have 18% GST levied on them:

• Razors and razor blades
• Hygienic or pharmaceutical articles such as teats, hot water bottles, ice bags, etc.
• Preparations for oral or dental hygiene and dental floss, sold in individual retail packages
• Products for oral or transdermal application or application otherwise containing nicotine and intended to assist tobacco use cessation
• Surgical, medical, dental or veterinary furniture such as operating tables, hospital beds, examination tables, etc., with mechanical fittings
• Dentists' chairs and barbers' chairs
• Organic surface-active products and preparations for washing the skin, whether or not containing soap
• Infrared thermometers, pyrometers, barometers, psychrometers, and hygrometers

GST on Hospital Room Rent and HealthCare Services

According to the latest GST guideline hospital room charges in Non-ICU setting attracts 5% GST, if the rent exceeds Rs. 5,000 per day. This tax applies only when the room is in a hospital or clinical establishment, and Input Tax Credit (ITC) cannot be claimed on it. This rule came into effect from 18^th July 2022. However GST is not charged (NIL rate) on the healthcare services that are listed below:

• Rooms used in ICU, CCU, ICCU or NICU, regardless of their daily rent.
• General Healthcare services that are offered by hospitals or clinical establishments, registered doctors or paramedics, rooms rented for less than or equal to Rs, 5,000 per day as part of the treatment, patient transportation through ambulances.

Impact of GST on medicines

Before the introduction of GST, the tax system on medicines in India was complex. Pharmaceutical companies had to pay 6% excise duty on 65% of the MRP of most medicines, while some medicines were fully exempt. Inputs used in medicine production attracted 12.5% excise duty, leading to an inverted duty structure where companies couldn’t fully use their tax credit (CENVAT). On top of that, a 4% VAT was charged at the point of sale by manufacturers and pharmacies. Area-based excise exemptions also created regional tax differences, making the system less uniform.

For instance if we take the cost of manufacturing of one pack of ABC tables as Rs. 100, in that the pre and post GST charges are listed below.

The implementation of GST has had several notable impacts on the price and operational aspects of medicines:

• Reduction in overall technology costs: Prior to GST, healthcare machinery and technology were expensive due to multiple taxes, and the duty paid on them could not be claimed as tax credit. However, under the GST regime, the IGST component on machinery is eligible for tax credit, which further reduced the overall cost of healthcare technology.
• Improvement in operational efficiency: The pharmaceutical industry was previously subject to eight different taxes, leading to complexity and inefficiency. With the introduction of GST, all these taxes have been consolidated into one, which eliminated the cascading impact of multiple taxes. This change has streamlined the supply chain, which made operations more efficient and cost-effective.

GST on Imported Medicines

When importing medicines into India, several taxes apply under the GST regime. Below is a list of the taxes: 

• Basic Customs Duty (BCD): A 10% duty is levied on the assessable value for customs duty.
• Social Welfare Surcharge: A 10% surcharge is applied on the Basic Customs Duty (BCD).
• IGST (Integrated Goods and Services Tax): This tax is applied at 5%, 12%, or 18% depending on the nature of the pharmaceutical product. The IGST is calculated on the combined value of the assessable customs duty, Basic Customs Duty (BCD), and the Social Welfare Surcharge.
• Health Cess on Medicines: Health cess is generally not applicable to most medicines, with a 0% rate in place. This levy primarily targets specific medical devices rather than pharmaceutical products.
• Customs Handling Charges: Logistics providers or customs agents typically charge customs handling fees of ?6,000 or more during import procedures for managing specialized clearance and documentation tasks.

GST on Expired Medicines or the Return of Drugs

When medicines expire without being sold, they return to the manufacturer. The retailer or wholesaler has two options under GST. Below is the list of the options that a wholesales or retailer can opt:

• Treat the returned goods as a fresh supply: The wholesaler destroys the expired goods, and the return records as a purchase. The manufacturer reverses any Input Tax Credit (ITC) claimed on these goods because expired medicines do not qualify for ITC.
• Issue a credit note for the returned goods: The supplier adjusts the tax liability only if ITC has not been claimed on the expired medicines. If ITC was claimed, the supplier reverses it before issuing the credit note.

Place of Supply for Pharma R&D Services

From October 1, 2019, the place of supply for certain pharmaceutical research and development services is determined by the location of the recipient. This rule applies to services related to the export of research and development activities to a non-taxable territory. Some of the pharmaceutical services that fall under this rule include:

• Integrated discovery and development
• Integrated development
• Evaluation of new chemical/biological entities in animal disease models
• Testing biological activity of new entities in in-vitro assays
• Drug metabolism and pharmacokinetics studies
• Safety assessments and toxicology studies
• Stability studies
• Bioequivalence and bioavailability studies
• Clinical trials
• Bioanalytical studies

To sum up, understanding GST on medicines is important for smooth operations in the pharmaceutical sector. GST helps bring clarity in pricing, simplifies tax compliance, and improves efficiency. From tax rates on essential drugs to rules for expired medicine returns and R&D services, the GST system ensures transparency. Though understanding GST on medicines may seem complex to file, expert help can make it simple.

Online Legal India helps file GST registration, filing, and compliance. Their trusted assistance helps businesses follow rules correctly and focus on delivering quality healthcare products across India.