{"id":66283,"date":"2025-02-06T14:40:03","date_gmt":"2025-02-06T09:10:03","guid":{"rendered":"https:\/\/piceapp.com\/blogs\/?p=66283"},"modified":"2025-02-06T14:40:06","modified_gmt":"2025-02-06T09:10:06","slug":"impact-of-gst-on-pharmaceutical-industry","status":"publish","type":"post","link":"https:\/\/piceapp.com\/blogs\/impact-of-gst-on-pharmaceutical-industry\/","title":{"rendered":"A Guide on the Impact of GST on Pharmaceutical Industry in India"},"content":{"rendered":"\n
India’s pharmaceutical industry has earned global recognition<\/a> for its resilience and innovation, particularly in the post-pandemic era. Known for providing affordable medicines and playing a crucial role in the global pharmaceutical supply chain, India continues to lead the sector. <\/p>\n\n\n\n Following the implementation of GST on pharmaceuticals and medical supplies, four types of taxes have been introduced: Nil, 5%, 12%, and 18%, replacing all indirect taxes. This blog explains into the impact of GST on pharmaceutical industry<\/strong>, covering aspects such as GST on medicines, medical services, medical equipment, hospitalization charges, and more.<\/p>\n\n\n\n The following is a list of medicines and medical goods with a NIL GST tax rate:<\/p>\n\n\n\n Here is a list of medical products which are subject to 5% GST. It is important to note that the following is not an exhaustive list:<\/p>\n\n\n\n Here is a list of medical products subject to 12% GST. The following list is not exhaustive:<\/p>\n\n\n\n Here are some medical products that attract an 18% GST rate. You must note that this is not a comprehensive list:<\/p>\n\n\n\n Medicines and pharmaceutical products are not subject to a 28% GST rate.<\/p>\n\n\n\n All hospital or clinical establishment room rents (excluding those in ICU, CCU, ICCU, or NICU) that exceed \u20b95,000 per day are subject to a 5% GST without input tax credit, effective from 18th July 2022.<\/p>\n\n\n\n The following medical services are exempt from GST:<\/p>\n\n\n\n In 2017, the Kerala Authority for Advance Ruling (AAR) determined that providing medicines, surgical items, implants, stents, and other consumables to patients during hospitalization qualifies as a composite supply and is exempt under Entry No. 74 of Notification 12\/2017 – Central Tax (Rate), dated 28th June 2017. Similarly, the Tamil Nadu Authority for Advance Ruling issued a comparable decision in June 2022.<\/p>\n\n\n\n Under the VAT system, medications and medical supplies faced cascading taxation<\/a>, as both excise duty and VAT were levied on all healthcare industry products, including medicines. The implementation of GST has eliminated this issue for medicines and other healthcare items. For many lifesaving drugs, prices under GST have remained relatively unchanged. <\/p>\n\n\n\n This is because the earlier VAT rate of 4% on 65% of the MRP (which included additional excise duty) was replaced with a 5% GST rate, resulting in no significant change in MRP. For dietary supplements,<\/a> the removal of excise duty has increased profitability and reduced prices, as these tax benefits are passed on to consumers.<\/p>\n\n\n\n Some additional positive impacts of GST on medicine prices include:<\/p>\n\n\n\n Under the GST tax regime, the transaction value<\/a> refers to the value of the supply. It is the price paid or payable for the supply of goods or services, provided the supplier and recipient are not related, and the prices for medicines are the sole consideration for the supply.<\/p>\n\n\n\n The import of medicines is subject to IGST and customs duty, with the following tax structure:<\/p>\n\n\n\n When medicines expire without being sold, they are returned to the manufacturer through the supply chain.<\/a> Wholesalers or retailers can choose one of the following options:<\/p>\n\n\n\n Effective from 1 October 2019, the place of supply for services will be considered the location of the service recipient. This applies to the export of research and development services provided by individuals in the taxable territory<\/a> to those in a non-taxable territory under a contractual agreement. These services specifically relate to the pharmaceutical companies and include the following:<\/p>\n\n\n\n The impact of GST on the pharmaceutical industry<\/strong> has been significant, particularly on the supply chain. Previously, under the VAT regime, companies incurred a 2% Central State Tax (CST) on interstate transactions, prompting them to establish depots in each state or union territory to minimize tax liabilities. <\/p>\n\n\n\n With the introduction of GST on pharmaceutical products, the supply chain has become more efficient as companies shift to a hub-and-spoke model. This approach helps lower warehousing costs and maximizes the benefits of Input Tax Credit under GST compliance.<\/p>\n\n\n\nNIL GST Rate on Medicines and Medical Goods<\/strong><\/h2>\n\n\n\n

\n
5% GST Rate on Medicines and Medical Goods<\/strong><\/h2>\n\n\n\n
\n
12% GST Rate on Medicines and Medical Goods<\/strong><\/h2>\n\n\n\n

\n
18% GST Rate on Medicines and Medical Goods<\/strong><\/h2>\n\n\n\n
\n
28% GST Rate on Medicines and Medical Goods<\/strong><\/h2>\n\n\n\n
GST on Medical Services<\/strong><\/h2>\n\n\n\n

\n
GST on Hospitalisation<\/strong><\/h2>\n\n\n\n
GST Impact on Medicines<\/strong><\/h2>\n\n\n\n
\n
What Is the Value of Supply to Compute GST on Medicines?<\/strong><\/h2>\n\n\n\n
\n
GST on the Import of Pharmaceuticals<\/strong><\/h2>\n\n\n\n

\n
GST on Expired Medicines or the Return of Drugs<\/strong><\/h2>\n\n\n\n
\n
Place of Supply with Regard to Certain Medical Services<\/strong><\/h2>\n\n\n\n
\n
Conclusion<\/strong><\/h2>\n\n\n\n