GST on Medicines and Pharma – Applicability, Rates & Exemptions

It is essential for everyone to understand the impact of the Goods & Services Tax or GST on the pharmaceutical industry. Its effects on medicines, and medical supplies, especially in the event of a coronavirus outbreak, can aid in understanding how it has affected all people.  The primary goal of GST tax structure is to manage the cascading effects of other indirect taxes. For instance, GST eliminates other indirect taxes, including service tax, excise duty, VAT, octroi, etc. The Goods and Services Tax (GST) comprises the Central GST (CGST) and State GST (SGST), and the Integrated GST (IGST). When the Supplies are made within the same state, i.e. Intra State Supplies like from one place to another within Haryana (e.g. from Gurugram to Karnal), CGST and SGST become applicable. Still, if the supplies are from one state to another state, i.e. Inter-State Supplies like a supply of goods or services from Haryana to Punjab (e.g. from Gurugram to Ludhiana), then IGST is applicable. Therefore, this article considers these aspects and focuses on GST on medical bill and GST rates on medicines in India.

How is GST on Pharmaceuticals charged?

The Goods & Services Tax (GST) is charged in the following manner:

1. If the supply is Intra State (e.g. from Gurugram to Karnal within Haryana) and the rate of GST= 18% on Selling Price, then tax will be charged on the Invoice in two parts, i.e. Central GST (CGST) @ 9% and State GST (SGST) @ 9%. If the Sale Price = Rs. 10,000/-, then CGST@9% on Rs. 10,000/- = Rs. 900/- and SGST@9% on Rs. 10,000/- = Rs. 900/-.
2. If the supply is Inter-State (e.g. from Gurugram in Haryana to Ludhiana in Punjab) and the rate of GST = 18% on Selling Price, then tax will be charged on the Invoice in one part, i.e. Integrated GST (IGST) @ 18%. If the Sale Price = Rs. 10,000/-, then IGST@ 18% on Rs. 10,000/- = Rs. 1,800/-.

On the 3rd of June 2017, India’s GST Council decided on the GST rates for medicines. According to the Council resolution, GST is collected at five rates based on the item’s HSN code: NIL,  5%,  12%,  18%, and  28%. Pharmaceutical products and medicines have been stated in the 37^th Chapter of the HSN Code list released by the Government.

What is the impact of GST on the Pharma Industry and the prices of medicines?

The impact of GST on life savings drugs and other pharmaceuticals is neutral. Under GST, the formulations would be charged at 12%. On the other hand, the average rate is 9% under pre-GST laws.

Before GST implementation, when a pharmaceutical firm delivered medicines, they were subject to a 6% excise duty on 65% of the MRP (maximum retail price). The excise charge on several medications was waived. There were also certain area-based excise duty exemptions available. Manufacturing inputs were subject to a 12.5% excise charge. Central Value Added Tax or CENVAT credit was accumulated as a result of the inverted duty structure. In addition, the sale of medications by producers and pharmacies was subject to a 4% VAT. 

The price of medicines before and after GST is shown in the table below:

On average, the price before and after GST of Medicines remains the same. There are a few areas where the impact of GST on medicine bill can be identified:

• Reduction in the total cost of technology: The healthcare sector’s machinery was costly during the previous administration. In addition, the duty paid on the item was not eligible for a tax credit. The IGST component, on the other hand, will be recognised under GST.
• Transaction cost Reduction: GST has absorbed Central Sales Tax or CST, lowering transaction costs. This has resulted in lower transaction costs, which has resulted in lower total production costs.
• Improvements in operational efficiency: The pharmaceutical sector was formerly subjected to eight distinct forms of taxation. However, the GST has consolidated all of these taxes into one, reducing the cascading effect of many taxes. GST will also streamline the supply chain, resulting in increased operational efficiency.

GST Rates on Medicine

1. 0% GST rate on Medicines

The following types of medications and pharmaceutical products are exempt from GST:

• The Human Blood and all the components of human blood
• Contraceptives of all kinds.
• Services provided by Rehabilitation Professionals for activities covered under the Rehabilitation Council of India Act, 1992.

2. 5% GST rate on Medicines

The following types of medicines or medical products attract a 5% GST rate:

• Vaccines made from animal or human blood
• Hepatitis diagnostic kits for all kinds of hepatitis
• Deferiprone or Deferoxamine injection 
• Cyclosporin 
• Medications (including veterinary medicines) utilised in butilisedal systems but not labelled as such.
• Salts for oral rehydration
• Diagnostic test kits, as well as drugs or medicines, including their salts and esters (specified in erstwhile Central Excise Notification 12/2012)
•  Pharmaceutical formulations made from bulk medicines (specified in erstwhile Central Excise Notification 12/2012)
• Coronary stents/stent systems for use with cardiac catheters
• Artificial kidneys
• Wheelchairs, Crutches, Artificial limbs, Walking frames, etc.

The above list is just illustrative, and there may be more items that attract a 5% rate of GST. 

Also Read: Impact of GST on Different Sectors

3. 12% GST rate on Medicines

The following medications and pharmaceutical items are subject to a GST rate of 12%:

1. Organs for organotherapeutic purposes, dried or powdered; extracts of glands or other organs or their secretions for organotherapeutic purposes; 
2. Heparin and its salts;  
3. Any human or animal substances prepared for therapeutic or prophylactic purposes, not otherwise specified or included.
4. Antisera and other blood fractions, as well as changed immunological products, whether or not created through biotechnological methods; 
5. Toxins, microbe cultures (except yeasts), and similar goods.
6. Ayurvedic, Unani, homoeopathic Siddha, or Biochemic systems medicaments put up for retail sale, consisting of mixed or unmixed products for therapeutic or prophylactic uses in measured doses (including those in the form of transdermal administration systems) or forms or packings for retail sale, including Ayurvedic, Unani, homoeopathic Siddha, or Biochemic systems medicaments.
7. Wadding, gauze, bandages, and similar materials impregnated or coated with medicinal substances or packaged for retail sale for medical, surgical, dental, or veterinary uses (for example, dressings, adhesive plasters, poultices).
8. Sterile surgical catgut and comparable sterile suture materials (including sterile absorbable) are examples of pharmaceutical goods.

4. 18% GST rate on Medicines

The following medications and pharmaceutical items are subject to a GST rate of 18%:

• Nicotine polacrilex gum.
• There is no other item having a GST rate of 18%.

5. 28% GST rate on Medicines

Nil  (There is no item having a GST rate of 28% on pharmaceuticals or medicines). 

As a result, the highest GST rate for Medicines is 18%.

GST on Medical Services in India

It is also essential to know the Goods and Services Tax (GST) rates on Medical Services being provided in India. 

• Medical Services provided in a Clinic:

Medical services provided by a paramedical clinic or a medical practitioner with a license covering both humans and animals are exempt from GST.

• GST on Hospitalisation:

While there is GST on medicines and medical supplies, there is no GST on hospitalisation. It may be further noted that there is no GST on the transportation of patients, i.e. no GST on Ambulance Service.

• GST on Medical Equipment:

The medical equipment may attract GST at a rate as prescribed in the official notification of the Government of India (It may be Nil rate or any other rate).

• GST on Medicines that are past their expiration date

If a medicine approaches its expiration date, it must be returned via the supply chain to the manufacturer. As a result, retailers and wholesalers can treat returned goods as new inventory or issue a credit note for them. Both the ways are explained as under:-

i. Treating returned products as fresh supply: The wholesaler will destroy the expired items and record the return of expired goods as purchases. The manufacturer will reverse any Input Tax Credit, or ITC received on such goods because no ITC will be available after they are destroyed.

ii.  Issuance of a credit note for items returned: Only if the person returning the expired medicines has not claimed an ITC can the provider modify the tax liability. If ITC were taken advantage of, it would have to be reversed.

What is the GST on Medicine Imports?

The import of medicines is subject to two types of tax:

1. Custom Duty  @ 10% on Assessable Value
2. IGST (Integrated Goods and Services Tax) @ 18% on Assessable Value Custom Duty & Surcharge etc. if any

Thus imported medicine becomes costlier unless the basic price of imported medicine is lower than the medicine price available in India. But one should always compare the landed cost.

Impact of GST on Pharma industry: GST relief for COVID-19 Related Medicines

The GST Council has reduced GST rates for certain drugs being used to treat the COVID-19 pandemic in India, and these relaxations are available till 31^st December 2021. These medicines are as under:

Besides, there is a reduction in rates of GST for other items used in the treatment and prevention of the COVID-19 pandemic like Ventilators, hand sanitisers, oximeters, etc. Kindly see the official Notification of Govt. of India for the complete list of drugs, medicines, medical equipment, and consumables, etc., in this regard.

GST on Medicine – Exemptions

Supply on which GST is not attracted or which has nil tax rate is known as Exempt Supply. Currently, the following two products have zero rate –

• 3006 and 4014 – All types of contraceptive products 
• 3002 – Human blood and its components 

Also, the following service is exempt:

• Services by rehabilitation professionals under the Rehabilitation Council of India Act 1992

Also Read: How To Start A Pharmacy Shop In India?

Conclusion

This article on GST on Pharmaceuticals and GST on Medicines has aided in understanding the impact of GST rates on medicine in India. The GST on medicine varies on different drugs, medical services, and medical equipment, etc. We hope this article will clear many doubts about the GST on Pharmaceutical products and other related services and items. For regular updates regarding GST, download the Legal Tree App.