Healthcare in India comprises hospitals, medical infrastructure, medical devices, clinical trials, outsourcing, telemedicine, health insurance, and medical equipment. The Indian healthcare industry amounted to $150 billion in 2018 and is expected to reach US $280 billion by 2022 due to increased demand for specialized and quality healthcare facilities. The market is dominated by private players. The industry is rapidly developing and is being fuelled by large investments from existing corporate hospital chains and new entrants backed by private equity investors. This growth will be driven by healthcare facilities, private-public projects, medical diagnostic and pathological laboratories, and the health insurance sector. In addition, changing demographics, disease profiles, and the shift from chronic to lifestyle diseases in the country has led to increased spending on healthcare delivery.

In Healthcare Sector, one of the most vibrant and fast-growing segments is Medical Devices & Equipment’s. The Indian medical device market is worth over $9 billion and is expected to reach $14 billion by the end of 2025. The Indian medical device industry become a very attractive destination for overseas exporting countries like U.S., Europe & also in recent times China. India imports nearly 80%- 90% of its medical devices and barriers to entry are low compared to other industries. India remains highly dependent on imports for many types of medical devices, particularly higher-end products that include cancer diagnostics, medical imaging, ultrasonic scans, and PCR technologies.

Imports are growing rapidly as world-class hospital groups such as Max, Hinduja Group, Fortis and Apollo build high-end infrastructure and open India to medical tourism, which now adds $2 billion to the Indian healthcare market.

Data from the commerce ministry, compiled by the Association of Indian Manufacturers of Medical Devices (AiMeD) — an umbrella organisation representing the Medical Devices Industry — shows that imports of medical devices in FY19 grew 24 per cent year-on-year (YoY) to Rs 38,837.28 crore, an increase of Rs 7,450 crore.

The growth in imports was led by product categories such as diagnostic items, ultra-sonogram machines, MRI and ECG apparatus, syringes with needles, suture needles, digital thermometers, malaria diagnostic kits, and hearing aids.

In order to discourage Imports and Promote Domestic Manufacturing and accelerating medical devices manufacturing as a ‘Make in India’, Health Cess on Medical Devices falling under Heading 9018-9022 are being announced in the Budget’ 2020. The Health Cess @ rate of 5% shall be Levied with effect from 2nd Feb’2020.

India is now making world-class goods and exporting such products. We have made considerable progress in medical equipment, too. Till a few years back, we were dependent on imports for medical equipment. Now, not only we are manufacturing medical equipment but also exporting them in large quantities. This sector deserves further fillip,” Sitharaman said in her second Union Budget presentation in Parliament.

To achieve the twin objectives of giving impetus to the domestic industry and also to generate resource for health services, I propose to impose a nominal health cess, by way of a duty of customs, on the imports of medical equipment keeping in view that these goods are now being made significantly in India,” she added.

HEALTH CESS – Clause 139 : Fourth Schedule to Finance Bill, 2020

139(1) In the case of goods specified in the Fourth Schedule being goods imported into India, there shall be levied and collected for the purposes of the Union, a duty of customs, to be called the Health Cess, at the rates specified in the said Schedule, for the purposes of financing the health infrastructure and services.

(2) The Central Government may, after due appropriation made by Parliament by law in this behalf, utilise such sums of money of the Health Cess levied under this Chapter for the purposes specified in sub-section (1), as it may consider necessary.

(3) For the purposes of calculating the Health Cess under this Chapter on the goods specified in the Fourth Schedule, where such duty is leviable at any percentage of its value, the value of such goods shall be calculated in the same manner as the value of goods is calculated for the purpose of customs duty under the provisions of section 14 of the Customs Act, 1962 (hereafter in this Chapter referred to as the Customs Act).

(4) The Health Cess leviable under sub-section (1), chargeable on the goods specified in the Fourth Schedule, shall be in addition to any other duties of customs chargeable on such goods under the Customs Act or any other law for the time being in force.

(5) The provisions of the Customs Act and the rules and regulations made thereunder, including those relating to refunds and exemptions from duties, offences and imposition of penalty, shall, as far as may be, apply in relation to the levy and collection of the Health Cess leviable under this Chapter in respect of the goods specified in the Fourth Schedule as they apply in relation to the levy and collection of duties of customs on such goods under the said Act or the rules or the regulations made thereunder, as the case may be.

Calculation of Health Cess :

Health Cess @ rate of 5% shall be calculated in the same manner as the value of goods is calculated for the purpose of customs duty under the provisions of section 14 of the Customs Act, 1962.

Customs Duty Calculation on Medical Devices wef 2nd Feb’2020

    Rate Basis of Calculation  
A Assessable Value (Say)     100
B Basic Customs Duty 7.50%  on A 7.5
C Social Welfare Cess 10%  on C 0.75
D IGST (Say) 12%  0n (A+B+C) 12.99
  (Input Tax Credit can be Taken on IGST Paid)      
E Health Cess 5% on A 5
F Total Customs Duty     26.24
G Customs Duty Net of ITC     13.25

 Exemption from Levy of Health Cess

However, this Cess is being Exempted on Medical Devices which are Exempt from BCD including under FTA Notifications. Further, inputs / parts used in the Manufacture of Medical Devices is also being Exempted from Health Cess vide Notification No. 08/2020-Customs, the 2nd February, 2020. 

Disclaimer : The views and opinions; thoughts and assumptions; analysis and conclusions expressed in this article are those of the authors and do not necessarily reflect any legal standing.

Author : SN Panigrahi, GST & Foreign Trade Consultant, Practitioner, International Corporate Trainer & Author.Author is Available for Corporate Trainings & Consultancy and Can be reached @ snpanigrahi1963@gmail.com

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10 Comments

  1. Kim says:

    Hello,
    May I know the Medical equipment or dental equipement from Korea need to pay this 5% Cess or not? As I know there is a CEPA between India and Korea

  2. BILJO ISSAC says:

    Dear Sir,

    As per your Calculation Health Cess is calculated on asessible amount not on the aggregate amount. So please advice me how to calculate Customs Duty as per the new Rules.

    I have calculated the customs duty in the following manner:-

    POST BUDGET (effective 2nd Feb 2020)

    Assessable Value (Import Value) in INR 100
    Duty
    Basic Customs Duty (BCD) 7.5% 7.50
    Health Cess 5% 5.00
    Social Welfare Cess 10% 1.25
    IGST 12% 13.65

    Total Import Duty in INR 27.40

  3. subbu says:

    Hi Sir,
    Thank you for detail mail on analysis on Health cess Calculation. i need a clarity how to calculate SWCess (As per my under standing Levy of SWC under section 110 of the finance act 2018.SWC should be calculated on aggregate duties of customs levy and collected.

    1. snpanigrahi says:

      Clause 110(3) of Finance Act 2018 Reproduced Below :

      The Social Welfare Surcharge levied under sub-section (1), shall be calculated at
      the rate of ten per cent. on the aggregate of duties, taxes and cesses which are levied and
      collected by the Central Government in the Ministry of Finance (Department of Revenue)
      under section 12 of the Customs Act, 1962 and any sum chargeable on the goods specified
      in sub-section (1) under any other law for the time being in force, as an addition to, and in
      the same manner as, a duty of customs, but not including—
      (a) the safeguard duty referred to in sections 8B and 8C of the Customs Tariff Act;
      (b) the countervailing duty referred to in section 9 of the Customs Tariff Act;
      (c) the anti-dumping duty referred to in section 9A of the Customs Tariff Act;
      (d) the Social Welfare Surcharge on imported goods levied under sub-section (1).
      (4) The Social Welfare Surcharge on imported goods shall be in addition to any other
      duties of customs or tax or cess chargeable on such goods, under the Customs Act, 1962 or
      any other law for the time being in force.

      Accordingly Levy of Social Welfare Surcharge @ 10% as a duty of Customs on imported goods in to India, shall be calculated on the Basic Customs Duty (BCD) levied under section 12 of the Customs Act, 1962

      The Calculation Shown in the Article is Correct.

      1. Netizen says:

        ”shall be calculated at the rate of ten per cent. on the aggregate of duties, taxes and cesses“
        …means SWS (social welfare surcharge is 10% on BCD+Health cess. So in the example it will be 10% on B+E and NOT on C as mentioned in the table.

  4. Shon Iype J says:

    What will be the impact of Health Cess on SEZ Supply to DTA unit, were the DTA Unit need to pay Duties for clearing the Shipment and for the DTA Supplier any purchase from SEZ unit is treated as an Import.

    Whether this Cess will be applicable for SEZ Sales to DTA unit?

    1. snpanigrahi says:

      In terms of Section 30 of SEZ Act, the supply of goods by SEZ to DTA shall be considered as import of goods by DTA.

      Therefore, DTA unit shall file Bill of Entry and Discharge BCD, SWC, & IGST.

      w.e.f 2nd Feb’2020, in case of Medical Devices, apart from above Duties / Taxes, Health Cess also levied @ 5% on Transaction Value (Assessable Value) derived as per Section 14 of Customs Act, 1962

      1. Shon Iype J says:

        Yes, thank for that reply and confirmation
        Can you please help with the case of Supply to EOU by a SEZ unit, whether we can exempt the duty with Annexure III
        Whether existing Annexure III, can be used for the same or the EOU have to go for additional Annexure III

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