Background:
Health sector has been considered as a key focus area for the government. Intention of the government is to reduce the cost of medicine to the general public. Further the aim is to incentivize the domestic manufacture of the high cost drug and medical device. It has been estimated that the medicine constitute about 60% of the out of pocket spending for outpatients. Pharma sector has been a critical contributors to the GDP, exports as well as employment. Therefore, the Government intends to reduce the price of the medicine and medical devices.
Existing Law:
Presently human blood and its components, All types of contraceptives are exempt from GST. At present most medicines are liable for 12% GST and various medical apparatus and devices used for medical, surgical, dental orveterinary usage or for physical or chemical analysis are liable for 18% GST.
Recommendation of the 56th GST Council Meeting:
| S. No. | Particulars | Existing Rate | New Rate |
| 1 | 3 lifesaving drugs & medicines used for treatment of cancer, rare diseases and other severe chronic diseases. | 5% | Nil |
| 2 | 33 lifesaving drugs and medicines | 12% | Nil |
| 3 | All other drugs and medicines | 12% | 5% |
| 4 | a. All diagnostic kits and reagents [CH 3811],
b. Surgical rubber gloves or medical examination rubber gloves [CH 4015], c. Blood glucose monitoring system (Glucometer) and test strips [CH 90 or any other Chapter], d. Patent Ductus Arteriousus / Atrial Septal Defect occlusion device [CH 90 or any other Chapter], e. Spectacles and goggles for correcting vision [CH 9004], f. Instruments and appliances used in medical, surgical, dental or veterinary sciences, including scintigraphic apparatus, other electro-medical apparatus and sight-testing instruments [CH 9018], g. Mechano-therapy appliances; massage apparatus; psychological aptitude-testing apparatus; ozone therapy, oxygen therapy, aerosol therapy, artificial respiration or other therapeutic respiration apparatus [CH 9019], h. Other breathing appliances and gas masks, excluding protective masks having neither mechanical parts nor replaceable filters [CH 9020], i. Apparatus based on the use of X-rays or of alpha, beta or gamma radiations, for medical, surgical, dental or veterinary uses, including radiography or radiotherapy apparatus, X-ray tubes and other X-ray generators, high tension generators, control panels and desks, screens, examinations or treatment tables, chairs and the light [CH 9022], j. Other Drugs and medicines intended for personal use [CH 9027] |
12% | 5% |
| 5 | a. Thermometers for medical, surgical, dental or veterinary usage [CH 9025]
b. Instruments and apparatus for medical, surgical, dental or veterinary uses for physical or chemical analysis. [CH 9027] |
18% | 5% |
| 6 | Anaesthetics [CH 28] | 12% | 5% |
| 7 | Potassium Iodate [CH 28] | 12% | 5% |
| 8 | Steam [CH 28] | 12% | 5% |
| 9 | Iodine [2801 20] | 12% | 5% |
| 10 | Medical grade oxygen [2804 40 10] | 12% | 5% |
| 11 | Medicinal grade hydrogen peroxide [2847] | 12% | 5% |
| 12 | Service:
Supply of job-work services in relation goods falling under Chapter 30 in the First Schedule to the Customs Tariff Act, 1975 (51of1975) (pharmaceutical products) [SAC 9988] |
12% |
5% |
Analysis:
The reduction in GST rate on medicines and medical devices is a very good measure taken by the government which will benefit the general public. The pharma sector being highly regulated. National Pharmaceutical Pricing Authority (NPPA) shall be responsible for implementing and enforcing the provisions of the Drugs Price Control Order (DPCO) in additions to undertake the relevant studies on pricing of the medicines and its availability etc including profitability of the pharma companies. Hence the benefit of tax reduction shall reach to the consumer.
There is no change in the GST rate on Active Pharmaceutical Ingredients (APIs), excipients, Research and development charges, analytical charges etc. This may result in accumulation of the input tax credit. If the entity is having nutraceuticals, cosmetics or APIs as finished goods, then the credit accumulated in medicines may get used in supply of these goods. Those entities who manufacture only medicines, they may apply for refund of accumulated input tax credit under Inverted Duty Structure (IDS). However, service and capital goods being substantial part of the input tax credit is a concern as refund under IDS is not available.
Steps & Recommendations:
1. Revision of the MRP in view of the change in the GST rate. Once it is notified, from 22.09.2025 the MRP of the medicine is expected to be reduced. There was an Office Memorandum F No. 25(5)/2014/Div-V/NPPA dated 13.04.2016 issued by NPPA to clarify the procedures to be followed when there was a change in the prices notified by NPPA. As per the said Office Memorandum which may be applied in the present situation, following steps are required to be taken;
A. Revised or supplementary price list is required to be issued to dealers and distributors and the same should be properly communicated.
B. Recalling, re-labeling, re-stickering on the label of the container or pack of released stocks in the market prior to change in the price is not mandatory if manufacturers are submitting the revised price list and are able to ensure price compliance at the retailer level.
2. As per Rule 26(c) of the Legal Metrology (Packaged Commodity) Rules, 2011 (LMPC Rules), the medicines covered under DPCO are exempted from the applicability of the provisions of LMPC Rules.
3. In case of nutraceuticals the provisions of the LMPC Rules shall be applicable. Department of Consumers Affairs, Government of India has issued a permission I/10/14/2020-W&M dated 09.09.2025 under rule 33 of the LMPC Rules which clarifies as under;
a. The Government permits the manufacturers, or packers or importers of pre-packaged commodities to declare the revised MRP on the unsold stock manufactured/packed/imported before the change in GST in addition to the existing MRP upto 31.12.2025 or till such date the stock is exhausted, whichever is earlier.
b. The declaration of the revised MRP shall be made by way of stamping, putting sticker or online printing.
c. The Original MRP shall continue to be displayed and the revised price shall not overwrite on it.
d. In case of reduction in tax the revised price shall not in any case be higher than the extent of price after reduction of tax.
e. The manufacturers, packers or importers shall make atleast two advertisements in one or more news papers in this regard and also by circulation of notices to the dealers and to the Director of Legal Metrology in the Central Government and the Controllers of Legal Metrology in the States/UTs indicating the change in the price of such packages.
f. Any packaging material or wrapper which could not be exhausted by the manufacturer or packer or importer, prior to the revision of GST may be used for the packing of material upto 31.12.2025 or till such date the stock is exhausted, whichever is earlier after making the correction required in MRP due to reduction in GST.
4. The possibility of input tax credit accumulation at the hands of the Super Stockists and Stockists may be done as the margin is less compared to the retailers and timeline to exhaust the credit may be ascertained.
5. The job work may be deferred till 22.09.2025 to get the job work invoice at 5%.
6. In case of Third Party manufacturing, the purchase may be deferred till 22.09.2025 to get the medicines at 5%.
7. The near expiry goods, expired goods and slow moving goods may be returned to the manufacturer/brand owners before 22.09.2025 so that credit accumulation can be reduced.
8. Where the medicines, APIs, cosmetics or nutraceuticals are being manufactured and supplied from different States, a proper planning of distribution may be done to avoid the accumulation of the ITC in any particular State.
9. In case the medicines being exempted, the reversal of the credit proportion to the stock held on 21.09.2025 shall be done as per section 18(4) of the CGST Act, read with Rule 44.
10. The classification of medicines and cosmetics should be correctly done to avoid the dispute since medicines attracts 5% GST and cosmetics attracts 18%.
11. The representation may be made to the government to include the input tax credit on capital goods and services in case of pharma sector.
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