The health and pharmaceutical industry are a crucial aspect of public interest; therefore, governments are careful to tax the sector in a fair manner. GST on Pharmaceuticals has been designed to make the essential medicines available at an affordable rate and would also retain tax compliance throughout the distribution chain. It is important for manufacturers, distributors, hospitals, and pharmacies to be aware of what pharmaceuticals and medical supplies are exempt versus taxable.
In this blog, we will discuss GST on Medicines, exemptions, and tax rates under business.
Overview of GST
Launched in 2017, GST has effectively replaced several indirect taxes, thereby simplifying the supply chain for pharmaceuticals. The GST on medicines, moreover, is aimed at ensuring that essential and life-saving medicines remain within easy reach while charging normal rates for others. Before the 2025 reforms, the rates stood at levels of Nil, 5%, 12%, and 18%. The most recent novelty of GST on medicines is an evolution toward a much simpler system, with the majority now sitting at 5% and greatly expanded exemptions.
These were made to ease the burden on patients, particularly as they battle long term ailments and diseases including cancer, diabetes and rare diseases. Reforms also address inverted duty structures helping manufactures and distributors under the GST in the pharma sector.
Current GST Rates on Medicines
Nil (0% GST): Applicable to only lifesaving and vital drugs. Some 36 drugs (including 33 previously at 12% and 3 at 5%) would be completely exempt. They include treatments for cancer, rare genetic conditions, HIV, TB and serious cardiovascular disease. Examples include:
- Drugs used in the treatment of cancer (e.g., some targeted therapies).
- Drugs that treat rare diseases such as Agalsidase Beta, Imiglucerase and Eptacog alfa (activated recombinant coagulation factor VIIa).
- Vaccines under government tenders, human blood derivatives and contraceptives.
5% GST: Current normal rate for most drugs and formulations, down from 12%. This includes:
- Diabetes medications, hypertension drugs, anti-malarial and common formularies.
- Allopathy, Ayurveda, Unani, Siddha and Homoeopathy and bio-chemic drugs.
- Oral Rehydration Salts, insulin and most over the counter (OTC) medicines.
- This flat rate eases compliance and minimizes costs of regular medical needs.
Higher tax rates (18%): Applicable to over-the-counter items such as nicotine gums for quitting smoking or some health supplements which do not fall under core medicines.
Taxability and Exemptions
Medical equipment and devices also end up gaining from the GST reductions on healthcare and medicine:
- No GST: Sale of healthcare services (such as patient care, consulting physician visit). Supply of drugs and consumables provided during In-patient treatment is treated as composite supply and falls under exempt category.
- 5% GST (reduced from 12-18%):
- Bandages, gauzes, dressings and disposable surgical.
- Diagnostic kits, reagents and gluco meters and test strips.
- Oxygen for medical use, thermometers, surgical instruments, and virtually all medical/dental/veterinary equipment.
- Corrective spectacles and goggles.
It promotes preventive care and diagnostics as these reductions expand the scope of the health sector in GST rates, making it more accessible.
Impact on the Pharma Sector and Consumers
The GST on pharma sector has seen positive effects:
Reduced inputs on account of the solution to inverted duties.
So much for being able to go into business and have all the states competing rates of tax.
No compulsory recall/re-labelling of pre-September 2025 stock, helping to facilitate a smooth transition.
In terms of consumers, the new GST on medicines means prices will fall directly 12% tax over a medicine strip currently has come down to 5%, providing considerable savings for patients with long-term treatments.
Hospitals and pharmacies are allowed to take the input tax credit (ITC) on taxable supplies and not on exempt supplies. Expired medicines require ITC reversal.
New GST on Medicines: What Businesses Should Know
The new GST on medicines rules focuses on transparency, correct billing and right input tax credit utilization. Pharma businesses must:
- Stay updated with the all new GST notifications
- Review product classifications regularly
- Documentation and filing of GST needs to be precise
It’s important that you don’t miss out on updated GST rules, as the penalties can be financial and legal.
GST Guidance by CBM Consultants
CBM Consultants can assist your pharmaceutical business to efficiently control GST on medicines through properly classifying products, applying the right GST rates, and utilizing sales tax exemptions. We are engaged in processing GST registration along with return filings and its supporting due diligence systematically with the reduction of input tax credit including raw materials, import duties and services. By keeping abreast of the latest changes in regulations, GST reduction on healthcare and medicines and new GST notifications, we help pharma companies to ensure compliance, reduce risks during audits or assessments. Also, we enhance tax efficiency so that businesses can concentrate on their core healthcare practices.
Conclusion
The changing landscape of GST on pharmaceuticals regime focusses on public health, as increased exemptions and lower rates make critical medicines and supplies cost effective. By slashing GST on health and medicines, it not only strengthens its imprint as the “Pharmacy of the World” but also reduces financial stress at home. With GST on Pharmaceuticals, businesses should keep themselves informed based on the official GST announcements for accurate compliance. For patients, this turns into greater access to quality care and a more citizen-centered tax system.