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After introduction of GST on pharmaceuticals and medical supplies in India are taxed at four separate rates of Nil, 5%, 12% and 18%. The nil GST on medicines is currently only applicable to human blood and its derivatives as well as all types of contraceptives. The highest GST rate on medicines i.e. 18% is applicable only to products containing nicotine polacrilex such as nicotine gum. The lowest GST rate of 5% (apart from the nil GST rate) is applicable to pharmaceutical products designated as “life-saving drugs” including oral rehydration salts, vaccines, as well as medicines such as those used to treat diabetes, tuberculosis, HIV-AIDS, malaria, etc. As of yet, no pharmaceutical products are featured in the highest 28% GST rate.
Nil GST Rate Pharmaceutical Products
The zero GST on medicines is currently applicable only to the following products:
- Human blood and its components used in medicine
- All types of contraceptive products
5% GST on Medicines and other Medical Supplies
5% is the lowest GST rate on medicines and medical supplies (other than nil GST) and applicable to some key types of pharmaceutical products such as*:
- Human/animal blood vaccines
- Diagnostic kits for detecting all types of hepatitis
- Cyclosporin
- Oral rehydration salts
- Insulin
- Medicaments (inclusive of veterinary medicines) without brand name used in bio-chemic medical system
- Deferiprone or desferroxamine injection
- Medicines or drugs as well as their esters and salts as well as diagnostic test kits (specified in List 1 of central excise notification 12/2012)
- Formulations manufactured from bulk drugs specified in List 2 of central excise notification 12/2012
- Ayurvedic, Siddha, Unani, Homeopathic or Bio-chemic medicaments manufactured in accordance with formulations prescribed in appropriate pharmacopoeia/ First Schedule of the Drugs and Cosmetics Act, 1940.
- Artificial kidneys as well as disposable micro barriers/sterilized dialyzers of artificial kidneys
- Artificial limbs, wheel chairs, crutches, walking frames, etc.
- Coronary stents/stent systems for use with cardiac catheters
*List is indicative and many other pharmaceutical products are included in the 5% GST rate category
12% GST on Medical and Pharmaceutical Supplies
The 12% GST rate is currently applicable to a majority of medicines and other pharmaceutical preparations. Some of the key products featuring the 12% GST Rate are as follows*:
- Glands (including gland extracts) and various organs (including organ extracts) dried or powdered for organo-therapeutic uses
- Heparin and various heparin salts
- Any human/animal substances used for prophylactic or therapeutic purposes
- Animal blood prepared for diagnostic, therapeutic and prophylactic purposes
- Animal blood fractions including antisera, other blood fractions as well as related immunological products
- Toxins, cultures of micro-organisms (excluding yeasts)and similar products for medical use
- Toothpowder
- Ayurvedic, Unani, Bio-chemic, siddha or homeopathic medicaments for therapeutic/prophylactic use prepared using two or more constituents packed for retail sales as well as not packed for retail sales.
- Bandage, wadding, gauge and similar types of items including dressings, poultices and adhesive plasters for use in surgical, veterinarian, dental or medical procedures (coated/impregnated with pharmaceutical substances)
- Pharmaceutical products such as sterile surgical catgut, sterile absorbable surgical/dental yarns, sterile tissue adhesives for surgical wound closure, sterile luminaria, sterile luminaria tents, waste pharmaceuticals, etc.
- Diabetic foods, blood glucose monitoring system (glucometer) and test strips
- Atrial septal defect occlusion device/Patent Ductus Arteriousus
- Medical grade oxygen, hydrogen peroxide, etc.
- Photographic film/plates for use in medical use X-rays
*List is indicative and many other pharmaceutical products are included in the 12% GST on medicines and medical products category. Know more about GST Rates 2019 in India
18% GST on Pharmaceutical Preparations
The 18% GST rate is the highest applicable to pharmaceutical products in India and only a few medicinal items are included in this section. The following are medicines/pharmaceutical-related products which attract this high GST rate:
- Nicotine polacrilex gum
- Preparations for dental/oral hygiene including denture powders and fixative pastes, dental floss, etc. in individual retail packaging (excluding toothpowder)
- Various hair care products (excluding mehendi pate in cones)
- Dental, surgical, medical or veterinary furniture such as hospital beds, operating tables, examination tables etc.
*List is indicative and many other pharmaceutical products are included in the 18% GST on medicines and medical products category. Check out the Paisabazaar GST Rate Finder tool to get the complete list of goods/services included in the GST Act.
Nil GST on Medical Services
Health care services for both humans and animals (veterinary medical services) are included in the GST Act. Under existing rules, there is nil GST on health care services provided by an authorized medical practitioner, licensed medical or paramedical clinic. The same nil GST rate also applies to any and all medical services provided during transportation of a patient by ambulance. In case of veterinary health care services provided to birds/animals at authorized clinics, the applicable GST rate is also nil.
Nil GST on Medicines used during Hospitalization
Initially there was confusion regarding GST charges on medicines and other medical consumables used during hospitalization (in-patient treatment). In response to a query on this issue, the Authority of Advance Ruling (AAR) in Kerala has ruled that supply of medications, implants and other consumables used (e.g. diagnostic supplies and surgical equipment) during hospitalization will feature nil GST. As per the AAR, these are to be included as part of composite supplies included as part of healthcare services hence the nil GST rate will be applicable. This advance ruling is applicable to treatments carried out at all registered hospitals, clinics and physicians across India.
Impact of GST on Medicines and Medical Supplies
Under the VAT regime, medications and other medical supplies were impacted by cascading taxation as both excise duty and VAT were applicable to all medical supplies including medicines. This has been eliminated through the introduction of GST on medicines and other healthcare productions. In case of various lifesaving medications, the price of medicines under GST has remained nearly the same. This is because a VAT rate of 4% on 65% of MRP (i.e. 4% VAT was on top of excise duty) being replaced by GST rate of 5%, leading prices to be maintained at the same level in terms MRP. In case of dietary supplement products, the removal of excise duty has led to increased profitability and lower prices as these tax reduction benefits get passed on to customers.
The main impact of GST implementation has been on the supply chain of pharmaceutical products. Under the earlier VAT regime, the central state tax (CST) payable for interstate transactions was 2%. In order to avoid this tax burden, pharmaceutical companies maintained depots in every state/union territory where they operated. Subsequent to introduction of GST on medicines and other pharmaceutical products, the supply process is expected to get more streamlined as more companies employ a hub and spoke model that reduces warehousing costs and optimizes the benefit of Input Tax Credit under GST.