GST on Medicines and Pharmaceuticals: Latest Rates & HSN Codes

The Goods and Services Tax (GST) applies to a wide range of pharmaceutical products, hospital services, and medical equipment in India. Tax rates range from Nil to 18%, with life-saving drugs and vaccines attracting the lower rates while products like nicotine gum are taxed at the higher end.

Key Takeaways

• GST on pharmaceutical products in India ranges from Nil to 18%, with life-saving drugs mostly exempt or taxed at lower rates to enhance affordability.
• The 56th GST Council meeting granted full exemption to 37 life-saving drugs and reclassified most other drugs and medical goods under a uniform 5% GST slab to simplify taxation.
• Medical services have specific GST treatments, with critical care services exempt and non-ICU hospital room rents over Rs. 5,000 taxed at 5% without input credit.
• GST rationalization reduces tax complexity, lowers medicine prices, and improves operational efficiency for manufacturers and suppliers.
• Pharmaceutical imports attract IGST plus customs duties; expired medicine returns require reversal of input tax credit as applicable.

NIL GST Rate on Medicines and Medical Goods

• Human blood and its components
• All contraceptives
• Sanitary napkins and tampons
• 37 life-saving medicines, including: Gene Therapy, Agalsidase Beta, Imiglucerase, Eptacog alfa (Factor VIIa), Onasemnogene abeparvovec, Asciminib, Mepolizumab, Pegylated Liposomal Irinotecan, Daratumumab (incl. subcutaneous), Teclistamab, Amivantamab, Alectinib, Risdiplam, Obinutuzumab, Polatuzumab Vedotin, Entrectinib, Atezolizumab, Spesolimab, Velaglucerase Alpha, Agalsidase Alfa, Rurioctocog Alpha Pegol, Idursulphatase, Alglucosidase Alfa, Laronidase, Olipudase Alfa, Tepotinib, Avelumab, Emicizumab, Belumosudil, Miglustat, Velmanase Alfa, Alirocumab, Evolocumab, Cystamine Bitartrate, CI-Inhibitor Injection, Inclisiran.

5% GST Rate on Medicines and Medical Goods

The following are some of the medical products on which 5% GST is levied. This list is not exhaustive.

• Anaesthetics, Potassium Iodate, Iodine, Steam
• Medical grade oxygen, medicinal hydrogen peroxide
• Insulin, Cyclosporin, Desferrioxamine, Oral re-hydration salts
• All drugs and medicines (including salts/esters), most diagnostic kits, and veterinary/bio-chemic medicaments (except some exclusions as notified)
• Diagnostic kits for all hepatitis types
• Ayurvedic, Unani, Siddha, Homeopathic medicaments, as per official pharmacopoeias
• Organo-therapeutic extracts, heparin, and related human/animal substances
• Animal blood and vaccines (animal/human)
• Mixed-dose medicaments for therapy/prophylaxis (various systems)
• Medical wadding, gauze, bandages, dressings, plasters for medical uses
• Sterile surgical/dental sutures, adhesion barriers, ostomy appliances
• Dental floss
• X-ray photographic plates/film
• Diagnostic kits, reagents, certified reference materials
• Feeding bottles and plastic beads
• Surgical/medical examination gloves
• Coronary stents, cardiac catheter stent systems
• Artificial kidneys, glucometers and strips
• Occlusion devices (arterial/atrial)
• Assistive and rehabilitation aids for the disabled (crutches, wheelchairs, frames, tricycles, braillers, artificial limbs, as specified)
• Dialyzers, micro barriers of artificial kidneys
• Contact and spectacle lenses, frames, corrective spectacles
• Medical instruments and appliances (including X-ray, radiotherapy, diagnostic, therapeutic, surgical, dental, veterinary)
• Mechano-therapy, massage, oxygen, aerosol, respiratory apparatus
• Breathing appliances and gas masks (with restrictions)
• Orthopaedic aids, splints, fracture appliances, intraocular lenses (except hearing aids)
• Medical/surgical/dental thermometers
• Medical/dental instruments for analysis
• Toothbrushes (including dental-plate types)
• All drugs, medicines, diagnostic kits and formulations for personal use (with some specified exclusions)

18% GST Rate on Medicines and Medical Goods

The following are some of the medical products on which 18% GST is levied. This list is not exhaustive.

• Products containing nicotine for tobacco cessation (oral or transdermal application)
• Preparations for oral/dental hygiene excluding toothpaste, tooth powder, and dental floss (includes denture fixative pastes and powders)
• Hygienic or pharmaceutical articles of vulcanised rubber (e.g., hot water bottles, ice bags) excluding contraceptives like condoms and diaphragms
• Laboratory, hygienic, or pharmaceutical glassware (calibrated or not)
• Razors and razor blades (including blanks in strips)
• Medical, surgical, dental, or veterinary furniture (e.g., operating/examination tables, hospital beds with mechanical fittings, dentists’ and barbers’ chairs with reclining/rotating/elevating features)

You can use our HSN code finder to find the HSN code on medicines and medical goods.

GST on Medical Services

All Non-Intensive Care Unit (ICU)/Critical Care Unit (CCU)/Intensive Cardiac Care Unit (ICCU)/Neonatal Intensive Care Unit (NICU) room rents in a hospital or clinical establishment exceeding Rs.5,000 per day will be liable to GST at 5% (without input tax credit). It applies with effect from 18th July 2022.

Any medical services rendered by the following ways will attract a nil GST rate:

• Use of Intensive Care Unit (ICU) or Critical Care Unit (CCU) or Intensive Cardiac Care Unit (ICCU) or Neonatal Intensive Care Unit (NICU) rooms.
• Health care services by a clinical establishment, or an authorised medical practitioner or para-medics, except for renting of rooms, other than the above, where the room charges do not exceed Rs.5,000 per day, to a person receiving such health care services. 
• Transportation of a patient in an ambulance, other than the services specified above.

GST on Hospitalisation

The Authority of Advance Ruling (AAR) in Kerala had ruled in 2017 that the supply of medicines, surgical items, implants, stents, and other consumables to a patient during hospitalisation will be treated as a composite supply and exempted as per entry in S.No.74 of Notification 12/2017 - Central Tax (Rate) dated 28th June 2017. In June 2022, the Tamil Nadu Authority for Advance Ruling issued a similar ruling.

Impact of GST on medicines

Medicines fall under Chapter 30 and are liable for excise duty at 6% on 65% of MRP when supplied by a pharmaceutical company. Some medicines were exempt from excise duty. Certain area-based excise duty exemptions were also available. The inputs required for manufacturing attracted 12.5% excise duty. Due to this inverted duty structure, there was an accumulation of CENVAT credit. Additionally, VAT at 4% was charged on the sale of medicines by producers and pharmacies. 

The table below illustrates the change in the price of medicines pre and post GST:

The average price of medicine remains almost the same in comparing scenarios before GST and upon implementing GST.

Some of the other impacts on the price of medicines post implementation of GST are:

Reduction in the overall cost of technology – Under the previous regime, the healthcare sector’s machinery was very costly. Also, the duty charged on the same was not allowed as a tax credit. However, under GST, the IGST component will be allowed as a tax credit.

Improvisation of operational efficiency – Previously, the pharmaceutical industry attracted eight different types of taxes. But, GST has merged all these taxes into one, thereby removing the cascading impact of many taxes. GST will also rationalise the supply chain, thereby improving operational efficiency.

What is the Value of Supply to Compute GST on Medicines?

As per GST, the transaction value is the value of supply. The transaction value is the price paid or payable for the supply of goods or services or both, where the supplier and the recipient are not related parties, and the price is the sole consideration for the supply.

Discounts – As per Section 15(3) of the CGST Act, 2017, the discount can be deducted from the value of supply if given before or at the time of the supply if such discount has been recorded in the invoice of such supply.

Distribution of free samples – The input tax credit on these samples should be reversed as no tax is paid at the time of distributing such samples to the physician.

GST on the Import of Pharmaceuticals

The import of medicines attracts IGST and customs duty. The following is the bifurcation of taxes applicable:

• Basic customs duty – 10% on assessable value for customs duty
• Social welfare surcharge – 10% on BCD
• IGST – 5%/18% on the value after adding both the assessable value for customs duty and the basic customs duty and social welfare surcharge

GST on Expired Medicines or the Return of Drugs

If medicines reach the expiry date without being sold, then the same is returned to the manufacturer via the supply chain. Here, the retailer or wholesaler can opt for any of the two options below:

1. Treating the returned goods as a fresh supply – In this case, the wholesaler will destroy the expired goods, and the return of expired goods will be recorded as purchases by the wholesaler. ITC availed on such goods will be reversed by the manufacturer because no ITC will be available on such goods as they are finally destroyed.
2. Issue of a credit note for the returned goods – The supplier can adjust the tax liability only if ITC has not been availed by the person returning the expired medicines. In case ITC has been availed, the same will have to be reversed.

Place of Supply with Regard to Certain Medical Services

With effect from 1 October 2019, the place of supply of services shall be the location of the recipient of services, for the export of research and development services by a person in the taxable territory to a non-taxable territory under contract, related to the pharmaceutical sector of the following:

1. Integrated discovery and development
2. Integrated development
3. Evaluation of the efficacy of new chemical/ biological entities in animal models of disease
4. Evaluation of biological activity of novel chemical/ biological entities in in-vitro assays
5. Drug metabolism and pharmacokinetics of new chemical entities
6. Safety Assessment/ Toxicology
7. Stability Studies
8. Bioequivalence and Bioavailability Studies
9. Clinical trials
10. Bio analytical studies

Read more:
GST for Doctors
GST Revamp: Full List of New GST Rate Cheaper and Costlier Items
GST Rate Cut from 18% to 5%: ITC Reversal Under Section 18(4)