GST On Medicines

The rate of GST on medicines as mentioned above ranges starting from Nil rate of charge to 18%. Currently there are no medicines under the highest tax bracket under GST namely, 28% bracket. Following are the various types of medicines that are taxed under each bracket.

NIL Rate of GST

The nil rate of GST is levied in case of the following commodities.

• Human Blood
• Human Blood Components used in medicines
• Contraceptive products

5% Rate of GST

This is the lowest payable tax rate under GST for medicines.

• Human/animal blood vaccines
• Deferiprone or deferoxamine injection
• Artificial limbs, wheelchairs, crutches, walking frames, etc.
• Cyclosporin
• Coronary stents/stent systems for use with cardiac catheters
• Artificial kidneys as well as disposable micro barriers/sterilized dialyzers of artificial kidneys
• Medicaments (inclusive of veterinary medicines) without brand name used in biochemic medical system
• Ayurvedic, Siddha, Unani, Homeopathic or Bio-chemic medicines manufactured following the formulations prescribed in an appropriate pharmacopoeia/ First Schedule of the Drugs and Cosmetics Act, 1940.
• Oral rehydration salts
• Insulin
• Medicines or drugs as well as their esters and salts along with the  diagnostic test kits (specified in List 1 of central excise notification 12/2012)
• Diagnostic kits for detecting all types of hepatitis
• Formulations manufactured from bulk drugs specified in List 2 of central excise notification 12/2012

12% Rate of GST

Majority if the life saving drugs and medicines fall under this category of tax rates. Some examples of the medicines under the 12% category of GST are,

• Heparin and various heparin salts
• Toxins, cultures of microorganisms (excluding yeasts) and similar products for medical use
• Medical grade oxygen, hydrogen peroxide, etc.
• Photographic film/plates for use in medical use X-rays
• Diabetic foods, blood glucose monitoring system (glucometer) and test strips
• Pharmaceutical products such as sterile surgical catgut, sterile absorbable surgical/dental yarns, sterile tissue adhesives for surgical wound closure, sterile luminaria, sterile laminaria tents, waste pharmaceuticals, etc.
• Ayurvedic, Unani, Bio-chemic, Siddha or homeopathic medications for therapeutic/prophylactic use prepared using two or more constituents packed for retail sales as well as not packed for retail sales.
• Animal blood prepared for diagnostic, therapeutic and prophylactic purposes
• Glands (including gland extracts) and various organs (including organ extracts) dried or powdered for organo-therapeutic uses.
• Any human/animal substances used for prophylactic or therapeutic purposes
• Animal blood fractions including antisera, other blood fractions as well as related immunological products
• Toothpowder
• 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)
• Atrial septal defect occlusion device/Patent Ductus Arteriosus

18% Rate of GST

This tax slab has only a few medicines and drugs that are charged GST at the rate of 18%. The details of medicines under this category are mentioned below.

• Nicotine Polacrilex Gum
• Various hair care products (excluding mehndi pate in cones)
• Dental, surgical, medical or veterinary furniture such as hospital beds, operating tables, examination tables, etc.
• Preparations for dental/oral hygiene including denture powders and fixative pastes, dental floss, etc. in individual retail packaging (excluding toothpowder)

Details of NIL GST on Medicines

NIL GST as mentioned above is applicable on human blood and its components as well as on contraceptives. The NIL rate of taxation is also applicable in case of medical services for human as well as animals. Such rate is also applicable in cases where medical services are provided in the ambulance during the course of transporting the patient to the medical centre or hospital. Medical services provided to the animals and birds in authorized clinics are also exempted from tax that is subject to NIL rate of taxation.

The Authority of Advance Ruling has also clarified that the GST in case of medications, implants and other consumables that are used during the time of hospitalization will be liable for NIL charge of GST.

This rule is applicable to the treatments performed at all the registered hospitals, clinics and health care facilities across the country.

Impact of GST on Medicines

Health care sector and medicines are an integral part of any country’s citizen security and benefit plan. To ensure that all the citizens can avail quality health care facilities and can access the critical and life saving medicines is of utmost importance for the safety of all the citizens and the country as a whole.

The introduction of GST has aimed to streamline the distribution of the medicines throughout the country and regulate the same. Majority of the critical and life saving medicines and drugs like for diabetes, malaria, etc. in India were taxed under the 4% tax bracket under the previous VAT tax regime. These medicines and drugs are now taxed at the rate of 5% flat rate under the GST tax structure. This will have a direct impact on the prices of the medicines.

Also, the Act does not specify or clarify the treatment to the pharma industry in the excise free zones or the special zones dedicated by the government. 40% of the country’s pharma sector is situated in these areas. The prices of these manufacturers in the pharma industry are economical on account of the subsidies received by them from the government. The government is therefore required to issue a clarification in this regard to resolve any confusion and address the concerns of such manufacturers.

Nicotine polacrilex gum along with hair care products and health care essentials like beds, equipment, etc. are taxed under the highest tax bracket of 18%.

Also, in the earlier tax regime the Ayurvedic drugs or medicines were liable for a charge of VAT at the rate of 4% along with excise duty of 1.5%. This reduced excise duty was on account of the benefit derived for setting up manufacturing units in the excise free manufacturing zone. As per the current tax regime, these are taxed under the current second highest tax bracket of 12%. This has led to an increase in the prices of such medicines.

Under the earlier tax regime, the distribution channels were often out of the purview of taxation process and compliance. However, under the current tax regime, such distribution channels will be required to comply with all the necessary compliance and return filings. Majority of small retail medical shops in our country provide the medicines without any proper tax bills. The new tax regime will put a stop to such illegal practices as any sale of medicines without a proper GST tax invoice will be considered an offence and will be liable to punishment and penalty.

The current indirect tax scenario does require a thorough clarification from the government with regards to the benefits to be provided to the manufacturers in the special zones.

Apart from the above clarification, the entire industry requires additional information with respect to the levy of GST on the final price of the medicines, drugs, equipment as well as the various compliance procedures under the Act.

FAQs – GST on Medicines