Although India ranks 14th in terms of value, judging by the latest estimations, our nation’s Pharmaceutical Industry is now the third biggest in the world in terms of volume. India is one of the leading manufacturers of generic medications. Better healthcare services are also becoming increasingly important as the population rises, much faster than any other. The healthcare industry now makes up 5% of the national GDP.
The nation’s healthcare sector has been expanding rapidly in recent years; the Health Ministry is also implementing many proactive initiatives to develop new technologies for treating diseases, including tuberculosis and cancer, and eradicating diseases, including polio. The cap on investment set by the government has also been lifted to draw ever more FDI into the medical and healthcare sectors. India is swiftly becoming a Medical Capital for Third World Nations, and international medical tourism is gathering steam here.
The GST Registration in India’s medical sector has paved the way for much positive effect and betterment. Many indirect taxes have merged, and one indirect tax, GST, has been applied, producing one national market.
Ensuring Public Welfare through Exemption from GST Liabilities
Although most healthcare services are now exempt from paying tax, GST is still liable to be paid on some other services. Giving such an exception is mostly meant to help the nation’s citizens not suffer from adopting GST. However, most of the health care services are free from GST in the public interest as a welfare measure.
Through Notification No. 12/2017-C.T.(Rate), issued 28-6-2017, the GST Act 2017 offers the healthcare sector exemption from GST liabilities. There is a statutory acknowledgement for the health care services.
How does GST affect the Pharma Sector & Pharmaceutical Prices?
GST doesn’t affect lifesaving medicines. Under GST, the formulas would show a 12%. Under pre-GST rules, the average rate is relatively low at 9%. Pharmaceutical companies paid a 6% excise tax on 65% of the MRP (maximum retail price) when they provided medications before GST introduction. The excise fee on several drugs was waived.
Additionally, there were several area-based exclusions from excise taxes. Inputs for manufacturing were liable to a 12.5% excise duty. The inverted duty structure resulted in the accumulation of a central value-added tax or CENVAT credit. Furthermore, the sales of drugs by manufacturers and pharmacies were liable to a 4% VAT.
The cost of medicinal products before and after GST is shown in the table below:
| Particulars | Before GST (Rs.) | After GST (Rs.) |
| Production price of a single pack of medicine, e.g., Amoxicillin | 100 | 100 |
| Excise Duty = 6% on 65% of MRP | 3.9 | – |
| VAT @4% (Calculated on the total of the above two) | 4.16 | – |
| GST @ 5% or 12% | – | 5/12 |
| Final Price | 108.06 | 105/112 |
Medicines’ pre- and post-GST prices are generally the same. A few places allow one to see how GST affects a medication bill:
- Overall Price of technology lessened: The equipment used in the healthcare industry was very costly under the last government. Also, the duty paid on the item was not eligible for a tax credit. The IGST, however, comes under GST.
- Reduced transaction costs: GST absorbing Central Sales Tax, or CST, has cut transaction costs, which have helped to cut overall manufacturing costs.
- Operational efficiency: The pharmaceutical industry originally paid eight different types of taxes. However, the GST has combined all of these taxes into one, lessening the cascade impact of multiple levies. Furthermore, GST will simplify the supply chain, thus improving operational effectiveness.
What is the GST on Medicine Imports?
The import of medicines has two different kinds of tax:
- Custom Duty, which will have @ 10% on Assessable Value
- IGST (Integrated Goods and Services Tax) @ 18% on Assessable Value Custom Duty & Surcharge.
Therefore, imported medication becomes more expensive unless its imported cost is less than the price of medicine obtained in India. One should, however, constantly evaluate the cost of landing.
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HSN Code for Pharmaceutical Products
The HSN (Harmonized System Nomenclature) code is a 6-digit international standardized system for all goods. The HSN code for pharmaceutical items comes under Chapter 30 (3001-30069200). The HSN code for Drugs & Medicines is 98041000, they come under the 98th chapter of the HSN code.
1. NIL GST Rate on Drugs and Other Medical Supplies
Human blood and its byproducts used in medicine; all kinds of contraceptive products
2. 5% GST rate on other medical supplies, including drugs
GST at a rate of 5% is imposed on the following items and medical supplies:
- Human/animal vaccines
- Salt for oral rehydration
- Diagnostic tools to identify every kind of hepatitis
- Cyclone spirulina
- Formulations created from bulk pharmaceuticals included in list 2 of the central excise notification 12/2012. It encompassesArtificial limbs, wheelchairs, crutches, walking frames, etc.
- Glycery: Made in line with formulas suggested in suitable pharmacopoeia/First Schedule of the Drugs and Cosmetics Act, 1940, Ayurvedic, Siddha, Unani, Homeopathic, or Bio-chemic medications
- Artificial kidneys along with disposable micro barriers and sterilized dialyzers
- Medicines (including veterinary ones) used in biochemical medical systems
- Inject deferiprone, also known as deferoxamine
- Systems of coronary stents for use with cardiac catheters
Many more medications and supplies are charged GST at the rate of 5% rather than the indicated list rate.
3. 12% Rate of GST on Other Medical Supplies and Medicines
The goods and medical supplies levied under GST at a rate of 12% are:
- Dried or powdered for organo-therapeutic purposes, glands including gland extracts and several organs including organ extracts
- Heparin and many heparin salts
- Any human or animal drug used either therapeutically or preventatively.
- Animal blood produced for preventive, therapeutic, and diagnostic uses
- Animal blood fractions comprising antisera, various blood fractions as well as associated immunological products
- Toxins, microorganism cultures (save from yeasts), and comparable medicinal use items
- Powder for Teeth
- Ayurvedic, Unani, Bio-chemic, Siddha or homoeopathic medicines created either unpackaged for retail sales or two or more ingredients packed for retail sales.
- Bandage, wadding, gauge and similar goods comprising dressings, poultices and sticky plasters for use in surgical, veterinary, dental or medical operations (coated/impregnated with medicinal ingredients)
- Diabetic meals; blood glucose monitoring system (glucometer); test strips
- Patent Ductus Arteriosus atrial septal defect occlusion device, Medical grade oxygen, hydrogen peroxide, etc.
- Medical-related photographic film or plates X-ray
Many more drugs and supplies are taxed GST at the rate of 12% instead of the advertised amount.
4. 18% GST on Other Medical Supplies and Medicines
GST at a rate of 18% charges the following items and medical supplies:
- Polacrilex gum based on nicotine
- Individual retail package (apart from tooth powder) preparations for dental/oral hygiene comprising denture powder, fixative pastes, dental floss, etc.
- Many hair care products (apart from cone mehndi paste).
- Hospital beds, operation tables, examining tables, dental, surgical, medical or veterinary furnishings.
Many more drugs and supplies are taxed GST at the 18% rate rather than the listed rate.
5. NIL GST Applied to Medical Services
The services of medical practitioners and licensed medical or paramedical clinics will not be charged a GST rate and will be NIL. The same goes for ambulance services for the transportation of a patient, which come under the health services for humans and veterinary (animals) as well as for veterinary treatments and services.
6. NIL GST in Hospitalisation
The Authority of Advance Ruling (AAR) in Kerala mandated that, at the time of any person’s hospitalization, GST at the rate of NIL per cent shall be paid for medications, medical supplies, implants, and other connected activities. AAR said that the NIL rate would be relevant as these medications and supplies were included in the healthcare treatment during the hospital stay. The decision covers every hospital and clinic in the nation.
Effect of GST on Medical Supplies and Drugs
The adoption of GST in lieu of Value Added Tax (VAT) has eliminated the cascading tax on many stages of manufacturing and delivery of medications and medical supplies of all sorts. Medicines are taxed under the GST, so the pricing has stayed the same most of the time. The excise tax is waived, and tariffs are lowered for dietary goods, therefore benefiting the customers.
With the introduction of GST, the warehousing cost is down as the advantage of Input Tax Credit is given, and the rate of GST is also equal across all the states. The pharmaceutical businesses had to warehouse the goods since VAT at the rate of 2% was levied for interstate shipments. GST has mostly this effect.
GST on Drug Returns or Expired Medicines
The GST is zero for expired goods or medicine returns, implying that these goods have no GST due.
GST Exemptions for Medicine
These products will levy no GST charge and the GST rate for these items will be NIL:
- All forms of contraceptive products, 3006 and 4014
- 3002 – Blood components and human blood
Furthermore, omitted services are:
- Professional rehabilitation services provided by the Rehabilitation Council of India Act of 1992
Conclusion
Particularly in the pharmaceutical industry, GST has positively impacted the healthcare sector. Since many kinds of taxes were levied on this industry before, it benefitted the businesses by simplifying the taxing system.
One of the most significant events for the nation and its businesses, as well as a breakthrough tax reform GST, has provided a historic boost to the “Make in India” idea, especially in the healthcare sector, helped the local manufacturing sector, enabling more easily available items which have become inexpensive for the local customers.
The GST’s installation has helped the healthcare sector as it lessens the complexity of taxes, which had been a barrier to corporate expansion. The healthcare industry, including medical tourism, is enroute to increasing profitability and exciting growth.
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Frequently Asked Questions (FAQs)
How is the Indian pharmaceutical sector affected by GST?
By aggregating many indirect taxes into one, GST has simplified the tax system, therefore fostering a national market and lessening the cascading impact of several taxes. Improved operational efficiency, reduced transaction costs, and a more affordable distribution network have occurred thanks to the GST system.
In what way has GST changed drug prices?
GST usually has little effect on other medications and life-saving treatments. Formulas, for instance, are taxed at 12% under GST when the average pre-GST rate was 9%. Still, the ultimate cost of medications stays mostly constant as taxes are consolidated.
What are the GST rates applicable to medical supplies and drugs?
The GST rates applicable to medical supplies and drugs are:
· NIL Rate: All kinds of contraceptive products, human blood and its derivatives.
· 5% Rate: Human/animal blood vaccinations, oral rehydration salts, hepatitis testing kits, insulin, and numerous other selected drugs and supplies.
· 12% Rate: Animal blood for diagnostic reasons, heparin and its salts, gland and organ extracts, and numerous other designated medicinal items.
· 18% Rate: Various additional specified medical goods; dental and oral hygiene preparations; nicotine polacrilex gumDoes GST exclude health care services?
Under Notification No. 12/2017-C.T., issued 28-6-2017, healthcare services are mostly free from GST which covers diagnosis, treatment, or care for disease, injury, deformity, anomaly, or pregnancy. It excludes cosmetic or plastic surgery unless essential.
In what way does GST influence drug imports?
The ways are Custom Duty @ 10% on Assessable Value; IGST @ 18% on Assessable Value + Custom Duty and Surcharge; imported pharmaceuticals
What is the HSN code for pharma products and Drugs & Medicines?
The HSN code for pharmaceutical items comes under Chapter 30 (3001-30069200), while the HSN code for Drugs & Medicines is 98041000, under the 98th chapter of the HSN code.
How may GST help the pharmaceutical industry?
GST unifies a lot of taxes, lowers administrative costs, and enables flawless input tax credit (ITC) on imported machinery and equipment, GST has helped to lower the total cost of technology overall.
How does the GST handle returns of outdated medication?
Drugs returned or expired medications are not liable for GST, so they have an NIL rate of GST.
Are supplies and medical services exempt from GST?
Indeed, items like human blood, its components, and all kinds of contraceptive devices are excluded. Furthermore, medical practitioner, clinic, and hospital services, including ambulance services, are free from GST.
How has medical travel to India changed under GST?
GST makes the taxing procedure easy. It has also made healthcare services more reasonably priced and increased operational efficiency, hence driving medical tourism in India.
What is the GST rate on connected medical goods and hospitalization?
The Authority of Advance Ruling (AAR) in Kerala has decided that hospitalization, drugs, medical supplies, implants, and other associated activities have an applicable NIL GST rate.
What examples of medical supplies are taxed at different GST rates?
Some of the examples of medical supplies are taxed at different GST rates such as:
· 5% GST: Artificial limbs, insulin, hepatitis diagnosis kits.
· 12% GST: Diabetic meals, sterile surgical catgut, heparin salts.
· 18% GST: Dental furniture, nicotine gum, several hair care items
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