GST on Medicines and Medical Services in India (2024)

What is the GST on Medicines?

The Goods and Services Tax (GST) on medicines is levied at varying rates depending on the type of medicine or pharmaceutical product. The GST rates range from 0% to 18% and are categorized as follows:

Related Read: List of Goods and Services Exempt Under GST

GST on Medicines: Latest News and Updates in 2024

As per 54th GST Council Meeting, a significant recommendation was made by the Finance Minister to reduce the Goods and Services Tax (GST) rate on specific cancer drugs.

GST Exempt Medicines and Medical Supplies List

Certain essential medicines and medical supplies are exempt from GST, meaning they fall under the Nil GST rate category. These exemptions are primarily in place to ensure that life-saving drugs and critical medical supplies remain affordable and accessible to the general public.

The following are some medicines and pharmaceutical products exempted under GST.

5 Percent GST on Medicines and Other Medical Supplies in India

A 5% GST rate applies to a broad category of medicines and medical supplies. This lower tax rate balances the need for government revenue to make essential medicines affordable.

The following is the list of medicines and other medical supplies that attract a 5% GST rate.

12 Percent GST on Medicines and Other Medical Supplies in India

The 12% GST rate is typically applied to specialized medical and pharmaceutical supplies that are not classified as essential but are still widely used in the healthcare industry.

The following is the list of medicines and other medical supplies that attract a 12% GST rate.

18 Percent GST on Medicines and Medical Supplies in India

An 18% GST is applied to certain non-essential medical equipment and supplies, including advanced diagnostic tools, surgical instruments, and some medical devices. This higher tax rate aims to generate revenue from items not essential for basic healthcare but important for advanced treatments. Consequently, hospitals and healthcare providers face increased costs for such equipment, which may result in higher expenses for patients.

The following is the list of medicines and other medical supplies that attract a 18% GST rate.

GST on Medicines Used During Hospitalization

Initially, there was some confusion regarding the application of GST on medicines and other medical consumables used during hospitalization (in-patient treatment).

To clarify this, the Authority for Advance Rulings (AAR) in Kerala ruled that medications, implants, and other consumables (such as diagnostic supplies and surgical equipment) used during hospitalization are subject to nil GST. According to the AAR, these items are considered part of the composite supply of healthcare services, which is exempt from GST. This ruling applies to treatments provided by all registered hospitals, clinics, and physicians across India.

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 has been applied with effect since 18th July 2022.

Any medical services rendered in the following ways will attract a nil or 0% GST rate:

• Use of Intensive Care Unit (ICU) Critical Care Unit (CCU) Intensive Cardiac Care Unit (ICCU) or Neonatal Intensive Care Unit (NICU) rooms.
• Health care services by a clinical establishment, or an authorized 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 Ayurvedic Medicines

The GST rate on Ayurvedic medicines is typically 12%, aligning with the rate for other non-essential pharmaceutical products. This tax rate applies to various Ayurvedic products, including herbal supplements, medicinal oils, and traditional remedies.

5% GST on Pure Ayurvedic Medicines

Traditional Ayurvedic medicines that are composed entirely of natural ingredients, such as herbs and minerals, fall into this category. These formulations adhere strictly to classical Ayurvedic texts and are typically unbranded and non-patented. Given their importance in maintaining health, they are taxed at a lower rate of 5%.

12% GST on Proprietary Ayurvedic Medicines

This category includes Ayurvedic products marketed under specific brand names that may incorporate modern ingredients or proprietary blends, diverging from traditional recipes. These products are considered less essential than purely traditional formulations, resulting in a higher GST rate of 12%.

How to Calculate GST on Medicines?

Calculating GST on medicines is a straightforward process that involves the following steps:

STEP 1: Identify the Applicable GST Rate

Determine the specific GST rate for the medicine. Essential medicines typically attract a 5% GST rate, while other categories may be taxed at 12%.

STEP 2: Determine the Base Price

Obtain the base price of the medicine before GST is added. This is the price set by the manufacturer or distributor.

STEP 3: Calculate the GST Amount

Use the following formula to calculate the GST amount:

GST amount = Base price × (GST rate / 100​)

STEP 4: Calculate the Final Price

Add the GST amount to the base price to determine the final price of the medicine.

Example:

If the base price of a medicine is Rs. 200 and the GST rate is 5%, the calculation would be:

GST amount = Rs. 200 × (5/100) = Rs. 10

Final price = Rs. 200 + Rs. 10 = Rs. 210

GST on Medicines: Pre GST vs Post GST

Analysis:

• Pre-GST: The total tax burden on the medicine was 8.93% (5% CED + 5% VAT).
  
• Post-GST: The GST rate on medicines was maintained at 5%, resulting in a slightly lower overall tax burden.

Impact of GST on the Healthcare Industry

The introduction of GST has had a profound impact on the healthcare industry in India. By replacing a complex web of taxes with a unified GST system, the overall cost structure of medicines and medical supplies has become more transparent.

However, the impact varies across different segments of the industry:

1. Patients

For patients, particularly those requiring long-term medication, the GST has led to a marginal increase in the cost of certain medicines. However, the exemption on life-saving drugs helps mitigate this impact.

2. Hospitals

Hospitals may experience higher costs due to the 18% GST on advanced medical equipment, potentially leading to higher charges for patients undergoing specialized treatments.

3. Pharmaceutical Companies

For pharmaceutical companies, the uniform tax structure has simplified compliance but also necessitates careful pricing strategies to remain competitive.

Frequently Asked Questions (FAQs)

1. Are life-saving drugs exempt from GST?

Yes, life-saving drugs are generally exempt from GST to ensure they remain affordable for patients.

2. What GST rates apply to medical equipment like ventilators and surgical instruments?

Medical equipment such as ventilators and surgical instruments are typically taxed at an 18% GST rate.

3. Are there any GST exemptions for healthcare services or medical supplies?

Essential healthcare services are exempt from GST, and some medical supplies like life-saving drugs also fall under the Nil GST rate category.

4. Can healthcare providers claim input tax credit (ITC) on the GST paid on medicines?

Yes, healthcare providers can claim ITC on the GST paid on medicines, provided they are not offering GST-exempt services.