GST on Medicines and Medical Supplies and Its Impact

After the introduction of GST in pharmaceutical products and medical supplies in India, they are taxed with four separate rates of zero, 5%, 12%, and 18%. The null GST in medications is currently only applicable to human blood and its derivatives, as well as to all types of contraceptives. The highest rate of GST in medications, that is, 18% is applicable only to products that contain nicotine polacrilex, such as nicotine gum. The lower GST rate of 5% (apart from the zero GST rate) applies to pharmaceutical products designated as “life-saving medicines”, including vaccines, oral rehydration salts, as well as medications such as those are used to treat tuberculosis, diabetes, and HIV. – AIDS, malaria, etc. So far, there are no pharmaceutical products at the highest rate of 28% of GST.

Pharmaceutical products with zero GST rate

Zero GST in medications is currently applicable to the following products:

• contraceptive products(all type).
• Individual blood and its components used in medicine.

5% GST on medications and other medical supplies

5% is the lowest GST rate in medications and medical supplies (other than null GST) and applicable to some key types of pharmaceutical products such as *:

• Human/animal blood vaccines
• Diagnostic kits to detect all types of hepatitis.
• Cyclosporine
• Oral rehydration salts
• Insulin
• Coronary stents systems for use with cardiac catheters
• Medicines (including veterinary medicines) without a brand used in the biochemical medical system
• Deferiprone or desferrioxamine injection
• Medicines or drugs, as well as their esters and salts, as well as diagnostic test kits (specified in List 1 of the central special tax notification 12/2012)
• Formulations manufactured from bulk medicines specified in List 2 of the central excise tax notification 12/2012
• Ayurvedic, Siddha, Unani, homeopathic or biochemical drugs manufactured according to the formulations prescribed in the appropriate pharmacopeia / First List of the Drug and Cosmetic Act, 1940.
• Artificial kidneys and disposable micro blocks/sterilized dialyzers of artificial kidneys.
• Artificial members, wheelchairs, crutches, walkers, etc.

12% GST in medical and pharmaceutical supplies

The 12% GST rate currently applies to most medications and other pharmaceutical preparations. Some of the key products with the GST rate of 12% are the following *:

• Glands (including gland extracts) and various organs (including organ extracts) dehydrated or powdered for organotherapeutic uses
• Any human/animal substance used for prophylactic/ therapeutic purposes.
• Animal blood made for diagnostic, therapeutic and prophylactic purposes.
• Animal blood fractions, including antisera, additional blood fractions, as well as related immunological products.
• Toxins, cultures of microorganisms (except yeasts) and similar products for medical use.
• Toothpowder
• Heparin and various heparin salts
• Ayurvedic, Unani, biochemical, Siddha or homeopathic medicines for therapeutic/prophylactic use prepared with two or more components packaged for retail sales and not packaged for retail sales.
• Gauge, bandages, wadding, and similar types of objects, including poultices, dressings, and adhesive strips for use in veterinary, surgical, dental or medical procedures (coated/impregnated with pharmaceutical substances)
• Pharmaceutical products such as sterile surgical catgut, absorbable sterile surgical/dental threads, sterile tissue adhesives for surgical wound closure, sterile luminaire, sterile luminous tents, waste pharmaceutical products, etc.
• Food for diabetics, blood glucose monitoring system (glucometer) and test strips
• Interatrial communication occlusion device/patent ductus arteriosus
• Medical grade hydrogen peroxide, oxygen, etc.
• X-ray photographic plate or plates for medical use

* The list is indicative and many other pharmaceutical products are included in the 12% GST in the category of medicines and medical products.

18% GST in pharmaceutical preparations

The GST rate of 18% is the highest applicable to pharmaceuticals in India and only a few medications are included in this section. The following are medications/products related to pharmaceutical products that attract this high rate of GST:

• Polecrilex nicotine gum
• Several hair care products (except Mehendi pate in cones)
• Dental/oral hygiene preparations, including denture powders and fixing pastes, dental floss, etc.
• Surgical, dental, medical/veterinary furniture, such as operation tables, hospital beds, etc.

Note:  The list is indicative and many other pharmaceutical products are included in the 18% GST in the category of medicines and medical products.

Null GST in medical services

Health care services for humans and animals (veterinary medical services) are included in the GST Act. Under existing regulations, there is no GST in health care services provided by an authorized medical professional, an authorized medical or paramedical clinic. The same null GST rate also applies to all medical services provided while transporting a patient by ambulance. In the case of veterinary health care services provided to birds/animals in authorized clinics, the applicable GST rate is also nil.

Null GST in medications used during hospitalization

Initially, there was confusion regarding the charges of GST on medications and other medical consumables used during hospitalization (treatment of hospitalized patients). In response to a query on this issue, the Advanced Regulatory Authority (AAR) in Kerala has ruled that the supply of medications, implants and other consumables used (e.g., diagnostic supplies and surgical equipment) during hospitalization will have zero GST. According to the AAR, these will be included as part of the composite supplies included as part of the health care services, therefore, the zero GST rate will apply. This advance ruling is applicable to treatments performed in all hospitals, clinics, and doctors registered throughout India.

Impact of GST on medications and medical supplies

Under the VAT regime, medicines and other medical supplies were affected by cascading taxes, since both VAT tax and excise duties were appropriate to all medical supplies, including medicines. This has been eliminated by introducing GST in medications and other health productions. In the case of several life-saving medicines, the price of drugs under GST has remained almost the same. This is because a 4% VAT rate over 65% MRP (that is, 4% VAT was above the excise tax) is replaced by a 5% GST rate, which makes the Prices remain at the same level in terms of MRP. In the case of dietary supplement products, the elimination of the special tax has led to greater profitability and lower prices as these tax reduction benefits are transmitted to customers.

The main impact of the GST implementation has been in the pharmaceutical supply chain. Under the previous VAT regime, the central state tax (CST) payable for interstate transactions was 2%. To avoid this tax burden, pharmaceutical companies maintained deposits in each state/union territory where they operated. After the introduction of GST in medicines and other pharmaceutical products, the supply process is expected to be streamlined as more companies use a center and radio model that reduces storage costs and optimizes the benefit of the Low Entry Tax Credit GST