GST on Medicines: Rates, HSN Codes, and Pharma Insights

Introduction

The Goods and Services Tax (GST) introduction in India has significantly transformed the taxation system, affecting various industries, including pharmaceuticals. GST was introduced to create a unified tax structure, replacing multiple indirect taxes like VAT, excise duty, and service tax. This new system simplifies tax compliance but also challenges adapting to different GST rates, HSN (Harmonized System of Nomenclature) codes, and regulatory requirements for pharmaceutical businesses.

This blog explores GST on medicines, applicable tax rates, HSN codes, exemptions, and its impact on the pharmaceutical industry.

What is GST on Medicines?

GST on medicines refers to the tax levied on pharmaceutical products under the GST regime in India. Unlike the previous taxation system that involved multiple state and central taxes, GST simplified taxation by implementing uniform tax rates across the country. These rates are categorized based on the necessity and purpose of the medicines, ensuring affordability for essential drugs while maintaining government revenue.

GST on Medicine Rates

Different types of medicines and pharmaceutical products fall under different GST slabs. The classification is as follows:

1. 0% GST (Exempted Medicines)

Some essential medicines and medical supplies are exempt from GST to ensure affordability and accessibility for all. These include:

• Human blood and its components
• Contraceptives

2. 5% GST (Essential and Life-Saving Medicines)

Life-saving drugs and essential medicines are subjected to a lower GST rate to promote public health and make them more affordable. Examples include:

• Vaccines
• Insulin
• Oral rehydration salts (ORS)
• Medicines for tuberculosis, malaria, and HIV/AIDS

3. 12% GST (General Medicines and Drugs)

Most pharmaceutical products fall under this category, including:

• Allopathic medicines
• Homeopathic medicines
• Ayurvedic, Unani, and Siddha medicines
• Veterinary medicines
• Diagnostic kits and reagents
• Surgical dressings
• Medicaments for therapeutic or prophylactic uses

4. 18% GST (Other Pharmaceutical Products)

Some pharmaceutical products and medical devices attract an 18% GST rate, including:

• Medical devices
• Certain diagnostic equipment

The highest GST rate applicable to pharmaceutical products is 18%.

HSN Codes for Pharmaceutical Products

HSN codes are used to classify goods under GST systematically. Pharmaceutical products generally fall under Chapter 30 of the HSN code system. Some commonly used HSN codes are:

• 3002: Human blood, vaccines, antisera, and similar products
• 3003: Medicaments consisting of multiple constituents for therapeutic or prophylactic use (not in retail sale form)
• 3004: Medicaments for therapeutic or prophylactic use (in retail sale form)
• 3006: Pharmaceutical goods such as surgical catgut, blood-grouping reagents, etc.

Correct classification using HSN codes is essential for compliance and smooth trade operations.

Impact of GST on the Pharma Industry

Positive Impacts

• Simplified Taxation: GST replaces multiple indirect taxes, making tax compliance more manageable.
• Input Tax Credit (ITC): Pharma companies can claim ITC on GST for raw materials, reducing overall costs.
• Uniform Taxation: Eliminating state-wise tax variations facilitates seamless interstate trade and logistics.

Challenges

• Compliance Burden: Businesses need to adapt to digital GST compliance systems, requiring investments in software and training.
• Pricing Adjustments: Changes in tax rates for different drugs may impact pricing strategies and affordability.

GST Exempted Medicine List in India

The Indian government has exempted certain medicines from the Goods and Services Tax (GST) to make essential healthcare affordable. These exemptions typically apply to life-saving drugs, vaccines, and medications used to treat critical illnesses. The GST-exempted medicine list includes:

1. Life-Saving Drugs for Critical Diseases

Certain medicines used to treat life-threatening diseases are exempt from GST, including:

• Anti-cancer drugs such as Rituximab, Pembrolizumab, and Trastuzumab.
• HIV/AIDS treatment drugs like Antiretroviral (ARV) medications.
• Tuberculosis (TB) drugs such as Bedaquiline and Delamanid.
• Malaria and Kala Azar drugs, including Artemisinin-based combination therapies.
• Insulin for diabetes treatment.

2. Vaccines and Immunization Drugs

Some vaccines and immunization-related medicines fall under the GST-exempt category:

• Polio vaccine
• Measles and Rubella vaccine
• Diphtheria, Tetanus, and Pertussis (DTP) vaccine
• COVID-19 vaccines (as per government notifications)

3. Medicines Supplied to Government Hospitals and Health Programs

Certain medicines provided under government health schemes and programs are GST-exempt:

• Essential drugs are supplied to AIIMS, government hospitals, and healthcare facilities.
• Medicines under Pradhan Mantri Bhartiya Janaushadhi Pariyojana (PMBJP).
• Drugs procured by government agencies for public health initiatives.

4. Ayurvedic and Homeopathic Medicines

Some traditional and alternative medicines are also exempt from GST:

• Select Ayurvedic formulations approved by the AYUSH Ministry.
• Homeopathic medicines are listed under essential drugs.
• Government healthcare programs provide Siddha and Unani medicines.

5. Special Cases of GST Exemption

• Blood and blood products are used for transfusions and medical treatments.
• Oral rehydration salts (ORS).
• Diagnostic kits and reagents for specified diseases.
• Certain medical implants like cochlear implants (exemption varies by notification).

How to Calculate GST on Medicines

Pharmaceutical businesses must follow a structured approach to accurately determine the Goods and Services Tax (GST) applicable to medicines. Proper GST classification ensures compliance with tax regulations and avoids penalties. Here are the key steps to calculate GST on medicines:

1. Identify the Product

Before calculating GST, it is essential to determine the type, usage, and composition of the medicine. The classification depends on whether the product falls under:

• Bulk drugs or APIs (Active Pharmaceutical Ingredients)
• Formulated medicines (tablets, syrups, injections, etc.)
• Healthcare products or nutraceuticals

2. Refer to Official GST Notifications

The Indian government frequently updates GST rates. Businesses should check the latest GST rate schedules issued by the Central Board of Indirect Taxes and Customs (CBIC) to ensure they apply the correct rate.

Typical GST on medicines include:

• 5% GST – Life-saving drugs, vaccines, and essential medicines.
• 12% GST – General pharmaceutical products and standard medications.
• 18% GST – Certain medicinal formulations, ayurvedic products, and healthcare supplements.

3. Use Authorized HSN Directories

Medicines are classified under Harmonized System of Nomenclature (HSN) codes, which help determine the applicable GST rate. Official HSN directories provide standardized codes for pharmaceutical products. Standard HSN codes for medicines include:

• HSN 3003 – Bulk drugs and formulations without brand names.
• HSN 3004 – Formulated medicines with specific therapeutic properties.

4. Calculate the GST Amount

Once the correct GST rate is identified, businesses can calculate the tax using the formula:

GST Amount = (Price of Medicine×GST Rate​/100)

For example, if a medicine costs ₹1,000 and falls under the 12% GST slab, the GST amount will be: (1000×12/100)=₹120

Total price after GST = ₹1,000 + ₹120 = ₹1,120

5. Seek Professional Guidance

Pharmaceutical businesses should consult tax professionals or GST consultants to ensure accurate GST calculation and compliance with regulations. This helps in:

• Correct classification of medicines.
• Understanding exemptions and special tax rates.
• Resolving disputes related to HSN codes and GST rates.

Compliance for Pharma Businesses

Pharmaceutical companies must follow GST compliance regulations, including:

• GST Registration: Mandatory for businesses exceeding the prescribed turnover limit.
• E-Invoicing and GST Returns: Businesses must file regular GST returns (GSTR-1, GSTR-3B) and comply with e-invoicing norms.
• Proper Documentation: Companies must maintain records of tax invoices, ITC claims, and HSN code classifications.

Conclusion

Implementing the Goods and Services Tax (GST) has been a game changer for the pharmaceutical industry, simplifying the complex web of indirect taxation. Before GST, pharmaceutical businesses faced a fragmented tax system with various state-specific taxes, such as VAT, excise duties, and service tax, which created significant administrative burdens. 

By consolidating these taxes into a single, unified system, GST has made the taxation process smoother and more efficient. It eliminates the cascading effect of taxes, where taxes are levied on top of other taxes, leading to price increases and inefficiencies.

For seamless GST registration, compliance solutions, and expert guidance, visit Register Karo and ensure your business operates efficiently in the modern tax framework. By embracing GST compliance, pharmaceutical companies can unlock significant operational benefits and maintain a competitive edge in an ever-changing industry.

Frequently Asked Questions (FAQs) 

1. What is the GST rate on medicine tablets in India?
A: GST on medicine tablets varies: 5% for essential drugs, 12% for general medicines, and 18% for specific formulations.

2. Are all medicines subject to GST?
A: Some medicines like life-saving drugs, contraceptives, and blood products are GST-exempt to ensure affordability.

3. Can I claim an Input Tax Credit (ITC) on GST paid for medicines?
A: Yes, pharmacy businesses can claim ITC on GST paid for medicine purchases, reducing overall tax liability.

4. Are Ayurvedic medicines subject to GST?
A: Ayurvedic, Unani, Siddha, and Homeopathic medicines fall under the 12% GST slab.

5. Is GST applicable to over-the-counter (OTC) medicines?
A: Yes, OTC medicines are taxed at 5% or 12%, depending on their classification as essential or general medicines.

6. Do hospitals charge GST on medicines provided during inpatient treatment?
A: No, medicines given to inpatients are GST-exempt, but those sold to outpatients may attract GST.

7. Has the GST rate on any medicines been reduced recently?
A: Yes, some cancer drugs like Osimertinib and Trastuzumab Deruxtecan had their GST reduced from 12% to 5%.