GST on Medicines and Medical Services in India

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 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.

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%.

5% 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 5%.

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.

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.

Related Read: How to Sell Medicines Online

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 5% 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.