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GST on Medicines
After the implementation of GST on pharmaceuticals and medical supplies in India, there are 4 tax rates decided to be applied on the same i.e. Nil,5%, 12 and 18%. Nil applies currently to human blood and its derivatives as well as all types of contraceptives. The highest GST rate applicable to medicines is 18%. It applies to products containing Nicotine Polacrilex such as nicotine gum.
The lowest GST rate of 5% applies to pharmaceutical products designated as “life-saving drugs” including oral rehydration salts, vaccines as well as medicines which are used in the treatment of diabetes, HIV-AIDS, Malaria, etc. There are no pharmaceutical products featured in the highest 28% GST rate.
Nil GST Rate Pharmaceutical Products
The zero GST on medicines is currently applicable only to the following products:
5% GST on medicines and other medical supplies
The lowest GST rate applicable to medicines and medical supplies is 5%. List of medicines that are part of this GST rate is mentioned below:
12% GST on medical and pharmaceutical supplies
18% GST on Pharmaceutical preparations
Nil GST on Medical Services
In the GST act, Health care services for both the human and animals are included in this. As per the existing rules, there is a nil GST on health care services are given to an authorized medical practitioner, licensed medical or paramedical clinic. The same GST rate also applies to any or medical services provided during the transportation of a patient by ambulance. In case of veterinary health care services provided to birds/animals at authorized clinics, the applicable GST rate is also nil.
Nil GST on Medicines used during Hospitalization
Initially, there is a confusion regarding the GST charges applicable to
medicines and medical consumables used during hospitalization. To clear all the
doubts related to this, the authority of Advance ruling (AAR) in Kerala has
ruled the supply of medications, implants and other consumables used. (e.g.
diagnostic supplies and surgical equipment) during hospitalization will feature
nil GST.
As per the AAR, these are to be included as part of composite supplies included as part of healthcare services hence the nil GST rate will be applicable. This advance ruling applies to treatments carried out at all registered hospitals, clinics and physicians across India.
GST impact on medicines and the medical supplies
As per the VAT regime, the impact on medications and other medical supplies was impacted by the cascading taxation as both excise duty and VAT applied to all medical supplies including medicines. After the GST, the cascading effect reduces to some extent on medicines and other healthcare productions. In the case of various lifesaving medications, the cost of the medicines under GST has remained nearly the same.
VAT rate of 4% on 65% of MRP being replaced by GST rate of 5%, as a result leading prices to be maintained at the same level om terms of MRP.
In the case of diet-related supplementary products, removal of excise duty led to bring an increase in the profitability and lower prices as these tax reduction benefits get passed on to the customers.
The main impact of GST implementation is reflected in the supply chain of pharmaceutical products. Earlier, in the VAT regime, Central State Tax payable for interstate transactions was 2%. To reduce the tax burden, pharmaceutical companies created depots in every state and union territory in which they were operational.
After the GST implementation of medicines and other pharmaceutical products, the supply process becomes more streamlined. Most of the companies employ a hub and spoke model to reduce the cost of warehousing. It also results in optimizing the benefit of Input Tax Credit under the GST.
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