The GST Council in 56th meeting held in New Delhi on 03.09.2025 introduced significant reforms aimed at making healthcare more affordable and accessible to common man. The changes reflect a citizen-centric approach, with a strong emphasis on public health and the pharmaceutical sector and to make insurance services accessible to all. The changes will be effective from 22.09.2025. The changes and its impact from the lens of the pharma and medical devices industry and insurance industry is captured below.
Impact on pharma and medical devices sector:
- Future pricing – going forward basis: Pricing of goods shall undergo a change to reflect on the reduction in GST rate. Appropriate GST rate as per provisions relating to change in rate of GST shall be followed. Although anti-profiteering has not been revived, expectations of the Government including based on historical data and previous experiences with such rate reduction and instructions from National Pharmaceutical Pricing Authority (NPPA) will show that the benefit shall flow to consumers by way of reduced MRP.
- Transition stock: re-stickering / re-labeling of MRP, DPCO and past clarifications: Medicines are not governed by legal metrology. The Drug Price Control Order, 2013 (DPCO) contains provisions for change in ceiling prices in case of scheduled formulation, and requires the manufacturer to ensure that MRP does not exceed ceiling price plus applicable local taxes, and provides for grace period for revision. It also requires communication of information to authorities. Specific provision relating to impact of DPCO on MRP need to be examined, since DPCO deals primarily with revision in ceiling price and not MRP (which is a combination of ceiling price and applicable local taxes). Previously, when customs duty and GST rates were revised, the National Pharmaceutical Pricing Authority (NPPA) issued guidelines on revision of MRP. Further clarity may also be sought from regulator / controller.
- Transition stock: ITC accumulation and refund: Reduction in rate may cause ITC accumulation at each stage for stock in hand within supply chain. Whether refund of the accumulated ITC for a trader qua reduction in rates can be claimed under the provisions enacted for refund in cases of inverted duty structure [Section 54(3) of the CGST Act] is a matter for examination. In this regard, the CBIC vide Circular No. 135/05/2020-GST dated 31.03.2020 clarified that refund of accumulated credit is not available in cases accumulation is on account of rate reduction, input and output being same. However, in this regard, various High Courts have consistently held in favour of the taxpayers. The Courts have allowed refund of unutilized credit under Section 54(3) of the CGST Act and observed that Circular No. 135/05/2020-GST is bad in law.
- Impact of exemption for life saving and certain other drugs: The businesses engaged in supply of 'Nil' rated medicine/ exempted products will be required to reverse the proportionate credit. Pricing needs to be accordingly decided keeping in view the reduction in rate of tax and consequent loss of input tax credit. Further, these businesses must also be mindful of ITC eligibility and valuation qua related party transactions, as also assessment of impact on ISD and cross charge between distinct persons. Provisions relating to reversal u/s 18(4) of the CGST Act need to be examined.
- Impact on budgetary support: Reduction in GST rate will certainly have an impact on the budgetary support refund received on quarterly basis, which is pending for a few years for most pharmaceutical companies who have established production units in north or eastern States. To this extent, there is some loss and the rate reduction benefit may not fully flow to consumers.
- Inverted tax structure and refund: APIs continue to be at 18%, resulting in inverted tax structure and companies staring at significant ITC accumulation impact, which they were already reeling with since pre-GST regime. GST Council needs to suitably address the impact on going forward basis. Further, exports also need to be examined in light of inverted tax structure refund. Having said that, 90% provisional refund within a span of 7 days for inverted tax structure will certainly bring in some relief for exporters and domestic suppliers alike.
- Compliance with DPCO, legal metrology and allied laws for formulations, medical devices: Compliance with allied laws need to be ensured. Medical devices may require examination of MRP and related re-stickering / re-labelling and other compliances with respect to their pricing under legal metrology, including advertisement, price communication to recipients, communication with authorities, etc.
- Reagents business - Significant relief from dispute on going forward basis: Reagents business having equipments at higher rate lead to various disputes relating to mixed supply. Reduction in rate for both reagent and equipments will certainly help reduce this imbalance. However, past credit needs to be examined for liquidation / refunds or suitable adjustments through structuring of equipment transactions.
- GST rate is effective from 22.09.2025: Industry must prepare during the 20 days transition period to ensure legal compliance with new rates and seamless transition to Next Gen - GST reforms. This includes change in GST rate based on section 14, GST credit notes for sales returns post 22.09.2025 for sales made earlier, impact on transition stock lying with dealers.
KEY RATE CHANGES FOR PHARMACEUTICALS, MEDICAL DEVICES:
In order to reduce the cost of medicines / healthcare sector and make treatment financially accessible, the GST Council has announced a reduction in the GST rate for the following:
Rate reduced to '5%'
- GST rate on all other medicine has been reduced from 12% to a merit rate of 5% on all other medicine including Ayurvedic, Unani, Siddha, homoeopathic or Bio-chemic systems medicaments.
Rate reduced to 'Nil' for life saving and specified drugs
- GST rate has been reduced from 12% to 'Nil' for thirty-three (33) lifesaving drugs and medicines including on onasemnogene abeparvovec, asciminib, mepolizumab, pegylated liposomal irinotecan.
- Besides, GST rate has been reduced from 5% to 'Nil' on three (3) critical drugs and medicines (Agalsidase Beta, Imigluicerase, and Eptacog alfa activated recombinant coagulation factor VII) used in the treatment of cancer, rare diseases, and other severe chronic conditions.
Reduction in rate of GST for medical devices, equipment and supplies devices:
- GST rate has been substantially reduced from 18% to 5% on various medical apparatus and devices used for surgical, dental, or veterinary usage etc. Further, GST rate has also been reduced from 12% to 5% on various medical equipment and supplies devices such as wadding gauze, bandages, diagnostic kits and reagents, glucometer, etc.
With an aim to slightly soften production costs and to potentially reduce end-user prices to some extent, the GST Council has announced a reduction in the GST rate from 12% to 5% on various input goods and other products such as anaesthetics, potassium iodate, iodine, medical-grade oxygen and medicinal-grade hydrogen peroxide.
Further, GST rate has been reduced from 12% to 5% (with credit) qua various other healthcare related services:
- Job-work services related to pharmaceutical products.
- The services provided by a common bio-medical waste treatment facility to a clinical establishment.
Having said that, there is no reduction in the GST rate on Active Pharmaceutical Ingredients (APIs), thus resulting in significant increase in accumulation of ITC in a sector plagued with high accumulation since pre-GST era.
INSURANCE
The GST Council has announced GST exemption for all individual life and health insurance policies including reinsurance services. The FAQs released by the Government further informs the following:
- The policies covered under the exemption recommended on health insurance are all individual health insurance policies including family floater plans and senior citizen policies and the reinsurance services thereof.
- The policies covered under the exemption recommended on life insurance are all individual life insurance policies including term, ULIP, and endowment plans and reinsurance services thereof.
- Clarity is required on whether group life and health insurance policies will fall under the proposed exemption or continue to attract GST at the prevailing rate.
- Time of supply and aspects as to when exemption shall be available, what is the impact of cost increase due to exemption, pricing for regulated products governed by IRDAI need a detailed examination.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
