Table of Contents
One. GST Rate Structure for Medicines After GST 2.0 Two. HSN Codes for Medicines: 3003 vs 3004 Three. Life-Saving Medicines Exempt from GST (Nil Rate) Four. GST on Ayurvedic, Unani, Siddha and Homeopathic Medicines Five. GST on Surgical and Medical Devices Six. Input Tax Credit for Pharmacies and Distributors Seven. GST on Medicine Samples and Physician Samples Eight. Composition Scheme for Pharmacy Retailers Nine. E-Invoice Requirements for Pharma Ten. Common GST Classification Mistakes in Pharma Eleven. Frequently Asked Questions
Key Takeaways
GST 2.0 (effective September 22, 2025) moved most finished pharmaceutical formulations from 12% to 5%, making essential medicines cheaper.
Thirty-six life-saving medicines for cancer, rare diseases, and severe chronic conditions are now fully exempt from GST (nil rate).
HSN 3003 covers bulk pharmaceutical preparations not in retail packing. HSN 3004 covers medicines in measured doses or retail packing. Both attract 5% GST for most formulations.
Ayurvedic, Unani, Siddha, and Homeopathic (AYUSH) medicines classified under HSN 3003 or 3004 attract 5% GST when supplied in retail packing.
Nicotine polacrilex gum is the only pharmaceutical product taxed at 18%.
Pharmacies can claim input tax credit on medicine purchases if registered under the regular scheme (not composition).
If you own a pharmacy, distribute pharmaceutical products, or manufacture medicines in India, GST classification directly impacts your pricing, margins, and compliance workload. The GST rate on medicines has been restructured under GST 2.0, effective September 22, 2025, simplifying the earlier multi-slab system into a cleaner three-tier framework.
This guide covers every GST rate, HSN code, and exemption that applies to medicines and pharmaceutical products as of 2026.
GST Rate Structure for Medicines After GST 2.0
Tax Rate Chart
GST Rates on Medicines and Pharmaceutical Products (2026)
Post GST 2.0 rate rationalization effective September 22, 2025
Life-Saving Medicines (36 notified drugs for cancer, rare diseases)
HSN 3003/3004: fully exempt, no GST charged
Finished Formulations (tablets, capsules, syrups, injections)
HSN 3004: retail-packed dosage forms, most medicines fall here
Bulk Pharmaceutical Preparations (not in retail packing)
HSN 3003: bulk drugs and intermediates in measured doses
Vaccines (other than specifically nil-rated)
HSN 3002: sera, vaccines, and similar biological products
AYUSH Medicines (Ayurvedic, Unani, Siddha, Homeopathic)
HSN 3003/3004: branded or retail-packed formulations
Nicotine Polacrilex Gum
HSN 3004: the only pharmaceutical product at 18%
Source: Notification No. 01/2017-Central Tax (Rate) as amended; GST 2.0 rate rationalization effective 22-09-2025
Before GST 2.0, medicines were spread across 5%, 12%, and 18% slabs. The old 12% slab covered the majority of allopathic formulations. The September 2025 rationalization abolished the 12% slab for medicines entirely, moving virtually all products down to 5%.
The practical impact: a medicine with an MRP of Rs 112 (including 12% GST on a base of Rs 100) now has an MRP of Rs 105 (including 5% GST on the same base). Manufacturers, distributors, and retailers had to re-price their inventory during the transition.
HSN Codes for Medicines: 3003 vs 3004
The distinction between HSN 3003 and HSN 3004 is a common source of confusion. Both fall under Chapter 30 (Pharmaceutical Products) of the Customs Tariff.
HSN 3003: Medicaments not put up in measured doses or in forms or packings for retail sale. This covers bulk pharmaceutical preparations. A drug manufacturer producing 50 kg of a formulation in a drum for supply to another manufacturer or packager uses HSN 3003.
HSN 3004: Medicaments put up in measured doses or in forms or packings for retail sale. This covers what a pharmacy sells to patients: strips of tablets, bottles of syrup, vials of injection, tubes of ointment. The critical factor is that the product is in a form or packing intended for direct use by the end consumer.
Both attract 5% GST for most formulations. The distinction matters for classification accuracy in invoices and returns, not for the rate itself.
Common sub-headings under HSN 3004:
3004 10: Containing penicillins or derivatives thereof. 3004 20: Containing other antibiotics. 3004 31 to 3004 39: Containing hormones or steroids. 3004 40: Containing alkaloids or derivatives thereof. 3004 50: Other medicaments containing vitamins. 3004 90: Other (the residual category; most medicines fall here).
For invoicing, use at least a 4-digit HSN code if your turnover is up to Rs 5 crore, and an 8-digit HSN code if your turnover exceeds Rs 5 crore.
Life-Saving Medicines Exempt from GST (Nil Rate)
The 56th GST Council meeting recommended reducing GST to nil on 36 specified life-saving medicines. This took effect from September 22, 2025.
The exempt list includes drugs used for treatment of:
Cancer: Anti-cancer drugs including Trastuzumab, Rituximab, Pembrolizumab, Nivolumab, Osimertinib, Bevacizumab, Imatinib, Daratumumab, Alectinib, Obinutuzumab, and other targeted therapy and immunotherapy drugs for various cancers.
Rare diseases: Medicines for spinal muscular atrophy, Gaucher disease, Fabry disease, and other rare genetic conditions that previously attracted 12% GST.
HIV/AIDS: Antiretroviral (ARV) medications covered under government treatment programmes.
Tuberculosis: Second-line TB drugs including Bedaquiline and Delamanid for drug-resistant TB.
Other critical conditions: Medicines for severe chronic conditions requiring long-term treatment where the cost burden on patients was significant.
This is not a blanket exemption for all "essential" or "life-saving" medicines. Only drugs specifically listed in the notification qualify for nil GST. A pharmacy must verify the exact drug name and formulation against the notified list before applying nil rate.
For operational purposes, maintain a copy of the current notification with the exempt drug list. If a medicine is not on the list, apply the standard 5% rate even if the drug is commonly considered life-saving.
GST on Ayurvedic, Unani, Siddha and Homeopathic Medicines
AYUSH medicines (Ayurvedic, Unani, Siddha, and Homeopathic) attract 5% GST when classified as medicaments under HSN 3003 or 3004. This includes branded formulations sold in retail packing.
Key classification rules for AYUSH medicines:
Ayurvedic, Unani, Siddha, or Homeopathic medicines put up in retail packing with labels specifying dosage and ingredients: HSN 3004, GST 5%.
Raw herbs, plant parts, or unprocessed materials not classified as medicaments: classified under Chapter 12 (seeds, fruits, plants) or Chapter 9 (spices), typically at 5% or nil depending on processing.
Ayurvedic oils marketed as cosmetics or toiletries (e.g., hair oil branded as a cosmetic product): classified under Chapter 33, typically at 18%. The classification depends on how the product is marketed and labeled, not the ingredients.
Practical guidance for AYUSH pharmacy owners: If your product is marketed as a medicine with therapeutic claims, dosage instructions, and drug license details, it falls under Chapter 30 at 5%. If it is marketed as a wellness or beauty product without therapeutic claims, it likely falls under Chapter 33 at 18%.
GST on Surgical and Medical Devices
Medical devices and surgical instruments are not classified under the same HSN chapter as medicines, but pharma distributors often supply both. Here is a quick reference:
Syringes, needles, catheters, and cannulae: HSN 9018, GST 5%.
Diagnostic kits and reagents: HSN 3822, GST 5% for most kits (previously 12%, reduced under GST 2.0).
Surgical gloves (rubber): HSN 4015, GST 5%.
Bandages, dressings, and surgical sutures: HSN 3005/3006, GST 5%.
Medical implants (stents, heart valves, orthopaedic implants): HSN 9021, GST 5%.
Sanitizers and disinfectants: HSN 3808, GST 18% (these are not medicines).
The general pattern: products directly used in patient care and treatment attract 5%, while cleaning and industrial products attract 18%.
Input Tax Credit for Pharmacies and Distributors
Pharmacies and pharmaceutical distributors registered under the regular GST scheme (not composition) can claim ITC on medicines purchased for resale.
How ITC works for a pharmacy:
You buy medicines from a distributor at Rs 100 + 5% GST (Rs 5). You sell to a customer at Rs 120 + 5% GST (Rs 6). Your GST liability is Rs 6 (output) minus Rs 5 (input credit) = Rs 1 payable.
ITC is available on: Stock purchased for resale, packing materials, logistics and freight charges (if GST paid), rent for the pharmacy premises (if landlord charges GST), and professional services related to the business.
ITC is NOT available on: Personal consumption of medicines, medicines given as free samples (ITC must be reversed for goods given free), expired or damaged medicines that are destroyed (ITC reversal required under Rule 42/43), and items purchased under the composition scheme.
Expired medicines and ITC reversal: When medicines expire and are destroyed, you must reverse the ITC claimed on those purchases. This is because the goods are not used for making taxable supplies. Maintain proper records of destruction including the drug inspector's certificate, destruction register, and photographs if required by the state drug authority.
GST on Medicine Samples and Physician Samples
Pharmaceutical companies distribute physician samples (marked "Not for Sale" or "Physician Sample") free of cost to doctors for promotional purposes.
GST on free samples: Free supply of physician samples is treated as a supply under Schedule I of the CGST Act if ITC has been claimed on the inputs used to manufacture or procure them. GST must be paid on the open market value of the samples distributed. However, if ITC was not claimed, no GST is payable on the free distribution.
Practical compliance: Most manufacturers claim ITC on raw materials and packaging used for sample production. Therefore, they must pay GST on the value of samples distributed. The valuation is typically based on the price at which similar medicines are sold in the market, excluding any trade discount.
Bonus stock and quantity discounts: Buy-ten-get-one-free offers or bonus stock supplied with a purchase are treated as part of the same supply and do not attract separate GST, provided the value of the bonus stock is included in the invoice value of the main supply.
Composition Scheme for Pharmacy Retailers
Pharmacy retailers with an aggregate turnover up to Rs 1.5 crore can opt for the composition scheme under Section 10 of the CGST Act.
Under the composition scheme:
GST is paid at 1% (0.5% CGST + 0.5% SGST) on the turnover, regardless of the actual GST rate on medicines sold.
No ITC can be claimed on purchases.
Quarterly return filing (CMP-08) instead of monthly GSTR-3B.
No requirement to issue tax invoices. Bills of supply are issued instead.
When composition makes sense for a pharmacy: If the pharmacy's purchase price already includes GST at 5% and the markup is thin (common for medicines with price-controlled MRP), the 1% composition rate may be lower than the net GST liability under the regular scheme after ITC. However, this depends on the ratio of input GST to output GST.
When composition does NOT make sense: If the pharmacy makes inter-state sales (composition dealers cannot make inter-state supply), supplies through e-commerce platforms, or has significant ITC potential from high-GST inputs (rent, services, equipment at 18%).
Turnover limit reminder: The Rs 1.5 crore limit is aggregate turnover across all GSTINs of the same PAN. If the pharmacy owner also runs another business, both turnovers are combined for eligibility.
E-Invoice Requirements for Pharma
E-invoicing is mandatory for businesses with aggregate turnover exceeding Rs 5 crore. This covers most pharmaceutical manufacturers, large distributors, and chain pharmacy operations.
What requires e-invoicing: B2B invoices (sales to other registered businesses), exports, and supplies to SEZ units.
What does NOT require e-invoicing: B2C sales (over-the-counter sales to individual customers at a retail pharmacy) and supplies under the composition scheme.
For pharmacies that primarily make B2C sales, e-invoicing may not apply even if turnover exceeds Rs 5 crore. However, any B2B sale (to a hospital, another pharmacy, or a corporate buyer with a GSTIN) requires an e-invoice if the turnover threshold is met.
E-invoices must include the correct HSN code at the line-item level. Using a generic HSN code (e.g., 3004 90 for all medicines) is acceptable for mixed inventory, but specific codes are required where the product classification is clear.
Common GST Classification Mistakes in Pharma
Classifying food supplements as medicines. Dietary supplements, protein powders, and nutraceuticals marketed as health foods are classified under Chapter 21 (food preparations) at 18% GST, not under Chapter 30 at 5%. The key test: does the product have a drug license from CDSCO/state drug authority? If yes, it is a medicine under Chapter 30. If it has an FSSAI license, it is a food product under Chapter 21.
Treating surgical spirit or rubbing alcohol as medicine. Rectified spirit and surgical spirit are classified under Chapter 22 (beverages) or Chapter 38 (miscellaneous chemical products), not under Chapter 30. They do not qualify for the 5% medicine rate.
Applying nil rate to unlisted drugs. Only the specifically notified 36 drugs qualify for nil GST. A pharmacy cannot apply nil rate to a drug simply because it is used to treat cancer or a rare disease if the drug is not on the notified list.
Confusing Ayurvedic cosmetics with Ayurvedic medicines. An Ayurvedic hair oil marketed as a "hair care" product with no therapeutic claims falls under Chapter 33 (cosmetics) at 18%. The same oil marketed with a drug license as an Ayurvedic medicine for scalp conditions falls under Chapter 30 at 5%.
Frequently Asked Questions
Q: What is the GST rate on most medicines sold at a pharmacy?
5%. After GST 2.0 (September 22, 2025), virtually all finished pharmaceutical formulations in retail packing are taxed at 5% under HSN 3004.
Q: Are all cancer drugs exempt from GST?
No. Only the 36 drugs specifically listed in the GST Council notification are exempt. Other cancer treatment drugs that are not on the notified list attract 5% GST.
Q: I run a small pharmacy. Should I register under the composition scheme or regular scheme?
If your turnover is below Rs 1.5 crore, compare the 1% composition tax on your total turnover against the net GST payable under the regular scheme (output GST minus ITC). For most pharmacies with thin margins on price-controlled medicines, the regular scheme with ITC is often cheaper. Run the numbers for your specific business before deciding.
Q: Is GST charged on the MRP of a medicine?
No. GST is charged on the actual transaction value (the price at which the medicine is sold to the buyer), not the MRP. MRP is the maximum price inclusive of all taxes. The GST component is calculated by reverse-computing from the MRP or applying it to the ex-factory/wholesale price.
Q: Do I need to reverse ITC on expired medicines?
Yes. When medicines expire and are destroyed, ITC claimed on those purchases must be reversed. Maintain proper destruction records as required by both the Drugs and Cosmetics Act and GST rules.
Q: What is the GST on Ayurvedic medicines?
5% when classified as medicaments under HSN 3003 or 3004 with a drug license. If the product is marketed as a cosmetic or wellness product under an FSSAI license, higher rates (18%) may apply.
Q: Is there GST on medicines supplied to government hospitals?
Yes. The supply of medicines to government hospitals by pharmaceutical companies attracts GST at the applicable rate. However, the government hospital itself does not charge GST to patients for healthcare services, which are exempt.
Q: Does the nil GST on life-saving drugs apply to generic versions as well?
The notification exempts specific drug molecules (e.g., Trastuzumab, Pembrolizumab). If a generic version contains the same molecule, it qualifies for nil GST. The exemption is based on the drug substance, not the brand.
Source: Notification No. 01/2017-Central Tax (Rate) as amended. 56th GST Council recommendation on rate rationalization effective September 22, 2025. Chapter 30 of the Customs Tariff Act, 1975 (for HSN classification).
