GST on Medicines in 2026: 5% Rate and HSN Codes

What is the GST rate on medicines in India in 2026? Most pharmaceutical formulations (HSN 3003/3004) attract 5% GST from September 22, 2025, reduced from 12% by the 56th GST Council. 36 specified life-saving drugs for cancer, rare diseases and other severe chronic conditions are at 0%. Active Pharmaceutical Ingredients (APIs) and chemical intermediates remain at 18% GST (56th GST Council Meeting, September 3-4, 2025; Notification effective September 22, 2025).

Medicines are taxable goods under the Goods and Services Tax (GST) framework. This is distinct from healthcare services (consultations, diagnostics, surgeries) provided by hospitals and doctors, which are exempt under Entry 74 of Notification No. 12/2017. For pharmacists, pharmaceutical distributors, hospital purchase managers, and their accountants, understanding the correct GST rate by product category is essential for accurate invoicing, Input Tax Credit (ITC) claims, and return filing.

This guide covers every GST rate applicable to medicines, pharmaceutical products, and medical devices in India after the September 2025 reforms.

GST Rate Structure for Medicines After September 2025

The 56th GST Council meeting (September 3-4, 2025) simplified the rate structure for pharmaceutical products. The earlier 12% slab for most formulations was reduced to 5%, and 36 specified life-saving drugs were moved to 0% (33 from 12% and 3 from 5%).

HSN Codes for Pharmaceutical Products

Every pharmaceutical product must be classified under the correct Harmonized System of Nomenclature (HSN) code for invoicing and return filing.

HSN 3003 and 3004 cover the widest range of finished medicines. The distinction is packaging: 3003 applies to bulk (not in retail form), while 3004 applies to retail-packed formulations.

Life-Saving Drugs at 0% GST

The 56th GST Council moved 33 life-saving drugs from 12% to 0% and three drugs from 5% to 0%. The drugs are named individually in the list. Key categories include:

• Anti-cancer drugs: such as Daratumumab, Alectinib, Obinutuzumab, Polatuzumab vedotin, Atezolizumab, Avelumab and Amivantamab. Widely used drugs such as Trastuzumab, Pembrolizumab and Rituximab are not on the nil list and take 5%.
• Rare disease treatments: such as Onasemnogene abeparvovec and Risdiplam (spinal muscular atrophy), Imiglucerase and Velaglucerase Alpha (Gaucher disease), and Agalsidase Beta and Agalsidase Alfa (Fabry disease)
• Other severe chronic conditions: such as Emicizumab and Eptacog alfa (haemophilia), Alirocumab, Evolocumab and Inclisiran

The three drugs that moved from 5% to nil are Agalsidase Beta, Imiglucerase and Eptacog alfa. There is no general nil rate for HIV or TB medicines; check each drug against the list.

Other exempt items: human blood and its components (HSN 3002), contraceptives and hearing aids.

Medical Device GST Rates

Medical devices saw significant rate reductions under the same Council recommendation:

Instruments and appliances under headings 9018 to 9021, and X-ray apparatus for medical use under 9022, are 5% (Notification 9/2025-Central Tax (Rate), Schedule I, S. Nos. 483 to 487). Hospital beds, operating tables and other medical furniture under 9402 are 18% (Schedule II, S. No. 611), and hearing aids are nil (Notification 10/2025-Central Tax (Rate), S. No. 160). Our medical and surgical equipment dealers guide lists the consumables, rental and AMC rates as well.

Ayurvedic, Unani, Siddha, and Homeopathic Medicines

Manufactured medicines under the Indian Systems of Medicine now attract a uniform 5% GST (reduced from 12%). This applies to formulations under HSN 3003 and 3004, regardless of whether they are allopathic, Ayurvedic, Unani, Siddha, or Homeopathic.

The distinction matters for unmanufactured/raw herbs and plant products: unprocessed Ayurvedic herbs sold as raw agricultural produce may be exempt (0%), while manufactured formulations (packaged, labelled, with dosage instructions) attract 5%.

ITC Eligibility for Pharma Businesses

Input Tax Credit rules for pharmaceutical companies follow the standard GST ITC framework, with specific implications:

1. Manufacturers: Can claim ITC on APIs (18%) and packaging materials used in manufacturing medicines (5%). The inverted duty structure (higher input tax, lower output tax) makes pharma manufacturers eligible for ITC refunds under Rule 89(5) of CGST Rules.

2. Distributors and wholesalers: Can claim ITC on purchases from manufacturers (5%) and set off against output liability on sales (5%). Full ITC available.

3. Retail pharmacies: Can claim ITC on medicine purchases. However, if operating under the Composition Scheme, ITC is not available.

4. Hospitals: Can claim ITC on medicines and devices only when used for taxable supplies. Medicines used in exempt healthcare services (Entry 74) do not qualify for ITC under Section 17(5) read with Section 17(2).

E-Invoice and E-Way Bill for Pharma Businesses

Composition Scheme for Pharmacies

Retail pharmacies with aggregate turnover up to Rs 1.5 crore (Rs 75 lakh in special category states) can opt for the Composition Scheme under Section 10 of the CGST Act. Key trade-offs:

• GST rate: 1% (0.5% CGST + 0.5% SGST) on turnover instead of 5% on each invoice
• No ITC: Cannot claim Input Tax Credit on purchases
• No inter-state sales: Cannot make inter-state supplies
• Quarterly filing: File CMP-08 quarterly instead of monthly GSTR-1/3B
• No e-invoicing: Not applicable to composition dealers

With medicines at 5%, the regular scheme's net tax on a 15% to 20% margin works out to about 0.75% to 1% of turnover (5% of the margin), so the 1% composition rate is rarely cheaper and gives up ITC on rent and services. Run the numbers for your specific case.

Common Mistakes to Avoid

1. Applying the old 12% rate: All formulations moved to 5% from September 22, 2025. Invoices issued at 12% after this date will require credit notes and revised returns.

2. Claiming ITC on exempt healthcare supplies: Hospitals that provide exempt clinical services cannot claim ITC on medicines consumed in those services. Only medicines sold through hospital pharmacies (as separate taxable supply) qualify.

3. Wrong HSN code on invoices: Using HSN 3004 for unpackaged bulk drugs (which should be 3003) or confusing APIs (Chapter 29) with finished formulations (Chapter 30) creates reconciliation issues in GSTR-1.

4. Missing e-way bill for branch transfers: Pharma companies transferring stock between warehouses or branches must generate e-way bills even for intra-company transfers when value exceeds Rs 50,000.

Let Tax Garden Handle Your Pharma GST

GST compliance for pharmaceutical businesses involves product-wise HSN classification, rate tracking across multiple categories, ITC management with inverted duty structures, and e-invoicing. Tax Garden manages end-to-end GST return filing for pharmacies, distributors, and medical device companies, so you can focus on your business.