Looking for expert help with Ayurvedic medicine GST rate and HSN code? The team at Tax Garden, based in Kondapur, Hyderabad, helps Indian SMEs stay compliant. End-to-end filings, notices, and deadline tracking, all in one place.
Key Takeaways
- Ayurvedic, unani, siddha and homoeopathic medicines are 5% GST from 22 September 2025, under HSN 3004 (retail packs) or 3003 (bulk) (Notification 9/2025-CT(R), Schedule I, S. Nos. 229, 233, 234).
- Classical and proprietary formulations now carry the same 5%. Hair oil, shampoo, soap bars and toothpaste are also 5%; a skin cream that's a cosmetic, not a medicament, is 18% under 3304.
- Glass bottles, plastic jars and essential oils are 18%, so a manufacturer often builds up credit. Claim the inverted duty refund under Section 54(3)(ii) and Rule 89(5).
- Composition costs a manufacturer or shop 1% of turnover up to Rs 1.5 crore. Registration is above Rs 40 lakh for goods-only sellers, Rs 20 lakh in Telangana.
- For income tax, Section 44AD (Section 58 from 1 April 2026) covers turnover up to Rs 2 crore or Rs 3 crore. Large distributors deduct 0.1% TDS on purchases above Rs 50 lakh.
What is the GST rate and HSN code for ayurvedic medicines? Ayurvedic medicines are taxed at 5% (2.5% CGST plus 2.5% SGST) from 22 September 2025. Retail packs fall under HSN 3004 and bulk mixed medicaments under 3003, both in Schedule I of Notification 9/2025-Central Tax (Rate). Classical formulations sold under their book name (S. No. 229) are also 5%.
Say you run a small ayurvedic pharmacy unit. You buy dried ashwagandha and triphala from a herb trader, ghee and sesame oil from local suppliers, and amber glass bottles from a factory in Gujarat. You sell churnas, tailams and arishtas to ayurvedic stores across your district, and a range of herbal hair oils and face creams under your own label. Most of what you sell is 5%, but one product line may be 18%, and your bottles cost you more GST than your medicines earn. This post covers both sides, plus income tax for FY 2025-26 (AY 2026-27) under the Income-tax Act 1961, with the Income-tax Act 2025 sections that apply from 1 April 2026. It's for ayurvedic medicine manufacturers, ayurvedic medical stores and the CAs who file for them.
Is my product a medicine at 5% or a cosmetic at 18%?
Start with the label and the use. Heading 3004 covers medicaments "for therapeutic or prophylactic uses", put up in measured doses or packed for retail sale, and it names ayurvedic, unani, siddha, homoeopathic and bio-chemic medicaments outright. Heading 3003 covers the same medicaments when they're not packed for retail sale, such as bulk supplies to another unit. S. No. 229 covers classical formulations made strictly to the authoritative books listed in the First Schedule to the Drugs and Cosmetics Act, 1940 and sold under the name in those books. All three sit in Schedule I of Notification 9/2025-Central Tax (Rate), so all three are 5% from 22 September 2025.
The classical versus proprietary question used to matter. It doesn't change the rate now. What still matters is whether a product is a medicine at all. Schedule II, S. No. 61 puts beauty and skin care preparations under heading 3304 at 18%, and the entry says "other than medicaments". So a herbal face cream sold for glow or fairness is a cosmetic at 18%, while an ointment sold to treat a skin condition is a medicament at 5%. If a product sits on the line, get its classification confirmed before you bill it at 5%.
Example: you sell 200 bottles of an arishta at Rs 150 each to a store in your State. That's Rs 30,000 plus 5% GST of Rs 1,500 (Rs 750 CGST plus Rs 750 SGST), so Rs 31,500. On the same bill, 50 jars of a herbal face cream at Rs 200 each is Rs 10,000 plus 18% GST of Rs 1,800, so Rs 11,800. The invoice total is Rs 43,300.
GST rates on what you buy and sell
Comparison
GST for Ayurvedic Medicine Units and Shops (from 22 September 2025)
| Item (HSN or heading) | GST | Notification entry |
|---|---|---|
| Ayurvedic, unani, siddha, homoeopathic medicines in retail packs (3004) | 5% | 9/2025-CT(R), Sch I, S. No. 234 |
| Same medicaments in bulk, not for retail sale (3003) | 5% | 9/2025-CT(R), Sch I, S. No. 233 |
| Classical formulations sold under the book name (Chapter 30) | 5% | 9/2025-CT(R), Sch I, S. No. 229 |
| Hair oil, shampoo (3305) | 5% | 9/2025-CT(R), Sch I, S. No. 245 |
| Toilet soap bars (3401); toothpaste (3306) | 5% | 9/2025-CT(R), Sch I, S. Nos. 251, 246 |
| Skin care and beauty preparations, not medicaments (3304) | 18% | 9/2025-CT(R), Sch II, S. No. 61 |
| Dried herbs, roots and seeds used in pharmacy (1211) | 5% | 9/2025-CT(R), Sch I, S. No. 71 |
| Fresh or chilled medicinal plants (1211) | Nil | 10/2025-CT(R), S. No. 87 |
| Ghee (0405); packed natural honey (0409); sesame and other oils (1515) | 5% | 9/2025-CT(R), Sch I, S. Nos. 7, 10, 92 |
| Paper and paperboard cartons (4819 10, 4819 20) | 5% | 9/2025-CT(R), Sch I, S. No. 322 |
| Glass bottles and jars (7010) | 18% | 9/2025-CT(R), Sch II, S. No. 250 |
| Plastic containers, caps and closures (3923) | 18% | 9/2025-CT(R), Sch II, S. No. 124 |
| Essential oils (3301) | 18% | 9/2025-CT(R), Sch II, S. No. 58 |
Source: CBIC Notifications 9/2025-CT(R) and 10/2025-CT(R), 17 September 2025, in force 22 September 2025
Inside your State, 5% is billed as 2.5% CGST plus 2.5% SGST. A buyer in another State pays 5% IGST. If your billing software still carries a rate from before 22 September 2025 for any of these items, update it.
Two points on purchases. Fresh herbs bought straight from a farm are nil-rated, so there's no GST and no credit. Dried, cut or powdered herbs are 5%. And if you buy from an unregistered collector, no GST is charged and there's no credit to claim, but keep a purchase record for each lot so your stock ties up.
Why your credit piles up, and how to get it back
Your medicines go out at 5%. Your bottles, plastic jars and essential oils come in at 18%. A manufacturer on the regular scheme often ends each month with more credit than output tax. Section 54(3)(ii) of the CGST Act allows a refund where credit has accumulated because the rate on inputs is higher than the rate on output supplies. Medicaments aren't among the goods notified as barred from this refund.
The cap comes from Rule 89(5) of the CGST Rules: (turnover of inverted rated supply x Net ITC / adjusted total turnover) minus the tax payable on that supply, scaled by Net ITC over credit on inputs and input services. "Net ITC" means credit on inputs only. Credit on input services (rent, freight, testing) and capital goods doesn't count.
Example: in a month you sell Rs 8,00,000 of medicines, all at 5%, so output tax is Rs 40,000. Your inputs:
- Dried herbs from a registered trader, Rs 1,50,000 at 5%: credit Rs 7,500
- Ghee and sesame oil, Rs 1,00,000 at 5%: Rs 5,000
- Cartons, Rs 50,000 at 5%: Rs 2,500
- Glass bottles, Rs 1,20,000 at 18%: Rs 21,600
- Plastic caps and jars, Rs 40,000 at 18%: Rs 7,200
- Essential oils, Rs 30,000 at 18%: Rs 5,400
Total credit on inputs is Rs 49,200 against Rs 40,000 of output tax, so Rs 9,200 builds up. With no input services and all sales at 5%, the Rule 89(5) cap works out to Rs 49,200 minus Rs 40,000, which is Rs 9,200. A refund is filed for a tax period within two years of the relevant date. Our inverted duty refund guide walks through the RFD-01 filing, and our pharma manufacturers guide covers samples, job work and exports.
Registration and composition for ayurvedic units and shops
When to register. If you only supply goods, Notification 10/2019-Central Tax lets you wait until aggregate turnover crosses Rs 40 lakh in a financial year. That higher limit leaves out intra-State suppliers in Telangana and a few other States, where the Section 22(1) limit of Rs 20 lakh applies. Our registration limit guide lists the States, and our GST registration service files the application.
Composition. A small manufacturer or ayurvedic medical store whose aggregate turnover in the preceding year was up to Rs 1.5 crore can opt for composition under Section 10. Manufacturers pay 0.5% CGST plus 0.5% SGST of turnover in the State, and shops pay 0.5% plus 0.5% of taxable turnover (Rule 7, CGST Rules). Medicaments aren't on the list of goods whose makers can't opt in (Notification 14/2019-Central Tax names only ice cream, pan masala and tobacco). The conditions in Section 10(2) matter for this trade:
- No inter-State outward supplies. A unit selling to stores in another State can't use composition.
- No supplies through an e-commerce operator that collects tax at source.
- No GST on your bills and no input tax credit, and you issue a bill of supply.
Run the numbers before opting in. On Rs 60,00,000 of yearly sales, composition costs 1%, which is Rs 60,000. On the regular scheme, 5% output tax is Rs 3,00,000, but if your credit on inputs is higher than that, as in the monthly example above, you pay nothing in cash and can claim the excess as a refund. A manufacturer with heavy glass and plastic purchases may be better off on the regular scheme. A store reselling medicines it buys at 5% has less credit to lose. Our composition scheme guide compares both routes.
Step-by-Step Guide
Monthly GST Routine for an Ayurvedic Medicine Unit
Classify every product once
Mark each item as 3004 or 3003 medicament (5%), hair oil or soap (5%), or 3304 cosmetic (18%). Keep the label and the claim on the pack consistent with the code.
Bill each line at its own rate
One invoice can carry 5% and 18% lines. Don't put a cosmetic cream on a 5% line because it says 'herbal'.
Claim credit on inputs
Bottles, caps, cartons, oils and dried herbs from registered suppliers carry GST. Check each invoice appears in GSTR-2B before you claim it.
Track credit build-up
If credit on inputs keeps exceeding output tax, work out the Rule 89(5) amount and file the refund for that period.
File GSTR-1 and GSTR-3B
Report sales under their HSN codes in GSTR-1 so the tax matches what you pay in GSTR-3B.
Source: CGST Act Sections 10, 22 and 54; CGST Rules 7 and 89(5); Notification 9/2025-CT(R)
Income tax: 44AD, TDS from distributors and cash for herbs
Section 44AD. For FY 2025-26, a resident individual, HUF or partnership firm (not an LLP) can declare 6% of turnover received by bank transfer, UPI or account payee cheque (by the return due date) and 8% of the rest as profit, under Section 44AD of the Income-tax Act 1961. The limit is turnover of Rs 2 crore, or Rs 3 crore if cash receipts are within 5% of turnover. From 1 April 2026 the same scheme is Section 58 of the Income-tax Act 2025, with the same rates and limits.
Example: a proprietor's unit has turnover of Rs 80,00,000 in FY 2025-26: Rs 70,00,000 by bank and UPI from stores and distributors, and Rs 10,00,000 in cash from walk-in customers. Cash is 12.5% of turnover, so the limit is Rs 2 crore, and Rs 80 lakh is within it. Deemed profit is 6% of Rs 70,00,000 (Rs 4,20,000) plus 8% of Rs 10,00,000 (Rs 80,000), so Rs 5,00,000. If you've invested in grinders, a boiler and filling machines, ask your CA whether books show a lower profit. Our Section 44AD guide covers the five-year lock-in if you later opt out. Ayurvedic stores selling medicines across the counter follow the same rules; see our guide for medical shop owners.
TDS on your sales. A distributor or chain whose turnover crossed Rs 10 crore in the previous year deducts TDS of 0.1% on what it pays you above Rs 50 lakh in a year (Section 194Q of the 1961 Act; Section 393(1), Table Sl. No. 8(ii) of the 2025 Act from 1 April 2026). If such a buyer purchases Rs 80,00,000 from you in a year, TDS is 0.1% of Rs 30,00,000, so Rs 3,000. Match it with Form 26AS before you file. Our 194Q guide has the details.
Cash paid for herbs. If you keep books and claim actual expenses, a payment above Rs 10,000 in cash to one person in a day isn't allowed as a deduction (Section 40A(3) of the 1961 Act; Section 36(4) of the 2025 Act). For FY 2025-26, Rule 6DD(e) of the Income-tax Rules 1962 makes an exception when you buy agricultural or forest produce, or products of horticulture or apiculture, directly from the cultivator, grower or producer. So Rs 25,000 in cash to a tribal collector for forest roots they gathered is allowed, but Rs 25,000 in cash to a herb trader is disallowed in full. Pay traders by UPI or bank transfer. See our cash transaction limits guide.
Common mistakes in ayurvedic units and shops
- Billing every "herbal" product at 5%. A cosmetic face cream is 3304 at 18%, even with ayurvedic ingredients.
- Using a pre-September 2025 rate. Ayurvedic medicaments under 3003, 3004 and S. No. 229 are 5% from 22 September 2025.
- Letting credit sit in the ledger. Bottles and plastic at 18% against 5% sales build credit every month. File the Rule 89(5) refund within two years.
- Opting for composition while selling to other States. Section 10(2)(c) rules out any inter-State outward supply.
- Paying herb traders in cash. The Rule 6DD exception covers the grower or collector, not a middleman.
- Ignoring 194Q TDS in Form 26AS. Large distributors deduct 0.1%; if you don't claim it, you pay the tax twice.
How Tax Garden helps ayurvedic units and shops
We start with your product list, because a cream or oil billed under the wrong code is the most common error we see in this trade. We register you, set 5% and 18% lines correctly, compare composition with the regular scheme on your actual purchase mix, file your inverted duty refund and file GSTR-1 and GSTR-3B through our GST return filing service. At year end we reconcile 194Q TDS with Form 26AS, test 44AD against your books and file your ITR through our ITR filing service. Call or WhatsApp us on 9640290977.
Related reading: GST on medicines and pharmaceutical products, GST and income tax for honey beekeepers and processors, GST and income tax for soap and detergent makers, and GST on healthcare services if you also run a clinic.
