Looking for expert help with Income tax and GST for diagnostic lab and pathology lab owners India? 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
- Diagnostic and pathology tests are exempt from GST: S. No. 74 of Notification 12/2017-Central Tax (Rate) covers health care services by a clinical establishment, and the definition includes standalone diagnostic labs.
- Because your output is exempt, the 5% GST you pay on reagents, kits and analysers (Notification 9/2025-Central Tax (Rate), from 22 September 2025) can't be claimed back as input tax credit.
- A lab that only does tests doesn't need GST registration (Section 23(1)(a), CGST Act). Add one taxable supply, like subletting to a pharmacy, and exempt receipts count towards the Rs 20 lakh limit.
- Pay a visiting pathologist or radiologist more than Rs 50,000 in a year and you'll usually deduct 10% TDS under Section 194J.
- A doctor-owner can use Section 44ADA (50% deemed profit); a business-owner lab can use Section 44AD (6% or 8%).
Is GST applicable on diagnostic lab tests in India? No. Health care services by a clinical establishment are exempt from GST under S. No. 74 of Notification 12/2017-Central Tax (Rate). Clause 2(s) of that notification defines a clinical establishment to include a place set up, independently or as part of another establishment, to carry out diagnostic or investigative services of diseases. Pathology and imaging labs fall within it.
A lab owner's tax questions don't look like a shop owner's. You don't charge GST on the test, yet you pay GST on almost everything you buy. You may pay visiting doctors who expect TDS certificates. And the presumptive scheme you can use depends on whether you're the pathologist or the investor. This guide covers all of it for AY 2026-27 (FY 2025-26). If you also practise as a doctor, read our income tax guide for doctors alongside this one.
What is GST-exempt and what isn't for a lab?
Your tests are exempt. Your purchases aren't. That gap is the main GST fact for a lab.
Comparison
GST Position of a Diagnostic Lab (from 22 September 2025)
| Item | GST rate | Can the lab claim ITC? |
|---|---|---|
| Blood, urine and other pathology tests billed to patients | Exempt | Not applicable |
| Imaging and other diagnostic tests by the lab | Exempt | Not applicable |
| Diagnostic kits and reagents you buy (heading 3822) | 5% | No, if used for exempt tests |
| Analysers and medical instruments you buy (headings 9018, 9022, 9027 for medical use) | 5% | No, if used for exempt tests |
| Computers and billing systems (heading 8471) | 18% | No, if used for exempt tests |
| Bio-medical waste disposal by a common facility | 5% | No, if used for exempt tests |
| Rent you receive for subletting space, say to a pharmacy | 18% | This is a taxable supply you make |
Source: Notification 12/2017-Central Tax (Rate), S. No. 74 and clause 2(s); Notification 9/2025-Central Tax (Rate), Schedule I entries 263, 483, 487, 489 and Schedule II entry 456; 56th GST Council recommendations (bio-medical waste); Section 17(2), CGST Act
Here's what that means in money. Say you buy a biochemistry analyser for Rs 20,00,000. GST at 5% is Rs 1,00,000, so you pay Rs 21,00,000. A trading business would claim that Rs 1,00,000 back as input tax credit (ITC). You can't, because Section 17(2) of the CGST Act limits ITC to the part used for taxable supplies, and your tests are exempt. The full Rs 21,00,000 goes into your books as the cost of the asset.
The exemption follows the service, not the patient. Tests for a walk-in patient, a hospital that sends you samples, or a company that books health check-ups for its staff are all diagnosis services by a clinical establishment.
When does a lab need GST registration?
A lab that only does tests doesn't need to register. Section 23(1)(a) of the CGST Act says a person engaged exclusively in supplying goods or services that are wholly exempt isn't liable to registration.
The word "exclusively" matters. Once you make even one taxable supply, the exemption from registration goes, and the Rs 20 lakh threshold in Section 22 is tested on your aggregate turnover. Under Section 2(6), aggregate turnover includes exempt supplies. So your test receipts count.
Example: your lab bills Rs 90,00,000 in tests and sublets a counter to a pharmacy for Rs 25,000 a month (Rs 3,00,000 a year). Aggregate turnover is Rs 93,00,000, well above Rs 20 lakh. You must register and charge 18% GST on the rent, which is Rs 4,500 a month. The tests stay exempt.
Step-by-Step Guide
Does Your Lab Need GST Registration?
List everything you bill
Tests, rent from sub-tenants, sale of medicines or devices, training fees, sale of old equipment.
Only tests? You don't register
A lab supplying only exempt health care services is outside registration under Section 23(1)(a), CGST Act.
Any taxable supply? Add up aggregate turnover
Include exempt test receipts plus taxable supplies (Section 2(6), CGST Act).
Above Rs 20 lakh? Register
The limit is Rs 20 lakh for services in most states, Rs 10 lakh in special category states (Section 22).
After registering, watch your rent
A registered tenant pays 18% GST under reverse charge on rent for commercial premises taken from an unregistered landlord (entry 5AB, Notification 13/2017-Central Tax (Rate)). Credit is only for the taxable share.
Source: Sections 2(6), 22, 23(1)(a) and 17(2), CGST Act 2017
Our GST registration service can check whether your lab has crossed the line and get you registered. The GST on healthcare services post covers hospitals and clinics.
Do you deduct TDS on payments to visiting doctors?
Most multi-doctor labs do. Section 194J requires TDS on fees for professional services at 10% once payments to one person cross Rs 50,000 in a financial year. Finance Act 2025 raised that threshold from Rs 30,000 from 1 April 2025.
Who has to deduct? A lab run as a partnership firm, LLP or company deducts. A proprietor lab deducts if its turnover or gross receipts in the previous year crossed the tax audit limit in Section 44AB(a) or (b).
Say you pay a visiting radiologist Rs 40,000 a month for reporting scans. That's Rs 4,80,000 a year, far above Rs 50,000. You deduct Rs 4,000 a month (10%), deposit it by the 7th of the next month, and file the quarterly TDS return. For FY 2025-26, that return is Form 26Q. For payments from 1 April 2026, TDS falls under Section 393 of the Income-tax Act 2025 and the quarterly return is Form 140. See our Section 194J guide for the details, or let our TDS filing service handle it.
Can you deduct referral payments to doctors?
No, if the doctor isn't allowed to accept them. Explanation 3 to Section 37(1), in force from AY 2022-23, says that expenditure on a benefit or perquisite to a person isn't allowed where the person's acceptance of it breaks a law, rule, regulation or guideline that governs their conduct. Medical conduct rules bar doctors from taking commission for referring patients. So a "referral fee" or "cut" paid to a doctor can't be claimed as a business expense, however you label it in the books.
Genuine fees to a doctor for reporting or consulting work, backed by an agreement and TDS, are a different thing. Those are deductible.
How is your lab income taxed for AY 2026-27?
The scheme depends on who runs the lab.
Step-by-Step Guide
Section 44ADA or Section 44AD for a Lab?
You're a pathologist or radiologist doing the reporting yourself
This is medical profession income. Section 44ADA can apply: resident individual, HUF or partnership firm (not LLP), receipts up to Rs 50 lakh, or Rs 75 lakh if cash receipts are within 5%. Deemed profit is 50% of receipts.
You're an investor who engages doctors to report
This is usually business income. Section 44AD can apply: resident individual, HUF or partnership firm (not LLP), turnover up to Rs 2 crore, or Rs 3 crore if cash is within 5%. Deemed profit is 6% of digital receipts and 8% of cash receipts.
Your real profit is lower than the deemed figure
Keep full books. Under 44ADA, declaring less than 50% with income above the exemption limit brings a tax audit (Section 44AB(d)). Under 44AD, leaving the scheme bars it for five years (Section 44AD(4)).
File the right ITR
ITR-4 for 44AD or 44ADA if total income is up to Rs 50 lakh and other conditions are met. ITR-3 if you keep full books.
Source: Sections 44AD, 44ADA, 44AA(1) and 44AB, Income-tax Act 1961 (applies to FY 2025-26 / AY 2026-27)
Example 1 (pathologist, Section 44ADA, new regime): receipts for FY 2025-26 are Rs 60,00,000, of which Rs 2,40,000 is cash (4%). Cash is within 5%, so the limit is Rs 75 lakh and you're eligible.
- Deemed profit: 50% of Rs 60,00,000 is Rs 30,00,000.
- Tax: Rs 20,000 (Rs 4-8 lakh at 5%) + Rs 40,000 (Rs 8-12 lakh at 10%) + Rs 60,000 (Rs 12-16 lakh at 15%) + Rs 80,000 (Rs 16-20 lakh at 20%) + Rs 1,00,000 (Rs 20-24 lakh at 25%) + Rs 1,80,000 (Rs 24-30 lakh at 30%) = Rs 4,80,000.
- Health and education cess at 4% is Rs 19,200. Total Rs 4,99,200. The Section 87A rebate doesn't apply, because income is above Rs 12 lakh.
A lab spends heavily on reagents, staff and rent, so real profit can be well below 50%. If yours is, Section 44ADA may overstate your income. You can declare the lower figure, but you'll need full books and, with income above the exemption limit, a tax audit.
Example 2 (investor-owner, Section 44AD, new regime): turnover for FY 2025-26 is Rs 1,20,00,000, of which Rs 3,60,000 is cash (3%).
- Deemed profit: 6% of Rs 1,16,40,000 is Rs 6,98,400, plus 8% of Rs 3,60,000 is Rs 28,800. Total Rs 7,27,200.
- Tax: 5% of Rs 3,27,200 (income above Rs 4 lakh) is Rs 16,360. Income is within Rs 12 lakh, so the Section 87A rebate covers it. Tax payable: nil.
Whichever scheme you use, cash rules still apply. You can't receive Rs 2 lakh or more in cash from one person in a day, or for one transaction (Section 269ST). If you keep books, a cash payment above Rs 10,000 to one person in a day is disallowed (Section 40A(3)). Our Section 44ADA guide and Section 44AD guide go deeper.
From FY 2026-27, the Income-tax Act 2025 replaces the 1961 Act and section numbers change. The FY 2025-26 return you're filing now still follows the 1961 Act sections above.
Common mistakes lab owners make
- Claiming ITC on reagents and equipment. Your tests are exempt, so GST on purchases used for them is a cost, not a credit.
- Skipping GST registration after subletting space. One taxable supply makes your exempt test receipts count towards the Rs 20 lakh limit.
- Not deducting TDS on visiting doctors. Missing Section 194J TDS can lead to 30% of the payment being disallowed under Section 40(a)(ia), plus interest.
- Booking referral cuts as expenses. Explanation 3 to Section 37(1) disallows them.
- Using Section 44AD as a doctor-owner. Section 44AD doesn't cover professions listed in Section 44AA(1), which include the medical profession.
How Tax Garden helps lab owners
We keep your lab's books through our accounting and bookkeeping service, deduct and file TDS on payments to visiting doctors, and register you for GST only if a taxable supply makes it necessary. At year end, we compare Section 44ADA, Section 44AD and full books against your real numbers, then file your return through our ITR filing service. See pricing for plans.
