Health sector has been considered as a key focus area for the government. Intention of the government is to reduce the cost of medicine to the general public. Further the aim is to incentivize the domestic manufacture of the high cost drug and medical device. It has been estimated that the medicine constitute about 60% of the out of pocket spending for outpatients. Pharma sector has been a critical contributors to the GDP, exports as well as employment. Therefore, the Government intends to reduce the price of the medicine and medical devices.
In September 2025 the GST Council approved a major rationalisation of GST rates that materially affects the healthcare and pharmaceutical sector: broad reductions in GST on medicines and medical devices (most medicines moved from 12% to 5%; several life-saving drugs became fully exempt), medical devices’ rates cut to 5%, and allied changes (job-work services, insurance/health products) to improve affordability. These changes took effect 22 September 2025 and require manufacturers, marketers and sellers to revise MRPs, update invoicing and pricing systems, and document the pass-through of benefits to consumers.
Key changes:
▪ Reduction of GST from 12% to nil on 33 lifesaving drugs and medicines, and from 5% to nil on 3
lifesaving drugs and medicines used for the treatment of cancer, rare diseases, and other severe
chronic conditions
▪ Reduction of GST on all other drugs and medicines from 12% to 5%
▪ Reduction of GST from 18% to 5% on various medical apparatus and devices used for medical,
surgical, dental or veterinary purposes, or for physical or chemical analysis
▪ Reduction of GST from 12% to 5% on various medical equipment and supplies, such as wadding,
gauze, bandages, diagnostic kits and reagents, blood glucose monitoring systems (glucometers), and
other medical devices
▪ Reduction in GST from 12% to 5% on various medicines.
NIL GST Rate on Medicines and Medical Goods
Human blood and its components
All contraceptives
Sanitary napkins and tampons
37 life-saving medicines
5% GST Rate on Medicines and Medical Goods
The following are some of the medical products on which 5% GST is levied. This list is not exhaustive.
Anaesthetics, Potassium Iodate, Iodine, Steam
Medical grade oxygen, medicinal hydrogen peroxide
Insulin etc
Conclusion
The 2025 GST rationalisation is among the most consequential tax moves for India’s healthcare sector in recent years. By lowering taxes on medicines, devices and related services the reform aims to improve access and lower patient costs — but the real-world benefit depends on the speed and transparency of pass-through by manufacturers, distributors and retailers. For pharma firms this is both a compliance requirement and a strategic opportunity: update systems, revise MRPs, communicate clearly, and use the change to enhance affordability and market position.
FAQ
Q.Which items will have 40% GST?
These items include products like Cigarettes, Pan masala, Beedi, and Other tobacco products like chewing tobacco and gutka, online gambling or gaming.
Q. What is the GST rate for pharmaceutical products in 2025?
Pharmaceutical products continue to fall under different slabs:
0% GST – Life-saving drugs and vaccines
5% GST – Essential medicines
12% GST – Most formulations & branded medicines
18% GST – Nutraceuticals, supplements, and medical devices
Q. Will GST 2.0 increase the price of medicines?
Not necessarily. Essential and life-saving drugs remain in lower tax brackets, ensuring affordability. However, medical devices and supplements may see slight price variations.
Q. How does GST 2.0 affect pharma distributors and wholesalers?
Distributors benefit from:
Faster ITC (Input Tax Credit)
Reduced paperwork
Uniform pricing across states
Lower chances of double taxation