GST rationalisation to reshape affordability and global competitiveness for Indian Pharma: KPMG

India’s pharmaceutical industry, ranked third globally by volume, has long been a cornerstone of the country’s healthcare ecosystem and export economy. This GST rationalisation by the GST Council at its 56th meeting, isn’t just a tweak in tax slabs—it’s a catalyst that will reshape affordability, supply chains, and global competitiveness for Indian pharma.

Key rate changes and its impact on sector:

• Reduction in GST on drugs and medicines from 12% to 5%, will make critical therapies within reach for millions.
• Exemption of GST on 36 designated life-saving drugs, will ease financial burdens for patients battling cancer, cardiac conditions, and rare diseases.
• Reduction in GST on medical equipment and diagnostic kits from 18% to 5%, will drive down costs for life-saving tests and equipment, accelerating early detection and treatment augmenting health infrastructure of the country
• Lowering GST on pharma job-work services from 12% to 5%, will not only positively impact the working capital but also reduce the cost in case of GST exempt drugs

Industry impact areas and action points:

• Increased input tax credit (ITC) accumulation considering the inverted duty structure given the reduction in GST rate. Industry must reassess their strategies on GST ITC, procurement, supply chain etc. to minimise credit float and optimise refund cycles.
• Pricing recalibration and relabeling challenges for Pharma industry. This necessitates a comprehensive reworking of Maximum Retail Prices (MRPs), requiring companies to recalibrate pricing structures and trade margins in line with the revised tax incidence.
• Shrinking state-level SGST incentives as the overall output tax liability is likely to decline, thereby shrinking the pool of SGST eligible for reimbursement.
• ERP and IT system overhauls to reflect the updated GST rate structure.
• Cash flow strategy to overcome impact of blocked credits and need to manage dual inventory.
• Transition period: Strategy on transitional pricing adjustments considering the legal developments and market factors and corresponding plan on managing inventory.

The GST Council’s 56th meeting has delivered more than a tax adjustment—it has created a strategic inflection point for India’s pharmaceutical industry. Pharma leaders will need to navigate this transition— optimising ITC strategies, ensuring regulatory readiness and realigning pricing models, if needed. The road ahead demands strategic foresight, operational agility, and proactive engagement with stakeholders to capture full benefits of GST rationalisation—and reinforcing India’s standing as the world’s pharmacy.