GST Rate Cut: How does the Pharma, Medical Devices industry get impacted

Shares of Indian pharma companies will be in focus on Friday, August 29, after sources told CNBC-TV18 that the Centre has proposed reducing Goods and Services Tax (GST) on critical medicines and medical devices.

For the pharma sector, the proposal includes cutting GST on rare disease drugs to nil from 5% and waiving GST entirely on over 30 cancer drugs, currently taxed at 12%.

The government has previously taken similar steps, abolishing GST on cancer treatments such as dinutuximab and reducing GST on gene therapy from 12% to nil.

A Parliamentary panel had also recommended waiving GST on cancer drugs last year.

In addition, there is a demand to bring all drugs and medicines down from 12% to 5%, with industry bodies arguing that medicines are essential items and not luxuries.

On the medical devices front, sources said GST on consumables such as gauze, bandages, surgical gloves, diagnostic kits, blood glucose monitors, and test strips may be reduced from 12% to 5%.

Similarly, spectacles, including goggles, could see GST cut from 12% to 5%, while thermometers and instruments used for medical, surgical, and dental purposes may see a steep reduction from 18% to 5%.

However, the current GST framework already creates pressure. While most devices attract 12% GST, inputs are taxed at 18%, leading to an inverted duty structure and margin stress.

Cutting rates to 5% on low-margin consumables could worsen the problem by blocking input tax credit. As a result, the industry has asked the government to retain 12% GST on low-margin consumables, while allowing 5% GST only on high-value equipment.

It needs to be noted that all of these are just proposals and that the final decision will be taken by the GST Council, during its meeting on September 3 and 4, 2025.

(The GST newsbreak is by CNBC-TV18's Timsy Jaipuria.)