Pharmaceutical companies will be able to claim GST input tax credit on free samples and products destroyed after expiry, while wider refund changes aim to free up cash tied up in manufacturing and exports.
Pharmaceutical companies in India will be allowed to claim goods and services tax input tax credit on free samples and on products destroyed or written off after expiry from the next fiscal year, after the GST Council approved a set of sector-specific reforms intended to ease long-standing tax frictions in the industry.
According to The Hindu BusinessLine, the changes were cleared on Thursday at a meeting chaired by Union Finance Minister Nirmala Sitharaman and her state counterparts, and are designed to rationalise input tax credit and refund rules for a business that regularly deals with physician samples, expired stock and legally required destruction of certain goods. The measures are due to take effect from the next fiscal year.
Tax specialists said the move could give the sector a meaningful lift. Ashish Jain, partner and national life sciences and healthcare tax leader at EY India, said the proposals would be particularly relevant for makers of pharmaceutical formulations, vaccines, biologics, diagnostic products and consumer healthcare products, where sampling, expiry-related inventory management and heavy manufacturing outlays are routine. Mahesh Jaising, partner and indirect tax leader at Deloitte India, described the decision as a “double-dose GST booster” for the industry, saying it would remove a tax burden on medicines that must be discarded once their shelf life ends.
Jaising added that including input services and capital goods in inverted duty refund calculations should also help firms that face a low GST rate on finished products but higher tax on inputs, a structure that has long tied up cash for manufacturers and exporters. Suresh Nair, partner for indirect taxes in consumer and health sciences at EY India, said refunds on accumulated input tax credit linked to services and capital goods could improve working-capital efficiency for businesses investing in plants, machinery and export-oriented operations.
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