From 22 September 2025, India's GST 2.0 rate rationalisation moved most medicines from 12% to 5%, exempted a list of life-saving drugs entirely, reduced GST on a wide range of medical devices and apparatus to 5%, and removed the 18% GST on individual health and life insurance premiums. Healthcare services themselves remain exempt, and the 5% GST on non-ICU room rent above ₹5,000 a day continues. The 12% and 28% slabs were abolished, leaving 5% and 18% as the working rates.
A year later the change is still causing trouble in hospital pharmacies and billing desks — not because the rules are complicated, but because item masters were never fully updated and old stock carried old MRPs. This guide lists exactly what moved, what stayed, and how to audit your system. It is not tax advice; confirm anything that affects your returns with your chartered accountant.
What changed under GST 2.0 for healthcare
| Item | Before 22 Sep 2025 | After | Who it affects |
|---|---|---|---|
| Most medicines and formulations | 12% | 5% | Every hospital pharmacy and medical store |
| Specified life-saving drugs (including many cancer and rare-disease therapies) | 12% or 5% | Nil | Oncology, nephrology, rare-disease treatment |
| Medical, surgical, dental and diagnostic apparatus and devices | 12% or 18% | 5% | Purchasing, OT, labs, radiology |
| Individual health and life insurance premiums | 18% | Nil | Patients; indirectly the TPA desk |
| Healthcare services (consultation, treatment, IPD care) | Exempt | Exempt | No change |
| Non-ICU room rent above ₹5,000 per day | 5%, no ITC | 5%, no ITC | No change — still frequently mis-billed |
| Medicines supplied to an admitted patient as part of treatment | Part of exempt composite supply | Unchanged | IPD billing |
Why hospital pharmacies are still getting it wrong
1. Item masters were updated by category, not by item
Many pharmacies ran a single "change all 12% to 5%" update. That misses the drugs that went to nil, over-taxes them, and leaves any item that was wrongly coded before the change still wrong. GST is applied per HSN code, and the correct fix is an HSN-wise review.
2. Old MRP stock
MRP is inclusive of GST. When the rate fell, manufacturers were directed to revise MRPs, and stock in the channel was to be re-labelled or sold at the reduced price. A pharmacy that continued selling at the old printed MRP while charging 5% pocketed the difference — and invited a complaint. Bill at the revised MRP, and make sure your software calculates the tax component backwards from the inclusive price rather than adding it on top.
3. Input tax credit on transitional stock
Stock bought at 12% and sold at 5% creates an inverted-duty situation on that batch. Your accountant needs the purchase and sale data batch-wise to handle the credit correctly; a pharmacy system that tracks batches and purchase tax rates makes this a report, not an archaeology project.
4. IPD versus OPD supply
Medicines consumed by an admitted patient as part of treatment are part of the exempt healthcare service; the same medicine sold across the counter to an outpatient is a taxable supply at 5% or nil. Billing systems that do not distinguish the two either leak tax or over-charge patients. Our hospital billing and GST guide explains the composite-supply logic.
5. Room rent above ₹5,000
This rule is from July 2022, not from GST 2.0, but the rate review prompted many hospitals to re-check it and discover they had never applied it. Non-ICU rooms billed above ₹5,000 a day attract 5% GST without input credit; ICU, CCU, NICU and ICCU are excluded.
A rate-master audit you can finish in a day
- Export the pharmacy item master with item name, HSN code, current GST rate and last purchase rate.
- Flag every item still at 12% or 18%. After 22 September 2025 there should be very few legitimate ones in a pharmacy master; each needs a reason.
- Check the nil-rated list against the official notification and make sure those items are set to exempt, not 5%.
- Verify MRP-inclusive calculation on a sample bill: tax should be extracted from the MRP, not added to it.
- Confirm IPD consumption is not being taxed as a retail sale.
- Test a bill with a room above ₹5,000 and confirm the 5% line appears on the room component only.
- Reconcile with the GSTR-1 you filed for October 2025 onward; if the pharmacy's rate mix did not change that month, something was missed.
The knock-on effect at the insurance desk
Removing GST on individual health-insurance premiums does not change what a hospital bills, but it changes patient behaviour: premiums fell by roughly 15% overnight, more families are buying or upgrading cover, and the share of cashless admissions is rising. Combined with IRDAI's one-hour and three-hour cashless timelines, that puts more load on the TPA desk. See what your TPA desk must change.
What good pharmacy software does with a rate change
A rate change of this size is the clearest test of a pharmacy or hospital billing system. It should let you update GST rates HSN-wise in bulk with an effective date, keep the old rate on historical bills, extract tax from an inclusive MRP, hold batch-wise purchase rates for transitional credit, separate IPD consumption from OPD sale, and produce HSN-wise summaries that match your returns. Our pharmacy management software guide lists what else to look for.
Frequently Asked Questions
What is the GST rate on medicines in India in 2026?
Most medicines and formulations attract 5% GST since 22 September 2025, down from 12%. A specified list of life-saving drugs, including many cancer and rare-disease therapies, is fully exempt. A small number of items remain at 18%.
Is there GST on hospital treatment?
No. Healthcare services provided by a clinical establishment, including consultations, procedures and inpatient care, are exempt from GST. The exceptions are non-ICU room rent above ₹5,000 per day (5% without ITC) and certain cosmetic procedures that are not medically necessary.
Is GST charged on medicines given to admitted patients?
Medicines, consumables and implants supplied to an inpatient as part of their treatment are treated as part of the exempt composite healthcare service. Medicines sold to an outpatient or at a retail pharmacy counter are taxable at the applicable rate.
Did GST on health insurance premiums really go to zero?
Yes. Individual health and life insurance premiums were exempted from GST with effect from 22 September 2025, down from 18%. Group policies have separate treatment; check with your insurer.
Bill the right rate every time
Healthixio's pharmacy and billing modules apply GST HSN-wise with effective dates, extract tax from inclusive MRPs, keep IPD consumption separate from counter sales and produce return-ready summaries. See the pharmacy module or published pricing.