GST Council Considers Changes to Simplify Refund Process for Pharma Companies

Pharma and life sciences companies may soon find it easier to recover their goods and services tax (GST) refunds, with the GST Council considering changes to give statutory backing to the existing system under which 90% of eligible claims can be released provisionally after a risk check. Currently, pharma companies pay 18% GST on many raw material inputs but collect only 5% GST on finished medicines. This inverted duty structure leaves them with excess tax credit that gets stuck with the government as a refund claim. Even though 90% of eligible inverted-duty refund claims can already be released provisionally under a CBIC instruction issued in October 2025, the government now wants to make this arrangement part of the GST law. This would give companies certainty over getting their refunds and help free up working capital stuck in GST refunds. According to the paper, work done in India for foreign clients, including clinical trials, testing and contract manufacturing , is likely to be treated as exports. This would allow companies to claim the tax benefits available to exporters and reduce the GST burden on services provided to overseas clients. The proposal could also cover contract manufacturing where finished goods are supplied to an Indian customer at the direction of the foreign client. The proposals also seek to allow companies to claim input tax credit on free medicine samples given to doctors and medicines that expire and have to be destroyed under the law. This would remove a GST cost associated with products that companies cannot sell. A pharma analyst said the move would be particularly relevant for companies because free samples are a normal part of how medicines are promoted, while expiry and mandatory destruction are routine operational costs. Further, the package talks about exemptions for imported medicines and specialised foods used to treat seven additional rare diseases. Treatment for some of these diseases can cost lakhs of rupees a month. The exemption would reduce the cost of these treatments for patients. Experts said the proposals address several long-standing tax issues faced by the pharma industry, but could bring new compliance requirements. Sukhender Kumar, senior manager (health care advisory) at Nangia & Co said that the anticipated considerations in the upcoming GST Council meeting indicates a progressive shift toward strengthening the domestic pharma ecosystem. “But the industry must prepare to navigate key implementation challenges. Entrusting institutional heads with the self-certification of research or consultancy streamlines approvals but places considerable legal and audit liability directly on research heads,” he said. Additionally, the proposed tax credit would require companies to keep proper records showing how expired medicines and free samples were disposed of, to avoid disputes with tax authorities.