Pharma Firms to Get GST Input Tax Credit on Free Samples, Legally Destroyed Expired Goods
New Delhi: Pharma companies will be able to avail GST input tax credit (ITC) on free samples and on goods destroyed or written off upon expiry of shelf life from the next fiscal year.
The GST Council, chaired by Union Finance Minister Nirmala Sitharaman and her state counterparts, had on Thursday approved the proposal to rationalise ITC and refund reforms for the sector, a move which will support manufacturing, liquidity and exports and address several long-standing GST issues that pharmaceutical and life sciences businesses face.
The changes in GST law and rules will become effective from the next fiscal year.
The availability of ITC on free samples and on goods destroyed or written off upon expiry of shelf life, where destruction is required by law, is particularly relevant for an industry that routinely manages physician samples, expired inventory and regulatory disposal requirements.
"The proposals are expected to be especially relevant for manufacturers of pharmaceutical formulations, vaccines, biologics, diagnostic products and consumer healthcare products, where product sampling, expiry-related inventory management and significant manufacturing investments are common features of the business model," EY India, Partner & National Life Sciences & Healthcare Tax Leader, Ashish Jain said.
Deloitte India, Partner & Indirect Tax Leader, Mahesh Jaising said the Council's decision has given India's pharmaceutical industry a "double-dose GST booster".
The unlocking of ITC when medicines are destroyed or written off after their shelf life expires, ends a punishing tax hit on inventory that law itself requires companies to discard, Jaising said.
Also, the proposed inclusion of input services and capital goods in inverted duty refund computations addresses and buttresses the challenge faced by this industry, with predominantly 5 per cent GST rate post GST 2.0.
"Together, the changes would address working capital challenges, cost of blocked ITC credits, avoidable disputes and materially improve cash flows across manufacturers and exporters in the pharma sector," Jaising added.
EY India, Partner, Indirect taxes Consumer and Health Sciences, Suresh Nair said the proposed refund of accumulated ITC on input services and capital goods could improve working-capital efficiency for businesses investing in manufacturing facilities, production equipment and export-oriented operations.
