How will GST effect Pharma Products and Industry?

With the GST regime being effective from 1st July, 2017, many of you will be wondering how will GST effect my business. This article is mainly written for PCD Pharma Industry of which we are also one part.

So most people are still not clear about many things about GST related to Pharma Industry. So in this article we will discuss all those questions with credible answers.

What is GST?

Before diving straight into how will GST effect Pharma Products, let us first explain briefly what is GST and how it is different from existing Tax Regime of VAT and CST.

GST or (Goods and Services Tax) is a unified tax system that is introduced by BJP Government. It will replace all indirect taxes like VAT, CST & others.

Let us demonstrate the earlier tax regime and current tax regime with the help of an example.

Selling and Buying Products under VAT or CST?

Suppose I have my two customers one local and one from other state, lets name them:

1. Mr. Anil Haryanvi (From Haryana)
2. Mr. Suresh Bihari (From Bihar)

and suppose my company Trumac Healthcare is from Haryana.

Now suppose, both of them buy one box of Cefixime 200mg tablet from my company @ 300 per box (We sell at very lower rates).

Bill to Mr. Anil Haryanvi :   300 + 5% (VAT) = 315/-

Bill to Mr. Suresh Bihari :   300 +  2% (CST) =  306/-

You might be thinking that Mr. Anil is unlucky to get goods at high rates than Mr. Suresh but he can claim all this 5% VAT by selling these goods in his state but Mr. Suresh cannot do so.

• When Mr. Anil sell goods in Haryana @ 350 :  350 + 5% (VAT) =  367.5

Now Mr. Anil can deduct 15 rupees tax he paid to me and deposit rest 2.5 rupees to govt. and 50/- is his net profit.

Net Profit =  50/-

• When Mr. Suresh Sells goods in Bihar @ 350:   350 + 5% (VAT) = 367.5

Now Mr. Sunil has to pay all VAT Collected i.e 17.5 to govt and he cannot deduct CST 2% paid to me from it.

Net Profit = 350 – 306 = 44/-

So CST is non-refundable, that’s why Mr. Anil Haryanvi has advantage over Mr. Suresh when he buys from Trumac Healthcare, Haryana.

Buying and Selling Products under GST

Consider the same scenario with GST rate 12%

Bill to Mr. Anil Haryanvi :  350 + 12% (GST) = 392/-

Bill to Mr. Suresh Bihari :  350 + 12% (GST) = 392/-

Now you can see that both are getting products at same rate. In GST tax rate is same whether you buy or sell in state or out of state.

When Mr. Anil Haryanvi Sells Product @ 442 : 442 + 12% (GST) = 495.04

He can deduct 42/- gst paid from 53.04/- gst he collected from his customer and rest he can pay to govt. So he does not have to pay any tax from his pocket.

Net Profit = 50/-

Tax Paid to govt = 53.04 – 42 = 11.04/-

When Mr. Suresh Bihari Sells Product @ 442 : 442 + 12% (GST) = 495.04

He can deduct 42/- gst paid from 53.04/- gst he collected from his customer and rest he can pay to govt. So he does not have to pay any tax from his pocket.

Net Profit = 50/-

Tax Paid to govt = 53.04 – 42 = 11.04/-

So Both Mr. Anil and Mr. Suresh are at the same level under GST Regime.

PCD Pharma Products comes under two categories:

1. Drug
2. Food

GST rate for all Drug Products is 12%

GST rate for all food products ranges from 12% – 18% depending on the composition of product.

Now we know that some of the most obvious questions will arise in your minds, so we are going to answer those questions here. If some question is left, you can comment below this post, we will definitely give you answer.

After looking at the above example, this is the first question most of people ask. Will the price of medicine will increase as now 12% tax is there.

Answer to your question is NO.

Presently also there are various types of taxes except VAT & CST:

• Excise Duty
• Octroi Tax
• other state level taxes.

All these taxes will be submerged under GST, so according to us price of medicines should come down with time.

For price list of Trumac Healthcare, Contact US.

Now we all know that there are many people who sells medicines and other commodities without bill, and these people exist all over India.

Until now tax rate was 5%, so there what people do is take goods on bill, pay 5% tax and sell them without bill.

But now in order to do that they need to pay 12% GST first. And further the buyer who purchases the goods without bill and seller who sells without bill will not be able to claim input tax credit.

So, purchase cost will increase for those people who will sell goods without bill.

Now we all have some stock with us today and we don’t expect it to sell before GST, nor we should sell it. So should I have to pay GST on that stock to government beforehand.

The answer is No.

Government has given time period of six months to clear out that opening stock and pay GST to govt. You have to declare the opening stock on July 1st beforehand and then at the end of each month, whatever stock you have sold, you have to pay GST on that.

In GST regime, govt has divided each and every goods and services in different categories and each of these category has a code and a predefined tax rate.

In Pharma industry as we described earlier products come under two categories:

1. Drug
2. Food

HSN (Homogeneous System Nomenclature) Codes for Drug Products is 3004

HSN Code for Food Products is 2106

Usually the full HSN Code is of 8 digits but people who are selling goods in India only have to put 4 digits and who are exporting goods outside India have to put 8 digits.

For detailed 8 digit codes, contact us.

I hope that you must have enjoyed reading this article. If you did, then please share this as much as possible to create awareness about GST amongst our Pharma Group.

If you have any questions or suggestions, feel free to post comments at the end of this post.