How will India’s new GST reforms impact medicines, diagnostics and insurance?

For Indian households struggling with rising medical bills, and for companies balancing costs in an expanding healthcare market, relief may be on the way. The central government has approved a sweeping rationalisation of Goods and Services Tax (GST) on medicines, medical devices, diagnostics, and insurance, a move officials say is designed to ease the financial burden on patients while giving industry room to grow. The measures, which take effect from 22 September 2025, mark one of the most significant steps yet to align taxation with the goal of affordable healthcare for all.

Pharma and what patients can expect

Essential medicines will now attract 5 per cent GST instead of 12 per cent, with certain life-saving rare-disease and oncology therapies fully exempt. The government said this is aimed at reducing the financial burden on families managing chronic conditions such as diabetes, hypertension, and cancer. GST on job-work in pharmaceutical manufacturing falls from 12 per cent to 5 per cent, and services for treatment or disposal of biomedical waste drop from 12 per cent to 5 per cent, measures expected to ease production costs and address inverted duty structures.

Sudarshan Jain, Secretary General of the Indian Pharmaceutical Alliance, highlighted that the exemption for life-saving and cancer medicines “will bring direct relief to patients and their families,” while the reduction on a wider range of medicines “will help ease the overall treatment burden and make essential therapies more affordable.” Monika Arora, Partner at Deloitte India, noted that duty inversion from higher taxes on active pharmaceutical ingredients (APIs) could create working-capital pressure, but this is mitigated by the government’s proposal for 90 per cent provisional refunds on such claims. Sheetal Arora, Promoter and CEO of Mankind Pharma, added that the revisions “represent a structural shift in how India is enabling healthcare access, signalling that affordability and innovation can go hand in hand.”

Healthcare and insurance: what households will feel

The most immediate benefit for consumers comes from the exemption of GST on individual health insurance, family floater, and senior-citizen plans. Officials said the move is designed to make premiums more affordable and encourage broader coverage. Vishal Bali, Executive Chairman of Asia Healthcare Holdings, noted that only 41 per cent of households are covered through government or private insurance, and reducing GST on insurance premiums and diagnostic kits could “catalyse the focus on preventive health.”

Providers also expect indirect relief. Easier access to lower-cost diagnostics and consumables should support early disease detection and routine screening. Ameera Shah, President of NATHEALTH and Executive Chairperson of Metropolis Healthcare, said these measures “enhance access to quality healthcare services, support early detection, and standardise GST rates across preventive, curative and rehabilitative care,” while also making health products such as glucometers and corrective spectacles more affordable.

Suneeta Reddy, Managing Director of Apollo Hospitals, said, “The rationalization of GST and the 100% FDI in insurance announced earlier this year will make healthcare more accessible and affordable, and enable more Indians to purchase health insurance, expanding coverage across the country.”

The government said nutrition and lifestyle measures are part of the same initiative. UHT milk and paneer are exempt, while dry fruits and diabetic foods fall to 5 per cent, as do preserved fish, fruit pulp or juice-based drinks, and milk-containing beverages. GST on gyms and fitness centres has been reduced from 18 per cent to 5 per cent to promote preventive health. Sin goods, such as tobacco, pan masala, and sugary drinks, remain heavily taxed at 40 per cent to discourage harmful consumption.

Medical devices: impact on hospitals and manufacturers

Medical products, including anaesthetics, medical-grade oxygen, gauze, bandages, diagnostic kits, surgical gloves, glucometers, and thermometers, now attract 5 per cent GST, down from 12 per cent. This reduction is expected to lower patient bills at hospitals and diagnostic centres, particularly in Tier-2 and Tier-3 cities, while easing operating costs for hospitals and labs and supporting the wider adoption of modern diagnostics.

Himanshu Baid, Managing Director of Poly Medicure, said the reduction “will directly benefit patients by lowering treatment costs, improving affordability, and expanding access to essential medical technologies.” Rajiv Nath, Forum Coordinator of the Association of Indian Medical Device Industry (AiMeD), added that the reforms also ease compliance. Rapid provisional refunds for accumulated GST credits due to inverted duty structures will relieve working-capital constraints, while a transition period for packaging material will prevent punitive issues under anti-profiteering rules.

Process changes underlining the shift

The 56th GST Council has approved a two-tier structure of 5 per cent and 18 per cent, with sin goods at 40 per cent. Risk-based provisional refunds are to be sanctioned at 90 per cent for inverted duty claims from 1 November 2025, pending legislative amendments. Registration for low-risk taxpayers is to be processed within three days, with simplified and pre-filled returns to reduce administrative burden.

Taken together, the reforms use tax policy to lower the cost of essential medicines and devices, make insurance more accessible, and encourage preventive care, while keeping harmful consumption expensive. For patients, the result is lower out-of-pocket spending on drugs, diagnostics, and premiums. For the industry, it means cost relief, faster liquidity through refunds, and a clearer compliance pathway that supports investment and scale. As Monika Arora put it, “These measures will ease off the cost pressures on our health system, enhance patient access and advance India’s position as a global life science hub.”