Exclusive | Pharma companies may soon get GST relief shot on free drug samples

In a move that could bring significant relief to India’s pharmaceutical sector, the Goods and Services Tax (GST) Council is likely to consider a clarificatory relief on the availability of Input Tax Credit (ITC) on free drug samples provided by pharma companies to doctors and hospitals.Sources have confirmed to CNBC-TV18 that a formal discussion may take place in the upcoming GST Council meeting, where a clarification could be issued allowing pharma companies to claim ITC on promotional or free drug samples, something currently disallowed in most cases.The Case for ITC on Free SamplesAt the heart of the issue is the current interpretation of the GST law, which disallows ITC on goods distributed without consideration, i.e., free samples. While there are limited exceptions, pharma companies argue that their free drug samples serve a distinct purpose—they are provided exclusively to registered medical professionals and hospitals, and not distributed to end consumers like free sachets or giveaways in the FMCG sector.Pharma players have made a representation to the government highlighting that their free samples are a regulatory and marketing necessity. Doctors use these samples to assess drug efficacy and suitability before prescribing them to patients. Therefore, companies contend, these samples are a critical part of the marketing and R&D process, not promotional freebies.One senior industry executive told CNBC-TV18, “The government must recognise the difference between consumer-targeted freebies and scientifically distributed drug samples. This is a professional necessity, not consumer sales push.”Free Samples Account for Up to 2% of Manufacturing CostsPharma companies have further pointed out that marketing expenses on free samples constitute up to 2% of their total manufacturing costs—a significant sum for companies operating in a price-sensitive market.Without ITC, these firms are forced to absorb the embedded tax costs on raw materials and packaging for the free samples, increasing their overall cost burden.The industry is seeking a uniform ITC treatment, applicable across the board for all qualifying promotional samples, and not restricted to narrow exceptions or conditional circumstances.Possible Clarification Under DiscussionSources suggest the Council may consider issuing a circular or notification clarifying the eligibility of ITC on such samples, possibly by introducing a new category or amending existing interpretations under GST law. Such a move could help bring parity and predictability for pharmaceutical manufacturers.However, there are challenges to this proposal. A government official aware of the deliberations said, “While the demand is reasonable, the GST law has clear provisions disallowing ITC on goods distributed without consideration. We must ensure that any relaxation doesn’t open the door to misuse or mass-scale ITC claims by other sectors.”To that end, the Council may also deliberate on defining boundaries—such as capping the value of free samples eligible for ITC, making it applicable only for Schedule H drugs (prescription medicines), or limiting it to samples distributed under a medical license.Industry in Wait-and-Watch ModeFor now, pharma companies remain cautiously optimistic. A senior tax consultant advising multiple pharma firms said, “A clarification from the GST Council could unlock crores worth of Input Tax Credit currently stuck due to interpretational disputes. It will also reduce litigation and bring consistency in compliance.”The GST Council’s next meeting is expected later this month, and this proposal may be on the agenda. Whether the government will provide the relief in the form the pharma sector has demanded remains uncertain.If approved, this could become one of the most significant tax reliefs for the pharma industry since GST was implemented, not only easing working capital constraints but also encouraging more structured and compliant sample distribution practices.Until then, the industry waits for what could be a landmark decision—one that could redefine the tax treatment of promotional goods in the regulated healthcare sector.

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