GST Exemption for Medicines Supplied to Hospital Inpatients
Medicines provided to hospital inpatients are GST-exempt, but pharmacy sales to outpatients remain taxable.
- Ruling
- Advance Ruling No. 10/ARA/2025, dated 29.01.2026
- Dated
- 29 Jan 2026
- Authority
- Authority for Advance Ruling
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
The short version
- Inpatient medicine supply is a composite healthcare service, qualifying for GST exemption.
- Outpatient pharmacy sales are independent transactions and do not qualify for exemption.
- The ruling distinguishes between bundled hospital care and retail pharmacy sales.
In short
The hospital asked the Authority for Advance Ruling (ARA) if medicines and consumables provided to patients are exempt from Goods and Services Tax (GST). The authority examined whether these supplies are part of a single, bundled healthcare service or separate retail sales.
What has changed
How it worked before
Many hospitals assumed that all medicines dispensed through their in-house pharmacies were part of their healthcare services and therefore exempt from GST.
What has changed
The authority ruled that only inpatient supplies are exempt as a composite service. Outpatient pharmacy sales are now clearly defined as taxable retail transactions, meaning hospitals must collect and pay GST on these specific sales.
Who this affects
Private hospitals, clinics, and healthcare providers operating in-house pharmacies.
An example
A private clinic in Chennai sells medicines to a patient who visited for a consultation but went home the same day. Under this ruling, the clinic must charge GST on these medicines because the patient is an outpatient. If the same patient were admitted for surgery, the medicines provided during their stay would be exempt.
What you should do
Hospitals should review their billing systems to separate inpatient and outpatient pharmacy revenue. Note that an advance ruling only binds the specific hospital that asked and its local tax office; it is not a universal law for all hospitals.
If you do nothing
If a hospital treats outpatient pharmacy sales as exempt, they risk a tax demand for unpaid GST, plus interest and penalties. A tax officer may audit your records and conclude that these sales were taxable retail transactions, leading to significant financial liability.
The terms explained
- Composite supply
- A package of goods or services provided together where one is the main service and the others are naturally bundled with it.
- GST exemption
- A status where a specific supply of goods or services is not subject to Goods and Services Tax.
- Integral part
- A component that is essential to the main service being provided, such that the service cannot be completed without it.
The ruling in detail
Authority for Advance Ruling
M/s. Rajarajeswari Hospitals Private Limited
Advance Ruling No. 10/ARA/2025, dated 29.01.2026 · Tamil Nadu
Questions before the authority
- Whether the supply of medicines, consumables, implants, and medical items to In-patients as part of the treatment provided by the hospital is exempt under Entry No. 74 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 as a composite supply of healthcare services?
- Whether the supply of medicines, consumables, implants, and medical items to Out-patients as part of the treatment provided by the hospital is exempt under Entry No. 74 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 as a composite supply of healthcare services?
Facts
The applicant is a multi-specialty hospital that provides comprehensive healthcare services to both inpatients and outpatients. The hospital operates an in-house pharmacy that dispenses medicines and consumables exclusively to patients receiving treatment based on valid prescriptions. These supplies are integrated into the hospital's billing system and are not sold as independent retail transactions.
Ruling
| Question | What the authority ruled |
|---|---|
| Supply to In-patients | Exempt Qualifies as a composite supply of healthcare services under Entry No. 74 of Notification No. 12/2017-Central Tax (Rate) |
| Supply to Out-patients | Taxable Not considered an integral part of a composite supply of healthcare services |
The Authority ruled that the supply of medicines and consumables to inpatients as part of their treatment constitutes a composite supply of healthcare services and is exempt from GST. Conversely, it held that the supply of medicines and consumables to outpatients does not qualify as part of a composite supply and is therefore taxable.
Reasoning
The Authority relied on the definition of 'healthcare services' and 'clinical establishment' under Notification No. 12/2017-Central Tax (Rate). It determined that inpatient services are a **composite supply** where the principal supply is healthcare, making the ancillary supply of medicines exempt. For outpatients, the Authority reasoned that patients are not mandated to purchase medicines from the hospital pharmacy, meaning these supplies are independent and not an **integral part** of the healthcare service. It cited Section 2(30) of the CGST Act, 2017, to distinguish between bundled services and independent supplies.
Provisions relied on
- Section 2(30) of the CGST Act, 2017
- Section 97(2) of the CGST Act, 2017
- Entry No. 74 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017
- Circular No. 32/06/2018-GST dated 12.02.2018
For the practitioner
This ruling confirms that hospitals can claim **GST exemption** on medicines and consumables provided to inpatients as part of a composite healthcare service. However, it clarifies that the same exemption does not extend to outpatient pharmacy sales, which remain taxable. Practitioners should use this to advise clients on the necessity of segregating billing and tax treatment between inpatient and outpatient pharmacy operations.
Source
This is a summary prepared from the published order, which is a scanned document. It is a reading aid and not the authority: where the two differ, the order governs. Verify every provision against the original before relying on it.
Original order: https://www.gstcouncil.gov.in/sites/default/files/AAR/10-rajarajeswari_hospitals_aar_order_compressed.pdf
Legibility of the scan, as read: high.
Prepared 12-10-2026.
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