The 57th GST Council has recommended allowing pharmaceutical companies to claim input tax credit (ITC) on free physician samples and expired inventory. This move aims to reduce tax cascading and improve operational cash flow, with further relief on inverted duty refunds scheduled for late 2026 and 2027.
In a major regulatory relief for the pharmaceutical sector, the 57th GST Council, which met on October 8, 2026, has recommended amending the tax framework to allow Input Tax Credit (ITC) on free physician samples and goods written off due to expiration. This decision addresses a long-standing demand from the industry, effectively easing the tax burden associated with mandatory regulatory disposal protocols.
Currently, pharmaceutical companies often face tax-related friction when disposing of expired inventory or distributing free samples, as these were typically restricted under Section 17(5) of the CGST Act. By allowing ITC on these items, the government aims to reduce tax cascading, where tax is paid on inputs without the ability to claim credit, thereby increasing the effective cost of doing business.
Expanding Relief for Inverted Duty Structures
Beyond the treatment of samples and expired goods, the Council has targeted wider working capital constraints related to the inverted duty structure, where the tax rate on inputs is higher than on the finished product. The Council recommended that input services be included in the calculation of refunds for inverted duty structures starting November 1, 2026.
Furthermore, to support long-term capital investment, the Council outlined plans to allow credit on plant and machinery used for inverted duty refunds, effective April 1, 2027. These measures are designed to mitigate the impact of blocked credits, which has historically pressured the balance sheets of manufacturers investing in new production facilities, vaccines, and biologics.
Investor Perspective and Compliance Risks
For investors, these reforms signal a move toward lower operational costs and improved liquidity across the pharmaceutical sector. By reducing the frequency of tax-related disputes, companies may see a modest improvement in cash flow and a reduction in administrative expenses tied to complex tax audits.
However, the benefit is contingent on strict compliance. Companies will need to maintain rigorous documentation to prove the legitimacy of their claims, particularly regarding the quantity and nature of expired goods. Regulatory auditors are expected to increase scrutiny to ensure that credits on 'destroyed' goods are supported by verifiable evidence and align with official disposal protocols.
While the industry has welcomed the recommendations, they remain subject to formal legislative amendments to the CGST and IGST Acts. Market observers will monitor the issuance of official notifications, as these will define the specific documentation standards and transition timelines for companies to fully realize these tax savings.