GST on medicines sold by a clinic: what applies in 2026 Composite or mixed supply, what the rulings say about OPD dispensing, rates after 22 September 2025, and registration.

If your clinic sells or dispenses medicines to OPD patients, GST is likely to apply to the medicines even though the consultation stays exempt. The advance rulings we could find treat medicines supplied to out-patients as a supply separate from the health care service, taxable at the rate notified for that medicine; since 22 September 2025 most medicaments sit at 2.5% central tax under Schedule I of Notification No. 9/2025-Central Tax (Rate), with State tax charged alongside. Medicines given to admitted in-patients during treatment have been held to be part of an exempt composite supply. No ruling binds your clinic, and no circular addresses OPD dispensing directly, so treat this as the position to discuss with your Chartered Accountant (CA), not a settled answer.

Our post on GST on doctor consultation fees covers the exemption for consultations, the bill of supply and what else a clinic sells that is taxable. This one goes deeper on medicines only. Whether your clinic may stock and dispense medicines at all is a drug-licensing question, covered in our post on Schedule K and dispensing medicines at a clinic.

Why does dispensing raise a GST question at all?

Because the exemption is for a service, and a medicine is goods. Serial number 74 of Notification No. 12/2017-Central Tax (Rate), dated 28 June 2017, exempts "health care services by a clinical establishment, an authorised medical practitioner or para-medics" at a Nil rate under Heading 9993. It says nothing about goods. A clinic that hands a patient medicines and charges for them is supplying goods alongside the exempt service, and the law then asks whether the two are one supply or two.

At most OPDs that dispense, the pattern looks like this: the doctor writes the prescription, the attendant packs a few days' tablets from the clinic's shelf, and the bill shows either a single amount or a consultation line and a medicine line. Which of those two bills you issue matters for the analysis below.

Is a consultation with medicines a composite supply or a mixed supply?

The Central Goods and Services Tax Act, 2017 has two definitions for bundles, and section 8 tells you how each is taxed.

Read together, three outcomes are possible for a clinic that dispenses.

1. Composite supply with health care as the principal supply. The whole bill takes the treatment of the principal supply, which is exempt under serial 74. This is how the rulings below treat medicines given to admitted in-patients.
2. Mixed supply. If the medicines and the consultation are not naturally bundled but are charged at a single price, section 8(b) taxes the whole amount at the highest rate among the items, which would be the medicine rate. A single "consultation with medicines" price can therefore cost more GST than two separate lines.
3. Two separate supplies. If the consultation and the medicines are priced separately and the patient could buy the medicines elsewhere, the consultation is exempt and the medicines are taxed at their own rate. This is how the rulings below describe supplies to out-patients.

Section 2(30) has a test of fact in it: "naturally bundled" and "in the ordinary course of business". That is why the rulings turn on how the hospital actually worked, and why the answer for your clinic depends on how you dispense and bill, not on a general rule.

What does CBIC Circular 32/06/2018-GST say?

The CBIC circular closest to this question, Circular No. 32/06/2018-GST dated 12 February 2018, answered questions about hospitals. On food it says: "Food supplied to the in-patients as advised by the doctor/nutritionists is a part of composite supply of healthcare and not separately taxable. Other supplies of food by a hospital to patients (not admitted) or their attendants or visitors are taxable."

Two limits to keep in mind. The circular speaks of food, not medicines; it is the advance rulings that apply the same reasoning to medicines "by analogy". And its line is drawn at admission: the composite treatment covers in-patients, while supplies to "patients (not admitted)" are taxable. An OPD patient is, by definition, not admitted.

What do advance rulings say about medicines for out-patients?

We found three orders that speak to the point. All three concern hospitals with pharmacies, not single-doctor OPDs, and section 103(1) of the CGST Act says an advance ruling is binding only "on the applicant who had sought it" and "on the concerned officer or the jurisdictional officer in respect of the applicant". Read them for reasoning.

The 2025 Tamil Nadu order sets out the reasoning most fully. It says medicines prescribed to out-patients are "only of advisory nature", that out-patients "are at liberty to procure the same from the hospital or other pharmacies of their choice", and that in-patients, by contrast, receive medicines that are "necessarily issued by the hospital's pharmacy to ensure timely and proper treatment". It then applies the food line of Circular 32/06/2018 to medicines: "The same analogy applies to the instant case of dispensing medicines and consumables also", and concludes that "except for the exempted healthcare service, all other supplies including medicines, consumables, food etc., in the case of supplies to out-patients are taxable to GST."

Does any of this change for a single-doctor clinic that dispenses?

We found no advance ruling, circular or court order on a single-doctor OPD that dispenses its own stock during the consultation. The argument usually made for exemption is that a doctor who hands over the first doses during the visit is giving care, not running a pharmacy. The rulings above point the other way for out-patients, on the ground that the patient could buy the same medicines anywhere. If your clinic dispenses and wants to rely on the exemption, that is a position to take only after your CA has looked at how you dispense and bill, and you may consider applying for your own advance ruling under Chapter XVII of the CGST Act.

What GST rate applies to medicines after 22 September 2025?

Notification No. 9/2025-Central Tax (Rate), dated 17 September 2025, replaced the 2017 rate notification for goods with effect "from the 22nd day of September, 2025". It notifies central tax of "2.5 per cent. in respect of goods specified in Schedule I", and Schedule I lists the medicine headings below. The notification sets the central tax only; your supplier's invoice shows the State tax charged alongside it.

Some drugs are fully exempt. Notification No. 10/2025-Central Tax (Rate), of the same date and also in force from 22 September 2025, exempts at serial 113 "Drugs or medicines listed in Annexure I" from the whole of the central tax. Annexure I has 37 entries, beginning with "Gene Therapy", "Agalsidase Beta" and "Imiglucerase"; they are specialised drugs that a general OPD is unlikely to stock. The same notification exempts "All types of contraceptives" under heading 3006 at serial 115.

Classification decides the rate, not the word "medicine" on the strip. Supplements, cosmetics and skin-care products that a clinic may also sell can fall under other headings at other rates. Take the heading and rate for each product from the supplier's tax invoice and confirm it with your CA, and re-check after every GST Council meeting, since rates change by notification.

Does selling medicines mean the clinic must register for GST?

Possibly, and sooner than most clinics expect. A clinic that supplies only exempt health care is outside registration under section 23(1)(a), which excludes "any person engaged exclusively in the business of supplying goods or services or both that are not liable to tax or wholly exempt from tax". Taxable medicine sales end that exclusion. Section 22(1) then requires registration where a supplier "makes a taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds twenty lakh rupees", with a ten lakh rupee limit for supplies made from special category States.

The threshold is counted on aggregate turnover, and section 2(6) defines that as "the aggregate value of all taxable supplies ..., exempt supplies, exports of goods or services or both and inter-State supplies of persons having the same Permanent Account Number, to be computed on all India basis". Exempt consultation fees count.

Two details. The higher limit of up to forty lakh rupees that a State may notify under the third proviso to section 22(1) is only for a supplier "engaged exclusively in the supply of goods", which a clinic that also supplies health care services is not. And the special category States are those in article 279A(4)(g) of the Constitution, excluding Jammu and Kashmir, Arunachal Pradesh, Assam, Himachal Pradesh, Meghalaya, Sikkim and Uttarakhand, as section 22 itself says.

Can a dispensing clinic use the composition scheme?

Perhaps, but the conditions are tight for a business whose main income is a service. Section 10(1) lets a registered person with aggregate turnover in the preceding financial year up to fifty lakh rupees (which the Government may raise by notification up to "one crore and fifty lakh rupees") pay a fixed percentage of turnover instead of regular tax, "not exceeding" half a percent of the turnover in the State as central tax for "other suppliers" under clause (c). Section 10(2)(a) requires that the person is "not engaged in the supply of services", save that the second proviso to section 10(1) allows services "of value not exceeding ten per cent. of turnover in a State or Union territory in the preceding financial year or five lakh rupees, whichever is higher".

For most clinics the consultation fees are the bulk of turnover, well above that services allowance, so section 10(1) is unlikely to fit. Section 10(2A) is a separate scheme for a registered person "not eligible to opt to pay tax under sub-section (1) and sub-section (2)" whose aggregate turnover in the preceding year did not exceed fifty lakh rupees, at a rate "not exceeding three per cent." of central tax, subject to its own conditions. Under section 10(4), a composition taxpayer "shall not collect any tax from the recipient" and is not "entitled to any credit of input tax". Whether a clinic qualifies, and whether it is worth it, is a question for your CA.

How should a dispensing clinic bill, in practice?

1. Bill the consultation and the medicines as separate lines with separate amounts. A single combined price risks being read as a mixed supply taxed at the medicine rate under section 8(b).
2. Keep a stock record of what you buy and what you dispense, with the supplier's invoice showing the heading and rate for each item.
3. Track medicine sales as a separate total every month. That figure, with the consultation fees, is your aggregate turnover.
4. If your aggregate turnover is anywhere near the threshold, register before you cross it, not after. Section 25(1) gives thirty days from becoming liable.
5. Once registered, the consultation goes on a bill of supply and the medicines on a tax invoice, as explained in our consultation fee GST post.
6. Keep the drug licence position settled first. A GST registration does not make dispensing lawful; the Drugs and Cosmetics Rules decide that.

What to take to your CA

1. How medicines move at your clinic: who prescribes, who dispenses, whether patients can and do buy elsewhere, and whether any patient is ever admitted.
2. Two or three sample bills, showing whether medicines are priced separately or within a single fee.
3. Last year's consultation fees and medicine sales as two totals. The monthly roll-up from the daily close of cash, UPI and card gives you the first.
4. A list of the medicines you stock with the HSN heading from the supplier's invoice.
5. Your State, so the CA can apply the right threshold.
6. The question in writing: "Is our dispensing a separate taxable supply, and do we need to register?"