Union Budget 2024


Budget 2024 Expectations: Life Sciences and Healthcare (LSHC) 

Joydeep Ghosh, Partner and LSHC Industry Leader, South Asia


Current environment

  • The Indian pharmaceutical industry commands a significant share of more than 20 percent in the global medical supply chain. While India ranks third globally in terms of production volume, the industry ranks 10th globally in terms of value addition. This highlights the need for improved local value addition capabilities that can be addressed through appropriate policy interventions.
  • The government of India has been constantly taking several measures to encourage investments in the sector and promote local manufacturing and consumption, keeping cure and prevention in perspective. Production-linked incentive schemes have been introduced for medical devices, pharmaceuticals, and bulk drugs. The government has also introduced schemes to promote medical device parks and bulk drug parks with financial grants across different Indian states. Initiatives such as Ayushmaan Bharat Digital Mission (“ADBDM”), CoWIN (a digital vaccine delivery platform), health registry, and telemedicine, highlight the government’s strong emphasis on digitisation of health in India. Further, introduction of the Scheme for Promotion of R&D and Innovation in Pharma Med Tech Sector (PRIP) in September 2023 showcases the focus on creating an ecosystem for innovation and research. The industry is expected to witness an accelerated growth in the future led by various factors, such as policy interventions, infrastructure development, Foreign Direct Investments (FDI), improved manufacturing capabilities, and access to the cost-effective talent pool.


Healthcare delivery: Enhancing the overall healthcare system in the country

In the past few years, the healthcare sector has been a priority for the government, with a steady increase in allocations in previous budgets. In the Union Budget 2022-23, the Ministry of Health and Family Welfare received an allocation of about INR 86,200 crore, representing a 16.5 percent increase compared with the previous year. However, to increase the penetration of digital health, the following things can be done:

  • Awareness campaigns for diseases and the patient care availability nearby
  • Consolidation of data – health records, past medical records, etc. – improved chronic disease management, promote medication, and treatment adherence
  • Training for nurses, midwives, and semi-professional support staff on telemedicine
  • Emergency care through satellite kiosks and medicines through drone facility


Direct Tax


Expectation #1: Extension of sunset date for qualifying for concessional tax rate on income of new manufacturing domestic companies

  • The Taxation Laws (Amendment) Act, 2019, inter-alia, inserted section 115BAB in the Act to provide that new manufacturing domestic companies set up on or after 1 October 2019 commence manufacturing or production by 31 March 2023. These companies do not avail of any specified incentive or deductions; they may opt to pay tax at a concessional rate of 15 percent.
  • The time for commencing manufacturing or production was extended to 31 March 2024 by the Finance Act, 2022.
  • Considering that the government promotes companies to “Make in India”, we request that the time limit for commencing manufacturing or production be further extended to 31 March 2026.


Expectation #2: Modification of sub-section(2)(b) of section 115BAB

  • Section 115BAB provides a concessional tax rate of 15 percent to the company that is engaged in the business of manufacturing or production of any article or thing and research in relation to, or distribution of, such article or thing manufactured or produced by it.
  • Considering that the government intends to promote research, innovation, and development in India, we request that companies involved only in research-related activities should be included for concessional tax rate under section 115BAB. The concessional rate should not be restricted to only research in relation to article/thing manufactured or produced by the company.

Expectation #3: Extension of the sunset clause for Section 194LC

  • For interest income on borrowings in foreign currency up to 1 July 2023, the concessional tax rate is 5 percent. This has significantly provided a viable and attractive avenue for raising funds by Indian businesses, thus helping India to maintain the momentum in economic growth over the years.
  • Therefore, the sunset period should be extended for borrowings by way of loan in foreign currency up to 31 March 2026; this would support the vision of “Make in India”.

Expectation #4 Clarification on product samples and low brand value items

  • According to CBDT circular no. 18 of 2022 (Question No. 4), section 194R is applicable on free samples.
  • As distribution of samples is a business practise and required for marketing purpose, it is recommended that distribution of free product samples (upto a permissible threshold with certain conditions aligning with UCPMP policy) be allowed as deduction under section 37 as well as not be subject to withholding provision under section 194R.
  • As MCI regulations do not provide penalty for accepting gifts of value below INR 1,000, specific brand reminders as mentioned in UCPMP policy and up to INR 1,000 per item given as part of marketing activity should be allowed as deduction under section 37.


Expectation #5 Re-introduction of weighted deduction under section 35(2AB)

  • For a company engaged in the business of bio-technology or in any business of manufacture or production (excluding certain articles) weighted deduction was allowed on the expenditure incurred on scientific research (other than the cost of any land or building) on in-house research and development facility as approved by the DSIR.
  • To promote research, innovation, and development in India, weighted deduction for expenditure on R&D should be reintroduced.

Further, eligibility to weighted deduction should be extended to companies that have opted for the new tax regime. The new regime entitles a lower tax rate of 25.17 percent as a majority of the companies are covered by this tax rate.


Expectation #6 Explanation 3(ii) under section 37 to be clarified

  • Explanation 3(ii) to section 37 of the Act states that expenditure would be disallowed to the extent it represents a benefit or perquisite given and acceptance of which results in violation of any law, rule, regulation, guideline governing conduct, etc. of the recipient.
  • Term guideline can create ambiguity with regards to its scope. Therefore, it is recommended that this explanation should be well-defined and specific in its scope.


Indirect Tax


Expectation #1: Eligibility of Input Tax Credit (“ITC”) availed by the pharmaceutical companies on payments made to medical practitioners

  • The Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 (“MCI Regulations”) prohibit medical practitioners from accepting payments from pharmaceutical and allied health sector industries. There has been an amendment under income tax provisions to disallow such expenses incurred by pharmaceutical companies in violation of MCI regulations.
  • The amendments in the MCI regulations, along with the recent corresponding changes in the Income tax provisions, have also affected the eligibility of ITC availed by pharmaceutical companies on such payments made to medical practitioners.
  • The GST authorities plan to issue summons to pharma companies alleging that as expenses are disallowed as a business expenditure under the Income Tax law, these expenses are construed to be used for non-business purpose. Hence, ITC should not be allowed under the GST provisions, even though the GST law does not impose any such restrictions.
  • The government issues clarifications, thereby allowing ITC on such eligible business expenditure incurred on medical practitioners. These clarifications are essential for the industry at large and help alleviate unnecessary litigations and uncertainties.

Expectation #2: Bring GST rate on APIs at par with the formulations

  • At present, APIs attract a higher GST rate of 18 percent vis-à-vis formulations that attract a lower rate (12 percent/5 percent), leading to accumulation of credit for the pharma industry. Significant expenses on capital goods also add to credit accumulation.
  • Although GST law provides for refund of accumulated ITC to address this issue, possibilities of inordinate delay cannot be ruled out.
  • The government should align the GST rate for APIs with a lower rate for pharma formulations. In other words, the GST rate across the supply chain for the pharma industry should be at the lower rate of 12 percent to effectively address the issue of credit accumulation, impact on working capital, and inordinate delays in obtaining refund.


Expectation #3: ITC reversal on physician samples and expired good

  • GST law provides that ITC on goods lost, stolen, destroyed, written off or disposed of by way of gifts or free samples is required to be reversed. A literal interpretation of this provision in the pharma industry leads to adverse consequences, such as in cases of physician samples.
  • Making samples available to physicians is a time-tested and established industry practice. Therefore, such transactions should not fall within the ambit of the restriction.
  • The similar issue is faced with mandatory destruction of expired drugs/medicines. As this is a statutory requirement, this should not entail any adverse GST consequences in the form reversal of ITC.
  • The government may address these issues on priority, providing long-awaited relief to the pharmaceutical industry.


Expectation #4: Clarification on GST payable under Reverse Charge Mechanism ("RCM") for payments to foreign group entities for seconded expat employees to Indian entities

  • The Supreme Court of India, in case of Northern Operating Systems Pvt. Ltd., has ruled that tax is applicable under RCM for payments made to foreign group entities concerning seconded employees to Indian entities.
  • Following this judgment, numerous pharmaceutical companies have been receiving notices from GST authorities, requesting details of such transactions, and subsequently issuing demand notices for the tax and interest amounts. Additionally, authorities are alleging Input Tax Credit (ITC) claims, which is significantly affecting working capital of these companies and increasing their operational costs.
  • Given the intricate nature of this issue and the substantial financial burden faced by companies due to interest payments and ITC disputes, the government should consider issuing a notification and circular to clarify the applicability of GST, interest, and the eligibility of ITC. Such clarifications would provide the much-needed relief to the industry.


Expectation #5: Clarification on aspects around GST applicability on Corporate Guarantee

  • CBIC vide circular no. Circular No. 204/16/2023-GST clarified that corporate guarantee provided by Company to bank/financials institutions for providing credit facilities to another related Company is deemed to be a supply of service. The value of such service is defined as 1% of the guaranteed amount or actual consideration whichever is higher.
  • There are multiple aspects which needs clarity from Government such as time of supply in case guarantee contracts are executed prior to the notification date, whether GST needs to be paid every year or once at the time of execution of contract, value of service if the utilized amount is less than guarantee value, whether export of service benefit will be allowed if the actual consideration received is less than 1% of guarantee value, etc.
  • Authorities are raising objections on such transactions and seeking to levy GST on 1% of entire agreement value getting into the specific facts, specifications of the agreement and understanding the open aspects mentioned above.
  • Therefore, it is requested that Government issue a specific clarification addressing the above concerns to provide relief to the unnecessary litigations being faced by the Industry.



Expectation #1: Streamline the existing regulatory framework through “one regulator” approach

  • Multiple regulators regulate multiple licences and compliances for both pharmaceuticals and medical devices. For instance, drug licence is required for each state, separately for each category. The central licence is also required for clinical trials and new drug approvals. Similarly, in case of certain category of drugs/medical treatments, additional approvals from PESO, Atomic Energy Regulatory Board, may be required. For pharma and medical devices policies, the Department of Pharmaceutical is the nodal agency.
  • Due to the multiplicity of regulatory processes and multiple regulators, undertaking operations become complex and time consuming. In addition, the practice adopted by different regulators for licensing and enforcement varies in each state.
  • In light of the above, the government should consider forming a single regulatory authority each for pharmaceuticals and medical devices with experts from across the sectors on board.


Expectation #2: Offer additional incentives to promote manufacturing of pharmaceutical products, including research in India

  • Providing tax incentives through additional deductions under Income Tax Act (as was earlier provided under Section 35(2AB)) and GST exemptions for companies participating in PRIP can serve as a powerful catalyst for advancing investments in innovation and product development. This has been implemented globally, including China.

Providing preference of procurement in the government tenders for Indian manufactured products especially where R&D is performed in India for developing such products.

  • To encourage greater participation by foreign companies in the public procurement process (Public Procurement (Make in India) Order 2017) and promote increased local value addition/ manufacturing in India, the government should consider providing preferential treatment to the companies participating in the PRIP scheme and Production Linked Incentive (PLI) scheme. In addition, the concept of offsets should be introduced while computing the local content. Hence, value addition should be considered on a composite basis.
  • This concept would encourage companies to proactively participate in PRIP and PLI with a longer-term vision of enhanced market access. This would also provide a much-needed push to the government’s Make in India vision of becoming a global manufacturing hub.


Expectation #3: Incentivise companies to undertake skill development initiatives for pharma/healthcare professionals

  • Indian head-quartered pharmaceutical manufacturers strongly feel the need for regular hands-on upskilling of people working or entering the pharma sector in operations’ roles, particularly in the manufacturing and quality functions. To incentivise organisations for providing funding to such training institutes, the government can propose an additional deduction (1.25 times) on the funds spent by organisations for this purpose.
  • A recent WHO report estimated a shortage of about 1.8 million health workforces in India and suggests that to meet the threshold of 34.5 skilled health workers per 10,000 population, there will be a shortfall of 0.16 million doctors and 0.65 million nurses/midwives in the total stock by 2030.
  • This emphasizes the need to scale-up high quality, transformative education, and reinforce skill development as a major focus area to meet the increasing demand. To achieve this, strong collaboration should be fostered between skill training institutions and the industry to align training with the current and future needs of the job market.
  • For the same, the government should consider providing incentives to the industry for undertaking skill development initiatives for paramedics in government hospitals and colleges/ universities. The incentives could in the form of:
  1. financial incentives and cash subsidiesformal certification for s
  2. kill development programmes, such as accreditation by Medical Council of India (MCI), to enhance credibility and recognition amongst employers
  3. apprenticeship opportunities to ensure ready resource availability for employers
  4. cost-sharing of training programmes by National Skill Development Corporation (NSDC)
  5. targeted skill development initiatives for women and marginalised groups to help the industry meet inclusivity targets


Expectation #4: Expansion of the coverage of insurance to modern treatment methods notified by IRDAI

  • The Ayushman Bharat-Pradhan Mantri Jan Arogya Yojana (PMJAY) provides health insurance coverage for the citizens and covers a vast list of diseases and treatments. However, the PMJAY does not cover the defined list of modern treatment methods and advancement of technologies.
  • IRDAI has included the health insurance coverage for 12 such modern treatment methods under Chapter V of the Guidelines on “Standardisation of exclusions in health insurance contracts”.
  • With these modern treatment methods and advancement of technologies now being used more frequently by hospitals, covering them under the AB-PMJAY insurance can help economically weaker sections access better healthcare. This will also expand the scope for private health insurance companies to include them in their products, irrespective of the package cost.
  • This can ensure equitable access to modern treatments for public in line with global healthcare standards.

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