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 The Association of Indian Medical Device Industry (AiMeD) has urged the Union finance minister Nirmala Sitharaman to bring in additional tax reforms critical to address persisting challenges such as working capital stress, inverted duty structures, and restricted refund eligibility. It also urged the government to increase the Health Cess on imported medical devices from 5% to 10%, with proceeds ring-fenced to fund Ayushman Bharat and public healthcare programmes.
The Association, proposing reforms including simplification of Goods and Services Tax (GST) refund mechanism, uniform 5% GST rate on inputs, amendment of rules related to input tax credit (ITC), and automated, time-bound refunds, said that these would help reduce healthcare costs for consumers. These steps will also bring India’s tax system in line with global best practices and make Indian manufacturers more globally competitive, it said.
As part of simplification of the GST refund mechanism, it requested to extend refund eligibility to (ITC on services and capital goods, which are currently excluded. It requested to align GST rates for all components and raw materials in medical device manufacturing to permanently eliminate inverted duty structure issues. The Rule 89(5) should be amended to include ITC on services, capital goods, and closing inventory in the refund formula. It also requested to introduce provisional 90% refunds within strict timelines to ease liquidity for manufacturers through automated refunds.
“Global best practices in countries like Australia, New Zealand, Canada, and the EU allow full refund or carry forward of unused GST/VAT paid on inputs—including services—so that exporters and businesses with inverted duty structures do not suffer cash flow blockages or tax cascading. India must adopt similar reforms if we want to lower healthcare costs, strengthen Make in India, and improve global competitiveness,” said Rajiv Nath, forum coordinator, AiMeD.
"Most countries provide GST/Value Added Tax refund on accumulated input tax credit from services because their systems are designed to ensure tax neutrality for businesses. In India, refunds are largely restricted to exports and inverted duty structures, leaving manufacturers with blocked capital. Allowing refunds on GST paid for services and capital goods would ease cash flows, reduce costs, and encourage investment in capacity-building,” he added.
India’s restrictive approach stems from policy concerns such as fear of revenue leakage, misuse of refund claims, administrative complexity, and the belief that accumulation may even out over time as credits get adjusted against future liabilities. Historically, India limited refunds to avoid large claims from high-service or goods-input sectors that are not export-focused, due to worries that broad refunds might encourage fraudulent claims or create undue pressure on tax revenues, added the Association.
AiMeD has also urged the government to increase the Health Cess on imported medical devices from 5% to 10%, with proceeds ring-fenced to fund Ayushman Bharat and public healthcare programmes. This would partially offset the 15% cost disability faced by domestic manufacturers when competing against low-cost imports, while ensuring socially beneficial reinvestment.
Nath added, “GST should be a tax on value addition—not a tax that burdens businesses or consumers with blocked working capital. By enabling refunds on GST paid for services and capital investments, and by rationalising Health Cess, India can make its medical device industry truly globally competitive while ensuring lower cost gains for patients and hospitals.”
AiMeD also enclosed a detailed annexure with HS codes of finished products and inputs, outlining current and proposed GST rates and Health Cess rationalisation measures.
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