PXL/HO/Cir-007/2026-27                                                                                        Date: 27.04.2026

Hyderabad

Subject: Request for Comments on GST 2.0 Impact on MSME Pharmaceutical Sector-Seeking inputs on pending GST claims

We wish to draw your attention to the members’ feedback on the recent structural changes under GST 2.0, effective from 22.09.2025, which have significantly aggravated the issue of inverted duty structure in the pharmaceutical MSME sector.

Key changes include:

• GST on finished formulations reduced to 5% (nil for certain lifesaving drugs), while inputs such as APIs, excipients, and packaging materials continue to attract 18% GST.
• The inversion gap has widened from 6% (18% vs 12%) to 13% (18% vs 5%), leading to substantial accumulation of Input Tax Credit (ITC).

This has resulted in:

• Working capital blockage due to unutilized ITC
• Increased borrowing and interest burden
• Margin pressure under DPCO restrictions
• Export disadvantage due to upfront GST on inputs and delayed refunds

The structural imbalance, while benefiting consumers, has placed disproportionate financial stress on MSME manufacturers and may lead to reduced manufacturing capacity, supply disruptions, increased imports, and employment instability.

We seek your comments and suggestions on:

• GST rate alignment between inputs and outputs to eliminate inversion.
• ITC Accumulated during FY 2023-24; 2024-25 and 2025-26
• Pending GST claims as on date (using the google form)

Submit your feedback by 04.May.2026 to enable Pharmexcil submit a collective representation to the Line Ministry for consideration and GST refund mechanism.

Thank you for your continued support and cooperation

With regards,

Raja Bhanu

Director General

Encl: Google form