A New Dawn for Affordable Healthcare and Everyday Savings in India
Peerzada Masarat Shah
As you read this article, India will have ushered in a transformative era with the rollout of NextGen GST—or GST 2.0—effective September 22, 2025. Unveiled by Prime Minister Narendra Modi during his Independence Day address at the Red Fort and approved by the 56th GST Council on September 3, this reform simplifies the tax structure from four slabs (5%, 12%, 18%, and 28%) to a streamlined two-slab model (5% and 18%), with a 40% rate reserved for luxury and demerit goods like tobacco and high-end cars. The aim is clear: alleviate financial pressures on ordinary citizens, stimulate consumption, and drive economic growth amid global challenges like U.S. tariffs. For millions of households grappling with rising costs, this isn’t just policy—it’s a lifeline. The promise of cheaper medicines offers hope to patients with chronic illnesses and families stretched thin by medical expenses.
Picture a single mother in rural Maharashtra, balancing her child’s asthma inhaler costs with grocery bills. Under the previous tax regime, each refill was a financial blow. Now, with targeted GST cuts on life-saving drugs, her burden eases. This reform is empathy in action, prioritizing health over revenue in a nation where out-of-pocket medical spending consumes 60% of household incomes, according to recent Health Ministry data.
The Pre-GST Era: A Maze of Taxes and Inequities
To grasp the significance of NextGen GST, let’s revisit the pre-2017 tax landscape—a chaotic web of over 17 indirect taxes, including Central Excise Duty (CED), Value Added Tax (VAT), Central Sales Tax (CST), and state-specific levies like octroi and entry tax. Medicines and essentials faced a cumulative tax burden of 12–15%. For example, a basic antibiotic like amoxicillin incurred 5–10% CED at the factory, plus 5–14.5% VAT varying by state, compounded by CST on inter-state sales with no input tax credit (ITC). This cascading “tax-on-tax” effect inflated retail prices by up to 20% for essentials like soaps and toothpaste.
Consider Paracetamol, a go-to fever remedy. Pre-GST, its supply chain bore 8–12% taxes, pushing a ₹10 strip to ₹12–13 at pharmacies, often out of reach for low-income families. Staples like unbranded atta or fresh milk dodged heavy taxes but faced inconsistent state levies—Kerala’s 5% VAT on processed foods versus Bihar’s exemptions—creating a disjointed system that favored large corporations while small pharmacies struggled with compliance. The fallout? Inflated prices, black-market evasion, and a healthcare system where 63 million Indians fell into poverty yearly due to medical costs, per 2016 World Bank data.
This patchwork tax regime deepened inequities. Urban elites exploited import loopholes, while rural consumers paid premiums for basics. Businesses lost billions in unclaimed credits, hampering innovation in pharmaceutical R&D. It was a system lacking compassion, where the poor effectively subsidized the wealthy through regressive taxes.
The Current GST Framework: Progress with Pain Points
Since July 1, 2017, GST’s “One Nation, One Tax” mantra unified this chaos, reducing cascading taxes through ITC and standardizing rates. Most human-use medicines (HSN Chapter 30) dropped to a concessional 5%, down from pre-GST 10–15%. Life-saving imports for cancer or HIV, like Trastuzumab, became tax-exempt (0%), protecting vulnerable patients. Essentials followed: unprocessed foods at 0%, packaged staples like biscuits at 5–18%. A Paracetamol strip now costs ₹10–11, saving 5–10%, with pharma firms benefiting from input credits.
However, the four-slab structure had flaws. Some Ayurvedic drugs lingered at 12%, and medical devices like stents faced 5–18% rates. Inverted duty structures—where outputs were taxed lower than inputs—tied up ₹1.5 lakh crore in pharma working capital annually, per industry estimates. Everyday items like soaps (18%) and bicycles (12%) strained middle-class budgets, with real-term costs rising 20–30% due to compliance pass-throughs. High insurance premiums at 18% discouraged coverage, leaving 400 million uninsured. While GST generated ₹20 lakh crore in FY24, essentials’ prices rose 5–7% post-implementation, per NSSO surveys, hitting the poorest 40% hardest.
NextGen GST: A Compassionate Overhaul
Starting September 22, 2025, NextGen GST delivers targeted relief. The 5% “merit” slab expands to cover essentials, 18% becomes the standard rate, and the 28% slab vanishes for most goods. For medicines, the impact is profound: 36 life-saving drugs drop to 0% GST, including 33 from 12% (e.g., cancer drug Imatinib) and three from 5% (e.g., rare disease treatment Dinutuximab). With 80% of the ₹1.5 lakh crore pharma market already at 5%, the zero-rate drugs will cut retail prices by 5–12%. A ₹500 monthly cancer drug could save families ₹30–60, or ₹7,200 annually—enough for a child’s school fees.
The relief extends further. Medical devices like stents and pacemakers fall to 5% from 12–18%, reducing cardiac care costs by 10%. Health and life insurance premiums, previously at 18%, are now exempt, potentially insuring 100 million more by 2030. Everyday essentials shine: soaps, shampoos, toothpaste, and hair oil drop to 5% from 12–18%, saving ₹20–30 on a ₹200 monthly hygiene basket. Packaged milk products like paneer hit 0% (from 5%), and bicycles and kitchenware join the 5% slab. Home appliances like TVs and ACs fall to 18% from 28%, making a ₹30,000 LED TV ₹3,000 cheaper.
This ₹48,000 crore revenue-neutral reform (per Finance Ministry) sacrifices ₹93,000 crore in taxes but recoups ₹45,000 crore via the 40% luxury slab. MSMEs benefit from pre-filled returns and faster refunds, enabling pharma startups to innovate. Morgan Stanley predicts a 2–3% consumption boost, lifting GDP by 0.2–0.3% in FY26.
A Future of Equity and Empathy
As NextGen GST takes effect, it offers hope to every Indian battling rising costs. From the pre-GST era’s 15%+ tax burden to today’s 5% baseline—and now zero for critical medicines—this is a journey toward fairness. Families like that Maharashtra mother’s can face illnesses without financial ruin. Challenges remain, including ensuring smooth transitions for small pharmacies and curbing tax evasion.
In this festive season, GST 2.0 is more than reform—it’s a promise fulfilled. Affordable medicines and essentials aren’t luxuries; they’re dignity. As India shops smarter and saves more, NextGen GST paves the way for a healthier, happier nation, one affordable pill at a time.
