As the Finance Ministry finalises the Union Budget for FY 2026-27, India’s pharmaceutical industry is pressing for targeted tax relief, wider input tax credit (ITC) refunds, and an expanded production-linked incentive (PLI) framework to protect competitiveness amid global uncertainty.
Industry leaders say rising geopolitical risks, US tariffs, and supply chain disruptions have made policy stability and cost efficiency more critical than ever for drugmakers.
Inverted Duty Structure Remains a Key Pain Point
The Secretary General of the Indian Pharmaceutical Alliance (IPA) said recent global developments underline the need to address India’s widening inverted duty structure.
While GST rate rationalisation has reduced costs for consumers, pharmaceutical manufacturers continue to pay an 18 percent GST on inputs, creating cash-flow stress. Despite the introduction of risk-based provisional refunds, companies say working capital remains locked for long periods.
“Ensuring refunds on both goods and services is essential to maintain manufacturing viability and affordability,” the IPA Secretary General said.
ITC Expansion Sought for Capital Goods and Services
Industry stakeholders are seeking expansion of ITC refunds to include capital goods and input services—especially for contract development and manufacturing organisations (CDMOs), which currently remain outside the refund framework.
According to an ICRA official, rationalising input taxes and expanding PLI support would strengthen India’s self-reliance in active pharmaceutical ingredients (APIs).
Tax experts note that pharmaceutical manufacturing requires heavy investment in specialised machinery and infrastructure. Including capital goods in the ITC refund formula, particularly for exports, could significantly ease long-term working capital constraints.
Pharma MNCs Seek Simpler APA Processes
Multinational pharmaceutical companies have also called for simpler and faster Advance Pricing Agreement (APA) procedures. Industry executives want defined timelines for case resolution and smoother renewals without procedural duplication.
APAs help pharma MNCs manage transfer pricing risks, especially for complex transactions involving royalties and marketing support, and are seen as crucial for reducing tax disputes.
PLI Push for APIs, Bulk Drugs and Exports
Even as India’s pharmaceutical exports remained strong at over $30 billion in the last fiscal year, the industry is seeking to expand the PLI framework to cover more products, particularly bulk drugs.
Domestic API manufacturers continue to face pricing pressure from Chinese suppliers. While minimum floor prices have been imposed on select APIs and intermediates, experts say rebuilding domestic capacity is vital in a volatile global trade environment.
The IPA has also advocated reintroducing concessional tax regimes for new manufacturing facilities to support backward integration and attract fresh foreign investment.
Export-Linked and Quality-Based Incentives Proposed
Industry experts say the next phase of PLI should include export-linked incentives for finished formulations and stronger alignment with research and development.
For mid-sized drugmakers, quality-linked incentives and targeted tax rationalisation are being sought to enable capacity expansion without compromising regulatory standards.
R&D Tax Incentives Back in Focus
The pharma sector has renewed calls for stronger R&D tax support, including expanding the scope of Section 115BAB of the Income Tax Act to allow a 200 percent deduction on R&D expenditure for companies exclusively engaged in pharmaceutical research.
Experts say such incentives played a critical role in building India’s scientific capabilities and could drive investment in complex generics, biosimilars, vaccines, and novel drugs if restored.
Conclusion
As Budget 2026-27 takes shape, India’s pharma industry is pushing for tax relief, wider ITC refunds, and a stronger PLI push for APIs and exports. With global risks rising, drugmakers say policy clarity is now critical for competitiveness.
Source: ET