Budget 2026-27: Health sector seeks tax relief, rationalised rates

Ahead of Budget 2026-27, healthcare, medtech and pharma firms seek tax relief, higher R&D incentives and stronger support for preventive care and domestic manufacturing

Health care, medtech, and pharma companies have asked the government to use the Union Budget 2026-27 to ease tax pressures, boost domestic manufacturing, and sharply step up investments in research, innovation, and preventive care.

 

Medtech associations have demanded that the high cumulative tax burden (health cess, surcharge, and goods and services tax, or GST) on essential medical devices, reaching up to 30 per cent in some segments, be addressed.

 

“Current tax levels directly inflate the cost of critical care, specifically in surgery, management of non-communicable diseases (NCDs), and diagnostics, pushing families into financial hardship,” said Pavan Choudary, chairman of the Medical Technology Association of India (MTaI).

 

He added that with rising input costs due to supply chain disruptions, calibrated duty reductions are no longer a concession but a public health imperative to ensure affordability.

 

The demand comes in the backdrop of GST rationalisation, where several finished devices are now taxed at 5 per cent even as most inputs and input services attract an 18 per cent tax.

 

However, the industry contends that the changes have resulted in an inverted duty structure, leading to large input tax credit (ITC) accumulations and increased working capital pressures for manufacturers.

 

“Aligning the GST rate for medical devices with the concessional 5 per cent applied in the pharma sector, and revising the refund formula to include ITC on input services and capital goods would offer immediate relief, and bring greater parity across the health-care manufacturing ecosystem,” said Himanshu Baid, managing director of Poly Medicure.

 

Alongside tax rationalisation, the sector has also asked for focused public investment in research and development (R&D), quality infrastructure, and preventive health screenings.

 

“A dedicated ₹1,000 crore medtech R&D and clinical validation fund would support indigenous product development and the evidence generation required for global competitiveness,” Baid said.

 

With chronic diseases contributing to 65 per cent of all deaths in India and a low uptake of preventive screening, health-care industry body Nathealth has recommended a tax deduction of up to ₹10,000 for preventive check-ups linked to health accounts under the Ayushman Bharat Digital Mission (ABDM) framework to help build a digital health data repository.

 

“This will increase preventive care uptake, enable early detection of NCDs, and lead to an expected long-term reduction in treatment costs and productivity losses,” said Nathealth President Ameera Shah.

 

She added that the Budget also presents an opportunity to strengthen health care by creating an NCD resilience fund by earmarking a portion of the health cess and universal corporate social responsibility (CSR) obligations.

 

The pharma sector has also asked for strengthening research and innovation incentives through the restoration of weighted R&D deductions of up to 200 per cent under Section 35(2AB) of the new Income Tax Act.

 

The weighted deduction was recently slashed to 100 per cent. “Historically, this incentive helped build India’s scientific capability. Restoring it under the new I-T Act would significantly boost investment in novel drugs, complex generics, biosimilars, and vaccines,” said Sudarshan Jain, secretary general of the Indian Pharmaceutical Alliance.

 

This comes even as recent global challenges such as US tariffs, supply chain disruptions, and geopolitical uncertainties have put the Indian pharma sector’s transition from a volume-driven model to an innovation-led one at risk.

 

Drugmakers are also seeking a broadened and strengthened patent box regime and the reintroduction of concessional tax regimes for new facilities to incentivise domestic manufacturing, backward integration, and foreign direct investment (FDI) in the pharma sector. 

Industry wish list

• Address cumulative tax burden on essential medical devices
• Dedicated ₹1,000 crore medtech R&D and clinical validation fund
• Strengthened research and innovation incentives
• Broadened  patent box regime