GST ITC on Expired Medicines: What Indian Pharmacies Need to Know

The Question Every Pharmacy Owner Asks Their CA

"I paid GST on medicines I purchased. Those medicines expired on my shelf. Can I claim the input tax credit back?"

The short answer: It's complicated. The longer answer involves understanding how GST treats expired inventory, what documentation you need, and why most pharmacies lose this battle before it even starts.

How GST Treats Expired Inventory

Under GST law, input tax credit (ITC) is available on goods purchased for business use. When those goods expire and become unsaleable, the tax treatment depends on what happens next.

Scenario 1: You destroy the expired stock

If you destroy expired medicines (as required by law for many categories), you're looking at Section 17(5)(h) of the CGST Act. This section denies ITC on goods "disposed of by way of gift or free samples" and goods that are "lost, stolen, destroyed, written off."

The word "destroyed" is the killer here. Technically, if medicines are destroyed, ITC reversal may be required.

Scenario 2: You return to distributor

If your distributor accepts the return and issues a credit note, the GST treatment is cleaner. The distributor reverses their output tax, you reverse your input tax proportionally. No net loss—just paperwork.

Scenario 3: Stock sits in write-off limbo

This is where most pharmacies end up. Stock expires, sits in a drawer, eventually gets written off in accounts, but no formal destruction or return happens. The GST position here is murky, and that's exactly where problems start.

The Documentation Problem

Here's what the tax department wants to see during an assessment:

• **Batch-wise purchase records** showing GST paid on specific batches
• **Expiry tracking records** showing when those batches expired
• **Stock destruction certificates** if destroyed
• **Return documentation** if returned to distributor
• **Write-off approval** in your accounts

Most pharmacies have #1 (sort of—it's buried in invoices). Almost none have #2 through #5 in any systematic way.

When the assessing officer asks "show me which batches expired and what happened to them," the typical response is a blank stare followed by frantic searching through paper records.

The Practical Reality

Let's do the math on a typical pharmacy:

• Monthly purchases: ₹5,00,000
• GST paid (average 12%): ₹60,000
• Annual GST paid: ₹7,20,000
• Expiry rate: 3% of purchases
• Annual expired stock value: ₹1,80,000
• GST on expired stock: ₹21,600

That ₹21,600 is what's at stake. For a small pharmacy, that's not life-changing. But here's the real cost:

• Time spent during GST audit explaining expired stock: 2-3 days
• CA fees for handling queries: ₹5,000-10,000
• Potential penalties for incomplete records: ₹10,000+
• Stress and anxiety: Priceless (in the worst way)

What Actually Works

1. Track batch-level purchases with GST breakup

Every purchase invoice should be entered with:

• Batch number
• Expiry date
• Quantity
• GST rate and amount

This isn't extra work if your system captures it automatically. It's massive extra work if you're doing it manually after the fact.

2. Maintain a real-time expiry register

When stock expires, log it immediately:

• Date of expiry identification
• Batch details
• Quantity
• Original purchase invoice reference
• GST amount involved

3. Document the disposal method

For each expired batch, record:

• Returned to distributor (credit note number)
• Destroyed on-site (destruction certificate, witness)
• Sent for authorized disposal (disposal certificate)

4. Get your CA involved early

Don't wait for assessment. Have your CA review your expiry write-offs quarterly. A ₹2,000 quarterly review is cheaper than a ₹20,000 assessment defense.

The Distributor Return Angle

Here's something many pharmacies miss: your GST position is much cleaner if you return expired stock to distributors rather than destroying it yourself.

When you return:

• Distributor issues credit note
• You reverse proportional ITC
• Transaction is clean and documented
• No "destruction" questions arise

The catch: distributors have return windows. Miss the window, and you're stuck with the stock and the GST question.

Typical distributor return windows:

• 3 months before expiry: Most will accept
• 1 month before expiry: Some will accept
• After expiry: Very few will accept
• 30 days after expiry: Almost none

This is why expiry tracking isn't just about reducing waste—it's about maintaining your GST position.

Schedule H and Controlled Substances

For Schedule H, H1, and X drugs, there's an additional layer. These drugs have specific disposal requirements under the Drugs and Cosmetics Act. You can't just throw them in the bin.

Proper disposal requires:

• Authorized disposal facility
• Disposal certificate
• Witness signatures
• Record maintenance for 3 years minimum

If you're destroying controlled substances without proper documentation, you have bigger problems than GST—you have a compliance issue that could affect your license.

The ShelfLifePro Approach

Here's how systematic expiry tracking helps your GST position:

At purchase entry:

• Batch number and expiry captured automatically
• GST breakup linked to specific batches
• Invoice reference maintained

At 90 days before expiry:

• Alert generated
• Return window status checked
• Decision point: return, discount, or hold

At expiry:

• Stock automatically flagged
• Write-off entry prepared with full trail
• GST reversal amount calculated
• Disposal method prompted

At assessment:

• Pull batch-wise expiry report
• Show disposal documentation
• GST amounts reconciled automatically

The goal isn't to "save" GST on expired stock—that's usually not possible. The goal is to have clean documentation that doesn't trigger additional scrutiny or penalties.

The Bottom Line

Can you claim ITC on expired medicines? Generally, no—if the stock is destroyed or written off, ITC reversal is likely required.

Can you minimize the GST impact of expiry? Absolutely—by returning stock within windows, maintaining clean documentation, and not giving the tax department reasons to dig deeper.

The pharmacies that handle this well aren't doing anything clever with tax law. They're just organized. And in GST assessments, organized beats clever every single time.

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