On 1 July 2026, the Union Budget introduced a 5% excise duty on 47 active pharmaceutical ingredients (APIs) identified as non-essential, effective 1 August 2026. This is India's first excise-duty levy on APIs in over a decade and will directly raise the landed cost of formulations manufactured with these ingredients.
Unlike GST (which is recoverable via ITC), excise duty is not creditable — meaning it flows straight into your COGS and either compresses margins or requires price increases. Manufacturers importing APIs or sourcing from domestic API makers must now remodel their input-cost assumptions and pricing strategy before August.
Advisory
The Central Board of Indirect Taxes & Customs (CBIC) published the final list on 5 June 2026, covering analgesics, antibiotics, cardiovascular and anti-diabetic APIs. Check the CBIC notification (27/2026-Excise) to verify whether your key inputs are listed; some APIs remain exempt if they are inputs to essential medicines.
Unlike GST input tax, excise duty paid on API purchases cannot be offset against output GST. Existing inventory purchased pre-1 August will retain old cost; stock purchased post-1 August incurs the duty. This creates a two-tier COGS in Q2 FY2026–27 and may require separate tracking for margin analysis.
Domestic API manufacturers are also liable for the duty, making their ex-factory prices less competitive versus pre-duty levels. Formulation makers sourcing from domestic APIs may negotiate price adjustments; those importing may find landed costs broadly equivalent, but supplier payment terms will shift as API makers absorb duty upfront.
Formulation manufacturers and traders must treat excise duty as a non-recoverable input cost from 1 August 2026 onwards. Unlike GST, there is no Input Tax Credit mechanism, so the 5% duty reduces net margin unless prices are raised or costs cut elsewhere. CBIC has clarified that the duty applies at import (for imported APIs) and at the point of removal from domestic API plants. Vinayakam Consultants helps pharma clients audit API procurement schedules, remodel statutory cost assumptions, and map out pricing adjustments to protect margins — especially where tender or fixed-price supply contracts lock in pre-duty rates.
Your action checklist
- Cross-check your top 20 API suppliers against the CBIC 27/2026-Excise list (published 5 June); flag which inputs will incur 5% duty from 1 August 2026.
- Recalculate COGS and gross margin % for each formulation sku that uses a duty-liable API; quantify the margin impact if no price increase is taken.
- Review existing supply contracts and supplier terms; identify which agreements allow price adjustment for regulatory duty changes, and negotiate amendments with suppliers before August.
- Segregate inventory purchased pre-1 August (no duty) and post-1 August (duty-inclusive) in your accounts; inform cost accounting and GST teams to flag two-tier COGS in FY2026–27 P&L reporting.
Frequently asked questions
India introduced a 5% excise duty on 47 non-essential active pharmaceutical ingredients (APIs) effective 1 August 2026, the first such levy in over a decade.
No. Unlike GST, excise duty is non-creditable and flows directly into your cost of goods sold (COGS), compressing margins or requiring price increases.
Pre-1 August inventory retains old cost; post-1 August stock incurs the 5% excise duty, creating a two-tier COGS requiring separate tracking for margin analysis.