The Central Government has specifically brought in clinical testing of drugs and formulations under the service tax net. The Union Budget 2006-07 has clarified that the drug testing would come within the purview of technical testing and analysis service. However, all testing or analysis for the purpose of determination of the nature of diseased condition, identification of a disease, prevention of any disease or any disorder in human beings or animals have been excluded from this definition. The changes are to take effect after the enactment of Finance Bill 2006.

The government has also announced service tax exemption to the testing and analytical services offered by the government laboratories both at the state and district level in relation to water quality testing. This exemption is to come into effect from 1st March, 2006.

The additional health specific announcements made in the budget included the reduction of customs duty on fourteen specified anti-cancer and ten specified anti-AIDS drugs, and their bulk drugs. These medicines are to attract 5% customs duty with no counter veiling duty (CVD). Similarly, customs duty has been reduced to 5% on four specified drugs (and their bulk drugs). These drugs will also be exempted from CV duty. Similarly, customs duty has been reduced to 5% on two specified diagnostic kits and equipment. These kits/equipments are also exempted from CVD.