Near-Expiry Stock Management for Pharma Distributors (India)

Near-expiry stock is one of the largest avoidable losses for an Indian pharma distributor. The fix is a routine, not a one-off clean-up. Capture batch and expiry on every purchase, pick the earliest-expiring stock first, review stock in expiry bands every month, and file expiry and breakage claims with principals before their deadlines. Anything that does expire must come out of saleable stock at once.

What does the law say about expired stock?

Rule 65(17) of the Drugs and Cosmetics Rules, 1945 states that no drug shall be sold or stocked by the licensee after its date of expiry. The rule allows expired stock to be held while it is being returned or withdrawn, provided it is kept separately from trade stock. In practice, that means a clearly labelled "expired – not for sale" area and a system status that blocks billing.

Rule 65(5) also requires wholesale cash or credit memos to show the drug name, quantity, batch number and manufacturer, and to be preserved for three years from the date of sale. Purchase records need the same batch-level detail. Without batch numbers on both sides, you cannot prove which supplier batch an expiry claim relates to. The full Act and Rules are on the CDSCO website.

Why does near-expiry stock build up?

Over-buying on schemes. Bonus or quantity offers bring in more stock than the market absorbs before expiry.
Short-dated supplies. Principals or super-stockists sometimes ship batches with limited remaining life.
Slow movers. Low-volume SKUs sit for months across multiple batches.
Returns from retailers. Chemists return near-expiry stock to the distributor, which then has to pass it upstream.
Picking the wrong batch. Staff pick the easiest-to-reach carton rather than the earliest expiry.

How should you classify stock by expiry?

Group every batch by months of remaining life. The bands below are a common working pattern, not a legal requirement. Adjust them to your principals' return policies and customers' acceptance rules.

Band	Remaining life	Typical action
Expired	0 months	Block sales, segregate, return to principal or send for destruction
Critical	Under 3 months	Return to principal if policy allows; offer only to customers who accept short dating
Watch	3 to 6 months	Push through field team and key chemists; stop reordering
Plan	6 to 12 months	Check forecast against stock; slow down purchases
Healthy	Over 12 months	Normal FEFO selling

What does a practical monthly routine look like?

Run an expiry report on the first working day. List every batch by band, with quantity, value at purchase rate and the principal.
Physically check the critical and expired bands. Confirm quantities and move expired stock to the segregated area.
Block expired batches in the system. Billing software should refuse to invoice them.
Collect retailer returns. Receive chemist returns against their original invoices so the batch trail stays intact, and inspect them before accepting.
Prepare claims per principal. Group expired and near-expiry stock by principal and batch, with purchase invoice references, in the format each principal requires.
Send claims before deadlines. Many principals accept claims only within a set window around expiry. Keep a calendar of those windows.
Track claim status. Record the claim date, quantity, value, principal's acknowledgement and the credit note received.
Review causes. For each high-value item, check whether over-buying, slow sales or short-dated supply caused the loss, and adjust purchasing.

How do expiry returns to principals usually work?

Expiry return terms are commercial, set by each manufacturer or marketing company. They differ on:

How long before or after expiry a return is accepted.
Whether credit is at purchase rate, a percentage of it, or replacement goods.
Whether the principal collects the stock, a transporter carries it, or it is destroyed locally under the principal's authorisation.
What documents are needed: a claim list, debit note, batch-wise quantities and original purchase invoice numbers.

Get each principal's current policy in writing and store it with the supplier record. Disputes usually come down to missing batch references or late claims.

How is GST handled on expired returns?

CBIC Circular No. 72/46/2018-GST (26 October 2018) sets out two options for returning time-expired drugs:

Option	How it works	Points to watch
Fresh supply	The party returning the goods (for example, a registered wholesaler) issues a tax invoice to the supplier	The circular notes that a manufacturer who destroys returned expired goods must reverse related input tax credit
Credit note	The original supplier issues a credit note under Section 34 of the CGST Act	Tax can be adjusted only if the credit note is issued within the Section 34 time limit and conditions

Agree the method with each principal before you send stock, because both sides must record it the same way. The CGST Act is available on CBIC's GST acts page. Ask your GST adviser to confirm the current Section 34 conditions, as they have been amended since 2018.

How should breakage and damage claims be handled?

Inspect every delivery on receipt and note damage on the transporter's copy of the delivery document.
Photograph damaged cartons and packs with the batch visible.
Record the damaged quantity against the purchase receipt, and move it to a "damaged" status so it cannot be sold.
Raise the claim with the principal or transporter within their stated window, attaching the photos and receipt note.
Keep damaged stock until the principal confirms collection or destruction.

Damage found later, inside your warehouse, is usually your own loss. Record it with a reason and approval so it does not look like missing stock.

How do you prevent near-expiry stock?

Use FEFO. Pick the earliest-expiring batch first. WHO good storage and distribution practices state the FEFO principle should be followed.
Check dating at receipt. Reject or flag supplies below your minimum remaining life, if your agreement allows.
Buy on demand, not on schemes alone. Compare scheme benefit with the cost of expected expiry.
Watch slow movers. Keep one batch at a time for low-volume SKUs where possible.
Give the field team a list. Share the watch band weekly with salespeople so they can move stock early.

Which numbers should you track?

Expiry loss as a percentage of sales, monthly and by principal.
Value in the under-6-months band, trending over time.
Claims raised, claims settled and average days to settlement.
Retailer returns received versus claims passed upstream.

How Asli Pharma ERP helps

Asli Pharma ERP records batch, manufacturing date and expiry on every goods receipt and allocates stock by FEFO, with overrides logged. Stock status buckets (released, quarantine, rejected, damaged, returned, recall) keep unreleased stock out of sale, and batch traceability links each unit back to its supplier invoice for claims. The India GST edition is currently in early access, so confirm the GST features you need before relying on them.

Frequently asked questions

Can a wholesaler keep expired medicines in stock?

Rule 65(17) of the Drugs and Cosmetics Rules, 1945 says no drug shall be sold or stocked by the licensee after its date of expiry. Stock awaiting return or destruction should be kept separately from trade stock and clearly marked as not for sale.

How is GST handled when expired medicines are returned?

CBIC Circular No. 72/46/2018-GST allows the return of time-expired drugs to be treated either as a fresh supply with a tax invoice by the returning party, or through a credit note issued by the original supplier under Section 34 of the CGST Act. Credit notes adjust tax only if issued within the Section 34 time limit and conditions.

What is a reasonable near-expiry window?

There is no single legal window. Many distributors watch stock with less than six months of life closely, because retailers and hospitals often refuse short-dated stock. Agree the window with your principals, because their return policies set what can be claimed.

How long must purchase and sale records be kept?

Under Rule 65(5) of the Drugs and Cosmetics Rules, wholesale cash or credit memos with batch numbers must be preserved for three years from the date of sale. GST has its own, longer retention period for accounts and records.

What is the difference between an expiry claim and a breakage claim?

An expiry claim asks the principal to credit stock that expired or became unsaleable because of dating. A breakage claim covers stock that was damaged, usually in transit or on receipt. Principals usually apply different rules and deadlines to each.

Near-expiry stock management for pharma distributors in India