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This article covers the impact of proposed changes in GST on healthcare services with action points for doctors / hospital and consumers.

The recent GST council meeting decisions are in news for many wrong reasons. Though it has taken some good decisions in this meeting but some of the decision like bringing in pre-packaged food grains under the GST ambit, bringing hospital room rent under the GST. The later is making lot of noise for all the wrong reasons. Let us discuss on the impact of this decision on the healthcare industry and common consumers like you and me.

Before we go into the details let us read the wording of the press release published by PIB on 29th June 2022 which was issued after conclusion of 47th GST council meeting.

Room rent (excluding ICU) exceeding Rs 5000 per day per patient charged by a hospital shall be taxed to the extent of amount charged for the room at 5% without Input Tax Credit.

First step to cover Healthcare Services under GST…!

GST and Healthcare Services as on date

India has a mixed health-care system, inclusive of public and private health-care service providers. However, most of the private health-care providers are concentrated in urban India, providing secondary and tertiary health-care services. Even in the semi-urban areas, the private health care service providers are providing the health care services. Healthcare services in India are yet to mature and also to make healthcare services affordable in India for common people, it needs support.

With introduction of GST, “any activity for consideration” is covered under the definition of supply subject to certain specified exclusions. With such a wide definition of supply all the commercial activities for a consideration, be it supply of goods or services are covered under the ambit of GST. Even healthcare services were covered under the GST regime. However, to support the healthcare system and to make them more affordable, most of the health care services were exempt from the GST.

As mentioned earlier, principally all the healthcare services are covered under GST and are taxed @ 18% vide notification 11/2017-CT (Rate). However, GST on most of the healthcare service is exempt vide Notification 12/2017-CT (Rate) dated 28.06.2017. As per the said notification as on date, below healthcare services are exempted from payment of GST,

> Health care services provided by a clinical establishment, an authorised medical practitioner or para-medics.

> Services of transportation of patient in an ambulance.

> Services provided by cord blood banks by way of preservation of stem cells or any other services in relation to such services.

Further healthcare services are also defined in para 2(zg) of notification No. 12/2017-CT (Rate) as under,

Healthcare services have been defined to mean any service by way of diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognized system of medicines in India and includes services by way of transportation of the patient to and from a clinical establishment, but does not include hair transplant or cosmetic surgery or plastic surgery, except when undertaken to restore or to reconstruct anatomy or functions of body affected due to congenital defects, development abnormalities, injury or trauma

It is pertinent to note that by way of definition of healthcare services, the exemption was restricted to “any service by way of diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognized system of medicines” and certain healthcare services like,

> Hair transplant or

> Cosmetic surgery or

> Plastic surgery

are taxed @ 18%. The logic for levying GST on above services is simple! These services are not a necessity but are optional in nature hence they were subjected to tax.

Considering the wide definition of supply under GST, certain clarifications were issued by the GST department in relation to healthcare services.

Issue raised

Clarification issued
Hospitals hire senior doctors / consultants/ technicians independently, without any contract of such persons with the patient; and pay them consultancy charges, without there being any employer employee relationship. Will such consultancy charges be exempt from GST? Will revenue take a stand that they are providing services to hospitals and not to patients and hence must pay GST? Health care services provided by a clinical establishment, an authorised medical practitioner or para-medics are exempt. [Sl. No. 74 of notification No. 12/2017- CT (Rate) dated 28.06.2017 as amended refers].

(1) Services provided by senior doctors/ consultants/ technicians hired by the hospitals, whether employees or not, are healthcare services which are exempt.

(2)Retention money: Hospitals charge the patients, say, Rs.10000/- and pay to the consultants/ technicians only Rs. 7500/- and keep the balance for providing ancillary services which include nursing care, infrastructure facilities, paramedic care, emergency services, checking of temperature, weight, blood pressure, etc. Will GST be applicable on such money retained by the hospitals? Healthcare services have been defined to mean any service by way of diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognized system of medicines in India [para 2(zg) of notification No. 12/2017- CT (Rate)]. Therefore, hospitals also provide healthcare services. The entire amount charged by them from the patients including the retention money and the fee/payments made to the doctors etc., is towards the healthcare services provided by the hospitals to the patients and is exempt.
Food supplied to the patients:

Health care services provided by the clinical establishments will include food supplied to the patients; but such food may be prepared by the canteens run by the hospitals or may be outsourced by the Hospitals from outdoor caterers. When outsourced, there should be no ambiguity that the suppliers shall charge tax as applicable and hospital will get no ITC. If hospitals have their own canteens and prepare their own food; then no ITC will be available on inputs including capital goods and in turn if they supply food to the doctors and their staff; such supplies, even when not charged, may be subjected to GST.

Food supplied to the in-patients as advised by the doctor/ nutritionists is a part of composite supply of healthcare and not separately taxable. Other supplies of food by a hospital to patients (not admitted) or their attendants or visitors are taxable

One of the important takeaways from the above clarification was,

“The entire amount charged by them from the patients including the retention money and the fee/payments made to the doctors etc., is towards the healthcare services provided by the hospitals to the patients and is exempt”

Proposed Changed for GST in healthcare services

The GST Council in its 47th meeting, decided to withdraw exemption for below services related to healthcare,

> Services provided by the cord blood banks by way of preservation of stem cells

> Room rent (excluding ICU) exceeding Rs 5000 per day per patient charged by a hospital shall be taxed @ 5% to the extent of amount charged for the room.

The first proposal may not have wide ramification but later one certainly has lot of implications. It is proposed that room rent charged to the in-patient if exceeding Rs 5000/- per day will be subjected to GST @ 5% on full value of the room rent. Levying GST on room rent is against the principle laid down in above mentioned clarifications that the entire amount charged to patient is not subjected to GST.

The step of separating room rent from other healthcare services is insane for many reasons,

> No patient would like to stay in hospital for leisure to be taxed.

> The admission in the room is done for healthcare services considering the nature of treatment and not on the wish of the patient.

> Whether the GST can be levied on portion of services when principal component i.e. healthcare services are exempt from the tax as per the definition of Composite supply under Section 8 of the CGST Act, 2017?

> The room rent of Rs 5000/- per day is base rate in any big hospital.

> Whether concept of affordability of healthcare services will only be judged by room rent?

More we think, more we feel that taxing room rent for hospital is regressive step in supporting healthcare services in India.

Actions to be taken by Hospitals / Healthcare service providers

Though the notification of levy of GST is yet to be issued, the press release states that tax proposals will be effective from 18th July 2022. Considering the short time, the hospital needs to take below steps,

> Identify the services i.e. room rent which will be subjected to GST.

> Obtain the GST registration if not obtained earlier. It is important to note that for threshold of turnover under GST even turnover of exempt services needs to be considered.

> Necessary changes need to be done in their software to levy GST on the room rent portion.

> Communication with admitted inpatients w.r.t. revision in charges.

> Health packages to be revised considering the implication of GST on room rent.

Actions to be taken by consumers

GST being indirect tax, the cost of the taxes will be finally added to the end consumer. With introduction of GST on room rent, the consumer needs to go back to terms and conditions of his / her Mediclaim policy to check whether this is covered under the policy or not. If not, appropriate cover to be taken.

Conclusion

Proposed levy of GST on room rent seems to be first step to bring healthcare services under GST ambit. With such steps, there will be increase in the cost of healthcare in India. The comments of Hon’ble Revenue Secretary linking taxability on room rent to affordability is unwarranted. Not every patient stays in 5000 per day room because of his / her affordability but are there because they want to be treated for their ailments. This step is certainly like rubbing salt on the wound. India is seen as an affordable medical treatment destination and medical tourism is on the rise. Taxing healthcare services may dent this image which needs to be kept in mind by the law makers.

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