Cashless hospitalisation schemes offered by health insurers and insurance companies are under the income-tax net.The CBDT has now made it clear that Third Party Administrators (TPAs) must deduct tax at source on payments made to hospitals for settling insurance/medical claims under various schemes including cashless schemes.

A TPA is an organisation that processes insurance claims for an insurance entity. It is basically a form of outsourcing of the administration of insurance claims processing. While TPAs are often independent, there are some who operate as a unit of an insurance company.

The CBDT has clarified that services rendered by hospitals to various patients are primarily medical services and therefore provisions of Section 194J (a TDS provision in Income-Tax Act) are applicable on payments made by TPAs to hospitals.

For invoking Section 194J of the Income-Tax Act, there is no stipulation that the professional services have to be necessarily rendered to the person who makes payment to the hospital, the CBDT said in a circular issued here on Tuesday.

Moreover, in a stance that could be really taxing for TPAs, the CBDT has clarified that all past transactions between TPAs and hospitals will be covered under the provision of Section 194J.

Both interest and penalty would be levied on assesses (TPAs) who had not deducted tax at source on payments made to hospitals for settling insurance/medical claims, the CBDT has said. The TDS rate is 10 per cent.

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September 2021