Under the Goods and Services Tax (GST) regime in India, healthcare services and hospital room rent are treated differently based on the nature of the service provider and the type of service. Here’s a detailed explanation of how GST applies to healthcare services and hospital room rent:
The healthcare industry has traditionally been spared from indirect taxes on its services, given its critical role and the goal of reducing healthcare costs. The application of taxes on healthcare services could directly affect the general public in the form of increased treatment costs. However, such tax relief has not been extended to cosmetic treatments, which are primarily for beauty enhancement (viewed as a luxury) and not strictly a necessity.
GST and Healthcare
Goods and Services Tax (GST) is imposed on the supply of goods or services or both. As long as there is a single supply of either goods or services, there may not be many challenges in determining the classification and the applicable rate of such supply. However, many business scenarios may necessitate the supply of goods or services in combination. Such a combination could be: (i) Combination of goods with the same or different tax rate (ii) Combination of services with the same or different tax rate (iii) Combination of goods and services with the same or different rate. In such cases, it becomes crucial to determine the primary nature of the supply. In these instances, the tax liability would be based on whether the said transaction is a composite supply or a mixed supply.
Exemptions in Healthcare
The exemption to healthcare service, which was available in the previous service tax regime, continues under the GST regime. Under Sl.no. 74 of Notification No. 12/2017– CT (Rate) dated 28.06.2017, a full exemption has been granted to services by way of:
(a) healthcare services by a clinical establishment, an authorised medical practitioner or para-medics;
(b) services provided by way of transportation of a patient in an ambulance, other than those specified in (a) above.
Scope of Healthcare Services
“Health care services” means any service by way of diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognised 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 or plastic surgery, except when undertaken to restore or to reconstruct anatomy or functions of body affected due to congenital defects, developmental abnormalities, injury or trauma;
GST Exemptions in Healthcare
To provide further clarity, the following healthcare services are exempt from GST:
- Outpatient Department Services (OPD):
Consultation and treatment provided by doctors to patients without hospital admission are exempt from GST. However, GST is applicable on the supply of medicines and implants through hospital-owned pharmacies to outpatients.
- Inpatient Department Services (IPD):
Inpatient services, including doctors’ fees, consultancy charges, and the supply of medicines, implants, consumables, bed charges, operation theatre rent, equipment charges, etc., are exempt from GST and are considered a composite supply. However, GST needs to be paid when medicine and food are offered on an optional and distinct basis.
- Medical Test Services:
All medical tests conducted in clinical establishments are exempt from GST.
- Medical Counselling Services:
A doctor’s consultation provided for the purpose of cure is exempt from GST.
- Cord Blood Bank Services:
The services provided by blood banks for preserving stem cells are exempt from GST.
- Ambulance Services:
Ambulance services are not subject to GST.
- Veterinary Services:
Services provided by a doctor for the care of birds and animals are exempt under GST.
Additionally, X-Rays and services rendered by diagnostic centres in clinical establishments are bundled up with healthcare services and do not attract any GST.
GST Applicable Healthcare Services
However, the following healthcare services are liable to GST:
- Renting:
GST is levied on the rent paid to hospitals for opening medical shops on their premises. - Waste Treatment Facility:
The services delivered by the operators of common biomedical waste treatment facilities to clinical establishments for the treatment or disposal of biomedical waste are subject to 12% GST with ITC. - Taxable under GST:
Healthcare services provided by private clinics, diagnostic centers, or hospitals with less than 25 bedsare taxable under GST at 18%.
Recent Developments
In the 47th GST Council Meeting, it was recommended to rationalise the existing rate structure, wherein it was proposed to withdraw certain exemptions. Sl.no.5 of heading C.4 of the press release, provides as under 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 ITC. This proposal, under the guise of rate rationalization, is nothing short of a shock-treatment for the healthcare sector, as it would unsettle the settled tax position and lead to unwanted tax litigations.
GST on Hospital Room Rent
Room Rent in Hospitals
Hospital room rent is charged for the accommodation provided to patients during their treatment. The GST treatment depends on the type of room and the tariff charged:
- Exempt from GST:
Room rent charged by hospitals (with more than 25 beds) is exempt from GSTif the room rent is below ₹5,000 per day. - Taxable under GST:
Room rent charged by hospitals (with more than 25 beds) is taxable at 5% GSTif the room rent is ₹5,000 or more per day.
Conditions for Exemption
- The hospital must have a bed capacity of more than 25 beds.
- The room rent must be below ₹5,000 per day.
GST on Other Hospital Services
Diagnostic Services
- Diagnostic services provided by hospitals (e.g., blood tests, X-rays, MRIs) are exempt from GSTif they are part of the treatment package.
- If diagnostic services are provided separately(e.g., to outpatients), they may be taxable at 18% GST.
Pharmacy and Medicines
- Medicines and drugs sold by hospitals are taxable under GSTat the applicable rates (e.g., 5%, 12%, or 18%).
Ambulance Services
- Ambulance services provided by hospitals are exempt from GST.
Legal Perspectives
The first striking and notable doubt that arises is whether hospital room rent is an independent supply of service and whether there exists an independent exemption entry for the same under the GST law. The Punjab & Haryana High Court in the case of M/s. Fortis Health Care Ltd. and Another had passed a combined order against a batch of writ petitions, holding that “Before such a transaction is put to tax, whether under the Haryana or Punjab VAT Act, it would have to satisfy the dominant nature test by reference to the substance of the contract. A contract for medical treatment necessarily involves medicines, supply of surgical items, stents, implants, valves, without which a medical procedure or medical treatment cannot be completed. Medical procedures/services offered by the petitioners are a service. The supply of drugs, medicines, implants, stents, valves, and other implants are integral to medical services/procedures and cannot be severed to infer a sale as defined under the Punjab or the Haryana act and therefore, are not exigible to value-added tax.”
GST Registration for Medical Practitioners-
Doctors who are exclusively offering healthcare services that are exempt under the GST law are not required to register for GST. However, if doctors are providing any other services that are taxable, they must register for GST. This requirement is triggered when their total annual turnover surpasses Rs.20 lakh for regular category states or Rs.10 lakh for special category states. In such cases, GST will be applicable on the medicines dispensed through their clinical establishment.
Practical Examples
- Exempt Healthcare Services:
- A patient undergoes surgery in a private hospital with 50 beds. The hospital charges ₹4,000 per day for the room.
- GST Treatment: Exempt from GST.
- Taxable Room Rent:
- A patient stays in a private hospital with 50 beds and is charged ₹6,000 per day for the room.
- GST Treatment: 5% GST applicable on the room rent.
- Diagnostic Services:
- A patient undergoes an MRI scan in a diagnostic center.
- GST Treatment: 18% GST applicable (if not part of a treatment package).
Points to Remember
|
