GST Changes- Impact on Healthcare Sector

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GST Changes- Impact on Healthcare Sector

Healthcare has become one of India’s largest sectors, both in terms of revenue and employment. Healthcare comprises hospitals, medical devices, clinical trials, outsourcing, telemedicine, medical tourism, health insurance and medical equipment, etc. The Indian healthcare sector is growing at a rapid pace due to its strengthening coverage, services and increasing expenditure by public as well private players.

As of 2021, the Indian healthcare sector was one of India’s largest employers as it employs a total of 4.7 million people. This sector has generated 2.7 million additional jobs in India between 2017-2022- over 500,000 new jobs per year.

The Indian medical tourism market was valued at US$ 2.89 billion in 2020 and is expected to reach US$ 13.42 billion by 2026.

Further, The e-health market size is estimated to reach US$ 10.6 billion by 2025.

GST on Healthcare Services Prior to 18th July, 2022

In India, the healthcare sector has hardly been subjected to the indirect taxes on the services provided, considering the vital nature and aspiration of the government to provide quality and affordable healthcare services to all the fellow countryfolk.

As per the Notification No.11/2017 Central Tax (Rate) dated 28TH June, 2017, Sl.No.31, the rate of GST for “Human health and Social care services” is 18% (CGST – 9% and SGST – 9%).

However, The CBIC had provided a blanket exemption in respect of all healthcare services and its ancillary supplies vide Sl.No.74 of Notification No.12/2017 – Central Tax (Rate) 

 Ibid notification states, Services by way of-

 (a) health care services by a clinical establishment, an authorized 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, are exempt.

As per explanation provided under the above referred rate notification, “health care services” means 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 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.

“clinical establishment” means a hospital, nursing home, clinic, sanatorium or any other institution by, whatever name called, that offers services or facilities requiring diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognized system of medicines in India, or a place established as an independent entity or a part of an establishment to carry out diagnostic or investigative services of diseases;

Further, “authorized medical practitioner” is defined as “a medical practitioner registered with any of the councils of the recognized system of medicines established or recognized by law in India and includes a medical professional having the requisite qualification to practice in any recognized system of medicines in India as per any law for the time being in force”

Note -: The relaxation/exemption has not been provided to cosmetic treatments considering the nature and use of the services, that is primarily for the enhancement of beauty and strictly not a necessity. (except when undertaken to restore or to reconstruct anatomy or functions of body affected due to congenital defects, developmental abnormalities, injury or trauma)

   GST on Healthcare Services After 18th July, 2022

Recently, In the 47th GST Council Meeting, to rationalize the existing GST rate structure, it was proposed to withdraw certain exemptions provided to healthcare sector. Exemptions withdrawn and taxes levied on certain supplies are listed below-:

  1. GST on Room Rent

Based on the recommendations of the 47th GST Council meeting, CBIC issued Notification No.03/2022 Central Tax (Rate) and Notification No.04/2022 Central Tax (Rate) and the amendment has been made to levy GST on the room rent charged to patients for the healthcare services as follows,

Room Rent exceeding Rs.5000 per day per patient charged by clinical establishment shall be taxed to the extent of amount charged for the room at 5% without ITC.

In this regard, the amendment has been made in both the rate entry and the exemption entry on Healthcare Services under GST as follows-:

In the rate Notification No. 11/2017 – Central Tax, a new entry Sl.No.31A of has been inserted to charge 5% tax on Services provided by a clinical establishment by way of providing room [other than Intensive Care Unit (ICU)/Critical Care Unit (CCU)/Intensive Cardiac Care Unit (ICCU)/Neo natal Intensive Care Unit (NICU)] having room charges exceeding Rs. 5000 per day to a person receiving health care services.

In S.No.74 of Notification No.12/2017 – Central Tax, a proviso has been inserted to exclude services provided by a clinical establishment by way of providing room [other than Intensive Care Unit (ICU)/Critical Care Unit (CCU)/Intensive Cardiac Care Unit (ICCU)/Neo natal Intensive Care Unit (NICU)] having room charges exceeding Rs. 5000 per day to a person receiving health care services.

Therefore, from 18th July, 2022 the room rent for providing healthcare services charged in excess of Rs.5000 per day will be subject to GST @5% (CGST-2.5% and SGST-2.5%).

Practical Guide in relation to GST on Hospital Room Rent

  1. There is no specific HSN/SAC for room charges collected by the Clinical establishments. Room rent charged by clinical establishment is not an independent supply, Hence the room charges will be covered under the HSN/SAC 99931 only.
  2. Intensive Care Unit (ICU), Critical Care Unit (CCU), Intensive Cardiac Care Unit (ICCU), Neo natal Intensive Care Unit (NICU) and other category rooms where the room rent is below Rs.5,000/- per day would continue to be exempted under Sl.No.74 of exemption notification.
  3. The taxability of room rent shall be evaluated based on individual patients (per day per patient charges).
  4. If the room rent charged is more than Rs.5,000/- per day, then GST shall be charged on the entire amount. (For e.g. Rs.5500/- per day is the room charges, then GST will be levied on Rs.5500/-)
  5. In case of an insurance claim, where the room rent allowed under the claim is only Rs.3,500/- but the actual room rent charged to the patient is Rs.5,500/-, GST shall be charged on the entire amount of Rs.5,500/- .
  6. Amount charged for the Operation theatre and other similar facilities shall continue to be exempted even if the amount charged is in excess of Rs.5000/- as charges for these facilities is an independent charge and not considered as room charges.
  7. Any amount of room rent charged (even below Rs.5000/- per day) in the course of providing cosmetic surgery would be taxable because cosmetic surgery treatment is specifically excluded from the definition of Health Care Services (except when undertaken to restore or to reconstruct anatomy or functions of body affected due to congenital defects, developmental abnormalities, injury or trauma).
  8. If the payment is received by clinical establishment before July18, 2022 and healthcare services are provided after July18, 2022 then as per the provisions of Section 14 of the CGST Act,2017 Clinical Establishment is required to collect GST on Room Rent charged, if exceeding Rs.5000/-
  9. Irrespective of the registration status of the recipient, as per Section 12(4) of the IGST Act, 2017, place of supply of health care services is the location where such services are actually performed. Therefore, location of the clinical establishment would be the place of supply for healthcare services.
  10. In case of any discount is offered before or at the time of the supply and recorded in invoice, then as per Section 15(3)(a) of the CGST Act, 2017 the same shall not be included in the value of supply. Hence the amount of room rent charged after considering the discount, shall be considered to determine the levy.
  11. Notification No.03/2022 Central Tax (Rate) dated 13th July,2022, provides a condition that ITC on goods or services used in supplying the service should not be availed . Hence, No ITC is available to clinical establishments towards the procurements even made specifically for the purpose of hospital room (medical furniture, air conditioner, electrical equipment, etc.)
  12. Tax Invoice cum Bill of Supply as per Rule 46A of the CGST Act, 2017 is to be issued by the Clinical establishment for charging GST on room rent exceeding Rs.5000/- per day charged to an unregistered customer.
  13. For the purpose of charging GST for room rent exceeding Rs.5000/- per day to a registered customer, the clinical establishment shall raise two separate documents one tax invoice to the extent of room rent and one bill of supply for the exempt value, Since Rule 46A does not provide the option of issuing a single document in case the supply is made to a registered person.

Questionable Legal Backing to Levy GST on room rent charged by Hospitals

CBIC has provided a blanket exemption in respect of all healthcare services and its ancillary supplies vide Sl.No.74 of Notification No.12/2017 – Central Tax (Rate). There is no specific exemption from levy of GST for the hospital accommodation. Till the amendment, room charges continued to be an exempt supply for the purpose of levying GST because of the nature of being an ancillary and inseparable supply to Healthcare services provided, that are exempt.

Combined reading of Notification No.11/2017 Central Tax (Rate) and Notification No.12/2017 Central Tax (Rate) dated June28, 2017 states that there is neither any specific reference regarding rate of GST on Room Accommodation provided by a clinical establishment nor any reference to any exemption given for such supply.

Thus, Hospital room rental, not specified elsewhere till now, could arguably have been taxed at 18% under Sl. No. 7(ii) or (vi) of notification 11/2017-Central Tax (Rate) right from the outset.

The legal rationale for the exemption of levy of GST on hospital room rent is backed by section 8 read with section 2(30) of the CGST Act, 2017  which embody the concept of ‘composite supply’.

Section 2(30) defines “composite supply”:

 (30) “composite supply” means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply;

Section 8 of the CGST Act states as follows:

(a) a composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply;

Futher, ‘principal supply’ is defined in section 2(90) ibid, as follows:

(90) “principal supply” means the supply of goods or services which constitutes the predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary;

A supply is considered “ancillary” if it is not the main object of the supply but is subsidiary to the predominant supply.

As per the provisions of law stated above, it is evident that where a bundle of services is provided, of which one is the principal supply and the others are ancillary to it, the whole bundle gets the tax treatment of the principal supply.

In the case of a hospital room, it is transparently clear that nobody will rent a hospital room and stay in a hospital unless they are availing healthcare services and the hospital too will not rent out a room to a non-patient. Thus, the healthcare services are the principal supply, and the hospital room accommodation is an ancillary supply. Both the services combined, are referred to as a Composite Supply, with NIL taxability as per exemption provided to the Healthcare Services.

To conclude, any notification issued cannot override any provision of the Act.

In case of Composite Supply, an important reference can be drawn from the Landmark Supreme Court judgment in case of M/s Mohit Minerals Civil Appeal no. 1390 of 2022 dated May 19, 2022 that the government has no power to interpret a composite supply as two segregable supplies.  The government has again made an attempt to impose tax on one part (room rent above Rs.5000/-) of the Composite supply, where the principle supply is exempt.

  1. Services provided by the operators of the common bio-medical waste treatment facility 

                     As per the Sl.No.75 of the Notification No.12/2017 – Central Tax (Rate) dated                                    June28, 2017

                     Services provided by the operators of the common bio-medical waste                                               treatment facility

                     to a clinical establishment by way of treatment or disposal of bio-medical                                          waste or the

                     Processes incidental thereto were exempt from the levy of GST.

However, As per the recent amendment made vide Notification No. 04/2022 – Central Tax (Rate) dated 13.07.2022, the exemption provided to services provided by the operators of the common bio-medical waste treatment facility to a clinical establishment by way of treatment or disposal of bio-medical waste or the processes incidental thereto has been withdrawn. Further, such services are not covered under the exemption entry provided for healthcare services. Hence, the said services would become taxable, and GST would be payable at the rate provided under Sl.no.32 of Notification No.11/2017-Central Tax (Rate) i.e. 18% (CGST-9% + SGST-9%).

  1. Services provided by cord blood banks 

As per the Sl.No.73 of the Notification No.12/2017 – Central Tax (Rate) dated June28, 2017

services provided by cord blood banks by way of preservation of stem cells or any other service in relation to such preservation were exempt from the levy of GST.

However, As per the recent amendment made vide Notification No. 04/2022 – Central Tax (Rate) dated 13.07.2022, the exemption provided to services provided by cord blood banks by way of preservation of stem cells or any other service in relation to such preservation has been withdrawn. Further, such services are not covered under the exemption entry provided for healthcare services. Hence, the said services would become taxable and GST would be payable at the rate provided under Sl.no.31 of Notification No.11/2017-Central Tax (Rate) i.e. 18% (CGST-9% + SGST-9%).

(The content and views stated in this article are solely for informational purpose and for the reader’s non-commercial personal use. It does not constitute professional advice or recommendation in any manner whatsoever. For any feedback and queries write to me at caritesharora1628@gmail.com)

 

 

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