Recently Section 83 of the CGST Act, 2017 was amended in order to widen and raise the Commissio...
India has one of the largest Pharmaceutical Industries in the world, with the country’s healthcare service sector slowly becoming the medical tourism destination in the global arena, owing to the low-cost and high-quality services provided by the healthcare service providers in India. The healthcare service sector in India is also one of the largest sectors in the country with respect to the revenue and employment opportunities generated. The change in the tax regime in India brought by the implementation of GST has led to an increase in the overall revenue generated by the government through indirect tax, while significantly reducing the cost of goods and services for consumers. GST is also applicable to the health care sector and has impacted the prices of different healthcare services. This blog provides a detailed overview of GST on health care services in India, exempted healthcare services, non-exempt services, GST registration for doctors and hospitals, and much more.
The implementation of Goods and Service Tax or GST has turned out to be a positive change in the Indian taxation regime. GST has benefitted various industries by causing a noticeable reduction in the overall operational cost of businesses.
Applicability of GST has led to a significant reduction of the overall cost by eliminating several indirect taxes that were previously applicable and caused a cascading effect onthe purchase of certain goods or services. GST has also brought uniformity in the tax structure applicable across India, expunging the variable tax rates applied on certain services by different States.
The key objectives of GST application in India can be summed up in the following ways:
In addition to the role GST has played in bringing the overall uniformity in the tax rates and reduction in prices of goods and services, the Goods and Service Tax has also affected the manner in which the health care sector in India functions.
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In order to have a comprehensive understanding of the extent of GST application on the health care sector in India, it is important to analyse the following:
Notification No. 12/2017-Central Tax (Rate) dated June 28, 2017 provides for the definition of services for the purposes of understanding the ambit of GST applicability on Healthcare services in India. The Notification, under Heading 9993, identifies such services as any services in the form of:
In order to understand the applicability of GST on Healthcare services in India, it is critical to understand the meaning of the term ‘Healthcare services’. The term ‘healthcare services’ has been defined under the Notification dated June 28, 2017 as any services for diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy under any system of medicines which has been recognised by the laws in India. This also includes any services provided for the transportation of a patient to and from a clinical establishment.
However, the definition of healthcare services does not include services relating to hair transplant, cosmetic or plastic surgery, with the exception of cases when the same has been done for restoring or reconstructing the anatomy or functions of a body which has been affected due to any congenital defects, developmental abnormalities, injury or trauma.
As per the notification, ‘Clinical Establishments’ have been defined as any hospital, nursing home, clinic, sanatorium or any other institution which extends services or provides services that require diagnosis or treatment or care for any form of illness, injury, abnormality, deformity or pregnancy in any system of medicine which is recognised in India. A clinical establishment may also be any place which has been established as an independent entity or a part of an establishment that provides diagnostic or investigative services for diagnosing any disease.
The notification further defines a ‘Medical Practitioner’ as a practitioner of medicine who has been registered with medical councils which have been recognised as systems of medicines created or identified as a system of medicine under the Indian laws. The definition also includes a medical practitioner who holds sufficient qualification in medicine that allows them to practice under medical councils which have been recognised as systems of medicines created or identified as a system of medicine under the Indian laws.
Therefore, to come under the ambit of the definition laid down under the Notification No. 12/2017, a practitioner must fulfil the following conditions:
The services laid down under Heading 9993 of the Notification No. 12/2007 are exempted from any GST. This means that any services provided in the form of healthcare services, services by a medical practitioner or a clinical establishment would not be subject to GST, except for certain services that fall outside the ambit of the definitions mentioned above.’
In the case of M/s Medivision Scan and Diagnostic Research Centre (2019), it was held that services relating to any form of diagnosis or investigations fall under the category of healthcare services and are therefore, exempted from GST.It was further held that any clinical or medical diagnostic laboratory would include any laboratory where microbiological, serological, chemical, haematological, immune-haematological, immunological, toxicological, cytogenetic, exfoliative cytogenetic, histological, pathological or other examinations are performed of materials or fluids derived from the human body for diagnosis, prognosis, prevention, or treatment of disease. Since theseservices relating to diagnosis or investigation fall under the definition of health care services, they are eligible for exemption from GST.
Further, in the case of M/s Sayre Therapeutics Private Limited (2018), it was held that any services or facilities relating to diagnosis of a patient, along with services pertaining to patient counselling, suggestion of anydiagnostic test for the patient, collection of samples, finding the result of such diagnostic tests, sharing of the test results and post-counselling are also covered under health care services in India for the purposes of GST exemption, even in the cases when such tested were conducted by any other agency.
In addition to the services exempted under the Notification, there are certain other services related to healthcare in India which have received a full exemption from GST applicability. These services include:
Apart from the services that are exempted under the ambit of healthcare services as per the Notification No. 12/2017, there are certain services which would not be exempted from GST applicability and would be liable for payment of GST as per the applicable rates. The services related to the healthcare sector which are not exempted under GST are:
Sale of all kinds of medicines is subject to GST exemption in India. Medicines in India are charged at different GST rates ranging between 5%, 12% and 18%. If any medicine is purchased by a healthcare provider such as hospital, clinical establishment or medical practitioner, the same would be liable for GST application and subject to Input Tax Credit.
If any diagnosis or investigations are performed by any outside accredited laboratory, which may also be engaged in giving consultancy, the same establishment will not be considered as a clinical establishment, and no GST exemption would be available for its activities.
The same was held in the case of J C Genetic India (P.) Ltd (2019), in which it was held that since the applicant has failed to prove their own authority and recognition for testing and giving clear report/opinion of their own, which can only be done by a NABL accredited laboratory, the Applicant does not qualify to be covered under ‘healthcare services’ and ‘clinical establishment’.
In case of a healthcare provider, for instance, a hospital, of any food is supplied to the attendants or visitors, as well as any out patients, then such services will not be counted as healthcare services, and would be liable for GST applicability.
In addition to this, if the supply of food is outsourced, then the hospital will also be required to pay tax to the supplier of food. The same has been provided under CBI&C Circular No. 32/06/2018-GST dated February 12, 2018.
If the hospital gives any part of the premises on rent to any other service provider, the GST would be applicable on the rent paid or payable for such premises.The same has been held in the case of Tathagat Health Care Centre LLP (2018), wherein the applicant was a cardiology specialised hospital running on one floor of the building taken on lease from Mallige Hospital. The applicant hospital was engaged in providing cardiology relatedhealth care services to the patients and contended that such output services are exempt from GST. The hospital further contended that the rent payable by the hospital which has been engaged in life-saving healthcare services are also exempted from the scope of GST.
However, the Karnataka Tax Authority ruled that the questioned service of renting or leasing services involving own or leased non-residential property comes under Heading 997212 and is taxable under GST.
The Authority further clarified that the GST laws do not provide for any provision that exempts any input services from GST if the output service of the taxable person is exempted from GST.
For the purposes of GST registration in India, the eligibility on the basis of the annual turnover of a person or business is calculated by including the sum total of all outward supplies of services or sale of goods.
In case, this aggregate turnover of a person turns out to be more than INR 20 lakh in a financial year, or INR 10 lakh in case of special category states, then the person would be mandatorily liable to obtain a GST registration in India.
Also, a person whose total outward supplies are exempted from the ambit of GST or are not taxable is not required to obtain GST registration. However, if any part of such total outward supplies falls under the scope of GST and is taxable, then a registration under GST is required in all the states in which the person is operating their business.
By this means, if a healthcare service provider is engaged in outward supply of any of the previously mentioned taxable services and the annual turnover crosses the threshold of INR 20 lakhs (or INR 10 lakhs in Special Category States), then they would be required to obtain a GST registration.
A healthcare service provider including a hospital, doctor, clinical establishment or other medical practitioners would be required to obtain GST registration if its aggregate turnover contains any component inwards taxable supply of services which are covered under the reverse charge mechanism.
Reverse charge mechanism provides that the recipient of any services or purchase of any goods can be held liable to pay the Goods and Services Tax instead of the seller of goods or service provider. As per the Reverse Charge Mechanism, inward supply of the following categories of services would require a healthcare service provider to obtain a GST registration:
As per the GST rates and taxable goods and services, any import of technical machinery and equipment required by any hospital, doctor, or clinical establishment would be subject to duty. However, the same can be claimed as Input Tax Credit by the healthcare service provider.
Also, Input Tax credit is available in case of Reverse Charge on goods and services which are not listed under the negative list under the GST regime. Additionally, such credit is only available if the goods or services are utilised towards expansion or advancement of the business.
However, Section 17 of the CGST Act, Input Tax Credit will not be available to any healthcare service provider on any input or input services if the same have been availed for the following needs:
The Healthcare Federation of India (NATHEALTH), in December 2019, urged the government to bring zero rating of Goods and Services for all healthcare services and health insurance premiums. The Federation raised the point that the net impact of GST on inputs consumed by hospitals has increased since healthcare service providers are ineligible to avail Input Tax Credit, healthcare services being non-taxable.
This ultimately increases the cost of healthcare services on patients and defeats the objectives of GST that includes reducing the overall costs of goods and services for the end users. The CII also recommended a flat 5% rate of GST on healthcare service deliveries PAN-India.
The impact of GST has been a blend of positive and negative impacts in terms of the cost of different goods and services for the consumers. When it comes to the impact of GST on health care service sector in India, it has somewhat been positive, while the supply chain remains intact. With almost all of the healthcare services falling under the no-tax scope, and healthcare service providers allowed to claim Input Tax Credit on certain inward supply of goods or services, GST has significantly impacted the way the healthcare sector structures the costs of its services. However, there remains room for alterations in the GST applicability on Healthcare sector since the average end cost of services has increased for the consumers since the application of the tax.
Also, Read: Healthcare Services under GST: A Complete Analysis.