What has been the practice so far?
Healthcare services comprises of various elements which are naturally bundled and supplied in conjunction with each other wherein healthcare service is the predominant supply. These elements may include charges for medicines consumed, room charges, food provided to patients, etc. that are also included in the invoice/ bill of supply generally raised by clinical establishments for providing healthcare services.
As per section 8 of the CGST Act, 2017 composite supply comprises of two or more supplies, one of which is a principal supply, and shall be treated as a supply of such principal supply. Considering that healthcare service is the principal supply, taxability of only said service is relevant for clinical establishments.
Under GST, exemption has been provided to health care services provided by a clinical establishment, an authorized medical practitioner or paramedics. Accordingly, no GST is being charged by the clinical establishments on healthcare services apart from certain cosmetic or plastic surgery. Further, as per Ministry of Finance Circular No. 27/01/2018-GST, room rent in hospitals was also exempt from GST.
What changes now?
It has been notified to levy GST on room charges exceeding INR 5,000. A proviso has been inserted in the exemption entry applicable to healthcare services which states that exemption entry shall not be applicable to ‘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 INR 5,000 per day to a person receiving health care services.’
Though, silver lining is that there is no change in taxability of rooms having charges up to INR 5,000 per day per patient. This means, such rooms shall remain to be exempted under GST.
Points to Ponder?
GST at the rate of 5% has been levied on room charges with a condition that input tax credit on goods and services used in supplying the service has not been taken. Non-availment of input tax credit may become a cause for inflationary cost of healthcare services. To compensate the impact of increased cost due to said levy, the Government may consider removing the restriction placed on availment of input tax credit
Where the healthcare services are being offered as a package to the patients, aspects related to mixed supply and calculations for value of room charges may require further clarification by the government
In case of co-payments by insurance company and patient, clarity may be required with respect to the invoicing of room charges
Zero-rated GST regime for healthcare emerged as a key demand in the Grant Thornton Bharat Pre-budget Expectation Survey. Countries such as UAE, Australia, Bahrain, etc. have similar GST/ VAT structure in place. Indian tax authorities may consider taking a reference from their foreign counterparts and move towards zero rating of healthcare services
Next steps for the industry
Clinical establishments should revisit their arrangements with TPAs/ insurance companies to clearly agree the terms with respect to payment of GST. This may help the clinical establishments to have requisite clarity with respect to settlement of GST before raising the invoices to TPAs/ insurance companies and patients.
Room charges should be shown separately on the face of invoice along with applicable GST charged thereon. It should not be clubbed with other elements of the healthcare services.
Relevant changes in ERP/ IT systems may be required to capture additional details with respect to GST on room charges. Further, format of the invoice may also need some modifications in view of the applicable provisions of GST law.
There could be few practical challenges while implementing GST levy on room rents, we hope that the Government comes up with suitable clarifications on the same. This will help the industry to accurately pay this liability and would preclude unnecessary litigations. Further, there is an expectation that government should consider to adopt zero rating for this sector given its importance and out of pocket expenditure on healthcare services.