GST on Health Care Services

GST (Goods and Services Tax) has grabbed the attention across all the industries in the country. It would benefit most of the sectors and make the taxation process easier as it will replace a number of different taxes and duties. The Indian Healthcare Industry is now among of the major sectors with respect to revenue and to employment. As the expenditure on the Healthcare increases, so do revenues from taxes.

GST subsumes various taxes of the complex tax system in the country into one uniform tax system. GST would have a constructive effect on the Healthcare Industry particularly the Pharma sector. It would help the industries by streamlining the taxation structure since 8 different types of taxes were imposed on the Pharmaceutical Industry previously.

An amalgamation of all the taxes into one uniform tax will ease the way of doing business in the country, as well as minimising the cascading effects of manifold taxes that is applied to one product. Moreover, GST would also improve the operational efficiency by rationalising the supply chain that could alone add 2 percent to the country’s Pharmaceutical industry. GST would help the Pharmaceutical companies in rationalising their supply chain; the companies would need to review their strategy and distribution networks.

Furthermore, GST implementation would also enable a flow of seamless tax credit, improvement the overall compliance create an equal level playing field for the Pharmaceutical companies in the country. The biggest advantage for the companies would be the reduction in the overall transaction costs with the withdrawal of CST (Central Sales Tax). GST may lower the manufacturing cost.

One more benefit due to GST is the reduction in the overall cost of technology. Previously, the technical machinery and equipment which are imported into the country by the healthcare sector were very costly. Also, the duty which is levied is not allowed as a tax credit under the previous tax regulations.

However, with GST this scenario might change. Under GST, duty charged on the import of such equipment and machinery would be allowed as a credit.

Till the time GST was introduced, life-saving drugs were exempted from the Excise and Customs Duties. Some of the States charged 5 percent taxes on the medicines; GST changed the scenario. One of the prime concerns for the healthcare sector is the inverted duty structure that adversely impacts the domestic manufacturers.

The cost of inputs is much higher than output, i.e., the raw materials are more costly in terms of duty than the finished product itself hence depressing investments from the manufacturers. For addressing this issue, the GST structure has a law in place for inverted duty structure and brings in a refund of the accrued credit.

It proves to be the biggest advantage for the healthcare sector and would act as a booster for the growth of the healthcare industry.

Speaking about Medical Tourism, India has a definite competitive advantage over the First world countries. Several studies have proved that the cost of health care package including accommodation and travel to India is about 30-40 percent of the similar medical treatment and procedures in First World countries.

India brags of having one of the largest healthcare workforces with 50,000 or more doctors and nurses produced every year. In 2017, there was a boom in the country’s medical tourism that generates extra returns for Healthcare Industry. The revenue from medical tourism in the country has grown from $334 million in 2004 to $2 billion this year.

With the implementation of GST, Medical Tourism projected a manifold growth. Also, the formation of National Medical Tourism Board has initiated their policies for solving the issues which are faced by the medical travellers. The Board under the Ministry of Tourism would go a long way to solve the challenges in coordination across different ministries.

With the roll-out of GST, the cost of insurance, pharmaceuticals, and international travel together with quality health care reduced which would culminate into better prospects of medical tourism in the country for future. Valsa Nair Singh, IAS, Principal Secretary, Tourism & Culture with the government of Maharashtra, speaking about challenges such as demonetization and GST, claimed that medical tourism is growing in spite of demonetization, and e-visa on arrival has also helped in achieving the same.

The medical tourism industry has been assisted by improved connectivity. “We are trying continuously for replicating wellness, yoga and organic living,” she shares. India is home to several alternative medicine practices such as Yoga, Ayurveda, Unani, Sidha, Homeopathy and Acupuncture which are popular among the foreigners.

Such alternative medicine practices give India an important edge over most of its competitors such as Thailand, Malaysia, Singapore, UAE and South Korea. GST would have a positive effect on these alternative medicine sector and will significantly contribute towards the growth of medical tourism in the country.

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:

• Healthcare Services exempted from GST in India.
• Services which are not exempted from applicability of GST.
• Case when GST registration is required by any healthcare service provider, clinical establishment or medical practitioner.

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:

1. Health care services an authorised medical practitioner, para-medics or by a clinical establishment.
2. Services provided in the form of transportation of a patient in an ambulance.

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[1]’. 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.

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:

• Services specified under Section 9(3) of the CGST Act, 2017.
• Services specified under Section 9(4) of the CGST Act.
• Certain Imports.

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:

1. For any non-business-related use.
2. For any exempted supplies.