The Goods and Services Tax ("GST") law has undergone various changes in the recent months. But the recent imposition of GST on room rent paid by patients at hospitals has raised many concerns. The 47th GST Council meeting held on June 28, 2022, and June 29, 2022, coincided with the fifth anniversary of GST implementation. The GST Council sought to rationalize many rates and, also notified the much-needed amendments to remove ambiguity and legal disputes on various issues.
The GST Council proposed imposition of GST on hospital room rent 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."
The GST Council, at its 47th meeting, made this decision as part of a larger tax rate rationalization exercise and the new levy stands effective from July 18, 2022.
India's Pharmaceutical Industry is currently the third biggest sector in India and thus far health care has been protected from indirect taxes and duties on their services considering its significance as also to contain medical care expenses. Imposition of the recent tax on medical care services would directly affect the general Indian population and cause inflation in medical treatment. Besides, hospitals are also concerned about the non-availability of input tax credit as cascading of embedded taxes will increase the cost of treatment for patients.
GST is levied on the supply of goods or services, or both as defined under Section 7 of Central Goods and Services Tax Act, 2017. Insofar as there is a solitary supply of goods or services, there may not be much difficulty in determining the rate applicable on such supply. However, there may be such scenarios where the supplies made are in form of composite supply having combinations like:
- Combination of services having the same or different rate of tax;
- Combination of goods having the same or different rate of tax;
- Combination of goods along with services with same or different rate.
A composite supply is two or more goods or services that are provided together and cannot be sold individually and is taxed at the GST rate of the principal supply, which is the main product or service that the buyer is buying.
In the case of hospitals, the billing is not quite as straightforward, and the patient is billed for the treatments or services offered and not primarily for the room rent charged. There are variety of costs incurred and determined for the purpose of billing to a patient. It can be contended that room rent charged by hospital is not an independent service and would be an essential part for medical care administration and should therefore be exempt from GST. Thus, the new imposition will raise many issues including as to what is the principal supply of service for taxability under GST. Further, even if such a transaction is viewed as a composite supply, the different components of the said transaction cannot be sub-divided for giving different tax treatment. Further, if taxation proves contrary to the principle of composite supply, the new proposition would to be subjected to many legal challenges.
Hospital industry is naturally a worried lot as, on one hand, the input tax credit is not being made available and on the other, they will have no choice but to pass on this imposition on to the patients. There is an urgent need of explanation from the GST Council on implementation of this new imposition to minimize undesirable tax litigations in future.
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