GST Applicability for Hospitals

1.1 Introduction

The Goods and Services Tax (GST) regime in India, effective from July 1, 2017, introduced a unified tax structure across various sectors.  Recognizing the essential nature of healthcare services, the GST framework provides specific exemptions to ensure that medical services remain accessible and affordable.  This report delves into the detailed provisions, notifications, and circulars pertaining to GST exemptions in the healthcare sector.

 

As per Entry No. 31 of Notification No. 11/2017 – Central Tax (Rate) dated June 28, 2017, Human health and social care services are taxable in GST @ 18% under the heading 9993.

 

As per Entry No. 74 of Notification No. 12/2017 – Central Tax (Rate) dated June 28, 2017, health care services are exempt from GST.

 

Entry No. 74: Exempts services by way of:

(a) Healthcare services provided by a clinical establishment, an authorized medical practitioner, or paramedics.

(b) Transportation of patients in an ambulance, other than those specifies in (a) above.

 

Provided that nothing in this entry shall apply to the 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. {Inserted by Notification No. 04/2022 – Central Tax (Rate)}

 

 

1.2 What do you mean by health care services

As defined under clause 2(zg) of Notification No. 12/2017 – Central Tax (Rate) dated June 28, 2017

any service

by way of diagnosis, 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 reconstruct anatomy or functions of the body affected due to congenital defects, developmental abnormalities, injury, or trauma.

 

1.3 What do you mean by clinical establishment

As per clause 2(s) of Notification No. 12/2017 – Central Tax (Rate) dated June 28, 2017,

clinical establishment means

hospitals, nursing homes, clinics, sanatoriums, or

any other institution offering 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.

 

1.4 What do you mean by authorised medical practitioner

As per clause 2(k) of Notification No. 12/2017 – Central Tax (Rate) dated June 28, 2017,

Authorized Medical Practitioner means

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 recognised system of medicines in India as per any law for the time being in force.

 

1.5 Notification No. 03/2022–Central Tax (Rate) & Notification No. 04/2022–Central Tax (Rate)

Introduction of GST on Room Rent Charges Exceeding ₹5,000 per Day

 

• Background: Prior to this notification, services provided by clinical establishments were exempt from GST under Entry 74 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017. However, the exemption did not explicitly address room rent charges exceeding ₹5,000 per day.

 

• Amendment: Notification No. 03/2022-Central Tax (Rate) inserted Entry 31A into Notification No. 11/2017-Central Tax (Rate), specifying that services provided by a clinical establishment by way of providing rooms (other than ICU/CCU/ICCU/NICU) with room charges exceeding ₹5,000 per day are subject to 5% GST without ITC w.e.f. 18/07/2022 (i.e. the credit of input tax charged on goods and services used in supplying the service has not been taken).

 

• Amendment: Notification No. 04/2022-Central Tax (Rate) amended entry no 4 of Notification No. 12/2017-Central Tax (Rate) and clarified that if room rent is exceeding 5000 then whole amount of room rent shall be taxable. 

Example: Suppose room rent in RVG hospital is Rs. 12000 per day then full amount of Rs. 12000 shall be subject to GST.

 

 

1.6 Clarifications through Circulars

To address ambiguities and provide clarity on the application of GST exemptions in healthcare, the Central Board of Indirect Taxes and Customs (CBIC) has issued several circulars:

 

1.6.1 Circular No. 32/06/2018-GST dated February 12, 2018

The primary reason for issuing this circular was to ensure uniformity in tax treatment across different scenarios in the health sector, especially considering the exemptions under GST for health-related services.

 

Key Clarifications of this circular are as follows:

 

1. Services by Senior Doctors/Consultants/Technicians: The service rendered by a doctor to a hospital can be in two capacities:

(a) As an employee: When a doctor is engaged by a hospital in the capacity of an employee, the service is covered under Paragraph 1 of Schedule III of the CGST Act, which stipulates that services by an employee to the employer in the course of or in relation to his employment are not considered as a supply of service. Accordingly, such services are not liable to GST.
 

(b) On a Contractual Basis: When a doctor provides services to a hospital on a contractual basis and not as an employee, such services are classified as healthcare services as defined under Notification No. 12/2017–Central Tax (Rate), dated 28th June 2017. Healthcare services provided by a clinical establishment, an authorised medical practitioner, or para-medics are exempt from GST under Entry No. 74 of the said notification.

This position has also been clarified by CBIC in Circular No. 32/06/2018-GST, which confirms that services provided by doctors (whether on a contractual or independent basis) to clinical establishments are covered under the exemption for healthcare services.

 

2. Retention Money by Hospitals: The entire amount charged by Hospitals from the patients including the retention money and the fee/payments made to the doctors etc., is towards the healthcare services and is exempt.

 

Example: Suppose RVG Hospital charged Rs. 15,000 from a patient for providing health care services. Out of this amount, Rs. 12,000 was paid to the doctor as he was on a contractual basis and not an employee of hospital, and the hospital retained Rs. 3,000 as profit. The services rendered by the doctor to the hospital qualify as health care services and are therefore exempt from GST. Similarly, the services provided by the hospital to the patient also fall under the category of health care services. As a result, the entire amount of Rs. 15,000 received from the patient is exempt from GST.

 

3. Food supplied to patients: Food supplied to the in-patients as advised by the doctor/nutritionists is a part of composite supply of healthcare and not separately taxable.

Other supplies of food by a hospital to patients (not admitted) or their attendants or visitors are taxable.

However, if the food is supplied by an external caterer, GST is applicable on such supply.

 

1.6.2 Circular No. 51/25/2018-GST dated July 31, 2018

The primary reason for issuing this circular was to clarify the GST treatment of ambulance services provided by PSPs to State Governments under the National Health Mission (NHM), ensuring uniformity and consistency in tax treatment across the country.

 

Exemption under GST: The circular clarified that ambulance services provided by PSPs to State Governments under the NHM are exempt from GST. This exemption is based on the provisions of Notification No. 12/2017-Central Tax (Rate) dated 28th June 2017, specifically under Sl. No. 74, which covers services provided by way of transportation of a patient in an ambulance.

 

Applicability of Service Tax Exemption: The circular referenced Circular No. 210/2/2018-Service Tax dated 30th May 2018, which had previously addressed the service tax exemption for ambulance services. It was clarified that the principles outlined in the service tax exemption also apply under the GST regime.

 

Constitutional Provisions: The circular highlighted that the function of 'public health' is entrusted to Municipalities under Article 243W of the Constitution, and ambulance services are activities related to functions entrusted to Panchayats and Municipalities under Articles 243G and 243W. Therefore, such services are exempt from GST when provided to the Government.

 

Pure vs Composite Supply: The circular specified that if the ambulance service provided by PSPs to State Governments is a pure service (i.e., without any supply of goods), it is exempt under Sl. No. 3 of Notification No. 12/2017-Central Tax (Rate). If it is a composite supply involving goods and services, and the value of goods constitutes not more than 25% of the total value, it is exempt under Sl. No. 3A of the same notification.

 

In summary, Circular No. 51/25/2018-GST was issued to provide clarity on the GST treatment of ambulance services provided by PSPs to State Governments under the NHM, ensuring that such services are appropriately exempt from GST in line with the applicable legal provisions.

 

1.6.3 Circular No. 177/09/2022-GST dated August 3, 2022

The primary reason for issuing this circular was to address representations seeking clarification on the applicability of GST on various services, including Assisted Reproductive Technology (ART) procedures such as In Vitro Fertilization (IVF).

 

The circular specifically clarifies that services provided by way of ART procedures, including IVF, are covered under the definition of "health care services" as per Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017. These services are exempt from GST under Sl. No. 74 of the said notification. The definition of "health care services" includes services by way of diagnosis, treatment, or care for illness, injury, deformity, abnormality, or pregnancy in any recognized system of medicine in India. Infertility is considered an abnormality or disease, and services provided by way of ART procedures such as IVF are thus exempt from GST.

 

1.7 Services by Cord Blood Banks

Services provided by cord blood banks by way of preservation of stem cells or any other service in relation  to such preservation  are exempt under  Entry  No. 73 of Notification No. 12/2017 – Central Tax (Rate). 

 

This notification was omitted by Notification No. 04/2022 – Central Tax (Rate) w.e.f. 18^th July, 2022.


1.8 GST Applicability in case of inward supply of legal services

As per S.No. 45 of Notification No. 12/2017 - Central Tax (Rate) as amended by  Notification No. 21/2019- Central Tax (Rate), legal services provided by a partnership firm of advocates or an individual as an advocate or a senior advocate, to a business entity with an aggregate turnover up to such amount in the preceding financial year as makes it eligible for exemption from registration under the Central Goods and Services Tax Act, 2017 shall be exempt from GST.

 

As per S.No. 2 of Notification No. 13/2017 - Central Tax (Rate), inward supply of legal services is liable to reverse charge in which the recipient is liable to pay tax on reverse charge basis if received from an advocate/senior advocate or a firm of advocates by a business entity located in the taxable territory, then the business entity is liable to pay GST under reverse charge.

 

As per section 22(1) of the CGST Act, 2017, every supplier is required to register under GST if the aggregate turnover in a financial year exceeds:

 -  ₹20 lakh (general category states),

 -  ₹10 lakh (special category).

 

According to Section 24(iii) of the CGST Act, 2017, Notwithstanding anything contained in sub-section (1) of section 22, any person who is required to pay tax under reverse charge must compulsorily register under GST, irrespective of the turnover threshold.

 

So if a hospital is providing only exempt supply of goods or services or both, then it is eligible for exemption from registration under GST under section 23 irrespective of aggregate total turnover. So inward supply of legal services shall also be exempt from GST. Therefore the question of reverse charge on such service does not arise.

But if the hospital is providing only taxable supply or a combination of both taxable and exempt supplies of goods or services or both, then section 22(1) comes into force and we have to check the aggregate turnover of the hospital. If the aggregate turnover is within the threshold for registration then RCM will not be applicable, but if it exceeds the threshold for registration then Hospital will be liable to pay tax under RCM. 

 

Particulars	Aggregate Turnover	Provision Applicable	Remarks
Hospital is providing only exempt services	Not exceeding 20/10 Lakhs	Section 23(1) (Aggregate turnover is irrelevant in this section)	Not liable for registration. So legal services also exempt.
Hospital is providing only exempt services	Exceeding 20/10 Lakhs	Section 23(1) (Aggregate turnover is irrelevant in this section)	Not liable for registration. So legal services also exempt.
Hospital is providing both taxable and exempt services	Not exceeding 20/10 Lakhs	Section 22(1)	Not liable for registration. So legal services also exempt.
Hospital is providing both taxable and exempt services	Exceeding 20/10 Lakhs	Section 22(1)	Liable for registration. RCM applicable on legal services.

 

1.9 GST Applicability in case of GTA

A Goods Transport Agency is any person who provides service in relation to transport of goods by road and issues a consignment note.

If a consignment note is not issued, then the service provider is not treated as a GTA and is exempt from GST.

 

As per Notification No. 11/2017 Central Tax (Rate) as amended by Notification No. 3/2022 Central Tax (Rate), GTA has two options regarding Tax Payment which are discussed below:

(a) GTA does not exercise the option to itself pay GST on the services supplied by it then RCM will be applicable @5%.

(b) GTA exercises the option to itself pay GST on services supplied by it then FCM will be applicable @5% without ITC or @12% with ITC.

 

As per Entry 1 of Notification No. 13/2017 – Central Tax (Rate), GST under Reverse Charge Mechanism (RCM) is applicable when services of a Goods Transport Agency (GTA)  not opting FCM are received by a body corporate, irrespective of the turnover threshold.

 

Since all hospitals are normally incorporated as a company, suppose a machinery is purchased by the hospital and transport charges are paid by the hospital to the GTA directly then RCM will be applicable on GTA and hospital will be liable to get mandatory registration under GST, irrespective of the turnover threshold.

This will increase unnecessary compliance on the hospital with regard to GST filings and input reversal for exempt supplies.

 

What to do?

If the hospital is unregistered and it is purchasing goods or machinery then the transportation services of it should not be taken by the hospital instead hospital should ask the supplier to deliver the goods. If the hospital follows this then it is not required to register under GST due to RCM provision applicability.

Alternatively, Hospital can take transportation services from GTA who has opted Forward charge mechanism and can avoid GST registration to comply RCM provisions.

 

1.10 Input Tax Credit

Section 16 of CGST Act,2017 provides provisions for eligibility and conditions for claiming of input tax credit. The credit is available to service provider or the manufacturer of the duty or tax paid on ‘capital goods’, ‘inputs’ and ‘input services’. The ITC is not available when used for providing exempted output service. Thus, to the extent output services are exempt from the payment of GST, the credit of duties and taxes paid on inputs/input services used therein will not be available.

 

1.10.1 Further, section 17(5) of CGST Act, 2017 provides for list of services on which ITC is not available, amongst which health services and cosmetic and plastic surgery services are also mentioned in 17(5)(b)(i). However, ITC in respect of such services shall be  available where an inward supply of such services is used by a registered person for making an outward taxable supply of the same category of services or as an element of a taxable composite or mixed supply.

However, no ITC shall be available to the recipient of health care services and plastic and cosmetic surgeries.

 

1.10.2 Further, section 17(5) of CGST Act, 2017 provides for list of services on which ITC is not available, amongst which membership of a club, health and fitness centre are also mentioned in 17(5)(b)(ii). However, ITC in respect of such services shall be  available, where it is obligatory for an employer to provide the same to its employees under any law for the time being in force.

 

1.11 Hospital services under membership plans

Hospital membership plans, also known as hospital subscription plans or healthcare membership programs, are increasingly offered by hospitals and healthcare systems to provide patients with predictable healthcare costs and better access to services.

 

In Advance Ruling No. GUJ/GAAR/R/54/2021, the Gujarat Authority for Advance Ruling (AAR) held that healthcare services provided under membership schemes by multi-super specialty hospitals to members and their families are exempt from GST. This decision was issued in response to an application filed by Divyajivan Healthcare LLP, which had sought clarity on the applicability of GST to a proposed membership plan for its upcoming multi-super specialty hospital. The applicant also noted that it had partnered with other hospitals across India, allowing members to access healthcare services through these affiliated facilities.

 

The applicant had sought the advance ruling on the issue whether the lump-sum amount received for healthcare services to be provided for 20 years by the applicant as 'Diamond Plan' was exempted from GST as per the relevant notification issued by the government. The AAR held that the scope of supply of services by the applicant was 'healthcare services' by a clinical establishment, which were exempted from GST.

 

The fact that the applicant had tied up with the other hospitals for diagnosis did not alter the scope of supply of healthcare services by the applicant to its service recipients, and is thus exempt from GST.

 

1.12 Taxability in case of different goods and services

Hospital provides a range of goods and services whose taxability to be determined such as:

 

    - Sale of medicines by hospital is taxable supply.

    - Sale of spectacles is a taxable supply.

    - Sale of hearing aids are exempt supply.

    - Parking lot services provided by a hospital is a taxable supply as these are not covered in health care services.

    - Commission received from Pharmacy is a commercial activity and is taxable.

    - Renting services provided to a canteen contractor is a commercial rental activity and is generally taxable, as they are not covered in health care services.

 

If a hospital is providing both taxable and exempt outward supply of  goods and services, it will be eligible to claim ITC in respect of goods or services which are exclusively used in the outward taxable supply, for common inward supply of goods or services it may need to do apportionment of ITC as per Rule 42 & 43 of CGST Rules.

1.13 Place of supply

The place of supply for health care services under India's Goods and Services Tax (GST) law depends on the nature of the supplier and recipient. Below is the applicable legal provision:

 

1.13.1 Place of supply of services where location of supplier and recipient is in India

As per Section 12(4) of the IGST Act, the place of supply of restaurant and catering services, personal grooming, fitness, beauty treatment, health service including cosmetic and plastic surgery shall be the location where the services are actually performed.
 

As per section 8(2) of the IGST Act, subject to the provisions of section 12, supply of services where the location of the supplier and the place of supply of services are in the same State or same Union territory shall be treated as intra-State supply.
 

Where a supply of services qualifies as an intra-State supply under Section 8(2), CGST and SGST/UTGST shall be levied concurrently in accordance with the provisions of the CGST Act and the SGST/UTGST Act.

 

Therefore, in all such cases where both the location of the supplier and the place of supply are within the same State or Union territory, CGST and SGST/UTGST shall be applicable on the transaction.

 

1.13.2 Place of supply of services where location of supplier or location of recipient is outside India

As per Section 13(3)(b) of the IGST Act, the place of supply shall be the location where the services are actually performed, when services supplied to an individual, represented either as the recipient of services or a person acting on behalf of the recipient, which require the physical presence of the recipient or the person acting on his behalf, with the supplier for the supply of services.

 

Here neither section 8(2) is applicable nor section 7(3) of IGST is applicable.

 

As per section 7(5)(c) supply of goods or services or both, in the taxable territory, not being an intra-State supply and not covered elsewhere in this section, shall be treated to be a supply of goods or services or both in the course of inter-State trade or commerce.

 

Where a supply of services qualifies as an inter-State supply under Section 7(5)(c), IGST shall be levied in accordance with IGST Act.

Example: Mr. Steven of USA comes to India for treatment in AIIMS Delhi, the place of supply shall be the place of actual performance of services i.e. Delhi but according to section 7(5)(c) IGST shall be appliable.
 

1.14 Conclusion

The GST framework in India provides comprehensive exemptions for various healthcare services to ensure that medical care remains accessible and affordable.  Through specific notifications and clarifying circulars, the CBIC has delineated the scope of these exemptions, covering services ranging from basic medical consultations to specialized treatments like IVF, as well as ancillary services such as ambulance transportation and in-patient care.  Healthcare providers must stay abreast of these provisions to ensure compliance and to avail the benefits of GST exemptions appropriately.

 

1.15 References

Notification No. 12/2017 – Central Tax (Rate) dated June 28, 2017

Notification No. 13/2017 – Central Tax (Rate) dated June 28, 2017

Notification No. 21/2019 – Central Tax (Rate) dated Sept 30, 2019

Notification No. 03/2022 – Central Tax (Rate) dated July 13, 2022

Notification No. 04/2022 – Central Tax (Rate) dated July 13, 2022

Circular No. 32/06/2018-GST dated February 12, 2018

Circular No. 51/25/2018-GST dated July 31, 2018

Circular No. 177/09/2022-GST dated August 3, 2022