First-time Tax on Healthcare Services: Now 5% GST on hospital rooms above Rs 5000 per day, NO input Credit claim for hospitals

New Delhi: Amid Inflation, the all-powerful Goods and Services Tax (GST) Council chaired by Finance Minister Nirmala Sitharaman has decided to rationalise rates to remove the inverted duty structure and withdraw GST exemption in case of many items leading to a hike in tax rates.

For the first time in the country, healthcare services have been brought under the GST net as the council has decided to impose 5 per cent GST without input tax credit on hospital rooms above Rs 5000 per day excluding ICUs.

The decision was taken at the 47th GST Council meeting held on 28th and 29th June in Chandigarh, chaired by Union Finance Minister Nirmala Sitharaman.

Room rent (excluding ICU) exceeding Rs 5000 per day per patient charged by a hospital shall be taxed to the extent of the amount charged for the room at 5% without ITC. As a result, GST rates would now go up for many goods and services with effect from July 18, 2022.

The move is indeed going to add a pinch to the middle class, going to make hospitalizations more expensive. Most hospital rooms in the Metro cities cost more than Rs 5000 per day. Further, the GST council has also noted that Hospitals will not be able to claim any Income Tax credit on the same, implying the GST paid by the hospital on purchasing various goods and services will NOT be adjusted against this GST which will have to be deposited with the government.

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Following the two-day meeting, the Council has recommended that Nicotine Polarilex Gum shall attract a GST rate of 18% and works contracts supplied to central and state governments, and local authorities for historical monuments, canals, dams, pipelines, educational institutions, hospitals etc. & sub-contractor thereof will attract 12% GST from 5% now.

The press release clarified that Orthopedic appliances- Splints and other fracture appliances; artificial parts of the body; other appliances which are worn or carried, or implanted in the body, to compensate for a defect or disability; intraocular lens will attract 5 % GST from 12% now.

As per the release, IGST on import of Diethylcarbamazine (DEC) tablets supplied free of cost for National Filariasis Elimination Programme have been exempted from GST Now which was earlier under the ambit of 5% GST.

Like CETPs, common bio-medical waste treatment facilities for treatment or disposal of biomedical waste shall be taxed at 12% so as to allow them ITC.

Services in form of Assisted Reproductive Technology (ART)/ In vitro fertilization (IVF) are covered under the definition of health care services for the purpose of exemption under GST, the council has recommended.

Significantly, Hospital room rent (excluding ICU) exceeding Rs 5,000 per day per patient shall be taxed to the extent of the amount charged for the room at 5% without input tax credit (ITC).

Some experts said that the rate hike would add to inflationary pressure to some extent but the move was in the right direction.

"There will always be two points of view on rate hikes on individual items but directionally the GST Council decision is right as it seeks to correct inversion and reduce exemptions," said Pratik Jain, partner at PwC India.

Bipin Sapra, a tax partner at EY India said that some of the changes in rates are welcome changes but in some cases, they could have been done in a better way.

The GST Council also decided to withdraw tax exemption to bank cheques and impose 18% GST.

Commenting on GST Council recommendations, Vivek Jalan, Partner, Tax Connect Advisory said, "The government had last month cut excise duties on petrol and diesel and exempted Customs duties on items such as sunflower and soybean oil which was expected to cost the exchequer Rs1.5 lakh crore in FY 2022-23. These GST rate increases would make up for some part of this and would take up the GST collections above Rs 1.5 lakh crore per month."

The Council decided to constitute a GoM to address various concerns raised by the states on GST Appellate Tribunal and amendments in CGST Act. The Council, however, did not take a decision on extending compensation cess to states.

"There were about 16 states which talked about compensation cess but all of them did not ask for an extension of compensation cess," said Finance Minister Nirmala Sitharaman while briefing the media.

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