Healthcare Taxation under GST

As India adopted the Goods and Services Tax (GST) regime in 2017, the healthcare sector faced a major change in taxation. Before GST, healthcare services were exempted from taxes. However, under the GST regime, healthcare services are taxable, except for those provided by clinical establishments and authorized medical practitioners.

What is GST?

GST is a single, comprehensive tax system that replaced all indirect taxes in India. The aim of GST is to bring simplicity, transparency, and efficiency in the tax system. GST is levied on the supply of goods and services, and all businesses with an annual turnover of Rs. 40 Lakhs or more are required to register for GST.

Healthcare Services under GST

Under GST, healthcare services are classified as either exempt or taxable. Exempt healthcare services include services provided by clinical establishments and authorized medical practitioners. These services are not subject to GST.

On the other hand, healthcare services provided by hospitals and other healthcare providers are subject to GST at the rate of 5%. The GST rate on healthcare services was reduced from 18% to 5% in 2018, making healthcare more affordable for the common man.

However, not all healthcare services are subject to the 5% GST rate. Services such as cosmetic surgery, health check-ups not amounting to treatment, and certain medical devices are subject to the standard GST rate of 18%.

Input Tax Credit (ITC) under GST

Under GST, businesses can claim Input Tax Credit (ITC) on the taxes paid on goods and services used in their business. This means that businesses can reduce their tax liability by claiming the GST paid on inputs such as raw materials, machinery, and services such as marketing, accounting, and legal services.

However, healthcare providers cannot claim ITC on the GST paid on goods and services used in the provision of healthcare services. This is because healthcare services are exempt or taxed at a lower rate, and the GST paid on inputs cannot be passed on to the patients.

Conclusion

The implementation of GST in the healthcare sector has brought about a change in the taxation system. While healthcare services are no longer exempt from taxes, the reduced GST rate of 5% has made healthcare more affordable for the common man. The classification of healthcare services as exempt or taxable, and the restrictions on claiming ITC, have also made it more challenging for healthcare providers.

Overall, the healthcare sector has adapted to the GST regime, and businesses are gradually understanding the nuances of the new tax system.