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Hospital & Healthcare Tax & GST Advisory

Hospital GST & Tax

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Overview

Hospital and healthcare tax advisory covers the GST treatment of the healthcare supplies and the income-tax position of the hospital, the doctors and the nursing home. Under the CGST Act 2017, healthcare services supplied by a clinical establishment are exempt from GST under the exemption notification issued under Section 11 of the Act — VERIFY: Notification 12/2017-CT(R) exempts healthcare services by clinical establishments, with the services by way of health checkups and the services by way of treatment under contract with the government and the insurers also covered — while the rooms, the food, the pharmacy and the diagnostic supplies that are not part of the treatment may fall outside the exemption. The boundary is where the healthcare GST position is decided.

The healthcare exemption is broad but not universal. The room rent and the nursing care bundled with the treatment are exempt; the standalone pharmacy sales and the cafeteria are not; and the split between the exempt treatment and the taxable supplies decides the hospital's registration, its credit position and its returns. A hospital that treats everything as exempt builds a reversal at audit; one that treats everything as taxable pays tax it does not owe.

The cost of a wrong healthcare position is the demand on the one hand and the overpayment on the other: the taxable supplies mis-classified as exempt build a demand with interest under the Act, and the exempt supplies mis-classified as taxable are the tax the hospital never needed to pay. The hospital's credit reversal on the exempt supplies under the Act is a further layer.

This service is for hospitals, nursing homes, clinics, diagnostic centres and the doctors and the chains. We map the services against the exemption under Section 11 of the CGST Act and the notification, split the exempt and the taxable supplies correctly, manage the registration, the credit reversal and the returns, and handle the income-tax positions of the institution and the professionals.

How It Works

  1. 1

    Service & Exemption Mapping

    We map the hospital's services against the healthcare exemption.

    Harun Raaj & Associates does this3-5 days
  2. 2

    Exempt-Taxable Split

    We split the exempt treatment from the taxable pharmacy, rooms and cafeteria supplies.

    Harun Raaj & Associates does this1 week
  3. 3

    Registration & Credit Position

    We manage the registration, the credit eligibility and the reversal on the exempt supplies.

    Harun Raaj & Associates does this1 week
  4. 4

    Returns & Compliance

    We file the returns with the correct exempt and taxable positions.

    Harun Raaj & Associates does thisMonthly
  5. 5

    Income-tax & Audit Review

    We manage the income-tax positions and review the healthcare compliance before the audit.

    Harun Raaj & Associates does thisAnnual

Frequently Asked Questions

Are healthcare services provided by hospitals exempt from GST, and does the exemption cover all hospital revenue streams?
Healthcare services by a clinical establishment (as defined under the Clinical Establishments (Registration and Regulation) Act 2010 or any equivalent State law) are exempt from GST under Entry 74 of Notification No. 12/2017-Central Tax (Rate) dated June 28, 2017, which covers services by way of diagnosis, treatment, or care for illness, injury, or deformity. However, this exemption does not cover: supply of medicines, implants, and consumables billed separately as goods (taxable at 5% or 12% depending on the product); food and beverages supplied to non-patients (taxable at 5% without ITC); renting of medical equipment without an associated treatment service; and cosmetic or plastic surgery not aimed at treating illness or deformity, which are taxable at 18%. Hospitals must therefore segment their billing to correctly identify taxable versus exempt revenue streams for GST compliance.
Can hospitals claim Input Tax Credit on capital goods like MRI machines, CT scanners, and ambulances?
Hospitals providing exclusively exempt healthcare services under Entry 74 of Notification No. 12/2017-CT(R) cannot claim Input Tax Credit on capital goods used for those exempt services, as ITC is blocked under Section 17(2) of the CGST Act 2017 for inputs used in making exempt supplies. However, where the hospital also provides taxable services (e.g., cosmetic procedures, canteen services to visitors, renting of commercial space in the hospital building), it becomes a partially exempt entity and must apply Rule 42 and Rule 43 of the CGST Rules 2017 to determine the proportionate ITC reversal. Ambulances registered as goods transport vehicles may attract the Section 17(5)(a) block on ITC for motor vehicles unless the hospital is in the business of transportation of patients, in which case the exception under Section 17(5)(a)(ii) may apply.
What GST rate applies to medicines and medical consumables sold by the hospital pharmacy to patients?
Medicines supplied by a hospital pharmacy to in-patients as part of a composite healthcare service are generally exempt from GST as they are considered part of the overall healthcare service under Entry 74 of Notification No. 12/2017-CT(R), a position supported by the AAR ruling in Soni Hospit (Rajasthan AAR 2019). However, medicines and consumables sold by a hospital pharmacy to out-patients or walk-in customers on a standalone basis are taxable as goods — life-saving drugs listed under Entry 180 of Schedule I attract 5% GST, while most pharmaceutical formulations attract 12% GST under Schedule II of Notification No. 01/2017-CT(Rate). Hospitals running retail pharmacies open to the public must obtain a separate GST registration if the pharmacy operates as a distinct business entity or must declare composite supply carefully if bundled with OPD services.
Are services provided by doctors employed by a hospital subject to GST?
Services provided by a doctor or medical professional as an employee of a hospital are not subject to GST because the employee-employer relationship is excluded from the definition of 'supply' under Schedule III, Paragraph 1 of the CGST Act 2017. However, if a doctor provides consulting services to a hospital on a retainer or contract basis (not as an employee), the doctor becomes a supplier of services and must register for GST if their aggregate annual turnover exceeds Rs 20 lakh (Rs 10 lakh for specified states) under Section 22 of the CGST Act 2017. Visiting consultant fees paid by the hospital to such doctors attract reverse charge mechanism only if the hospital is a body corporate and the doctor is an unregistered person — in which case the hospital must pay GST under RCM under Notification No. 13/2017-CT(Rate) for taxable services received from unregistered suppliers.
What are the GST filing obligations of a hospital and how should it handle exempt supply in its GSTR-1 reporting?
A hospital with any taxable supply must register under Section 22 of the CGST Act 2017 and file GSTR-1 (monthly or quarterly under QRMP), GSTR-3B, and GSTR-9 annually. Exempt healthcare services must be reported in Table 8 of GSTR-1 (nil-rated, exempted, and non-GST outward supplies) and in Table 3.1(c) of GSTR-3B, as the value of exempt supplies affects the ITC reversal calculation under Rule 42. Hospitals receiving goods or services on which reverse charge is applicable (e.g., legal services, security services under Notification No. 13/2017-CT(Rate)) must pay GST in cash under RCM and cannot set off ITC for exempt activities. A hospital that earns exclusively from exempt healthcare services and has no taxable revenue is not required to register under GST unless it has inter-state supply or is making supplies as an e-commerce operator, per the proviso to Section 23 of the CGST Act 2017.

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