Hospital & Healthcare Tax & GST Advisory

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.

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.

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.

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.

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.