The ‘Goods and Services Tax’ journey was started, in the year 2000, when the GST committee was set up. It took long 17 years for the GST law to evolve in India. In this article we broadly discussed on GST on Healthcare Services, GST on medicine, what is exempted form GST.
1st July 2017 became the historic day when the ‘Goods and Services Tax’ was finally introduced in India. As we all are aware, 5%, 12%, 18% and 28% are the four GST tax slab rates.
Coming to the applicability of GST in India on health sector, it comprises of the hospital; clinical trials; medical devices; outsourcing; medical tourism; telemedicine; medical equipment and health insurance; etc.
Talking about the prevailing sale structure under the pharmaceutical sector, drugs/ medicines are sold by the manufacturer to the wholesaler and, thereby, by the wholesaler to the retailer.
Notably, such drugs/ medicines have a defined life term which is normally termed as the ‘date of expiry’. As and when the drugs/ medicines have crossed their respective ‘date of expiry’ without them being sold, the same is returned to the manufacturer by the wholesaler or the retailer.
The present article highpoints definition of healthcare service from the GST perspective; exemptions available to various healthcare services; the taxability of GST on the healthcare sector and the impact of GST on healthcare services also covers the GST procedure to be followed on the GST on return of expired medicines.
GST on Healthcare services & its Applicability
To comprehensively understand the implication of GST applicability on the health sector, we will broadly analyze and understand the following –
- Definition of healthcare service from the GST perspective;
- Exemptions available to the healthcare services;
- Taxability of GST on healthcare services.
GST on Healthcare Service : Perspective
In Goods and Services Tax, the healthcare service definition is covered under notification no. 12/2017- Central Tax (Rate) dated 28th June 2017. Accordingly, the healthcare service definition is simplified and explained hereunder –
- It is a service provided by way of treatment or diagnosis or care for –
- Illness;
- Injury;
- Deformity;
- Abnormality; or
- Pregnancy.
- It includes service of transportation of patient to a clinical establishment and from a clinical establishment (defined below);
- It doesn’t include plastic surgery or cosmetic or hair transplant.
After going through the above definition of healthcare service, it is also important to understand the definition of ‘Clinical Establishment’. The definition of clinical establishment is also covered under notification no. 12/2017- Central Tax (Rate) dated 28th June 2017.
Accordingly, clinical establishment means a clinic or hospital or nursing home or sanatorium or any other institution that offers services/ facilitates requiring diagnosis/ treatment/ care for above 5 services
Clinical establishment includes the place of establishment as an independent entity/ a part of the establishment to carry out diagnostic/ investigative services of diseases.
What is Exempt from GST
Notification no. 12/2017- Central Tax (Rate) dated 28th June 2017 provides an exemption to supply of certain healthcare services. The gist of the exemption is tabulated hereunder –
Chapter heading | Description of Services | Rate | Condition (if any) |
|---|---|---|---|
Heading 9993 |
| NIL | NIL |
Heading 9993 |
| NIL | NIL |
Heading 9983 |
| NIL | NIL |
Heading 9994 |
| NIL | NIL |
Heading 9993 |
[Exemption is effective from 1st January 2019] [refer to notification no. 28/2018- Central Tax (Rate) dated 31st December 2018]. | NIL | NIL |
Corresponding exemption, as covered under integrated tax vide notification no. 9/2017-Integrated Tax (Rate) dated 28th June 2017, is summarized hereunder –
Sr. No. as per the notification | Chapter heading | Description of Services | Rate | Condition (if any) |
|---|---|---|---|---|
48 | Heading 9983 |
| NIL | NIL |
76 | Heading 9993 |
| NIL | NIL |
77 | Heading 9993 |
| NIL | NIL |
77A | Heading 9993 |
[Exemption is effective from 1st January 2019] [refer to notification no. 28/2018- Central Tax (Rate) dated 31st December 2018]. | NIL | NIL |
78 | Heading 9994 |
| NIL | NIL |
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After going through the above exemption notification, it is also important to refer to some of the relevant circulars clarifying the GST taxability/ exemption under GST of various services involved in the healthcare sector –
Circular no. 27/01/2018-GST dated 04th January 2018 clarifies the following position
- Service of renting of rooms in hospital to in-patients is exempt.
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Circular no. 32/06/2018-GST dated 12th February 2018 clarifies the following positions
- Services provided by senior doctors or consultants or technicians, as hired by the hospitals (whether employee or not), is covered within the definition of healthcare services. Accordingly, such service is exempt under GST.
- The amount charged by the hospitals from the patients, which includes retention money and fees/ payments made to the doctors, is covered within the definition of healthcare services. Accordingly, such an amount charged is also exempt under GST.
- Food supplied by the hospital to the in-patient, as per the advice given by the doctor or nutritionists, is a part of a composite supply of healthcare service. Accordingly, the same is also exempt from GST.
- However, food supplied by the hospital to patients who are not admitted or attendants or visitors is taxable under GST.
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Which Health Services are Taxable under GST
As we all know, GST is leviable on ‘Supply of Goods’ and/ or ‘Supply of Services’. In terms of the healthcare sector, supply of service is exempt in most of the cases (as briefed hereinabove). Notably, ‘supply of service’, which is not covered as per the above explained exemption, would be taxable under GST.
GST on Medicine Taxability
Coming to the supply of medicines, some of the supply is exempt while the rest of the supply of medicine is taxable under GST. Importantly, notification 1/2017- Central Tax (Rate) dated 28th June 2017 covers the taxable GST rates applicable on the supply of medicines. Whereas, notification 2/2017- Central Tax (Rate) dated 28th June 2017 covers the exemption.
Accordingly, taxability and exemption in case of a supply of medicines are tabulated hereunder –
Chapter Heading | Description | CGST Rates | SGST Rates | IGST Rates |
|---|---|---|---|---|
30 | Insulin | 2.5% | 2.5% | 5% |
3002,3006 | Animal/ human blood vaccines | 2.5% | 2.5% | 5% |
30 | Diagnostic kits for detection of all the types of hepatitis | 2.5% | 2.5% | 5% |
30 | Desferrioxamine injection/ deferiprone | 2.5% | 2.5% | 5% |
30 | Cyclosporin | 2.5% | 2.5% | 5% |
30 | Medicaments (also including veterinary medicaments) which is used in bio-chemic systems and which is not bearing a brand name | 2.5% | 2.5% | 5% |
30 | Oral re-hydration salts | 2.5% | 2.5% | 5% |
30 | Drugs/ medicines (including their salts) and esters and diagnostic test kits as specified in List 1 to notification no. 1/2017- Central Tax (Rate). | 2.5% | 2.5% | 5% |
30 | Formulations manufactured from the bulk drugs as specified in List 2 to notification no. 1/2017- Central Tax (Rate). | 2.5% | 2.5% | 5% |
9804 | Other drugs and medicines which are intended for personal use | 6% | 6% | 12% |
9804 | Drugs/ medicines (including their salts) and esters and diagnostic test kits as specified in List 1 and Formulations manufactured from the bulk drugs as specified in List 2 to notification no. 1/2017- Central Tax (Rate) which is intended for personal use | 2.5% | 2.5% | 5% |
3002 | Human blood and its components | NIL | NIL | NIL |
3006 | All the types of contraceptives | NIL | NIL | NIL |
Impact of GST on Healthcare Services
Barring some of the issues prevailing in the healthcare sector regarding classification or applicability, there is a positive effect of the implication of GST on the healthcare services.
As we know, GST, being one uniform tax system, has subsumed various taxes. Notably, in the erstwhile law around eight taxes were leviable on the healthcare sector which is now unified into a single GST tax. This enables easy of doing business in the healthcare sector.
One of the major concerns prevalent in the healthcare sector is the inverted duty structure. The same is adversely impacting the domestic manufacturers. Addressing the same, GST has come up with the refund concept in case of an inverted duty structure. The solution to the major concern turns out to be a booster for the growth and development of the healthcare service under GST.
Figures say that the cost of the healthcare package (which includes accommodation and travel to India) is nearly 30% to 40% of the similar medical treatment and procedures in the ‘First World Countries’. Post implementation of GST, such medical tourism has projected a manifold growth.
Moving ahead, India is a hub of various alternative medicine practices like Yoga; Unani; Sidha; Ayurveda; Homeopathy; Acupuncture; etc. Such medicinal practice is more popular amongst the foreigners. Notably, GST is also having a positive impact on such medicinal practice, accordingly, contributing more towards the development of the medical tourism in India.
In nutshell, the implication of Goods and Services Tax has an overall positive impact on the healthcare sector and post GST the healthcare sector is contributing more towards the economic development of India.
GST on return of expired medicines | Procedure
In order to return of expired medicines, the wholesaler or the retailer has the option to follow any of the following prescribed procedures
Procedure 1 – Return of time expired goods by treating them as fresh supply; or
Procedure 2 – Return of time expired goods via issuing Credit Note.
Notably, both of the above procedures i.e. return of time expired goods by treating them as fresh supply and return of time expired goods via issuing Credit Note are briefly explained in the questions below.
Return of time expired goods by treating them as fresh supply
The following table explains the procedure to be followed by the wholesaler/retailer as and when the return of time expired goods are being treated as fresh supply
Returning the time expired goods | Procedure to be followed |
|---|---|
Is a registered person |
|
Is a Composition taxpayer |
|
Unregistered person |
|
Accordingly, the procedure will vary based on the category of the wholesaler or the retailer returning the time expired goods to the manufacturer.
Return of time expired goods via issuing Credit Note
- As per section 34(1) of CGST act 2017 manufacturer/ wholesaler who earlier supplied the goods (drugs/ medicines), has an option to issue a credit note for the time expired goods being returned by the wholesaler/ retailer.
- Here, the wholesaler/ retailer, returning the time expired goods, may return the goods by issuing a delivery challan.
- Adjustment of tax liability vis-à-vis time within which the Credit Note is issued
- Credit Note is issued within the time limit specified under section 34(2) CGST act 2017
- Here, the tax liability may be adjusted by the supplier;
- Such adjustment of tax liability is possible subject to the condition that the person returning the time expired goods should have either not availed or in case Input Tax Credit (ITC) is availed the same is reversed.
- Credit Note is issued after the time limit specified under section 34(2) CGST act 2017
- In spite of the expiry of the time limit, the Credit Note can still be issued by the supplier.
- However, the tax liability in such cases cannot be adjusted by the supplier.
- Accordingly, since the tax liability cannot be adjusted, such credit notes should not be declared on the common portal.
- Credit Note is issued within the time limit specified under section 34(2) CGST act 2017
What is the availability/ non-availability of Input Tax Credit in case of return of time expired goods?
The wholesaler or the manufacturer, being the recipient of time expired goods, will be eligible to avail of the input tax credit, on satisfying all the conditions specified under section 16 of the CGST 2017, only when the goods are returned by the registered person treating the same as fresh supply.
Notably, in case of return of time expired goods by composition taxpayer, there will be no availability of Input Tax Credit (ITC) to the recipient of the return supply.
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