In the chain of imposition of duty on new services the levy on hospitals has also been added in the budget 2010-11. Although the rate of service tax is kept constant at 10% but in order to increase indirect tax revenues the Hon’ble Finance Minister has proposed a new levy for hospitals. In his budget speech he expressed that the hospitals having 25 or more beds with centralized air-conditioner system is proposed to be taxed under service tax system.
Earlier levy: - Before this proposal the services provided by hospitals, nursing home or multi-specialty clinic are taxable if the same is provided to-
A. an employee of any business entity, in relation to health check-up or preventive care, where the payment for such check-up or preventive care is made by such business entity directly to such hospital, nursing home or multi-specialty clinic; or
B. to a person covered by health insurance scheme, for any health check-up or treatment, where the payment for such health check-up or treatment is made by the insurance company directly to such hospital, nursing home or multi-specialty clinic;
As there was levy only on the services for which value of service is received either from the insurance company or from the employer in case of treatment for an employee. In that situation a person, who is going to hospital to get benefits for his health, has not to pay a single penny for his health treatments for service tax.
New proposal :-But this is now proposed to be amended in this budget. For this purpose the clause no. zzzzo of sub section 105 of section 65 of Finance Act, 1994 is proposed to be replaced as follows:-
for sub-clause (zzzzo) the following sub-clause shall be substituted namely:-
“(zzzzo) to any person,-
(i) by a clinical establishment; or
(ii) by a doctor, not being an employee of a clinical establishment, who provides services from such premises for diagnosis, treatment or care for illness, disease, injury, deformity, abnormality or pregnancy in any system of medicine.”;
To explain the meaning of clinical establishment used in above sub clause sub section 25a of section 65 is also intended to be amended in following manner:-
(25a) "clinical establishment" mean
(i) a hospital, maternity home, nursing home, dispensary, clinic, sanatorium or an institution, by whatever name called, owned, established, administered or managed by any person or body of persons, whether incorporated or not, having in its establishment the facility of central air-conditioning either in whole or in part of its premises and having more than twenty-five beds for in-patient treatment at any time during the financial year, offering services for diagnosis, treatment or care for illness, disease, injury, deformity, abnormality or pregnancy in any system of medicine; or
(ii) an entity owned, established, administered or managed by any person or body of persons, whether incorporated or not, either as an independent entity or as a part of any clinical establishment referred to in sub-clause (v), which carries out diagnosis of diseases through pathological, bacteriological, genetic, radiological, chemical, biological investigations or other diagnostic or investigative services with the aid of laboratory or other medical equipment,
but does not include an establishment, owned or controlled by-
(a) the Government; or
(b) a local authority;
From the above definition all the hospitals will be covered under the tax regime. Although the government hospitals or the hospitals owned or controlled by a local authority has been kept away from this levy. But for all other hospitals it will be required to charge service tax on the bills of services provided by them.
Service Tax rate will be 5%
In the budget speech the hon’ble finance minister also expressed for the abatement of 50% in service tax rate. Hence the service tax will be chargeable on services provided by hospitals at the rate of 5%. In the TRU Letter viz. D.O.F. No. 334/3/2011-TRU dt. 28.02.2011 following para is included:-
6.4 Finance Minister has announced 50% exemption from the value of this service. The exemption notification will be issued when the new levy is enacted.
The Issues: -
1. The service tax is levied if there are more than 25 beds or centralized air conditioning provided during any part of the whole year. If a hospital expands his business in the month of March then he has to pay the service tax for the whole year. This will not be intention of the Government and it should be amended.
2. The doctors will also be registered and pay the service tax. They will charge from hospital. The hospital will take the cenvat credit. He will also charge service tax from the client. But he will pay the differential amount. In nutshell, the Government will get the same service tax. The doctor should be exempted. The hospital will be paying the same tax to Government. Hence, there is no need to do such exercise and covering so many people.
3. Further, tax paid by diagnostic centers is charged form clients and not from hospitals. Hence the credit of the same is not available to Hospitals.
4. There is lot of opposition on this levy and even the Revenue secretary has promised to review the same. It is likely that this levy will be rolled back.
5. The Government has exempted Government hospitals from this levy but they will be clubbed in future in the name of fair competition as is being done in commercial coaching and training centre. The universities giving degrees has also to pay tax if they are running coaching centers. They were exempted earlier. This is also done for unauthorized service station in name of fair competition in this budget.
From this letter it seems that the government initially intended to include the hospitals under tax net by levying lesser rate of service tax but in future it may be raised. So now one has to pay tax even for services taken for his/her health also.
CA Pradeep Jain,
CA Preeti Parihar and
CA Rajani Thanvi