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Hospital Room Rent To Attract GST – Sales Taxes: VAT, GST

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The Goods and Services Tax (“GST“)
law has undergone various changes in the recent months. But the
recent imposition of GST on room rent paid by patients at hospitals
has raised many concerns. The 47th GST Council meeting held on June
28, 2022, and June 29, 2022, coincided with the fifth anniversary
of GST implementation. The GST Council sought to rationalize many
rates and, also notified the much-needed amendments to remove
ambiguity and legal disputes on various issues.

The GST Council proposed imposition of GST on hospital room rent
as under:

“Room rent (excluding ICU) exceeding Rs 5000
per day per patient charged by a hospital shall be taxed to the
extent of amount charged for the room at 5% without

The GST Council, at its 47th meeting, made this decision as part
of a larger tax rate rationalization exercise and the new levy
stands effective from July 18, 2022.

India’s Pharmaceutical Industry is currently the third
biggest sector in India and thus far health care has been protected
from indirect taxes and duties on their services considering its
significance as also to contain medical care expenses. Imposition
of the recent tax on medical care services would directly affect
the general Indian population and cause inflation in medical
treatment. Besides, hospitals are also concerned about the
non-availability of input tax credit as cascading of embedded taxes
will increase the cost of treatment for patients.

GST is levied on the supply of goods or services, or both as
defined under Section 7 of Central Goods and Services Tax Act,
2017. Insofar as there is a solitary supply of goods or services,
there may not be much difficulty in determining the rate applicable
on such supply. However, there may be such scenarios where the
supplies made are in form of composite supply having combinations

  • Combination of services having the same or different rate of

  • Combination of goods having the same or different rate of

  • Combination of goods along with services with same or different

A composite supply is two or more goods or services that are
provided together and cannot be sold individually and is taxed at
the GST rate of the principal supply, which is the main product or
service that the buyer is buying.

In the case of hospitals, the billing is not quite as
straightforward, and the patient is billed for the treatments or
services offered and not primarily for the room rent charged. There
are variety of costs incurred and determined for the purpose of
billing to a patient. It can be contended that room rent charged by
hospital is not an independent service and would be an essential
part for medical care administration and should therefore be exempt
from GST. Thus, the new imposition will raise many issues including
as to what is the principal supply of service for taxability under
GST. Further, even if such a transaction is viewed as a composite
supply, the different components of the said transaction cannot be
sub-divided for giving different tax treatment. Further, if
taxation proves contrary to the principle of composite supply, the
new proposition would to be subjected to many legal challenges.

Hospital industry is naturally a worried lot as, on one hand,
the input tax credit is not being made available and on the other,
they will have no choice but to pass on this imposition on to the
patients. There is an urgent need of explanation from the GST
Council on implementation of this new imposition to minimize
undesirable tax litigations in future.

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Damages Have Become Less Damaging

Economic Laws Practice

The Government of India has issued the much-awaited clarification (vide Circular No. 178/10/2022- GST dated 3rd August 2022) on what could get covered as a ‘supply’ under the entry…

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