SERVICE TAX ON HEALTH SERVICES

[Dr. Sanjiv Agarwal]

Service tax has been imposed on specified health related services viz,  health check up undertaken by hospitals or medical establishment or employees of business entities and health services provided under health insurance schemes offered by insurance companies by the Finance Act, 2010 w.e.f. a notified date. Service tax shall be levied on the gross amount charged by service providers and paid by business entities or   insurance companies.

Meaning of Hospital etc

Literally, health implies the state of being free from illness or injury, a person's mental or physical condition . It is a state of complete physical, mental and social well being and not merely an absence of a disease or infirmity. The organized provision of medical care to individuals or a community is called health care. The services in relation to medical care are called health services.

A clinic is a place or hospital department where patients are given medical treatment or advice, especially of a specialist nature. A hospital is an institution providing medical and surgical treatment and nursing care for sick and injured people. Hospital means an institution for the reception and care of sick, wounded, infirm or aged persons and include government or private hospitals, nursing homes and clinics.

A nursing home is a small private establishment providing health care services with accommodation .

Meaning of Business Entity

Clause19 (b) defines 'business entity' as under-

"business entity includes an association of persons, body of individuals, company or firm but does not include an individual"

Finance Act, 2010 has inserted clause (19b) in section 65 to provide definition of the term 'business entity' so as to include an association of persons, body of individuals, company or firm but to exclude an individual. This would be effective from a notified date after the enactment of the Finance Act, 2010

Thus, business entity would include any -

(i) association of persons

(ii) body of individuals

(iii) company, or

(iv) firm 

Individuals have been excluded from the scope of business entity.

The definition of taxable service cover the employees of business entity who makes the payment of taxable services.

Taxable Service

Clause (zzzzo) defines taxable services in relation to health services as under-

"Any services provided or to be provided by any hospital, nursing home or multi-specialty clinic,—

(i) to 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

(ii) 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".

Finance Act, 2010 has introduced the levy of service tax on the following health services-

(a) health check up undertaken by hospitals or medical establishment for the employees of business entities (corporate health checkup)

(b) health service provided under health insurance schemes offered by insurance companies.

Following  are the essential conditions for taxability of health related services-

(a) services shall be provided by any -

(i) hospital, or

(ii) nursing home, or

(iii) multi specialty clinic

(b) services should be provided to

(i) employees of a business entities, or

(ii) to a person covered by health insurance scheme.

(c) In case of service to employees, service may be in relation to health check up / preventive care.

(d) In case of persons covered under insurance scheme, service may be in relation to health checkup / treatment

(e) Payment shall be made -

(i) employeer being business entity

(ii) by directly insurance company, but

(iii) not by employee or insured person.

The scope would cover -

* corporate health check up schemes

* medi -claim insurance policies (cash less polices)

* regular check up of employees in hotels/ airlines/ IT industry etc.

* health / medical perquisites by employers for employees wherein employees bears the cost.

According to the definition, the service  shall not be taxable in the following circumstances-

(a) service provider is not a hospital, nursing home or multi specialty clinic.

(b) service provider is an individual doctor or an in-house  doctor

(c) service provider is a hospital belonging to same business entity whose employee is being provided service

(d) preventive care in case of insured person

(e) Payment made by the patient or individuals

(f) Payment made by the insured person and later reimbursed by the insurance company

In case of health service provided to insured persons under a health insurance scheme, insurance company who pays for the check up and treatment would be the service receiver and the hospital or nursing home or clinic will be the service provider.  In such a case, amount paid by insurance company to hospital will be its input services for rendering output service (general insurance service ).

Departmental Clarification

CBEC has vide Circular No 334/1/2010- TRU dated 26.2.2010 clarified as follows -

"2. Health services undertaken by hospitals or medical establishments for the employees of business organizations and health services provided under health insurance schemes offered by insurance companies.

2.1 With the change in the style of functioning of the business organizations, health check up is a routine facility provided by the employers to their employees. The main purpose is to ensure that the productivity of the organization is not adversely affected due to ill health of its employees. Such activities, commonly known as corporate health check up schemes, are undertaken by designated hospitals in order to detect any medical indicator or to ensure timely diagnosis of any disease so that prophylactic measures can be taken. In such cases, the hospital providing these services charge the employer i.e. the business organization and it constitutes expenditure for the latter. In certain cases (for example, in case of flight crew) pre-flight check ups are conducted not only to test the fitness levels but also to rule out the possibility of the flying crew being under intoxication. Such health check up schemes are being brought within the ambit of service tax under the new service.

2.2 A large number of health insurance schemes are being offered by the insurance companies under which charges for hospitalization, surgery, post surgical nursing etc. are generally paid by the insurance company. Such insurance policies, which fall under the category of general insurance service, are already taxable. Under general insurance service, an insurance company is a service provider to its clients. Under the proposed new service, tax is also being imposed on the medical charges paid by the insurance companies to the hospitals on behalf of a business entity for its employees. As such, the insurance company would be the service receiver and the tax paid by the hospital would be available to the insurance companies as credit.

2.3 The tax on the above mentioned health services would be payable only if and to the extent the payment for such medical check up or treatment etc. is made directly by the business entity or the insurance company to the hospital or medical establishment. Any additional amount paid by the individual (i.e. the employee or the insured, as the case may be) to the hospital would not be subjected to service tax. This is to ensure that an individual is not required to pay a tax for which he cannot take credit."

Value of Taxable service

Value of taxable service shall exclude any amount paid by the patient or individual in relation to taxable service. The gross amount paid by business entity or insurance company to service provider shall be subject to service tax.

Cenvat Credit

In case of payment made by insurance company to the hospital, the insurance company would be the service receiver and the service tax paid by the hospital would be available to insurance company for cenvat credit against its out put service of general insurance.

Person Liable

Any hospital, nursing home or multi specificity clinic providing health related taxable services to business entities or insurance companies shall be liable to pay service tax.