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Healthcare is one of the few industries that enjoys major tax exemptions in the GST regime of India, although “major” is a word that carries considerable weight in the above statement. While medical services enjoy exemptions, it is common for healthcare facilities such as hospitals and clinics to face GST obligations on additional services, room rent, cosmetic treatments, and medicines which do not fall within the scope of this exemption. Miscalculating this threshold is among the most common, and most expensive, mistakes made by healthcare organisations in this regard.
This guide aims to lay out in clear terms the extent of these exemptions and non-exemptions as per the official notification and clarifications.
The basis for GST exemptions applicable to healthcare services in India lies in the Notification No. 12/2017-Central Tax (Rate) of 28th June 2017, coupled with Notification No. 9/2017-Integrated Tax (Rate). Under the latter notification, “health care services by a clinical establishment, an authorised medical practitioner or para-medics” are exempt under Entry 74.
It is this one entry that makes it possible for most medical services provided to patients in India to not be subjected to GST.
According to the notification, “healthcare services” mean any service by way of diagnosis, treatment, or care for illness, injury, deformity, abnormality, or pregnancy, under any system of medicine recognised in India. This includes:
The exemption also explicitly covers transportation of a patient to and from a clinical establishment, recognising that patient transport is part of the care process, not a separate taxable service.
The exemption applies to services provided by a clinical establishment, which means “hospital, nursing home, clinic, sanatorium or any other institution that provides facilities for diagnosis or treatment or care.” The exempted category would also include an authorised medical practitioner (registered under a recognised medical council) as well as para-medical personnel like nurses and physiotherapists.
Examination, treatment and care offered in hospitals, clinics, nursing homes, etc. either for in-patients (patients admitted to the institution) or out-patients (patients visiting the institution voluntarily) will be exempted from GST.
Charges made by an authorised medical practitioner either practising as an independent entity or on a contractual basis or as a member of the consulting panel of the hospital will qualify for the exemption. It has been made very clear by the GST Department that consultation charges made to doctors will form a part of the exempt health service provided by the hospital irrespective of whether the hospital retains the charge or pays it to the doctor.
Services provided by way of blood test, radiography, ECG and other such examinations by any clinical establishment for examination or treatment will qualify for the exemption. The main criterion here is that the service should indeed be for purposes of examination or treatment, not as a wellness service.
Services offered in the form of ambulance transportation of a patient are exempt from GST, as transportation of a patient is seen as part of the health care service and not the separate transportation service.
Food supplied to in-patients who are admitted for treatment forms a part of the composite health care service and is thus exempt from GST. Even the preparation of such food through the hospital canteen does not make the food taxable. But sometimes there could be different situations depending on whether the food is provided through some outsourced catering services, as then the caterers’ service will become taxable.
Health care services provided to animals by veterinary hospitals fall within the scope of this exemption too.
Activities of charitable trusts registered as per Section 12AA of the Income Tax Act in terms of counselling or care of terminally ill patients, patients with serious physical or mental disability, HIV/AIDS patients or substance abuse patients will be eligible for exemption. Publicity activities concerning preventive health care, family planning or HIV prevention conducted by the registered charitable trust will also be exempted.
The healthcare exemption specifically does not include any hair transplantation or cosmetic or plastic surgery unless such surgeries are performed in order to reconstruct the impaired functioning of the body due to congenital deformities, abnormalities, injuries, or other forms of trauma. In other words, cosmetic surgery for aesthetic purposes is taxable while reconstructive surgery based on medical need is exempt.
If the room rent charged by the hospital exceeds ₹5,000 per day (not including ICU), then GST is levied at 5% but no input tax credit. This is one of the most important exceptions to the broad healthcare exemption and something that hospitals have to keep in mind as well.
Although genuine diagnoses and treatments related to the latter are exempt, any standalone wellness or preventive health package check-ups that are conducted as health screenings and not the treatment of diagnosed illness are considered taxable services.
Sale of medicines in the hospital pharmacy to walk-in or outpatients is taxable as per the GST rate on pharmaceutical products, because it qualifies as a separate retail supply rather than being included as a part of the healthcare supply. In contrast, the medicines that are given to the admitted in-patient in their treatment are a part of the composite supply that has been exempted.
The services rendered by the operator of biomedical waste treatment plants to the hospitals are GST-able at 12%. The treatment of biomedical waste is a B2B service and hence does not fall under the ambit of the exemption of health care service.
Insurance premiums related to health insurance do not come under the exemption of health care service and hence are liable to be taxed as an insurance/financial service separately from the medical service rendered.
Services rendered by gyms, health clubs, and slimming/fitness centres are not considered healthcare services as per the definition mentioned in the notification, although they are related to one’s physical health, and thus they are taxable.
Hospitals and clinics that fail to segregate the exempt health care income from the taxable ancillary income (premium accommodation charges, pharmacy charges, wellness packages) may run into undercharging of GST when applicable, and at the same time create an additional problem when claiming the input tax credit since ITC cannot be claimed in respect of the exempt supplies.
Since health care services are exempt and not zero-rated, it means that generally the hospitals and clinical establishments cannot claim input tax credit in relation to the purchase or expenses made in connection with exempt health care income. This is a crucial point to remember – exempt supplies and zero-rated supplies have very different treatment under GST.
Several healthcare service providers these days operate on the mixed revenue model, meaning that they provide an exempt hospital ward along with the premium suites which are taxable only over ₹5,000 per day, or a diagnostic facility that provides exempt diagnostic tests along with the taxable wellness packages. This calls for a need to appropriately classify revenues, issue invoices, and allocate input tax credits.
With all of the subtle differences contained in an apparently clear distinction between such things as reconstructive and cosmetic surgery, diagnostic tests and wellness programs, in-patient and out-patient drug dispensing, and room rental minimums, it certainly makes good business sense for those in the healthcare industry to have each of their income streams evaluated separately to ensure exemption is correctly claimed. Otherwise, they risk either overpaying GST unnecessarily, or undercharging and falling into trouble in a tax assessment.
However, the healthcare exemption under GST in India is fairly inclusive yet conditional – medical diagnosis, treatment, and healthcare provided through clinical establishments and professionals are tax exempt, whereas cosmetic surgery, charges for high-end rooms, sale of medicines to outpatients, wellness therapies, and a few additional services do not fall under the purview of the exemption and hence have GST applied on them. This distinction becomes vital for healthcare service providers having multiple sources of income which could be either exempted or taxable in nature.
For healthcare businesses navigating GST classification, exemption eligibility, and compliance across mixed revenue streams, Lekhakar’s GST and tax filing consultancy services provide expert guidance from qualified Chartered Accountants and GST practitioners to help structure billing correctly and stay compliant.
This write-up is for general knowledge only and should not be taken as tax or legal advice. Rates and thresholds of GST are prone to change according to notifications issued by the government. It is recommended that you confirm your queries with a certified tax expert or GST website.
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