The Impact Of Taxing Non ICU Room Rent In Private Hospitals

In the 47th GST Council meeting which was held on 28th and 29th of June in Chandigarh, the Union Finance Ministry announced the removal of tax exemption on non ICU room rents above Rs 5000 in private hospitals.

The meeting was chaired by the Union Finance Minister Nirmala Sitharaman, which decided to charge 5 per cent GST on room rents above Rs 5000 per day without allowing hospitals to use the Input Tax Credit(ITC). Input Tax Credit is the tax that is paid by the hospital at the time of purchase of inputs and resources, and thus the ITC can be reduced from the tax paid at the time of sale of output. Experts say the exclusion of ITC will lead to patients paying more money to seek treatments in private hospitals.

“The decision by the GST council to levy a 5 per cent GST on hospital room rent is set to create an additional burden on patients seeking treatment at private hospitals, especially the ones paying cash. This will raise the embedded tax burden on the healthcare sector and considering only room rents are taxed, it will make administrative and compliance-related processes more complex. Considering healthcare services are not taxed, the providers will not be able to avail input credits leading to additional expenses for the hospital and patients,” said Dr Ashutosh Raghuvanshi, MD & CEO, Fortis Healthcare.

According to the inputs from the National Sample Survey, more than two third of the total patients seeking medical care in India choose a private hospital, while only 38 per cent use public health facilities for in-patient care. India also has one of the highest levels of out of pocket expenditures on health in the world, Indians spend 65 per cent of the total expenditure on health straight out of their pocket.

Also implying that a large section of the population is still uncovered under any health insurance schemes. As per the NITI Aayog Investment Opportunity Report 2021, more than 40 crore people in India are not covered under any health insurance scheme. With also the medical inflation rising year on year in India, the additional taxes on room rents are bound to hurt the patients where it hurts the most.

“Due to inefficient tax structures and poor reimbursement on government schemes, hospitals are coming under tremendous pressure in terms of their margins and the recent decision to tax room rents will only add to this pressure. The government wants us to pass the levy to the patients,” stated Sandhya J, Group Chief Financial Officer , Narayana Health.

Hospitals and federations are voicing their concerns on the decision, on Monday FICCI (Federation of Indian Chambers of Commerce & Industry) wrote to Nirmala Sitharaman requesting a zero rate GST for healthcare services that will allow the service providers to claim the ITC.

Meanwhile, responding to the FICCI requests, Revenue Secretary Tarun Bajaj on Wednesday said such requests may generate similar demands from other sectors and put an upward pressure on taxation of other items in the GST net. He also said that  the decision will not impact healthcare for all as most hospitals in small towns do not have room rents above 5000 and the taxes levied will be impacting only some high end hospitals.

"I dont know if there would be hospitals in smaller towns like Panipat or Meerut where the hospital rooms would be costing Rs 5,000 or above. I would also like to know how many hospital rooms there are in the country and out of those what are the percentage of rooms which are charging above Rs 5,000. I think it will be miniscule," Bajaj said at a Confederation of Indian Industry event on Tuesday.

According to several media reports, hospitals and medical associations are likely to meet finance minister Nirmala Sitharaman to discuss the concerns and recommendations before the tax regulation comes into effect on 18th July.