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    SBS Digest E Journal Nov 2019

    GST Applicability on Health Care Services

    INTRODUCTION:

    1. Health is a state of complete physical, mental and social well-being. Public health care systems are organized by government for free or for subsidy to serve better healthcare, nutrition and standard of living of people. However, due to quality concerns and inadequate facilities, most of the Indian population are with no option but to use the private healthcare facilities which encompasses[1] 58% of hospitals and 81% of doctors. This article trials to spot on the GST implications on the services provided by private healthcare sector by considering the Central Tax rate Notification vide 12/2017 dated 28.06.2017. 

    GST IMPACT ON HEALTH CARE SERVICES:

    1. Health care services are exempted from GST as per Central Tax Rate [CT(R)] Notification No. [NN] 12/2017 dated 28.06.2017 under the entry of SL No. 72 Heading 9993 and relevant extract is reproduced as under;

    Services by way of-

    • health care services by a clinical establishment, an authorised medical practitioner or paramedics;
    • services provided by way of transportation of a patient in an ambulance, other than those specified in (a) above. 
    1. In order to eligible for the above exemption under NN 12/2017-CT (R), services must be of health care services and for this purpose, the term “healthcare services” has been defined vide para 2(zg) of NN 12/2017-CT(R) which is reproduced hereunder:

    ‘health care services’ means any service by way of diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognised system of medicines in India and includes services by way of transportation of the patient to and from a clinical establishment, but does not include hair transplant or cosmetic or plastic surgery, except when undertaken to restore or to reconstruct anatomy or functions of body affected due to congenital defects, developmental abnormalities, injury or trauma. 

    1. Hence the above definition made clear that healthcare services are exempted from GST and hair plant, cosmetic or plastic surgery shall remain taxable except such activities undertaken to restore or reconstruct anatomy or functions of body affected due to congenital defects, developmental abnormalities, injury or trauma. 
    1. Upon careful perusal of healthcare service definition and entry 72 under the above notification, it is evident that to qualify for exemption under NN 12/2017-CT(R) services which fall under the purview of definition are to be provided either by a clinical establishment, an authorised medical practitioner or paramedics. For this purpose, the terms clinical establishment and authorised medical practitioner has been defined vide Para 2(s) and 2(k);

    “clinical establishment” means a hospital, nursing home, clinic, sanatorium or any other institution by, whatever name called, that offers services or facilities requiring diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognised system of medicines in India, or a place established as an independent entity or a part of an establishment to carry out diagnostic or investigative services of diseases 

    The term “paramedics” is not defined in the said NN no.12/2017-CT(R) however oxford dictionary meaning for the same is - paramedic is a person whose job is to help people who are sick or injured, but who is not a doctor or a nurse. Paramedics treated the injured at the roadside.  

    “authorised medical practitioner” means a medical practitioner registered with any of the councils of the recognised system of medicines established or recognised by law in India and includes a medical professional having the requisite qualification to practice in any recognised system of medicines in India as per any law for the time being in force; 

    1. If any of the activities leading to Supply of Services falls under the ambit of above definitions, it is totally exempted and there is no GST liability on those services which is curative other than for cosmetic related in a healthcare sector. 
    1. In connection to the other activity as specified in clause (b) of the said entry under the notification of which services provided by way of transporting patients in an ambulance shall not attract GST and have been exempted from tax liability without any restrictions as such. 
    1. Apart from the above entry, the notification has also specifically exempted certain services from attracting GST which are related to health sector. The relevant entries are reproduced hereunder; 
    • No. 46: Services by a veterinary clinic in relation to health care of animals or birds. 
    • No. 73: Services provided by the cord blood banks by way of preservation of stem cells or any other service in relation to such preservation. 
    1. Hence the said entries in the notification made clear that healthcare services in relation to animals or birds and services provided in preserving of stem cells of the born babies also exempted unreservedly from GST and attracts no liability.

    Conclusion:  

    1. There might be a several related entries which will directly or indirectly affects the healthcare sector. However, this article tries to impart only to limited extent. Also, there are several clarifications regarding the allied activities that are linked to medical sector which will be discussed in forthcoming articles. Stay connected, cheers until next article.

    [1] Data Source-Wikipedia

     

    Residential Status under Income-Tax Act, 1961

    1. Why to determine Residential Status?
    • There are three principles adopted internationally to guide taxation
      • Citizenship Principle
      • Source Principle
      • Residence Principle
    • In the country like US, income is taxed based on Citizenship and Source based taxation systems, whereas India follows the Residence based and Source based taxation systems.
    • Since India follows Residence and Source based taxation system
      • Tax Incidence on an assessee depends on his residential status. For instance, whether an income accrued to an individual outside India, is taxable in India depends upon the residential status of that individual in India.
      • Similarly, whether an income earned by a foreign national in India or outside India is taxable in India depends on the residential status of the individual, rather than on his citizenship.
      • Therefore, the determination of the residential status of a person is very significant in order to find out his tax liability.
    1. Categorization of Residential Status:
    • Residential Status of an Individual:
    • Section 6(1): This Section applies to Individuals. If an Individual is to qualify as Resident of India, he has to fulfil at least one of the following two basic conditions:

     

    Basic Condition

    Explanation

    A

    He is in India for a period of 182 days or more in the relevant Previous Year (PY)

    B

    He is in India for a period of 60 days or more in the relevant PY and 365 days or more during 4 years immediately preceding the relevant PY

     

    Cases under which only basic condition A is to be checked:

    • In the following cases, an individual need to be present in India for a period of 182 days or more in order to become resident in India:
      • Indian citizen, who leaves India during the relevant previous year as a member of the crew of an India ship or for the purpose of employment outside India, or
      • Indian citizen or person of Indian origin* engaged outside India in an employment or a business or profession or in any other vocation, who comes on a visit to India in any previous year.

    *Indian origin: A person is said to be Indian origin, if either he or any of his parents or any of his grandparents was born in undivided India.

    • Section 6(6): If an Individual is to qualify as an Ordinary Resident of India, he has to fulfil both of the following two conditions in addition to fulfilling the criteria as provided in section 6(1)

    Additional Condition

    Explanation

    A

    He has been resident in India at least 2 out of 10 previous years immediately preceding the relevant PY

    B

    He has been in India for a period of 730 days or more during 7 years immediately preceding the relevant PY

     

    • Points to remember:
      • Stay at the same place is not necessary: It is not essential that the stay should be at the same place.
      • The term “stay in India” includes stay in territorial waters of India (i.e., 12 nautical miles into the sea from the Indian coastline). Even the stay in a ship or boat moored in the territorial waters of India would be enough to make the individual resident in India.
      • For the purpose counting the number of days stayed in India, both the date of departure as well as the date of arrival are considered to be in India.
      • The residence of an individual for income-tax purpose has nothing to do with citizenship, place of birth or domicile. An individual can, therefore, be resident in more countries than one, even though he can have only one domicile.

    Example: Mr. X, Indian citizen left India first time on November 25, 2017 for employment outside India. During the calendar year 2018 he did not visit India. He finally came to India as on 15th January 2019. Determine his residential status for the financial year 2017-18 and 2018-19.

    • Resident for the FY 2017-18 (Both the basic and additional conditions are satisfied)
    • Non-Resident for the FY 2018-19 (Since he is an Indian citizen, only basic condition A is to be checked)
    1. Residential Status of HUF:
    • Section 6(2): Under this section a Hindu Undivided Family (HUF) is said to be
      • Resident in India if control and management of its affairs is wholly or partly situated in India.
      • Non-Resident in India if control and management of its affairs is wholly situated outside India
    • Section 6(6)(b): A resident Hindu Undivided Family is an ordinary resident in India if the Karta or manager of the family business satisfies both the following two conditions:

    Condition

    Explanation

    A

    He has been resident in India in at least 2 out of 10 previous years immediately preceding the relevant PY

    B

    He has been in India for period of 730 days or more during 7 years immediately preceding the relevant PY

     

    Example: The head office of XYZ, a Hindu undivided family (is situated in Australia. The family is managed by Y (since 1990) who is resident in India only 4 years of 10 years preceding the previous year (PY) 2018-19 and he is present India for 750 days in during the last 7 years. Determine the residential status of the family for the AY 2019-20, if the affairs of the family’s business are (a) wholly controlled from Australia, (b) partly controlled from India.

    Solution: If affairs of a HUF are controlled from a place outside India, family will be non-resident. Accordingly XYZ, a HUF is non-resident for the AY 2019-20 under situation (a). Under situation (b) affairs of the family are partly controlled from India during the PY 2018-19. Therefore, the family is resident in India. However, it would be Ordinarily resident in India if Kartha satisfies both the conditions laid down in section 6(6). As the kartha satisfies both the conditions, the family would be resident and ordinarily resident in India for the AY 2019-20.

    1. Residential Status of Firms, AOP/BOI:
    • Section 6(2): A Partnership firm and an Association of Persons are said to be
      • Resident in India if control and management of their affairs are wholly or partly situated within India during the relevant Previous Year
      • However, they are treated as non-resident in India if control and management of their affairs are situated wholly outside India.
    1. Residential Status of Company:
    • Section 6(3): A Company is said to be a resident in India in any previous year, if
      • It is an Indian Company, or
      • Its place of effective management (POEM*), in that year, is in India.

    *Explanation: For the purpose of this clause “Place of effective management” means a place where key management and commercial decisions that are necessary for the conduct of business of an entity as a whole are made.

    Example: X Ltd. is an Indian company. It has 10 shareholders who are foreign citizens and no residents in India. The business of the company is fully controlled from outside India. Find out the residential status of X Ltd. for the AY 2019-20.

    Solution: X Ltd. is an Indian company. An Indian company is always resident in India. This rule is equally applicable even if shareholders are foreign citizens as well as non-residents or even business is controlled from outside India.

    • Residential Status of Any other person:
    • Section 6(4): Every other person is said to be
      • Resident in India in any previous year if the control and management of his affairs is situated wholly or partly in India
      • Non-resident in any previous year if the control and management of his affairs is situated wholly outside India

     

    • Glance on Incidence of tax:

     

    The following chart highlights the provisions of tax incidence in brief:

    Nature of Income

    Tax incidence in the case of

    R-OR

    R-NOR

    NR

    Income received or deemed to be received in India whether earned in India or elsewhere

    Taxed

    Taxed

    Taxed

    Income accrues or arises or deemed to be accrue or arise in India, whether received in India or elsewhere

    Taxed

    Taxed

    Taxed

    Income which accrues or arises outside India and received outside India from a business controlled from India

    Taxed

    Taxed

    Not taxed

    Income which accrues or arises outside India from any other source

    Taxed

    Not taxed

    Not taxed

    Income which accrues or arises outside India and received outside India during the years preceding the PYs and remitted to India during PY

    Not Taxed

    Not taxed

    Not taxed

                                                                                       

    Section 194J- TDS on Fee for Professional or Technical Services 

    General Rule – Income earned in one year is taxed in the next year. 

    Exceptions In order to meet its regular needs Governments collects Tax by way of TDS (u/s 192 to 195 of Income tax act, 1961), TCS (u/s 206 of Income tax act, 1961), Advance tax (u/s 208 of income Tax act, 1961) in the year in which such income is earned. 

    What is TDS? 

    • TDS is acronym for Tax Deducted at Source.
    • It follows the principle of “Pay as you earn”.
    • It is tax deducted on specified services / works at the time of payment or at the time of crediting to such payee account (in any mode) whichever is earlier. 

    Example 1: M/s. ABC & Associates receives Rs. 1,20,000 towards Internal audit fee from A limited for Q1. A limited, at the time of crediting M/s. ABC & Associates or at the time of making payment to M/s. ABC & Associates whichever earlier deducts certain amount from such sum which is payable to M/s. ABC & Associates and deposits the same to the Government within specified time limits. 

    Objectives of TDS: -

    • To collect the tax at the point where income is earned by providing certain specified services.
    • Government requires funds throughout the year. Hence, advance tax and tax deducted at source and tax collected at source help the government to get funds throughout the year to meet its outflow of funds. 

    Section 194J- TDS on Fees for Professional or Technical Services: - 

    Applicability: 

    • This Section applies where an assessee other than Individual/Hindu undivided Family while making payment to other person or at the time of crediting such person by whatever name called whether suspense account or by any other name deducts certain amount for the services specified under this section and deposits the same to Government.
    • This section also applies to Individuals or Hindu Undivided family, whose Turnover or Gross Receipts exceeds the monetary limits specified under clause(a) (i.e., Turnover exceeds Rs. 1 crore in case of business) and clause (b) (Gross Receipts exceed Rs. 50 lakhs in case of profession) of section 44AB of Income tax Act, 1961 during the immediately preceding financial year.

    Example 2: Mr. Ram has provided certain Reconciliation works for A limited. A limited while making payment to Mr. Ram or at the time of crediting Mr. Ram shall deduct specified amount and shall deposits the same to Government account within specified time limits. 

    Example 3: Mr. X is the tax consultant of Mr. Y, and Mr. Y gross receipts from his profession is Rs. 49 lakhs during the immediately preceding financial year. Mr. Y is not under obligation to deduct TDS at the time of paying to Mr. X, since his gross receipts are within the limits specified under clause (b) of section 44AB. 

    Services Covered: 

    The following Services were covered under this section:

    • Fee for Professional Services or
    • Fee for Technical Services or
    • Any remuneration or commission or fees by whatever name other than those are deductible under section 192 of Income tax Act, 1961 to a director of a company.
    • Royalty fees or
    • Any sum covered under clause (va) of section 28 (i.e., Non-Compete fees) 

    Definitions: 

    1. Professional Services 
    • Professional services means those services rendered by a person who is engaged in the course of carrying on a profession of
      • legal, or
      • medical, or
      • engineering, or
      • architectural, or
      • the profession of accountancy, or
      • Interior decorating, or
      • Advertising, or
      • other profession notified by the Board for the purposes of this section or for the purpose of section 44AA (according following services were notified till now:
        • Authorized representative who represents on behalf of others before law or tribunal other than person carrying on legal profession, Profession of Accountancy, such person is not an employee who has to represent on behalf of his Employer.
        • Film Artist – Any person in his professional capacity engaged in the production of a cinematographic film whether produced by him or other person as an Actor, An actress, cameraman, Director (including Assistant director), Music Director (Including Assistant Music director), Dance Director (Including Assistant Dance director), art director (Including Assistant Art director)…etc.,
        • Person engaged in profession of Company Secretary.
        • Information Technology Services. 

    Example 4: Mr. Handsome receives a remuneration of Rs. 13 crores for acting in a Film. The producer while making payment deduct certain on the amount to be payable to Mr. Handsome and deposits it to Government within specified time limits. 

    Example 5: Mr. A, a Practising Chartered Accountant attends for a hearing before Assessing Officer on behalf of A limited. A limited while making payment to Mr. A has to deduct TDS under section 194J and deposits it to Government within specified time limits. 

    1. Fee for Technical Services:
    • It means any consideration received (including Lump sum) for rendering any
      • Managerial, or
      • Technical, or
      • Consultancy Services
      • But does not include consideration received for mining, construction, assembling, or like project or payments which would be taxable under the head “Salaries”. 
    1. Royalty Fees:
      • Any sum received for the following activities other those which are taxable under the head “Capital Gain”.
        • For transfer of all or any of rights in respect of a patent, invention, model secret formula, process, trademark, design, or similar property.
        • For imparting any information concerning the working of or the use of a patent, invention, model, design, secret formula, process or trademark.
        • Imparting any information concerning technical, industrial, commercial, or scientific knowledge, expertise or skill.
        • Use or Right to use any commercial, Industrial, Scientific equipment other than which are referred to in section 44BB (i.e., Plant and Machinery used in the Extraction of Mineral Oil).
        • The transfer of all or any rights in respect of any copy right, literacy, artistic, or scientific work including films or video tapes in connection with Television or Tapes in use except,
          • Consideration received on sale of or distribution of cinematographic films. 

    Example 6: Mr. Ram has invented an application called “Zoom Car” which he intends to transfer the right to use to M/s. M limited for which he received a compensation of Rs.1,00,00,000. M limited at the time of making payment (either lumpsum amount or part payment) shall deduct TDS and pay the balance amount to Mr. Ram. 

    1. Non-Compete Fees:

     Any sum received in Cash or Kind for not carrying out any activity in relation a Business or Profession except:

      • Compensation received or receivable, in cash or kind, on account of transfer of right to manufacture, produce or process, any article or thing which would be taxable under the head “Capital Gain”.
      • Any compensation received from Multilateral fund of the Montreal Protocol on substances that deplete the Ozone layer under the United Nations Environment Programme in accordance with the terms of agreement entered with the Government of India.
    • Any Sum received for not sharing any know how, patent, copy right, license, franchise etc., to assist in the manufacture of production of an article or thing. 

    Example 7: Mr Ram received a compensation of Rs. 2 crores for transferring the right to manufacture a tablet to C limited. C limited while making the payment to Mr. Ram shall deduct TDS at a rate specified under this section and deposit the same to the Government. 

    Threshold Limit: 

    [Note 1- It may be noted that no limit has been described for Fees payable to Directors, in other words even if company pays 1 rupee for services covered other than section 192 to the Directors (Ex: Sitting fees), the company shall deduct TDS u/s 194J.]

    [Note 2- Here the limit is more than 30,000 if the value of services is equal to 30,000 or less, then TDS shall not be deducted on such sum]. 

    Example 8: Mr. A has received Rs. 30,000 for reconciliation works from A Ltd. Then while paying to Mr. A, A Ltd shall not deduct TDS under section 194J because the consideration does not exceed Rs. 30,000. 

    Example 9: Mr. A, a Director in a Private limited company received salary remuneration from such company then TDS shall not be deducted in accordance with section 194J while the same has to be deducted in accordance with section 192.

    Example 10: Mr. A, a Director in a Private limited company received an amount of Rs.12,500 from a company towards sitting fees for meetings he attended then the company has to deduct TDS under section 194J. 

    Rate of TDS:

    The Rate of TDS to be deducted is classified as follows:

    • Payee carrying on business other than operating Call centre – The rate shall be 10%
    • If the payee is engaged in business of operating Call centre - The rate shall be 2%

    [Note: - It may be noted that the above rates are applicable only when Payee has provided PAN, if he fails to provide PAN the rate shall be higher of 20% or rate defined in that section (here rate is 10% or 2% as the case may be) whichever is Higher as per section 206AA of Income Tax Act, 1961.] 

    Due dates for payment of TDS

    The due date for payment of TDS shall be as follows

    • For April to February – 7th of next month
    • For the month of March - 30th 

    Interest for Failure to Deduct or late payment of TDS

    In case the assessee failed to pay TDS to Government within due date, he shall be liable to interest undersection 201(1A). The rate of interest shall be as follows:

    Failed to deduct the TDS – Rate of Interest shall be 1% per month or part of a month from the date on which it was deductible till the date actually it was deducted.

    TDS deducted but failed to deposit the same to Government – The rate of interest shall be 1.5% per month or part thereof from date on which tax has been deducted to the date on which it was actually paid. 

    Example 11: Mr. A has provided certain reconciliation to B Ltd. on 10-08-2019. And raised an invoice for an amount of Rs. 60,000 on 15-08-2019. B Ltd. has credited to Mr. A in its books on 16-08-2019 without deducting TDS. B limited has deducted TDS on 25-10-2019. For this, B Ltd has to a pay Interest of (60,000*10%*1%*3[months]=120). B Ltd has to pay TDS amount along with Interest (6000+120=6120). 

    Penalty for Non deduction

    If the Deductor fails to deduct TDS, then he may be liable to pay penalty of a sum equal to the tax amount to be deducted under that section as defined under section 271C which shall be imposed by Joint commissioner.

                                                 

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