Karnataka AAR: Supply of Medicines and Food to In-Patients of a Hospital is Exempt from GST

Supply of medicines, drugs, consumables, and food to in-patients of a hospital will be considered a composite supply under the GST regime – Karnataka AAR

In a recent ruling by Karnataka Authority for Advance Ruling (KAAR), it has been clarified that the supply of medicines, drugs, consumables, and food to in-patients of a hospital will be considered a composite supply under the GST regime, thus exempted from GST. This ruling came in response to a query raised by Bengaluru-based Spandana Pharma regarding the tax implications of providing these essential services to patients.

The query revolved around whether the supply of medicines, drugs, and consumables used in treating in-patients could be categorized as a ‘composite supply’ and consequently qualify for GST exemption. Additionally, Spandana Pharma sought clarity on whether the provision of food to the same patients could be considered part of this composite supply.

According to the Central Board of Indirect Taxes and Customs (CBIC), a composite supply refers to a supply comprising two or more taxable supplies of goods or services that are naturally bundled and supplied together in the ordinary course of business. The tax rate applicable to the principal supply is extended to the entire supply.

Karnataka AAR examined the definition of healthcare services provided by the tax notification, which includes services related to diagnosis, treatment, or care for various medical conditions. After thorough consideration of the arguments and facts presented, Karnataka AAR concluded that the provision of medicines, drugs, consumables, and food to in-patients is inherently bundled with healthcare services and constitutes a composite supply. Since healthcare services are exempt from GST, no GST would be levied on these supplies.

However, there was ambiguity regarding the treatment of room rent exceeding ₹5,000 in hospitals. Karnataka AAR clarified that if the room rent exceeds ₹5,000, GST would be applicable only on the rent component of the total bill for healthcare services.

Regarding the provision of food to admitted patients, there was a discrepancy between the GST rate notification and the interpretation by experts. While the GST Department considered food provided to patients as bundled with healthcare services, the rate notification only levied tax on room charges exceeding ₹5,000 per day without specifying whether this includes charges for food.

In light of this incongruity, experts recommend applying a 5% GST on the entire amount charged when the combined price of food and room charges exceeds ₹5,000 per day until a clarification or amendment is issued.

In conclusion, the ruling by Karnataka AAR provides clarity on the GST exemption for supplies of medicines, drugs, consumables, and food to in-patients, thereby ensuring smoother operations within the healthcare sector. However, further clarification may be required regarding the taxation of room charges and food provided to patients in hospitals.

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