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| Cashless facilities: Why be extinct!! |
| Harsh Shah and Isha Singh / Mumbai Aug 11, 2010, 14:17 IST |
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In the past few days, the media has been quite active on the subject of cashless facilities provided by hospitals. There have been various news items on this subject including hospitals curbing cashless facilities for medical treatments. While all these years, the hospitals were keen on providing such cashless facilities to attract more patients, it was observed that the same suddenly became a taboo for most of them recently. While a dialogue has started between the government-owned insurance companies and healthcare service providers on how to continue the cashless facility without any stakeholder feeling cheated, the insurance companies have not budged from curtailing the cashless facilities as they are not able to come to terms with the hospitals on this issue. The insurance companies however seem to have agreed on extending the cashless facility on a case to case basis as per the latest news item on the subject. There have also been some news items stating that the patients would need to squeeze the burden of 10.3 per cent service tax.
The root cause behind the same appears to be the introduction of service tax on services provided by a hospitals, nursing homes or multi-specialty clinic w.e.f July 1, 2010. The recent Finance Act 2010 has introduced Service tax on health check up and medical treatments provided by hospitals, nursing homes or any multi-specialty clinics in following specific situations:
- In case any health check-up or preventive care services are being provided to an employee of a business entity and 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.
- In case any health check- up or treatment services are being provided to a person covered by health insurance scheme, 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.
Currently, it is the second scenario that is of greater relevance and creating maximum buzz. The second condition specifies that service tax will be applicable only in cases where the insurance company directly pays to the hospital and not applicable when the insured pays the hospital for the treatment and subsequently claims a reimbursement from the insurance companies. Thus, it could be said that for a similar transaction, with only the payments modes being different, the law makers have provided for differential treatments. While the levy of service tax depends on the nature of taxable services, we are now with a unique situation where the levy of service tax or otherwise is dependent on the person paying the hospital. One should, however, appreciate the efforts taken by the Government whereby the aam aadmi does not suffer the tax incidence as service tax is not applicable when the insured pays to the hospital and claims a reimbursement from the hospital.
Further, it is also important to note in this case that the Health Check-up and Treatment Services have been given effect as taxable service from July 1, 2010. Hence service tax would be applicable only for the services provided on or after July 1, 2010. In case if any advance payment is made by the insurance company before July 1, 2010 for services which are provided after July 1, 2010 then Service Tax would not be levied on such transaction on account of a specific exemption provided in this regard. Similarly, if services are provided prior to 1st July 2010 for which payment is made on or after 1st July 2010 then there may not be any service tax on such transaction as the services are provided prior to the date when such services become taxable and there are precedents in service tax legislation which state that the taxable event in service tax is provision of services and not the receipt of consideration.
A very important aspect which has been rarely spoken about vis-à-vis its importance is the fact that the insurance companies would be eligible to avail credit of the service tax paid by them to the hospitals. It has been clarified in one of the Budget clarifications letter that the insurance companies would be eligible to avail such credit. The relevant extract of the said letter reads as under:
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.
The above clarification makes it aptly clear that the service tax charged by the hospitals to the insurance company would be available as a credit and therefore could be offset against their respective service tax liabilities. This being the case, it prima facie appears that the levy of tax on such services would largely be revenue neutral in as much as it would be a pass through for the hospital as it would recover it from the insurance company and for the insurance company as it could avail credit of such service tax.
However, considering the ambiguity and the news items regarding the burden of tax being passed on to aam aadmi, it may be desirable that there is a clarification issued by the Board in this context.
The authors are with Deloitte Haskins & Sells. The views expressed are personal and not those of Deloitte Haskins & Sells
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