Delhi: The Goods and Services Tax (GST) Council is likely to make a proposal that will force hospitals to split medicines and hospitalization charges, which are typically bundled together. It has been suggested that this measure may also benefit consumers as it will make the bills more transparent.

According to the tax authorities, medicines and consumables attract GST, with some under the maximum retail price (MRP) regime, however, hospitalization services usually do not face tax. They suspect that patients are sometimes charged full MRP for medicines that may have been even procured for less by the hospitals. Tax authorities had visited a few big hospitals in some cities including Mumbai and sought information on various practices followed by hospital chains. Moreover, they are also concerned that hospitals could be charging in-patients for GST on medicines, which may not be reaching the exchequer due to bundling of both bills.

Unbundling hospital bills implies that unregistered healthcare service providers would have to register with GST authorities, collect and deposit tax.

Some healthcare providers have been demanding 5% GST because in the absence of input tax credit, they now end up absorbing taxes paid on goods purchased from vendors. Input tax credit is not allowed as healthcare services are exempt from GST, apart from cosmetic surgery and hair transplant.

Tax experts state that supply of goods is incidental to service offered and it falls in the category of composite supply. Mr MS Mani, partner Deloitte, said that there is a need to reinforce the concept of composite supplies in medical treatment and if required, a clarification should be issued that this concept would be applicable in case of exempted services as well.

They also have pitched for 5% tax on healthcare services to tide over the issue. Pratik Jain, national leader, indirect taxes, PwC said that hospitals typically treat the transaction as a composite healthcare service (exempt from GST) in case medicines are used in course of a treatment. He further mentioned that if the government wishes to unbundle the medicine component from other services, then GST law may need to be amended.