India: New 5% GST Tax on Hospital Room Rent

India: New 5% Tax on Hospital Room RentIndia’s government announced a new 5% tax on hospital room rent after the recent 47th meeting of the GST Council (June 2022). The Government decided to modify certain tax exemptions; one of these includes levying a goods and services tax (GST) of 5% on room rent, excluding ICU, exceeding INR 5,000 per day, per patient. The new tax is effective beginning July 18, 2022.

The law will increase the cost of healthcare for patients, thereby leading to challenges in the industry.

Local Insurers’ Perspectives

The impact is yet to be calculated, and insurers are currently evaluating this among themselves and waiting for an update from the Insurance Regulatory and Development Authority of India (IRDAI).

This change came as a surprise to the insurers, as they did not anticipate it while underwriting ongoing policies. A few possibilities insurers are considering include:

  • The GST should be considered and paid as a part of the total room rent limit. If the room rent limit is up to INR 5,000 and after applying GST, the total chargeable amount is more than INR 5,000, then it may lead to a proportionate deduction on the overall bill if GST has led to the excess rent.
  • Currently, medicines are also liable to GST, and insurance companies are paying the same as part of the settlement. However, insurers might consider the GST on room rent as non-medical charges and hence to be considered under non-payables. Even now, admin charges and service charges from the hospitals are not paid and are considered under deductibles.
  • If hospitals relook at the package rates and propose increasing the same, the overall outgo on claims of the insurer will also be impacted.

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This information about India’s new 5% tax on hospital room rent is provided by Prudent, Asinta’s employee benefits consulting Partner in the country.