Why Don’t Doctors And Lawyers Pay Service Tax In India?

What is a Service Tax?

The answer is simple as the name suggests – a tax for providing various services against remuneration or charges.

• As part of economic reforms in India, the service tax was replaced by the Goods and Services Tax (GST) from July 1, 2017.
• Implementation of GST has eliminated the cascading effect of taxes resulting in an overall reduction of end- prices.
• The GST is a multi-stage destination-based tax that is levied at every stage of value addition.
• All products and services in India come under the purview of GST.
• The government exempts a few specific items.

Why Doctors and Lawyers Don’t Pay GST?

1. A straight answer is because they are exempted.
2. We look at the exemptions at the outset.
3. Typically, there are three categories of exemption:

• Businesses and individuals having an aggregate annual turnover of less than Rs.20 Lakhs enjoy exemption.
• The limit becomes Rs.10 Lakhs for individual hill states of India like Himachal Pradesh, Sikkim, Jammu & Kashmir, and a few more.
• Exemption to some categories of individuals and businesses.
• Exemption to some specified services (services by the government of India, Reserve bank of India, and foreign diplomatic missions in India).
• Doctors / Lawyers enjoyed exemption from services tax earlier and therefore, an exemption for the GST is only a logical extension.
• The origin of this exemption may be because doctors and lawyers represent an essential segment of society and are involved in direct public service.
• Doctors provide healthcare and save lives; imposition of any taxes will mean a higher cost of treatment for the patient.
• Besides, the individual doctor will have to handle the hassles of registration and annual returns (for such taxes).
• A similar thought process may have worked for lawyers too, who provide vital legal services to all, poor and the rich.
• Specific notifications in the GST act mention the exempted services/items, and, exceptions to the exemption. Sounds confusing?
• The course of the article will look at some of these issues.
• The government considered health care different from other services and decided on exempting the same from the purview of GST. Health care is defined in the following way:
• Notification No. 9/2017 – Integrated tax rate dated 28.06.2017 has exempted healthcare services vide entry no.77.

Understanding the Nomenclature

1. What does health care service mean?
2. Services offered for Improving and maintaining the physical and mental health of an individual.
3. Such services should be provided under any system of medicines recognised in India.
4. Cosmetic treatments like hair transplant, cosmetic or plastic surgery do not qualify for GST exemption under the GST notification.
5. In case of surgeries (plastic /cosmetic) are performed to restore or reconstruct any part of the anatomy due to accident, injury, or congenital disabilities, will be considered as health services and enjoy exemption.

Who is an Authorised Medical Professional?

• Any medical practitioner registered with a council of a recognised system of medicines (recognised by the law and the medical council in India) and having a qualification (license) to practice in India.
• Recognised medical systems in India are Allopathic homeopathy, Ayurveda, Sidha, Unani, Yoga, and Naturopathy.

Who are Paramedics?

1. Any trained professional such as nursing staff, physiotherapists, technicians, lab assistants are accountable for their services when provided independently, and are exempted from the purview of GST.
2. In a case where paramedics work for a hospital or clinic, they are considered as service provided by the clinical establishment.
3. Similarly, services of assisting an authorised medical professional are deemed to be provided by the medical practitioner.
4. Both the categories, in the GST act, clinical establishment and medical practitioner, enjoy exemption.

What is a Clinical Establishment?

• A clinical establishment is one which is owned by-

§  Government or a department of government.

§  A public or private trust.

§  A corporation including society.

§  Local authority.

§  Any single medical practitioner.

• Clinical establishment under the armed forces is outside the scope of GST.

When a Doctor is Required to Pay GST?

1. A doctor who is engaged only in a healthcare service (as defined in the rule) enjoys exemption.
2. But, when a doctor is providing both health care and non-healthcare services? Let us look at the following illustration.
3. A Doctor who provides both health care & non-healthcare services has to consider the total turnover from both, as per rule.
4. Thus, if the total turnover from all services exceeds Rs 20 Lakhs, GST registration would be required.
5. Take the case of a doctor attached to a hospital and receive Rs 20 Lakhs against the services provided.
6. This Doctor is also performing cosmetic surgeries and earns from medical videos.
7. The total turnover (of the Doctor) in a year is Rs.30 Lakhs. GST registration is necessary as the total turnover includes payments received from non-exempt items.
8. The GST rule specifies mandatory registration if the total turnover value in a financial year from all sources exceeds Rs.20 Lakhs.
9. Applicable GST, in this case, will be on the amount exceeding the value of the exemption limit.
10. Doubts were raised in the case of senior doctors who are hired by hospitals for consultancy and receive their fees as consultancy charges.
11. The doctors are not considered as employees of the hospital.
12. Whether these doctor consultants come under the purview of health care service?
13. A point of view was that such services are provided technically to the hospital and not patients.
14. GST authorities had clarified to the satisfaction of senior doctors that their services are actually to patients; the hospital is only a medium.
15. Therefore, such consultancy services will also qualify for the exemption.

Other Categories of Exempted Health Care Services

• Transportation of patients in an ambulance.
• Cord blood banks by way of preserving stem cells or any other services concerning such preservation.
• Services provided by operators of the standard bio-medical waste treatment facility to a clinical establishment by way of disposal of biomedical waste.
• Services provided by a veterinary clinic about the health care of animals and birds.

What About Lawyers?

1. Lawyers and law firms are not required to pay GST for providing legal services and hence, do not need to obtain registration.
2. There are some transactions, however, which do not enjoy exemptions under the GST act and applicable taxes are payable against such dealings.
3. When legal services are provided by an advocate or a law firm to a person other than a business entity, there is no GST (exempted under Sl. No. 45 of Notification 12 /2017 dated 28.06.2017).
4. No registration is required either for such supply of legal services by an advocate or a law firm.
5. In cases where legal services are provided to a business entity in India, such services come under the reverse charge mechanism, i.e., the applicable GST is payable by the receiver of such services (or the said business entity).
6. This rule applies to all categories, law firms, advocates, senior advocates.
7. Sl. No. 2 o Notification 13 /2017 CGST dated 28.06.2017 mentions this clause.
8. There is another Category of transaction-where legal services are provided by a law firm or an advocate to a business entity outside India.
9. The GST notification in connection with the reverse charge will not apply in this context.
10. Such services will be treated as export of legal services and will be subject to payment of applicable IGST (integrated goods and services tax) by the concerned advocate or law firm.
11. Also, on fulfilment of certain conditions these entities (law firms /advocates exporting their services) can also avail the benefit of duty under the service export from India scheme (SEIS).
12. In conclusion, Doctors and Lawyers enjoy freedom from the ambit of GST for most of the services they provide.
13. A few areas concerning a small section only (doctors/lawyers) need to pay GST.

Also Read:

GST for Every Business

GST: Types of GST in detail

GST: All the Forms Related to GST