December 24, 2012

MH0054 [Finance, Economics & Planning in HCS] Set1 Q5

Q.5. CHINMAYA MISSION TRUST HOSPITAL IS CHARITY HEALTH ORGANIZATION, WHAT DO YOU THINK ARE THE SERVICE TAXES ON THIS HOSPITAL? WILL THIS HOSPITAL GETS ANY TAX BENEFITS? DISCUSS.

Ans:

Service tax in India is an important form of indirect tax. The Central Board of Excise and Customs (CBEC) has the responsibility of collecting the levy in different states in India. It is not imposed in the state of Jammu and Kashmir. Currently, the rate is 10%.

What is service tax?
It is a type of indirect duty levied on particular services that are categorized as taxable services. The responsibility of paying this kind of levy lies on the service provider. This duty can't be levied on services that are not included in the specified list. Over last one or two years, the domain of service tax been broadened to include new services. The goal behind imposing service tax in India is to lower the extent of concentration of taxation on business and industry without compelling the government to find the middle ground on the revenue requirements.

Interesting piece for charities in India

Donations for charitable purposes attract tax benefits. If you give to a charitable organisation, not only is your donation exempt from Income Tax in the hands of the organisation, but you can earn a tax deduction too. For this, the organisation must be certified under 80-G or have projects approved under various sections of the regulations which offer tax benefits to donors.

Income from hospitals run by charitable trusts: Tax laws of almost all countries provide tax breaks to religious or charitable N.G.Os in the form of exempting their incomes from tax and also by way of granting tax incentives to the donors, who donate moneys to such exempted institutions. Such tax breaks and incentives are also embedded in various provisions of the Income tax Act, 1961.

The concept of income, for assessment of religious or charitable trusts, etc., is somewhat different from assessment of other entities. This is because voluntary contributions are also taken as income. According to section 2(24)(ii), a trust or institution may be wholly or partly charitable in nature. Various provisions will, therefore, be applicable to the activities or purposes which are of this nature.

Section 12 makes some changes in the aforesaid “income”. Firstly, it excludes corpus donations from the ambit of income. Thus, voluntary contributions received with a specific direction that they shall form part of the corpus are to be excluded from the definition of the term income. It may be noted here that these contributions have to be used in accordance with the directions of the donor. And secondly, the value of any medical or educational service, by a trust etc. running an educational institution or a hospital, to a person referred to in section 13(3) of the Act will be deemed to be the income of the trust or institution. If the beneficiary has made any payment for such service, then such payment shall be deducted from the value of the service in arriving at the income.

Your donations to organisations that have the following tax exemption certifications are eligible for tax benefits :

  • 80 G: 50% of your donation can be set off against from your taxable income.
  • 35AC : 100% deduction can be claimed for donation for certain projects approved under this section.
  • 35(1)(iii) : NGOs engaged in research in social sciences can be approved for tax exemption under this section. People who have business or professional income can claim 125% deduction of their donation and others can claim 100%. This deduction will be withdrawn after 31 March 2005.
  • 35CCB : NGOs engaged in conservation of natural resources and aforestation are given approval under this. 100% deduction may be claimed by donors


Tax Benefits to Charitable Hospitals: To be or not to be, the debate goes on…

In Sep 2003, Express Healthcare Management published an article that presented two contradictory views on the existing tax benefits to the charitable hospitals.

‘All tax benefits should be withdrawn’

According to Mr Ravi Duggal, co-ordinator of the NGO-Centre for Enquiry into Health and Allied Themes, under the Public Trust Act, hospitals registered as trust hospitals are supposed to provide free care to upto 20 per cent of their admissions, OPD and other services and for this, they are exempted from the income tax. All these years, most of the charitable trust hospitals taken the State for a royal ride by not complying with this provision of the Act.

The charity commissioner, to whom they are accountable, has also not audited the functioning of these hospitals to find out whether the social benefit of free care for the poor is being provided, in lieu of the tax benefits the hospitals get.

For octroi exemption, similar benefit clauses are there. If hospitals do not honour the social commitment as per the Public Trust Act then, there is no reason for them to get any tax benefits.

In fact, the income tax authorities too need to review the tax exemptions by conducting audit for the provision of free care.

When the Maharashtra government, sometime back, raised this question of 20 per cent free care under pressure from NGO’s and activists, and demanded that the 20 per cent free care could be referrals from government hospitals, the hospital lobby went to court and got a stay order.

With such an attitude on part of these ‘so called’ charitable hospitals, all tax benefits should be withdrawn. Hence, the BMC was right in withdrawing the octroi tax exemption given to the trust hospitals in the city.

The concessional patients are usually bureaucrats, politicians, acquaintances of doctors and hospital staff or at the most, some rebate in charges is given to the members of the community by whom the hospital was set up. Let us first have transparency about concessions as per the law, which should be made public information, and then tax concessions should be given.

‘Exemptions are deserved as they are passed on to patients’

Contrary to Mr Duggal’s point of view, Mr Anupam Verma, head, operations, Hinduja Hospital, Mumbai, maintains that the trust hospitals are basically philanthropic organisations. They work as ‘not for profit’ organisations and their main objective is, to help the government in providing medical care to the public. They assist the government, with the sole purpose of providing health care at minimal costs. The hospitals are not provided with any funds or subsidies from the government, to enable them to provide the care that is required for those in need.

Although the exemption on octroi provided only around 5 per cent relief on the actual cost of the imported facilities, such exemptions, including the income tax exemption, is well deserved by the trust hospitals. The surplus margins enjoyed by the hospitals are too less, considering the high costs incurred on the high quality treatments offered. The cost vs price ratio is very high in the treatments offered, and any rise in the cost would mean an increase in the price which will be paid by the patients, for the treatment. The trust hospitals have come to the government’s rescue in ensuring the provision of good health care to the people. It is unfair on the part of the government to want to earn a revenue out of the services offered by these hospitals. The exemptions given by the government in income tax and the other taxes are passed on to the patients in terms of reduced treatment costs.

The Jeevandayi scheme, proposed by the government, includes providing free treatment to patients referred to the trust hospitals from the government hospitals, with the government paying about Rs 50,000 to the hospital for the treatment.

It was strongly opposed because, the patients who were referred came in cars with mobiles in their hands and to add to it, the government blatantly refused to give the assured amount to the hospitals.

The percentage of people getting free treatment in the trust hospitals is much more than the percentage required in the proposal and thus, the exemptions are well deserved by the hospitals. Their withdrawal will affect the patients in terms of the price paid by them for the services only. The free treatments will continue to be offered to those in need, but the concession given may have to be reduced, if the exemptions are withdrawn.

Chinmaya Mission trust hospital is charity health organization getting the all the service and tax exempting from the Indian government.

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