SERVICE TAX ON MAINTENANCE OF MEDICAL RECORDS SERVICES

[Dr. Sanjiv Agarwal]

Service tax has been imposed on services in relation to maintenance of medical records by the Finance Act, 2010 w.e.f. a notified date. Service tax is payable on the gross amount charged by the service provider from the business entity in relation to maintenance of medical records.

Meaning of Business Entity

Clause19 (b) defines 'business entity' as under-

"business entity includes an association of persons, body of individuals, company or firm but does not include an individual"

Finance Act,2010 has inserted clause (19b) in section 65 to provide definition of the term 'business entity' so as to include an association of persons, body of individuals, company or firm but to exclude an individual. This would be effective from a notified date after the enactment of the Finance Act, 2010

Thus, business entity would include any -

(i) association of persons

(ii) body of individuals

(iii) company, or

(iv) firm

Individuals have been excluded from the scope of business entity. The tax will be levied when service is rendered for the employees of business entity.

Maintenance of Medical Records of Employees

The expression 'maintenance of medical records of employees' has not been defined and should be understood in general context. It would cover outsourced activities or services provided by service providers for maintaining the medical records of employees of business entities. It implies that the service provider should be engaged in the service of maintaining specifically the medical records (including medical history) of the employees of any business entity. This is a specialized service as many business entities in sensitive areas (such as information technology, pharmaceuticals, health care, aviation , hotel etc) are required to keep a vigil on health of employees and monitor employee's health. In many organizations, this function is outsourced to a specialized agency who not only prepares the medical records, but updates and maintains it on an ongoing basis including preservation and storing of such records.

Taxable service

Clause (zzzzp) of section 65(105) defines taxable service as under-

"Any service provided or to be provided to any business entity, by any other person, in relation to storing, keeping or maintaining of medical records of employees of a business entity".

Taxable service should meet the following criteria-

(a) Service can be provided by any person.

(b) Service recipient should be a business entity ,ie, association of persons, body of individuals , firm or company.

(c) Service provided to an individual shall not be covered for service tax pursues.

(d) Records maintained should essentially be medical records.

(e) Records should pertain to employees of business entity.

(f) Taxable service would cover services in relation to storing, keeping or maintenance of medical records.

It may be noted that records will also include electronic records keeping.

Thus, if the medical records are maintained for and on behalf of a hospital for its patients, it would not be covered. Similarly, records maintained for students of a college or members of a club would not be covered as they are not the employees.

Departmental Clarification

CBEC vide Circular No 334/21/2010-TRU dated 26.2.2010 has clarified as follows-

"3. Services provided for maintenance of medical records of employees of a business entity

3.1 World over, business organizations maintain medical histories of their employees which are used not only for medical purposes but also for finding the suitability of a person for a particular job or for promotion etc. Increasingly, this activity is being outsourced for a consideration. Such records are either maintained by certain designated hospitals or even by independent record keepers for a charge. This activity is now being brought under service tax."

Value of Taxable service

Gross amount charged by the person providing service for maintenance of medical records shall be liable to service tax. If the service provider also provides maintenance of other records, value of such service shall be excluded from the taxable value on the basis of documentary evidence.

Person Liable

Any person providing taxable service to any business entity (not individuals ) shall be liable to pay service tax.