Meaning of Exempt Goods under VAT

• Exempt goods are items on which no VAT is levied or payable, as notified by state governments
  
• These goods are included in the exemption list or Schedule I of the respective VAT Acts
  
• No input tax credit can be claimed for purchases used exclusively for exempt sales
  
• Businesses dealing in exempt goods do not charge VAT on their sales invoices
  
• The exemption is granted to support basic needs and social welfare by lowering the cost to consumers

Common Categories of Exempt Goods

• Unprocessed agricultural products like fresh fruits, vegetables, and food grains
  
• Livestock and poultry, including milk, eggs, and meat in raw form
  
• Books and educational materials, including newspapers and printed journals
  
• Medical essentials such as life-saving drugs, devices, and certain diagnostic kits
  
• Handloom and handicraft items produced by small or traditional artisans

Rationale Behind Exemptions

• To keep essential goods affordable for the general population
  
• To reduce the tax burden on the agricultural and informal sectors
  
• To encourage literacy, education, and health care access through tax relief
  
• To promote traditional and rural industries by offering tax incentives
  
• To ensure that low-income groups are not adversely impacted by taxation

Treatment in VAT Returns and Records

• Sales of exempt goods must be declared separately in VAT returns
  
• Input tax credit on purchases used exclusively for exempt goods is not allowed
  
• If goods are used partly for exempt and partly for taxable sales, input credit must be apportioned
  
• Dealers must maintain separate accounts for exempt sales and purchases
  
• VAT audit and assessments will verify the correct classification and reporting of such goods

Examples of Exempt Goods (State-Wise May Vary)

• Rice, wheat, pulses, and coarse grains
  
• Unbranded fresh milk and curd
  
• Human blood and its components
  
• Firewood and fuel wood
  
• Khadi fabrics sold through certified institutions