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VAT Classification in India

VAT Classification

VAT Classification in India

Value Added Tax (VAT) is a tax on the value added to the commodity at each step in the production and distribution chain. VAT is a state subject in India, which grants States the right of decision making with respect to VAT regulation under the guidelines issued by the Empowered Committee to ensure uniformity across the country. In India, VAT can be classified under the following slabs:

Exempted Category

The following commodities fall under the exempted category and are exempt from VAT:

  • Items having social implications like milk or aids used by handicapped persons.
  • Items which are legally barred from taxation.
  • Natural and unprocessed products in the unorganised sector like raw wool, curd, unprocessed/unbranded salt

1% Special VAT Rate

A special VAT rate of 1% is applicable for precious stones, bullion, gold and silver ornaments in India.

VAT Rate of 4% or 5%

Depending on the State, a large number of goods fall under the 4% or 5% VAT rate category in India. Basic necessities such as medicines, drugs, agricultural inputs, capital goods and declared goods fall under the 4% or 5% category.

12.5% General VAT Rate

Typically goods not listed in any of the other schedules or classification of VAT rates fall under the 12.5% general VAT rate. This category of VAT rate is also known as the Revenue Neutral Rate or RNR. Remaining commodities in all the states fall under the general rates of 12.5% or 13.5% or 14% – residual category.

20% or Higher VAT Rate

The highest VAT rates are at 20% and higher. Goods such as foreign liquor, high speed diesel oil, motor spirit, molasses and narcotics fall under the 20% or VAT rate.