Nepal VAT Overview
Nepal imposes a single-rate 13% Value Added Tax (VAT) on most goods and services under the VAT Act, 2052. If your business is VAT-registered, you charge VAT on taxable sales, claim credit for VAT you paid on purchases, and file quarterly returns with the Inland Revenue Department (IRD). Udyot ERP automates every step of this cycle — from calculating VAT on each invoice line to generating the IRD sales and purchase registers — so you can stay compliant without the manual work.
Who needs to register for VAT in Nepal?
Your business must register for VAT with the IRD if your annual taxable turnover crosses the prescribed threshold. The general threshold is NPR 50 lakh (50,00,000) per year. Certain sectors — including manufacturing, importers, and some service industries — have lower thresholds. Check the current rates at ird.gov.np or ask your chartered accountant (CA).
Once registered, the IRD issues you a PAN (Permanent Account Number). Your PAN must appear on every tax invoice you issue to customers and on every purchase bill you receive from VAT-registered suppliers. Udyot ERP stores the PAN of every customer and vendor in their party record and prints it on all invoices automatically.
VAT rates in Nepal
| Rate | When it applies |
|---|---|
| 13% | Standard rate — applies to most goods and services sold within Nepal |
| 0% (zero-rated) | Exports of goods and services outside Nepal — VAT is charged at 0%, but you can still claim input VAT credit on your related purchases |
| Exempt | Goods and services listed in VAT Act Schedule 1 — basic food items, medical services, educational services, agricultural produce. No VAT is charged and no input credit can be claimed on related purchases |
Output VAT and Input VAT — how they work together
Nepal’s VAT system is built on two opposing flows:
- Output VAT is the VAT you collect from your customers when you sell taxable goods or services. It is a liability — you have collected it on behalf of the IRD and must pay it over.
- Input VAT is the VAT you pay to your suppliers when you buy taxable goods or services for your business. It is an asset — you can deduct it from the Output VAT you owe, reducing your net payment to the IRD.
The formula is straightforward:
Net VAT payable = Output VAT − Input VAT
If your Output VAT exceeds your Input VAT, you pay the difference to the IRD. If your Input VAT exceeds your Output VAT — for example because you made a large purchase or have significant exports — you have an excess credit. This excess can carry forward to the next quarter or, in certain cases, be claimed as a refund from the IRD.
How Udyot ERP handles VAT on transactions
Every time you post a sales or purchase transaction in Udyot ERP, the VAT accounting happens automatically. You do not need to make any manual journal entries for VAT.
On a sales invoice
- Go to Vouchers → Sales → New Sales Invoice.
- Add the customer (party) and line items. For each taxable item, set the VAT rate to 13%. For zero-rated or exempt items, set the rate to 0% or leave VAT unchecked as appropriate.
- Udyot calculates the VAT amount per line and shows a live subtotal, VAT total, and grand total at the bottom of the form.
- When you save, the system posts the VAT amount to the VAT Output (13%) ledger as a credit — this is now a liability you owe the IRD.
- The invoice is simultaneously recorded in the IRD Sales Register, capturing the party name, PAN, gross amount, VAT, and grand total in the format required for Annex 13.
On a purchase bill
- Go to Vouchers → Purchase → New Purchase Invoice.
- Enter the vendor (party), their bill number and date, and the line items. Set the VAT rate to 13% for taxable purchases.
- When you save, the VAT amount posts to the VAT Input Credit ledger as a debit — this is now an asset you can claim against your Output VAT liability.
- The bill is simultaneously recorded in the IRD Purchase Register, capturing the vendor PAN, bill reference, gross amount, and input VAT for Annex 1.
Invoices with mixed VAT (taxable and exempt items on the same bill)
If a single invoice includes both taxable and non-taxable items — for example, a trading company selling both VAT-applicable electronics and VAT-exempt food products — add each item as a separate line and set the correct VAT rate per line. Udyot calculates VAT only on the lines where you have applied the 13% rate, and the registers record the split correctly for IRD purposes.
VAT filing quarters in Nepal
VAT returns are filed with the IRD every quarter. The quarters align with the Nepali (Bikram Sambat) fiscal year, which runs from 1 Shrawan to 31 Ashad:
- Quarter 1: Shrawan – Ashwin (months 1–3)
- Quarter 2: Kartik – Poush (months 4–6)
- Quarter 3: Magh – Chaitra (months 7–9)
- Quarter 4: Baishakh – Ashad (months 10–12)
The filing deadline is typically the 25th of the month following the end of each quarter. Late filing attracts interest and penalties under the VAT Act. Udyot ERP generates your VAT return summary and the IRD-format Annex 1 (purchase register) and Annex 13 (sales register) files ready for submission — see Generating VAT Returns and IRD Annexes for the step-by-step process.
Checking your VAT position at any time
You do not need to wait until quarter-end to see where you stand. Go to Tax → VAT Return and select the current period — the summary shows Output VAT, Input VAT, and the net amount payable or refundable today. The underlying VAT Output and VAT Input Credit ledgers also appear on your Trial Balance and Balance Sheet in Reports → Financial Reports.
PAN requirements on VAT invoices
A VAT invoice is only valid for input credit if it shows both the buyer’s and seller’s PAN. Before recording a purchase, confirm the vendor’s PAN is saved in their party record under Masters → Parties. Purchases without a valid vendor PAN may be disallowed as input credit in an IRD audit.