Value added tax
Input VAT credit in Nepal
Eligibility, supporting documents and the calculation of VAT payable.
A VAT-registered business can deduct eligible VAT paid or payable on purchases and imports from the VAT on its taxable sales. This deduction is called input VAT credit. It reduces the VAT payable for the period.
The right to a credit depends on the use of the purchase, the documents supporting it and any statutory restriction. Paying VAT or holding an invoice does not make every purchase eligible.
1. Who can claim input VAT?
Section 17 of the VAT Act provides the starting point: the purchase or import must relate to the registered person’s taxable transactions. For example, goods bought for resale in a taxable business may qualify. A private purchase does not qualify simply because the invoice is issued in the business’s name.
For a registered person making both taxable and exempt supplies, Rule 40(3) allows credit for purchases or imports directly related to taxable supplies. Where that direct relationship cannot be established, Rule 40(4) allows a proportion based on taxable sales value as a share of total sales value. Use sales values, not a purchase-value ratio or an unexplained percentage. Rule 40(5) allows the tax officer to seek Department instructions for another method if proportional calculation cannot be made.
2. Documents that support the claim
Rule 39 requires a tax invoice for a domestic purchase and evidence of VAT payment for an import. Keep the documents together with the purchase records so the amount claimed can be traced to a genuine transaction.
| Purchase | Supporting documents | Practical check |
|---|---|---|
| Domestic goods or services | A tax invoice meeting Rule 17. | Match supplier and buyer details, the invoice amount and the purchase recorded. |
| Imported goods | Customs declaration, VAT payment receipt and supplier invoice. | Reconcile the import VAT with the goods received and the purchase or asset ledger. |
A quotation, order confirmation or ordinary cash receipt should not be treated as a qualifying tax invoice. Keep additional delivery or service records where they help establish what was purchased and its business use.
3. Purchases with restricted or partial credit
Rule 41 restricts credit for specified items, including beverages, alcohol, petrol for vehicles and entertainment expenses. It also provides partial-credit treatment for defined passenger automobiles. An exception applies where supplying the relevant goods or services is the registered person’s principal business, subject to the prescribed process.
Rule 41 defines automobiles as passenger vehicles that run on the road and have three or more wheels. For this category, the ordinary input-credit limit is 40% of the VAT on the purchase. Rule 41(3) permits credit under the prescribed process where supplying the goods or services covered by Rule 41(1) or (2) is the registered person’s principal business. Apply the definition and exception to the actual purchase, together with the general business-use and document requirements.
Apply those restrictions before including an amount in the VAT return. For shared costs, distinguish private use, exempt activity and taxable business use rather than claiming the full invoice automatically.
A machine or other capital asset may qualify when used in taxable business activity and not subject to a credit restriction. Input VAT eligibility and income-tax depreciation are separate questions.
4. Calculating the VAT payable
Assume a registered trading business has taxable sales of NPR 1,000,000 and qualifying purchases of NPR 600,000 in one period. Both amounts exclude VAT. For this illustration, all transactions attract 13% VAT, the purchase credit is fully allowable and there is no opening credit or other adjustment.
| Calculation | NPR |
|---|---|
| Output VAT: 1,000,000 × 13% | 130,000 |
| Allowable input VAT: 600,000 × 13% | 78,000 |
| Net VAT payable: 130,000 − 78,000 | 52,000 |
The input VAT reduces the tax payable. It does not reduce the sales value. If part of the purchase VAT is ineligible, deduct only the allowable amount.
5. Timing, duplicate claims and excess credit
Rule 39(2) allows the same input VAT to be deducted only once. At the claim date, the supporting invoice or import documents must be no more than one year old. Check document dates and claim history before including an amount in the return.
If eligible input VAT exceeds output VAT, the excess carries forward to the next tax period under Rule 39. For example, output VAT of NPR 50,000 and allowable input VAT of NPR 80,000 leave NPR 30,000 of excess credit, before other adjustments. A cash refund requires the separate refund conditions and application process to be satisfied.
6. Recording and checking the claim
Record recoverable VAT separately from the purchase or asset cost. A fully qualifying purchase of NPR 100,000 plus NPR 13,000 VAT would ordinarily record NPR 100,000 as the purchase or asset and NPR 13,000 as input VAT. VAT that cannot be recovered requires different accounting treatment.
Before filing, reconcile the input VAT claimed with the purchase book and import records. Review any difference instead of adjusting the return to match an unexplained total.
- Confirm the purchase relates to taxable business activity.
- Match the claim to the tax invoice or import VAT evidence.
- Apply restricted-credit and mixed-use adjustments.
- Check the document date and prevent a duplicate claim.
- Reconcile the eligible amount with the VAT return.
Official sources
The core provisions are Section 17 of the VAT Act and Rules 17, 39–41 of the VAT Rules.
- IRD: VAT Act, 2052, consolidated through Finance Act 2082
- IRD: VAT Rules, 2053, including the twenty-seventh amendment
- IRD: Finance Act 2083
Read consolidated legislation together with subsequent amendments applicable to the transaction date.
Latest update
- 13 October 2026
Editor: C.M. & Associates
Reviewed the page wording, source labels, related links, reading controls and language availability. Earlier source-check dates and stated limitations remain applicable.