Input VAT Credit in Nepal — Eligibility, Documents & Claim Rules

For an ordinary Input VAT claim, check:

A. Registered Person

The claimant must be entitled to claim Input VAT under the VAT system.

B. Business Connection

The goods/services must be directly related to taxable business activity.

C. Proper Evidence

For domestic purchase: Valid tax invoice under Rule 17

For imports: Customs/import documents evidencing VAT payment

Rule 39 expressly requires these conditions.

Taxable sales: NPR 1,000,000

Output VAT: NPR 130,000

Eligible taxable purchases: NPR 600,000

Input VAT: NPR 78,000

Net VAT: NPR 130,000 − NPR 78,000

NPR 52,000 payable

Where full Input VAT is recoverable: Purchase value:

NPR 100,000

VAT: NPR 13,000

Accounting should ordinarily distinguish: Purchase/asset: NPR 100,000

Input VAT: NPR 13,000

The NPR 13,000 should not simply be included in the cost/expense where it is recoverable.

Rule 39 requires a tax invoice complying with Rule 17.

Check:

• supplier VAT registration;

• supplier PAN;

• buyer PAN where required;

• invoice number;

• date;

• description;

• taxable value;

• VAT amount;

• transaction actually occurred.

Possessing an invoice alone is not sufficient if the transaction is fictitious or unrelated to taxable activity.

Input VAT on imports can be claimed where the taxpayer has the required import evidence.

The official Rules describe relevant documents such as:

• customs declaration;

• cash/payment receipt;

• supplier invoice;

• other prescribed import documents.

The customs VAT should be reconciled with:

• import ledger;

• customs declaration;

• inventory/asset record;

• bank/payment evidence.

Rule 39 permits a claim where the relevant invoice/import document falls within the statutory period, currently described in the Rules as up to one year before the claim date, subject to the applicable conditions.

Do not indefinitely accumulate old invoices and assume Input VAT can always be claimed later.

The Rules expressly prohibit double deduction of the same Input VAT.

Controls should therefore prevent:

• duplicate invoice entry;

• duplicate import declaration;

• duplicate claim in two tax periods.

If allowable Input VAT exceeds Output VAT: Input VAT > Output VAT the excess generally carries forward to the next VAT period.

Rule 39 provides for carry-forward of the excess credit and contains separate refund mechanisms where the statutory conditions are met.

Example

Output VAT: NPR 50,000

Eligible Input VAT: NPR 80,000

Current-period payable: NPR 0

Credit carried forward: NPR 30,000 subject to refund eligibility.

Where a business carries on both:

• taxable transactions; and

• exempt transactions,

Input VAT may need to be allocated/apportioned.

VAT related exclusively to exempt activity generally should not be claimed as though it relates to taxable supply.

Rule 40 first requires direct attribution to taxable supplies. Where that relationship cannot be established, use taxable sales value as a proportion of total sales value under Rule 40(4), with consistent supporting records.

Input VAT on capital assets can be claimable where the asset is used for taxable business activity and is not within a blocked/partial-credit category.

Examples can include qualifying:

• machinery;

• equipment;

• computers;

• business fixtures.

The VAT treatment should be separated from: Income-tax depreciation because VAT and Income Tax apply different rules.

The VAT Rules contain a mechanism for specified tax paid on qualifying stock/input items existing at the time of VAT registration, subject to:

• application;

• supporting invoices;

• stock details;

• approval.

The current Rules require supporting information and prevent duplicate claims.

This should be reviewed when a Business PAN taxpayer converts to VAT.

Input VAT generally cannot be claimed merely on the basis of a simplified tax invoice.

For business Input VAT, obtain the appropriate full tax invoice where required.

VAT-registered businesses should maintain purchase records consistent with the prescribed VAT accounting framework.

IRD's FAQ identifies required records including:

• received tax invoices;

• imports;

• debit/credit notes;

• purchase book;

• VAT accounts.

Input VAT claimed in the return should reconcile to the purchase book.

• VAT registration active

• Purchase relates to taxable business

• Valid tax invoice/import document

• Supplier PAN/VAT verified

• Buyer PAN correct

• VAT amount correct

• Purchase actually received

• Input VAT not previously claimed

• Claim within applicable period

• Check blocked/partial-credit rules

• Check exempt-business allocation

• Record in purchase book

• Reconcile with VAT return

• retain payment/supporting evidence

Claiming Input VAT on every VAT invoice

Claiming VAT related to exempt activity

Claiming from simplified invoice

Double claiming an invoice

Ignoring blocked Input VAT

Failing to reconcile customs imports

Treating recoverable VAT as expense

The right to Input VAT depends on both the nature of the transaction and the evidence supporting it. A valid invoice is necessary, but business use and statutory eligibility remain essential.