VAT Refund in Nepal — Exporter Refund, Excess Credit & Claim Procedure

Suppose: Output VAT:

NPR 100,000

Allowable Input VAT: NPR 150,000

Excess Input VAT: NPR 50,000

The excess is ordinarily:

1. adjusted against any outstanding VAT liability; and

2. carried forward to the following tax period.

A refund is available only through the applicable statutory mechanism.

Section 24 permits a registered taxpayer to apply for lump-sum refund where excess VAT remains after adjustment for: four continuous months

This mechanism is particularly relevant where the business consistently has:

• large capital purchases;

• lower Output VAT;

• accumulated Input VAT credit.

Example

Excess Input VAT carried forward: Month 1: NPR 500,000
Month 2: NPR 450,000
Month 3: NPR 400,000
Month 4: NPR 350,000

If the statutory conditions are satisfied, the remaining excess can be considered for refund rather than being carried indefinitely.

A registered person whose export sales in a month are: more than 40% of total sales

can apply for refund of qualifying excess Input VAT under the special exporter provision.

Example

Total monthly sales: NPR 10,000,000

Exports: NPR 6,000,000

Export ratio: 60%

The taxpayer satisfies the 40% export-sales threshold for the special refund route, subject to all other conditions.

Section 24 differentiates between refund types.

Ordinary accumulated-credit refund

Refund determined payable should generally be processed within: 60 days of the application.

Exporter refund

Refund under the qualifying exporter provision should generally be processed within: 30 days of the application.

Where the refund is not made within the statutory period, interest can become payable at the rate prescribed by Government.

IRD states that a registered taxpayer seeking VAT refund should claim the amount through the:

and submit additional documents during tax examination/review.

Therefore:

Do not omit the refund claim from the VAT return and assume a later letter alone will be sufficient.

Typical refund evidence may include:

• Schedule 10 VAT return;

• purchase book;

• sales book;

• valid tax invoices;

• customs import documents;

• export declarations;

• foreign-currency receipt evidence;

• shipping/transport documents;

• bank statements;

• Input VAT reconciliation;

• Output VAT reconciliation;

• prior VAT returns;

• VAT ledger;

• tax-clearance/arrears information where relevant.

Exporters should maintain transaction-level linkage from: purchase/import → production/service → export invoice → customs/bank evidence.

Section 24 provides that once excess credit has been claimed for refund, the same amount cannot simultaneously be used to reduce next month's VAT liability.

The accounting system therefore needs: VAT Refund Receivable

separate from: Input VAT Credit Carried Forward.

Section 25 also provides refund in specified situations beyond ordinary registered-business excess credit.

Examples can include qualifying:

• diplomatic persons/missions;

• tax-exempt institutions;

• persons who should not bear the VAT under specific legal arrangements;

• tax collected/deposited in excess in circumstances covered by the Act.

IRD explains that VAT paid by qualifying persons who should not ultimately bear the tax can be refunded.

For Section 25 refund categories, the VAT Act requires the application generally to be made within: three years from the transaction date for the applicable refund.

This should not be confused with the Income Tax Act's separate five-year refund period introduced by Finance Act 2083.

Important

Income Tax refund limitation ≠ VAT refund limitation.

A VAT refund claim is likely to receive greater scrutiny than an ordinary credit carry-forward.

Before applying, reconcile:

• VAT return;

• accounting books;

• customs data;

• sales invoices;

• export records;

• Input VAT invoices;

• supplier PAN/VAT;

• bank receipts.

An unsupported Input VAT claim can delay or reduce the refund.

Exports: NPR 8,000,000

Domestic taxable sales: NPR 2,000,000

Total sales: NPR 10,000,000

Export ratio: 80%

Output VAT on domestic sales: NPR 260,000

Eligible Input VAT: NPR 900,000

Excess: NPR 640,000

Subject to the statutory conditions and adjustments, the exporter may apply for refund of the qualifying excess through the exporter refund mechanism.

• Confirm active VAT registration

• Reconcile VAT credit

• Check outstanding tax

• Ordinary four-month refund or exporter?

• Calculate export-sales ratio

• Claim refund in Schedule 10

• Separate refund amount from carry-forward credit

• Prepare purchase book

• Prepare sales book

• Verify tax invoices

• Reconcile customs imports

• Reconcile exports

• Verify foreign-currency receipts

• File supporting documents

• retain application evidence

• Calendar 30/60-day statutory period

Claiming the same VAT as both refund and carry-forward credit

Applying the four-month rule to an exporter who qualifies for monthly exporter refund

Assuming every exporter automatically qualifies without the 40% test

Claiming unsupported Input VAT

Using the Income Tax five-year refund rule for VAT

VAT refund claims should be prepared as audit-ready files. The strongest refund application is one where purchase, sales, customs, export and banking records reconcile before the claim is submitted.