Is a Product or Service Subject to VAT in Nepal? A Practical Test

Identify the real supply

Write down exactly what the customer receives, who supplies it, where it is supplied and what the payment covers. A “consultancy package” may contain advice, software access and reimbursed costs; each component may need separate analysis rather than one convenient label.

Run the four-way classification

Ask whether the transaction is within Nepal VAT, then test the current Schedule 1 exemption and Schedule 2 zero-rating wording. If neither applies, the normal position is a taxable supply at the prevailing rate. Zero-rated and exempt are not interchangeable.

Then test registration

A taxable supply does not automatically mean every small seller must already charge VAT. Compare taxable turnover with the applicable registration rule, compulsory categories and voluntary registration provisions. An unregistered person must not simply add “VAT” to an invoice.

Document the answer

Save the product specification, contract, HS code where relevant, Schedule extract, customer location and the date checked. If the product is bundled, new or close to an exemption description, obtain a written professional view or clarification before relying on an informal market practice.

• Exact product/service description
• Applicable Schedule line or reason none applies
• Place and type of customer
• Registration status and invoice treatment

A practical control to retain

Do not rely on a competitor invoice as legal authority. Two products sold under similar names can differ in composition, use, customer or Schedule wording. Record the exact source version and effective date, then give the classification to sales, purchasing and accounts so the website price, quotation, invoice and ledger all use the same treatment. Reopen the file after every Economic Act or material product change.

For business owners, accountants and people launching a new product or service, the sign-off should answer the guide's four core questions in writing: Start with the exact supply, not the business name. Check Schedule 1 for exemption and Schedule 2 for zero rating. Taxability and compulsory registration are separate questions. Keep the evidence used for classification. Record who checked those answers, the source date and any unresolved fact. If a later invoice, contract or Schedule amendment changes one answer, reopen the classification or return treatment instead of silently carrying the old assumption forward.