Taxable, VAT-Exempt and Zero-Rated Supplies in Nepal

Standard-rated supply

A supply within the charging provision that is not exempt or zero-rated normally bears VAT at the prevailing standard rate. A registered supplier issues the appropriate tax invoice, records output tax and may claim eligible related input tax.

Exempt supply

Schedule 1 lists exempt goods and services. No output VAT is charged merely because the seller is VAT registered, and input VAT attributable to exempt activity may be restricted. Read every condition, heading and qualification instead of relying on a shortened product name.

Zero-rated supply

Schedule 2 gives zero-rated treatment to specified supplies, commonly including qualifying exports. The output rate is zero, but the supply remains inside the VAT system, which is why eligible related input credit or refund treatment can differ from exemption.

Why the distinction matters

Calling an exempt sale “zero-rated” can create an unsupported credit claim; calling a zero-rated export exempt can hide a legitimate credit or refund position. Maintain separate sales ledgers and supporting documents for each class.

A practical control to retain

Create separate accounting codes for standard-rated, exempt and zero-rated turnover. A single “VAT-free sales” account hides the reason no tax was charged and makes input-credit review unreliable. At month end, compare each code with its Schedule support and related input ledger. This small discipline also makes it easier to explain a return, refund position or change introduced by a later amendment.

For new vat registrants, students and accounting teams, the sign-off should answer the guide's four core questions in writing: Standard-rated sales carry output VAT. Exempt sales generally do not carry output VAT. Zero-rated sales use a zero rate but remain taxable supplies. Input-credit consequences differ materially. 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.