How to File a 13% VAT Return in Nepal (Step-by-Step 2025 Guide)

1. What is Nepal's 13% VAT?

Nepal levies a Value Added Tax (VAT) of 13% on the supply of taxable goods and services within the country. It is governed by the Value Added Tax Act 2052 (B.S.) and administered by the Inland Revenue Department (IRD) under the Ministry of Finance.

VAT is a multi-stage consumption tax: at each stage of production or distribution, only the value added is taxed. Businesses act as tax collectors — they charge VAT on sales (output tax) and can claim credit for VAT paid on purchases (input tax). The net amount is remitted to IRD.

Simple formula: VAT Payable = Output Tax (13% on sales) − Input Tax Credit (13% on eligible purchases)

If input tax exceeds output tax in a given month, the excess is carried forward as a credit (or, under specific conditions, refunded).

2. Who Must Register for VAT?

Any individual or entity conducting business in Nepal with annual turnover exceeding NPR 50 lakh (Rs. 50,00,000) is obligated to register for VAT. Voluntary registration is also permitted for those below the threshold who want to claim input tax credits.

Businesses in the following categories must register regardless of turnover:

• Import and export of taxable goods
• Contractors and sub-contractors exceeding specified thresholds
• Businesses specified in Schedule 1 of the VAT Act

Once registered, you receive a PAN Number (Permanent Account Number) which doubles as your VAT number. All tax invoices must carry this number.

3. Tax Invoice Requirements

For a tax invoice to be valid under Nepal's VAT Act, it must include:

• The words "Tax Invoice" (कर बिल) prominently displayed
• Seller's PAN number and registered business name & address
• Buyer's PAN number (required for B2B transactions; optional for retail below a threshold)
• Invoice number — must be sequential with no gaps
• Invoice date in Bikram Sambat (B.S.) calendar format
• Description, quantity, unit rate, taxable value, VAT amount, and total
• For CBMS-compliant businesses: a QR code containing the fiscal signature from the CBMS device

4. Annex 5 & 6 — What Goes Where?

When filing your monthly VAT return, you submit two annexures:

Both annexures must be reconciled against your actual invoice records. IRD's system cross-references your Annex 5 (sales) with your buyers' Annex 6 (purchases), so discrepancies trigger automated audit notices.

5. Step-by-Step VAT Return Filing Process

Step 1: Collect and Verify All Invoices

At the end of each fiscal month (Shrawan through Asar, i.e., July 16 – July 15), gather all:

• Sales invoices (tax invoices issued to customers)
• Purchase invoices (tax invoices received from suppliers)
• Credit/debit notes (adjustments to previous invoices)

Verify that every invoice has a sequential number, a valid PAN, and a correct B.S. date.

Step 2: Prepare Annex 5 (Sales Register)

Enter each sales invoice into Annex 5. For each line:

• Invoice date (B.S.)
• Invoice number
• Buyer's PAN (or leave blank for retail consumers)
• Taxable amount (exclusive of VAT)
• VAT amount (13% of taxable amount)
• Total invoice amount

Step 3: Prepare Annex 6 (Purchase Register)

Enter each purchase invoice into Annex 6 with the same fields — but from the supplier's perspective. Only include invoices where VAT was charged and you received a valid tax invoice.

Step 4: Calculate Net VAT Payable

Total Output Tax (from Annex 5) − Total Input Tax Credit (from Annex 6) = Net VAT Payable

If the result is negative, you have excess input tax that carries forward to next month.

Step 5: Log in to IRD e-filing Portal

Visit the IRD e-Filing portal (ird.gov.np) and log in with your PAN and password. Navigate to:

• VAT → Monthly Return
• Select the correct fiscal month

Step 6: Upload / Enter Annex 5 & 6 Data

IRD's system accepts direct data entry or CSV upload. If you use IRD-compliant billing software, the Annex files can be exported directly in the required format.

Step 7: Submit and Pay

After confirming the figures, submit the return. Pay the net VAT payable via:

• IRD e-payment (connected bank)
• Bank challan at any tax office (for large amounts)

The filing deadline is the 25th of the following Nepali month (e.g., Bhadra 25 for Shrawan transactions). Late payment attracts interest and penalties.

6. CBMS & IRD Certification (Important 2025 Update)

7. Late Filing Penalties

IRD imposes the following for late or incorrect VAT filings:

Consistent late filing also flags your business for IRD audit, which can result in retrospective penalties covering multiple years.

8. How Billing Software Like ByaparOS Helps

Manual VAT return preparation — especially reconciling dozens or hundreds of invoices — is error-prone and time-consuming. Purpose-built Nepal billing software automates the most critical compliance tasks:

• Sequential invoice numbering with gapless audit trail — no accidental number reuse
• Automatic 13% VAT calculation on every invoice, with discount-then-tax logic
• One-click Annex 5 & 6 export in IRD-compatible CSV format
• Bikram Sambat calendar support — invoices dated in B.S. automatically
• Real-time VAT liability dashboard — see your net payable before month-end
• PAN validation on B2B invoices to prevent input tax disputes

This transforms a 2–3 hour monthly task into a 5-minute export-and-upload workflow.

9. Frequently Asked Questions

What is the VAT rate in Nepal?

Nepal's standard VAT rate is 13% on taxable goods and services. Zero-rated (0%) and exempt categories also exist — for example, basic food items, agricultural produce, health services, and educational services are exempt from VAT.

When is the VAT return due in Nepal?

Monthly VAT returns are due by the 25th day of the following Nepali month. For example, Shrawan transactions (mid-July to mid-August) must be filed by Bhadra 25 (around September 10). If the 25th falls on a public holiday, the next working day applies.

Can I claim VAT input credit on all purchases?

No. Input tax credit is only claimable on purchases directly related to your taxable business activities. Purchases for personal use, exempt goods/services, or purchases without a valid tax invoice are not eligible for input credit.

What is IRD's CBMS and do I need it now?

CBMS (Central Billing Monitoring System) is IRD's system to monitor real-time invoicing data. It requires businesses to use IRD-certified fiscal devices or certified billing software. The rollout is phased — check ird.gov.np for the current list of certified businesses. Businesses not yet required to use CBMS must still issue standard VAT invoices and file monthly Annex 5/6 returns.

What happens if my output tax is less than my input tax?

You carry forward the excess input tax credit to the next month. In some cases (e.g., exporters with consistent excess credits), you can apply to IRD for a cash refund, subject to audit and approval procedures.

Do I need to file a return if I had zero sales in a month?

Yes. Once registered, you must file a nil return for any month with zero taxable transactions. Failure to file a nil return incurs the same NPR 1,000 per month late-filing penalty.