Tax category: Nepal VAT Exempt

Nepal VAT Exempt is for parties that deal only in Schedule 1 goods and services, such as unprocessed food, education, health services and public transport, where no VAT is charged at all. Its Tax Rules load VAT Exempt (Schedule 1) - YFF, a 0% row that keeps the invoice visible in the VAT return under exempt supplies. Unlike export, exemption also blocks input VAT recovery on purchases used for the exempt sales, so a business with mixed supplies must apportion its VAT Receivable claim. The category is only a label; the posting comes from the template rows. Confusing exempt with zero rated is the most common VAT return error the IRD picks up.

VAT = Rs 0; recoverable input VAT = total input VAT x taxable sales / total sales

1. 01Go to Selling > Customer or Buying > Supplier and open the party.
2. 02Set Tax Category to Nepal VAT Exempt and Save.
3. 03Open a new Sales Invoice or Purchase Invoice for the party; the exempt template loads.
4. 04Confirm the VAT row shows Rs 0.
5. 05Submit. The document posts without VAT and is listed as exempt in the VAT return.

Set on parties dealing only in exempt items such as basic food or education.

A school customer buying exempt services gets no VAT line.