VAT and TDS Record Keeping for Nepali Businesses

VAT and TDS are both about records. If your invoices, purchase bills and deduction vouchers are complete and consistent, the monthly figures nearly write themselves. If they are not, even a small business can lose input credit or end up arguing about numbers. This guide covers the records, not the law: for rates, thresholds and deadlines, always confirm with the Inland Revenue Department at ird.gov.np or with your tax consultant.

What VAT records look like

Nepal's standard VAT rate is 13%. A VAT-registered business charges it on taxable sales, and can usually claim credit for VAT paid on business purchases when it holds a valid tax invoice. Two registers hold the story:

• Sales book: date, invoice number, buyer name and PAN where applicable, taxable value, exempt value, VAT charged.
• Purchase book: date, supplier invoice number, supplier PAN, taxable value, VAT paid, and whether it relates to taxable activity.

Sales returns and credit notes belong in the same books, linked to the original invoice. An invoice series should run without gaps, and a cancelled invoice should stay on file marked as cancelled rather than disappear.

Keep taxable and exempt sales apart

Many shops sell a mix of taxable and exempt goods. If both go into one total, you cannot show the VAT base properly. Mark each item or service with its treatment when you create it, so the invoice, the sales book and the ledger agree automatically. Which goods are taxable, exempt or zero-rated is defined in law, so ask your tax consultant if you are unsure about a specific product.

Purchase bills that hold up

The most common VAT problem for small businesses is not sales but purchases: bills without the supplier's PAN, bills in a person's name instead of the business, or bills that are never filed. Build a simple habit. Every purchase bill is checked on receipt for supplier name, PAN, date, VAT shown separately and the business name. It is then posted the same day, with the original stapled to a numbered voucher.

What TDS records look like

TDS is tax deducted at source when you make certain payments, such as rent, services, commissions or salary, and deposited with the tax authority. It is deducted by you in one direction and suffered by you in the other. Two ledgers cover it:

• TDS payable: credited when you deduct from a payment, debited when you deposit. The balance is what you still owe the government.
• TDS receivable: debited when a customer deducts TDS from your invoice, with the certificate or voucher kept as proof.

In both, the payment voucher should show the gross amount, the TDS amount and the net paid. Rates depend on the type of payment and the payee, and they change, so take the rate from the official source or your consultant and enter it as a setting you can update, not as a hard-coded habit.

Dates and the fiscal year

Everything in Nepal's tax system runs on Bikram Sambat months and a fiscal year starting in Shrawan. Record each transaction in BS so a monthly report is simply a filter on the Nepali month. If you keep AD dates and convert later, mistakes appear around month boundaries, especially at the end of Ashad.

How accounting software helps

Software does not make you compliant on its own, but it removes the clerical errors that cause trouble:

1. VAT is calculated on each line, so totals always agree with the sales book.
2. Sales and purchase registers come from the same entries that feed the ledgers, so there are no two versions of the truth.
3. TDS deducted is a ledger with a balance, so unpaid deductions are visible.
4. Invoice numbers run in sequence and cancellations are recorded, not erased.
5. Reports can be exported to Excel for the person who prepares your return.

Credit notes, returns and corrections

Returns are where VAT records most often go wrong. When a customer returns goods, issue a credit note that refers to the original invoice number, reverse the VAT and record the return in the sales book. When you return goods to a supplier, do the same on the purchase side. Never overwrite an old invoice or delete it. A visible correction trail is far easier to defend than a clean-looking book that cannot be explained.

Keeping the paper

Digital records do not remove the need for the original documents. File purchase bills by month, in numbered voucher order, and keep them for as long as the law requires you to keep records. The retention period is set by Nepali law, so confirm it with your consultant. Scanning bills and attaching them to the voucher in your software is a useful second copy, especially when monsoon damp or an office move threatens the originals.

Common questions from owners

Owners often ask whether a purchase from an unregistered seller can carry VAT credit, whether a cash discount changes the VAT base, and how to treat advance payments. The answers depend on the facts and on current rules, so treat these as questions for your tax consultant or the Inland Revenue Department. What software can do is record the facts precisely, so that whoever advises you has clean numbers to work with.

A monthly routine

When	Task
Daily	Post invoices and purchase bills, file originals
Weekly	Check missing supplier PAN and unposted bills
Month end	Print sales and purchase books, compare VAT ledger
Before filing	Review exempt versus taxable, credit notes and TDS deposits
After filing	Archive the figures and the filing receipt

Next step

Look at your last three months of bills and ask: could I produce the sales and purchase book from these in an hour? If not, the books need structure. See how the accounting software from WebsNP produces these registers, or go straight to VAT billing software if invoicing is your main pain. WhatsApp +977 9846280400 to ask for a demo.

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