A Full Audit (Complete Tax Audit) is a comprehensive examination of a taxpayer’s financial records to ensure the correct taxes have been declared and paid.

Who conducts the audit

• Officers from the Inland Revenue Department
• Sometimes external auditors for companies

What they review

• Accounting books and ledgers
• VAT records
• Income statements and balance sheets
• Bank statements
• Purchase and sales invoices
• Payroll and employee records
• Previous tax returns

Taxes commonly audited

• Income Tax
• VAT (Value Added Tax)
• Excise Duty

These are governed by:

• Income Tax Act 2058
• Value Added Tax Act 2052

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2. Tax Assessment in Nepal

Nepal uses a Self-Assessment System.

Taxpayers submit returns and calculate tax themselves, and then the Inland Revenue Department may review or audit them.

Types of Tax Assessment

1. Self Assessment

• Taxpayer files return and pays tax.

2. Amended Assessment

• IRD corrects errors found during review.

3. Jeopardy Assessment

• Used if the authority believes tax may not be paid.

4. Best Judgment Assessment

• Done when proper records are not provided.

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3. Audit Process in Nepal

Typical steps:

1. Audit Notice
   • IRD sends a notice requesting documents.
2. Document Submission
   • Business must submit financial records.
3. Audit Examination
   • Officers verify income, expenses, VAT claims.
4. Discussion / Hearing
   • Taxpayer may explain discrepancies.
5. Tax Assessment Order
   • Final decision issued with additional tax if applicable.

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4. Possible Results

After audit and assessment:

• No adjustment required
• Additional tax liability
• Penalty and interest charged
• Refund issued

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5. Penalties in Nepal

If underreporting is found:

Possible penalties under the Income Tax Act 2058 include:

• Interest: about 15% per year on unpaid tax
• Penalty: up to 50%–100% of tax shortfall depending on violation
• Additional penalties for false statements

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6. Time Limit for Tax Audit

Normally the Inland Revenue Department can reassess returns within 4 years after filing, but longer periods may apply in fraud cases.

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✅ Common reasons businesses in Nepal face full audit

• Large VAT refunds
• Sudden profit drop
• High expense claims
• Non-matching VAT invoices
• Late tax filings

If your business receives a notice from the tax authority, it is important to get professional support. Learn how our tax audit and assessment assistance service can help you resolve issues quickly.