Nepal charges VAT at a standard rate of thirteen percent on most supplies, but the tax code treats some transactions very differently under the zero rate and exemption categories. Understanding the difference matters because the two non-standard treatments have opposite cash effects. Zero-rated supplies, the classic example being exports, carry no VAT on the invoice yet let the exporter claim full credit on purchases, producing refund situations. Exempt supplies, such as certain basic foods and unprocessed agricultural produce, carry no VAT and simultaneously deny the supplier credit on related inputs, because there is no output against which it can be matched. A business straddling both categories must apportion credit carefully, because exempt supplies restrict input recovery while zero-rated ones do not. The distinction is decided by the nature of the good and its documented supply, not by the supplier's wishes. Classifying a transaction wrongly, treating a taxable good as exempt to win cheaper prices, invites reassessment, while honest classification keeps cash flow predictable and the credits legitimately recoverable.