Input tax credit in Bangladesh is available where your output supply carries the standard 15% VAT, or where it is zero-rated. Supply exempted goods or reduced-rate goods and you get no credit at all on the inputs behind them.
The claim window is short. Credit has to be taken in the month you receive the input, or within the next 6 months. After that it’s gone.
And a long list of ordinary business costs is blocked outright, including office rent, air conditioners, generators, furniture and vehicles. For a foreign company fitting out a Dhaka office, most of that spend carries VAT you will never recover.
Your BIN has to appear on every invoice you claim against, which is why registration comes first. That process is in the 13-digit BIN registration, and we handle monthly VAT positions under indirect tax services.
Who can claim input tax credit
Eligibility follows your output, not your input.
| What you supply | Input tax credit |
|---|---|
| Standard-rated supply at 15% | Full credit on eligible inputs |
| Zero-rated supply, including exports | Full credit |
| Reduced-rate supply (1.5%, 2%, 2.4%, 4.5%, 5%, 7.5%, 10%) | No credit |
| Exempted supply | No credit |
| Mixed taxable and exempt supply | Proportionate credit on inputs used for the taxable part |
Reduced-rate supply is the line that surprises people, and it changes pricing decisions. A reduced rate looks like relief until you notice the input VAT stops being recoverable. Depending on your cost base, a 5% output rate with no credit can leave you worse off than 15% with full credit.
Work out the rate that applies to your supply before you model margins, because the credit position moves with it.
The 8 conditions on every claim
Each one has to hold. Missing any of them removes the credit for that input.
- A Mushak 6.3 tax invoice carrying the name, address and BIN of both buyer and seller
- Inputs used for taxable supply, whether manufacturing taxable goods or providing taxable services
- Payment through banking channel for any supply above BDT 100,000
- Claimed within the window, in the month of receipt or the following 6 months
- Recorded in the statutory purchase register
- Declared in the input-output coefficient
- Output not supplied below cost price
- Reverse-charge VAT on imported services disclosed as output VAT in the return
Condition 1 is where most claims fail on audit. A supplier’s invoice missing your BIN is not a Mushak 6.3, whatever it says at the top. Check the BIN on both sides before you pay, since chasing a corrected invoice 4 months later rarely works. What each number is and which one belongs where is covered in the BIN both parties need.
Condition 3 catches cash-run businesses. Any single supply above BDT 100,000 settled outside the banking channel loses its credit, and the VAT rule sits alongside the income tax banking condition that costs you 2.5 points on the corporate rate.
Condition 7 is the one nobody expects. Selling below cost price disqualifies the credit. Where goods are supplied below input cost, proportionate credit is available against the output VAT actually reported on that sale, so a clearance sale quietly reduces recoverable input tax.
8 categories where no credit is available
These are blocked regardless of how clearly the cost relates to your business.
- Passenger vehicles and their maintenance
- Vehicle purchase, rent or lease
- Entertainment
- Admission or membership fees for any club or association
- Land, buildings, office equipment, furniture and fixtures, office supplies, stationery, refrigerators, freezers, air conditioners, generators and their maintenance
- Interior design, architecture, planning and design
- Rent of places and establishments
- Goods or services for employee travel, entertainment, development and welfare
Put office rent alongside the land, buildings and equipment entry and the scale becomes clear. Office rent, the fit-out, the furniture in it, the air conditioning, the generator that keeps it running, and the architect who designed it are all outside the credit.
Budget for that. A company modelling a Dhaka office at cost plus recoverable VAT will be roughly 15% short on the fit-out line, and the gap shows up in the first year when cash is tightest.
Staff welfare is the other line that catches employers. Transport, meals, training and similar employee spend carries VAT that stays with you.
Imported services and the reverse charge
Buying a service from abroad puts the VAT obligation on you rather than the supplier.
Imported services carry 15% reverse-charge VAT, payable by the importer and treated as output VAT in the importer’s own hands. It goes in your return as output, and where the service qualifies as an input, the same amount comes back as credit.
The mechanics run through your bank. At the point of remittance, the bank, financial institution or authorised dealer deposits the VAT by a-challan using your circle and economic codes. That challan is the tax invoice, and it’s your valid credit document.
Keep the challan with the remittance file. It’s the only evidence of the claim, and it sits with the bank rather than with the supplier who invoiced you.
Imports of goods work differently
Import of goods attracts 15% VAT as part of import duties, unless a notification exempts it. The importer on record pays it and Customs collects it at the border, rather than the NBR collecting it through your return.
Traders should note one restriction. Where goods are fully or partially exempted by SRO at the local manufacture level, no input tax credit is available to the trader on that procurement.
Where the 6-month window actually bites
Credit is claimed in the month of receipt or within the next 6 months, and it runs from receipt rather than from when you notice the invoice.
3 situations lose credit to that clock:
- Invoices that sit with a project team before reaching accounts
- Disputed invoices held back pending a credit note
- A supplier’s corrected Mushak 6.3 arriving after the original was rejected internally
Monthly reconciliation is the only reliable answer. Match the purchase register to the Mushak 6.3 invoices received each month, and the window never becomes a problem. The monthly return date and the rest of the VAT cycle sit in the monthly VAT return date.
4 mistakes that cost recoverable VAT
1. Assuming a reduced rate is good news
Reduced-rate suppliers get no input credit. Model the net position, not the headline rate.
2. Accepting invoices without checking both BINs
A Mushak 6.3 needs the name, address and BIN of buyer and seller. Yours has to be on it, not just theirs.
3. Paying large supplies outside the banking channel
Above BDT 100,000, a cash settlement removes the credit on that supply entirely.
4. Treating office fit-out VAT as recoverable
Rent, furniture, air conditioners, generators and interior design are all blocked. That VAT is a cost, and it belongs in the capital budget rather than the recoverable column.
Getting your input position right monthly
We reconcile the purchase register against Mushak 6.3 invoices each month for clients on VAT, flag blocked categories before they’re claimed, and keep the reverse-charge challans filed against the remittances they belong to. That runs on the same monthly cycle as the return under the KAC Corporate Compliance Architecture.
For a review of your input tax position, or a VAT registration that needs regularising, talk to our team.
Rules reflect the VAT and Supplementary Duty Act 2012 as currently applied. Rates, schedules and blocked categories change with each Finance Act and by SRO. Confirm your position with a qualified adviser before claiming.
Frequently asked questions
Who can claim input tax credit in Bangladesh?
Suppliers whose output is standard-rated at 15%, and suppliers making zero-rated supplies including exports. Businesses supplying exempted or reduced-rate goods and services get no credit at all. A business making both taxable and exempt supplies claims a proportionate amount on the taxable part.
What is the time limit for claiming input tax credit in Bangladesh?
Credit must be claimed in the month the input is received, or within the following 6 months. The period runs from receipt rather than from when the invoice reaches your accounts team, so late internal routing can cost the credit entirely.
Can I claim VAT on office rent in Bangladesh?
No. Rent of places and establishments is a blocked category, as are land, buildings, office equipment, furniture and fixtures, air conditioners, generators and their maintenance. VAT on office costs is not recoverable and belongs in the budget as a cost.
What documents do I need to claim input tax credit?
A Mushak 6.3 tax invoice showing the name, address and Business Identification Number of both the buyer and the seller. The procurement must also appear in the statutory purchase register and be declared in the input-output coefficient for that period.
How does VAT work on services imported into Bangladesh?
Imported services carry 15% reverse-charge VAT, payable by the importer and reported as output VAT in the return. The bank or authorised dealer deposits it by a-challan at remittance, and that challan is the tax invoice supporting the credit claim.
