Non-deductible input VAT
In one sentenceVAT the business paid on its purchases but is not entitled to deduct, so it becomes part of the purchase cost or the expense instead of being recovered.
Simply put
It arises when the purchase is for an exempt activity, without a valid tax invoice, or for items the law explicitly excludes from deduction.
Its accounting entry is different: it is not recorded in the input VAT account, but added to the cost of the asset or the expense.
Worked example
A business that leases residential apartments (an exempt activity) bought air conditioners worth 10,000 SAR with VAT of 1,500 SAR.
Value of the air conditioners10,000 SAR
Non-deductible VAT1,500 SAR
Cost recorded10,000 + 1,500
Cost of the air conditioners in the books11,500 SAR
Don't confuse it with
Input VAT deductionDeductible VAT is recovered from ZATCA through the return, while non-deductible VAT remains a cost to the business.