Poverty, being persistent and widespread, still remains core issue to be researched in Nepal. Moreover, there lacks study on dynamic aspects of poverty at the household level. Therefore, this study intends to capture the dynamics of poverty in poverty stricken Far-Western Rural Hill district of Baitadi based on panel data collected through field survey in 2001 and 2007. An empirical analysis is made by employing multinomial logit regression by dividing household into three categories; non-poor, transitory poor, and chronic poor. The results suggest that the incidence of poverty declined sharply between the study period, but is more favored in relatively well-off Village Development Committee (VDC), Patan. Similarly, excessively high proportion of Occupational Caste (OC) households are chronically poor, none of them were non-poor in both surveys. Moreover, the risk of them falling into chronic poverty is significantly higher. Also, female-headed household, and household with higher dependency ratio has significantly higher risk of falling into chronic poverty. However, landholding and irrigation coverage reduce the risk of households to fall into chronic poverty. Further, disaggregation of transitory poverty into move-into and move-out of poverty also shows higher risk of OC households to move-into poverty, mainly due to their limited socio-economic assets. In addition, the occurrence of natural disasters also increases the risk of households to move-into poverty. On the other hand, Increase in schooling years of household’s head and landholding help the household to move-out of poverty. Therefore, any poverty reduction program to deal with transitory as well as chronic poverty should focus relatively remote VDCs like Melauli. Similarly, OC households, whose major occupation is either agriculture or laboring, should be targeted. Poverty reduction programs should generate employment opportunities, which help to deal with both chronic as well as transitory poverty through a reduction in the dependency ratio. Similarly, introduction of temporary relief programs during occurrence of natural disasters will be very effective in dealing with transient poverty.