A Synopsis of

Nepalese Taxation
FY 2073-74 (2016-17)
For Not- for- Profit Making Organizations
By: Abhinay Kushwaha, ACCA

Contents
Introduction to Nepal Tax

Tax classification and Income Sources

Employment Income

Withholding Tax or Tax Deducted at Source (TDS)

Revenue Account Codes

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A Synopsis of Nepalese Taxation - for not for profit making organization By Abhinay Kushwaha ACCA

Introduction to Nepal Tax

A tax is a financial charge or other levy imposed upon a taxpayer by the government of Nepal to
fund various public expenditures. Taxpayers are the persons on whom taxes are imposed.
Persons mean both individuals and entities. A person can be resident or non-resident for an
income year. If a person stays continuously for 183 days or more in Nepal in an income year,
then the person is deemed as resident person that year. Non-resident person means a person who
is not a resident person.
A resident person has to pay tax on his global income, where as a non-resident person has to pay
tax on income which are sourced in Nepal.
Income Year:
For the purpose of Income Tax, income year means the period of 1st Shrawan to Asadh End of
following year.
Individual
Individual means a natural person and the term denotes, for the purpose of
Tax Act, any proprietorship firm whether registered or unregistered
owned wholly by the natural person, if any, and under section 50 of
Income tax Tax - a couple making an election as single natural person.
Entity
Entity means the following institutions or organisations(1)

a partnership, trust, or company;

(2)

a village development committee, municipality or district development committee;

(3)

Government of Nepal;

(4)

a foreign government or a political subdivision of the foreign

government, or a public international organisation established
under treaty; and

(5)

a permanent establishment of an individual or an entity that is

not situated in the country in which the individual or entity is
resident.

A Synopsis of Nepalese Taxation - for not for profit making organization By Abhinay Kushwaha ACCA

Tax Classification
Government of Nepal imposes two types of tax on taxpayers: Direct tax and Indirect Tax.

Tax Classication

Income Tax
Direct Tax

Vehicle Tax
Property Tax
Value Added Tax
(VAT)

Indirect Tax

Excise Duty
Custom Duty

Income Sources:
Incomes sources in Nepal have been classified under the following broad heading:

Sources of
Income

Employment

Business

Investment

A Synopsis of Nepalese Taxation - for not for profit making organization By Abhinay Kushwaha ACCA

Wind Fall Gain

Employment Income
An individual's income from an employment for an income-year is
the individual's remuneration from the employment of the individual
for the year1.
While calculating an individual's remuneration from an employment
for an income-year following payments made to the individual by
the employer should be included: during the year2:
a) payments of wages, salary, leave pay, overtime pay, fees,
commissions, prizes, gifts, bonuses, and other facilities;
b) payments of any personal allowance, including any cost of living, subsistence, rent,
entertainment, and transportation allowance; (except meeting allowance)
c) payments providing any discharge or reimbursement of costs incurred by the individual or
an associate of the individual;
d) payments for the individual's agreement to any restriction conditions of the
employment;
e) payments for redundancy or loss or termination of the employment;
f) retirement contributions, including those paid by the employer to a retirement fund in
respect of the employee, and retirement payments;
g) other payments made in respect of the employment; and
h) Other inclusions3:

To be considered as Income 0.5% of basic salary +grades on vehicle facility provided for
wholly or partially personal use

To be considered as Income 2% of basic salary +grades on accommodation facility

Payment made for the following, reduced by contribution made from employee:

the services of a housekeeper, chauffeur, gardener, or other domestic

assistant;

any meal, refreshment, or entertainment; or

drinking water, electricity, telephone and the like utilities in respect of the
payee's place of residence.

Incomes to be excluded from calculation of employment taxable income4:

Amounts exempt from tax under section 10 of Income Tax Act

Meals and refreshments provided to employess at office premises or work sites at equal terms

Reimbursement of expenses incurred solely for organizations purpose

Income Tax Act 2058 Section 8(1)

Income Tax Act 2058 Section 8(2)
3
Income Tax Act 2058 Section 27 and Income Tax Rule 2059 Section 13
4
Income Tax Act 2058 Section 8(3)
2

A Synopsis of Nepalese Taxation - for not for profit making organization By Abhinay Kushwaha ACCA

Payment of petty expenses not exceeding NPR 500 at a time such as tea tea, stationery, tips,
prizes, emergency medical treatment/medicine and other similar expenses5

Allowable Deductions While Calculating Assessable Income:

Contribution to an Approved Retirement Fund NPR 300,000 or 1/3 of assessable

income or actual contribution whichever is lower6.
Payment of life insurance premium NPR 20,000 or actual premium paid whichever is
lower7
Payment of health (medical) insurance premium NPR 20,000 or actual premium paid
whichever is lower8
Remote Area Allowance as follows9:
Area Category

Amount in NPR

50,000

40,000

30,000

20,000

10,000

The minimum exemption limit for incapacitated natural person should be increased by
50% (NPR 350,000 for individuals and NPR 400,000 for couples10

Donation made to tax exempt organizations NPR 100,000 or 5% of adjusted taxable

income whichever is lower11

For employees working at diplomatic agencies of Nepal situated at foreign countries

75% of foreign allowance is exempted.

For pension income 25% of minimum slab (i.e. 350,000 for individual and 400,000 for
couple) or pension income, whichever is lower is deductible from taxable income.

Income Tax Act 2058 Section 8(3.4) and Income Tax Rule 2059 Section 6
Income Tax Act 2058 Section 63 and Income Tax Rule 2059 Section 21
7
Income Tax Act 2058 Schedule 1(1.12)
8
Income Tax Act 2058 Schedule 1(1.16)
9
Income Tax Act 2058 Schedule 1(1.5) and Income Tax Rule 2059 Section 38
10
Income Tax Act 2058 Schedule 1(1.10)
11
Income Tax Act 2058 Schedule 1(1.16)
6

A Synopsis of Nepalese Taxation - for not for profit making organization By Abhinay Kushwaha ACCA

Tax Credit

Medcial Tax Credit is available to resident natural person which is deducted from tax
liabilities NPR 750 or 15% of approved medical expenses12.

Foreign Tax Credit is available to resident natural person, if foreign income is included in
taxable income of resident natural person13. (Section 71)

Tax Rates for Resident Individuals

Amount in NPR

Tax Rate (Slab Wise)

Individual

For Couple

350,000
(0-350,000)

400,000
(0 400,000)

15 % for Next Slab

100,000
(350,001 450,000)

100,000
(400,001 500,000)

25 % for Next Slab

2,050,000
(450,001 2,500,000)

2,000,000
(400,001 2,500,000)

Above 2,500,000

Above 2,500,000

1 % for First Slab (Social

Security Tax)

Above 25% and additional 40%

of 20% (In effective 35%)
Notes:

1% of social security tax is not applicable proprietorship firms (i.e. NPR 350,000 for
individual or NPR 400,000 for couple are exempted).

For females, having only income from employment, assessed as single rebate of 10% on total
tax liability is available14. (Schedule 1(1.12))

For non resident individuals TDS @ 25% should be deducted on payment (which is
considered as Final Withholding Payment)

12

Income Tax Act 2058 Schedule 51 and Income Tax Rule 2059 Section 17
Income Tax Act 2058 Schedule 71
14
Income Tax Act 2058 Schedule 1(1.12)
13

A Synopsis of Nepalese Taxation - for not for profit making organization By Abhinay Kushwaha ACCA

Tax Calculation Format - Income from Employment Only

Name of the Organization
Address of the Organization
For FY 20YY / YZ (20YY / YZ)
Calculation of Tax Liablility - Income from Remuneration

NAME OF EMPLOYEE:
DESIGNATION:
TAX ASSESSMENT:

.
.
Single / Couple

Income
Salary (Basic+Grade)
PF Contribution
Vechicle Facility
House Expense
Dearness/Communication
Dashain Allowance
Other Allowances / Overtime Payment
Bonus / Awards, Prizes, Gifts
related to Employemnt
Housing Facility
Other Incomes to be incorporated
Total Annual Income (A)

BASIC SALARY: xxxxx

GRADE:
xxx
Gender:
Male / Female

Monthly New
xx
xx
xx
xx
xx
xx
xx

Months

Yearly
x
x
x
x
x
x
x

xxx
xxx
xxx
xxx
xxx
xx
xxx

xx

xxx

xx
xx
xxx

x
x

xxx
xxx
xxxx

Less: Deductions
Contribution to Retirement Fund (B)
Annual Adjusted Taxable Income (C=(A-B))
Less: Donation (D)
Taxable Income Before Other Deductions (E = (C-D))
Less: Other Deductions
Life Insurance Premium
Medical Insurance Premium
Remote area allowances
Exemption of Incapacitiated Person
Total Other Deductions (F)

xx
XXX
xx
XXX
xx
xx
xx
xx

Annual Taxable Income (G=(E-F))

xxx
xxx

TAX RATE AND TAX CALCULATION

Social Security Tax (350,000 or 400,000)
xxx
1%
Next 100,000 slab
xx
15%
Next (2,050,000 or 2,000,000)
xx
25%
Above 2,500,000
xx
25%
40% of 25% tax on above 2,500,000
x
Total Tax Liability
Less: Medical Tax Credit
Less: 10% rebate for women
Income Tax Payable for the Year

xx
x
xx
xx
x
xx
x
x
XX

A Synopsis of Nepalese Taxation - for not for profit making organization By Abhinay Kushwaha ACCA

Withholding Tax or Tax Deducted at Source (TDS)

Tax withhold by the payer form the withholding payments made to payee is known as
Withholding tax or Tax Deducted at Source (TDS). TDS deducted for each month should be
deposited to IRD within 25th day of next Nepali Month15. Even if the payer fails to deduct TDS,
it is deemed as TDS has been deducted by the payer16.
TDS rates:
Section ITA
2058

Payment

TDS Rate for FY

2073-74
Annual Tax Liability
divided by 12
Months

87

Remuneration (Salary Payment)

88 (1)

Commission, Sales Bonus, Interest, Service Fee

without VAT invoice, Royalty, Meeting Allowance,
Part Time Teaching Fees

15%

88(1.2)

Payment of commission by resident employer to nonresident person

5%

88(1.4)

Service Fee to the service provider registered in VAT

1.5%

88(1.5)

Payment of rent to natural person

10%

88(1.5)

Payment of rent to VAT registered service providers

1.5%

88 (2 Ka)

Payment of Dividend

5%

88 (Ka)

Windfall Gain

25%

89 (1)

Payment of a contractual amount in excess of NRs.

50,000.00 (the same payment under same contract
within last 10 days to be considered)
Contract means agreement entered into for supply of
goods or labor or construction related works

1.5%

89 (3Kha)

Insurance premium paid to non-resident insurance

company

1.5%

Payment for which TDS in not required:

Payment made to natural person for service fee related to preparation of question paper or
checking of answer sheet and for writing articles in newspaper17

Interest to resident bank and financial institutions18

15

Income Tax Act 2058 Section 99 (1) and 95 (5)

Income Tax Act 2058 Section 99 (2) and 95 (4)
17
Income Tax Act 2058 Section 88 (4a1)
18
Income Tax Act 2058 Section 88 (4b)
16

A Synopsis of Nepalese Taxation - for not for profit making organization By Abhinay Kushwaha ACCA

Interregional interchange charges paid to a bank issuing Credit Cards19.

Payment of Fee or Interest to Foreign Govt. or International Institution by Nepal Govt.

under conclusion of any agreement between Nepal Government and Foreign Govt. or
International Institution in favor of Nepal Government20.

Interest Payment up to NPR 25,000 from Rural Based Micro Credit Institution, Rural
Development Bank, Postal Saving Bank and Co-Operative Institution21.

TDS on Retirement Fund

Retirement Fund

Approved
Retirement Fund

Unapproved
Retirement Fund

Contributory /
Non Contributory
Fund

Contributory
Fund

Non Contributory
Fund

5% final
withholding tax
on gain*

5% final
withholding tax
on gain**

15% final
withholding tax
on payment

Note:
Gain*: Gain is total payment less 50% of the payment or NPR 500,000 whichever is higher.
Gain**: Gain is total payment less contribution made to the fund by employee
Contributory: It means contribution made by employee to the retirement fund.

19

Income Tax Act 2058 Section 88 (4d)

Income Tax Act 2058 Section 88 (4e)
21
Income Tax Act 2058 Section 88 (4f)
20

A Synopsis of Nepalese Taxation - for not for profit making organization By Abhinay Kushwaha ACCA

Revenue Account Codes

A Synopsis of Nepalese Taxation - for not for profit making organization By Abhinay Kushwaha ACCA

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Contact:
Mr. Abhinay Kushwaha, ACCA
Email: email4abhinay@gmail.com

Disclaimer:
Author does not bear any loss incurred due to the decisions taken on the basis of this booklet.
Specific professional advice should be obtained before taking any action. Further, information
contained herein is of a general nature and is not intended to address the circumstances of any
particular individual or entity.

A Synopsis of Nepalese Taxation - for not for profit making organization By Abhinay Kushwaha ACCA

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