A Synopsis of

Nepalese Taxation
FY 2073-74 (201617)
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

Ta x
C la s s ic a t io n

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

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

Employme
nt

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:

1 Income Tax Act 2058 Section 8(1)
2 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)
A Synopsis of Nepalese Taxation - for not for profit making organization By Abhinay Kushwaha ACCA

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

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 expenses 5

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

5 Income Tax Act 2058 Section 8(3.4) and Income Tax Rule 2059 Section 6
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)
A Synopsis of Nepalese Taxation - for not for profit making organization By Abhinay Kushwaha ACCA

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.

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)

1 % for First Slab (Social
Security Tax)
15 % for Next Slab
25 % for Next Slab
Above 25% and additional 40%
of 20% (In effective 35%)

Individual

For Couple

350,000

400,000

(0-350,000)
100,000

(0 400,000)
100,000

(350,001 450,000)
2,050,000

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

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

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

11 Income Tax Act 2058 Schedule 1(1.16)

12 Income Tax Act 2058 Schedule 51 and Income Tax Rule 2059 Section 17
13 Income Tax Act 2058 Schedule 71
A Synopsis of Nepalese Taxation - for not for profit making organization By Abhinay Kushwaha ACCA

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)

14 Income Tax Act 2058 Schedule 1(1.12)

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

Tax Calculation Format - Income from Employment Only

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
87

Payment
Remuneration (Salary Payment)

88 (1)
88(1.2)
88(1.4)
88(1.5)
88(1.5)
88 (2 Ka)
88 (Ka)

89 (1)

TDS Rate for FY

2073-74
Annual Tax Liability
divided by 12
Months

Commission, Sales Bonus, Interest, Service Fee

without VAT invoice, Royalty, Meeting Allowance,
Part Time Teaching Fees
Payment of commission by resident employer to nonresident person
Service Fee to the service provider registered in VAT
Payment of rent to natural person
Payment of rent to VAT registered service providers
Payment of Dividend
Windfall Gain
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
Insurance premium paid to non-resident insurance
89 (3Kha)
company
Payment for which TDS in not required:

15%
5%
1.5%
10%
1.5%
5%
25%

1.5%

1.5%

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

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

16 Income Tax Act 2058 Section 99 (2) and 95 (4)
A Synopsis of Nepalese Taxation - for not for profit making organization By Abhinay Kushwaha ACCA

Interest to resident bank and financial institutions18

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

17 Income Tax Act 2058 Section 88 (4a1)

18 Income Tax Act 2058 Section 88 (4b)
19 Income Tax Act 2058 Section 88 (4d)
20 Income Tax Act 2058 Section 88 (4e)
21 Income Tax Act 2058 Section 88 (4f)
A Synopsis of Nepalese Taxation - for not for profit making organization By Abhinay Kushwaha ACCA

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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.

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

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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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