Frequently Asked Questions(FAQ) on Income Tax Law of Nepal

1. What is the definition of income tax?

The term “income tax” refers to the Nepalese government’s tax on all individual earnings. The term “Income” refers to any income earned by a person from employment, a profession, or an investment. The provisions governing income tax are found in the Income Tax Act of 2058 (2002). Taxation in Nepal is based on the amount of income earned. Income tax is levied at a rate of 1% on annual earnings of NPR 450,000 for a couple and NPR 4,00000 for individuals.

2. When and how do you pay your  income taxes?

A person’s annual income is subject to income tax. The fiscal year begins on April 1st with the first day of Shrawan (tentatively 15 July) and ends on the last day of Ashad (tentatively 14 July) of the following year. According to the Income-tax Law, the year is classified as (1) Previous year and (2) Assessment year. The previous year is when income is earned, while the assessment year is when income is taxed.

3. Who must pay income taxes?

Everyone must pay income taxes. According to the Income Tax Act of 2058 (2002), the term “person” includes both natural and artificial people. A “natural person” is defined as an individual, and it includes a sole proprietorship owned by an individual, whether registered or unregistered, as well as a spouse who has chosen to be treated as a single individual under Section 50.

Individuals and undivided families are considered “persons” for income tax purposes, as are bodies of individuals [BOIs], firms, LLPs, corporations, local governments, and any artificial juridical person that is not covered by any of the preceding. Thus, based on the definition of “person,” any artificial entity, in addition to a natural person, i.e., an individual, must pay income tax.

4. How does the Nepali government collect income taxes?

The Nepali government collects income tax in a number of different ways. The government collects taxes in three major ways:
a) Taxpayers’ voluntary payment: The individual is required to declare their income. Individuals must pay income tax based on their earnings.

b) Taxes deducted at source:These are deducted from an employee’s pay. It is deducted from a person’s primary earnings. Tax on the income of the receiver, and 

c) Taxes collected at source: Every person earning an income is required by law to correctly calculate his income and pay taxes.

5. Where can I seek the advice of an expert on income tax matters in Nepal?

Tax professionals from Corporate Lawyer Nepal can assist you. We will assist you in determining the amount you must pay. Advance tax is calculated based on the expected tax liability for the year. The advance tax is to be paid in installments as follows:

6. How does TAX on installments work?

a.The 40% assumed tax is due at the end of the month of Poush.
b. The balance of the 40% assumed tax must be paid.
c. The remaining tax of 70% is due by the end of the  Chaitra month.
d. The full amount of the assumed tax is due at the end of Asad month.

7. What safeguards should I use when completing the tax payment form?

If you intend to pay income tax, you should clearly state the following:

A. Payment category: 

You must disclose the payment heading under which the taxes are paid. Corporation Tax/Income Tax, to be specific (other than companies)

B.Tax amount and payment method:

Income Tax requires you to disclose the type of tax you pay. Method of payment, Advance payment of taxes Taxation based on self-assessment, Ordinary assessment tax, Taxation of dividends Income Tax on Dividends Paid to Unit Holders The evaluation year.

8. Every person’s income is taxed. What is income in Nepal, according to the Income-Tax Law?

Section 2h of the Income Tax Act of 2058 (2002) defines income as “the income earned by any person from employment, profession, or investment, and the total amount of that income calculated under this Act.” According to the law, the term “income” has a very broad and all-encompassing meaning. Everything received from an employer in cash, kind, or as a benefit is considered income in the case of an employed person. The net profit of a businessman is his source of income. Investment income can also come in the form of interest, dividends, commissions, and so on. In addition, income can be earned from the sale of capital assets such as a house or gold.

9. What exactly is the distinction between exempt and taxable income?

(i). Exempt income is not taxed; that is, such income is expressly exempt from taxation under the Income-tax Law. Income that is subject to taxation is referred to as taxable income.

(ii). Capital receipts are typically of a one-time nature, such as receipts from the sale of a home or personal jewelry.

10. Is tax levied on all receipts, both capital and revenue?

The general rule under the Income Tax Law is that all revenue receipts are taxable unless specifically exempted from tax, and all capital receipts are exempt from tax unless specifically exempted.

11. I am an agriculturist, and our cooperative has been involved in agriculture. Is my income taxed?
Section 11 of the Income Tax Act of 2058 (2002) states: 

Business discounts and privileges: 

Agriculture registered under the Cooperative Act 2074 and the agriculture and the production of fruits plantation, production, processing of the fruits, and the productions from the forests, dairy products, chicken farming, fisheries, tea plantation and processing, coffee plantation and processing, herbs plantation and processing, vegetable seeds production, bee keeping, honey production, Silk production, private forest, agroforestry, and forest related business, vegetable storage, fertilizers, and agriculture tools, all of these activities (except machinery run tools) fall under the jurisdiction of cooperative organizations and rural municipalities. A cooperative or organization’s income tax is exempt from taxation. Profits distributed by such cooperatives or organizations are not taxed.

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