Capital Gains Tax System in Nepal: An Overview

A capital gains tax is a tax levied on the profit made on the sale of non-professional property. According to Subsection 4 of Section 2(r) of the Income Tax Act of 2058 (2002), if there is a capital gain on nonprofessional property, a Capital Gain Tax must be paid. There is a rule in place that requires an advance tax to be paid for the capital gain on taxable house-land non-professional property and land worth more than 10 lakh in the natural person’s possession.
There was no practice of levying income tax on capital gains obtained from the sale of non-professional property, transfer or earned capital gain, or losses/harm incurred from any other means of non-professional property that was not used for non-professional income of a natural person.

Various developed countries around the world have levied taxes on such property in the name of transferring rights in the past. In such property, taxes levied on parental property in the form of Inheritance Tax and Gift Tax are discovered. Such taxes are imposed, in particular, on parental property, which is not subject to income tax but is subject to property tax. When property is transferred, the tax obligations for such taxes are created.

In many cases, the person who acquires property in this manner is also required to pay taxes. However, due to a lack of cash in such times, the ability to pay is limited.

According to the Income Tax Act of 2002 (2058), when a natural person acquires a capital gain for a house or house-land that exceeds a certain limit, a capital gain tax is levied on such capital gains. In previous tax acts, the land and house-land tax was not found to be levied on a natural person’s non-professional property.

According to Section 95(a) of the Income Tax Act of 2058 (2002), when a natural person earns a profit on capital gain for taxable non-professional property, an advance payment must be deposited during the capital gains period. Section 8 of the Income Tax Act of 2058 (2002) mentions assessing profits or losses. This article discusses how to calculate profits and harms incurred as a result of the provisions mentioned in these acts, as well as how a natural person can calculate profits during the transfer of land or house-land.The tax rate of the capital gains tax depends on how much profit you gained and also on how much money you make annually.

What Exactly Is the Capital Gains Tax, and How Does It Work?

The capital gains tax is a tax levied on the profit made on the sale of a non-commercialized property investment, such as land or a house.
When a taxable investment asset, such as land or house shares, is sold, the capital gains or profits are called “realized.” Unsold investments and “unrealized capital gains” are exempt from taxation.
Capital gains taxes are only levied after the sale of a home or land.
Only “immovable property such as land, pipes, and shares” are subject to capital gains taxes.

What kind of Capital Gains Tax is levied in Nepal?

Ten-year span Long-term advantages:

There is no capital gains tax if the individual has used the house-land for ten years and sells it for up to ten lakh. Profits from investments held for more than a year, on the other hand, are taxed.

 If the property is divided among three generations, a gift deed is drafted, and the property is transferred, there is no capital gain tax; however, there is no capital gain tax if the property is divided among three generations, a gift deed is drafted, and the property is transferred.According to the Income Tax Act, capital gains tax is not required in Nepal if the individual inherits the property and there is no sale. However, if the heir decides to sell the property, tax on the sale proceeds must be paid.

Land Tenure of Tenants and Landowners

According to Land Act 2021, any land regarded as a tenant rights of the land owner and that the tenant and the land owner have reached an agreement and one of the parties has decided to waive its rights over the land and gives it to the other party in accordance with the order of the land office and repeals the registration in such situation in respect to Tenant and the Land Owner.

If the landowner or tenant acquires complete ownership of the parcel of land:

Here are some examples: Capital gains must be considered after they have been evaluated as follows:If the landowner or tenant takes possession of the entire property:

If the tenant obtains the entire land (in the event that the land owner waives its rights), the tenant is considered to have taken the equal lands to the land owner. According to market principles, the said land’s valuation would be the private valuation. The valuation of the half land or the market value when compared to whatever is high upon the land owner waiving its rights over the half land as per Article 2(r) of the Income Tax Act 2058(2002) is considered taxable non-professional property.

And the cost incurred during the acquisition of the land or land dated prior to 2058/12/19 should be deducted in accordance with the market value on the date of 2058/12/19, and capital gains should be obtained on the remaining cost. After submitting evidence of capital gains deposition, only the land office must register the land in the tenant’s name.

Transfer of land ownership to the wife, husband, previous wife, and previous husband:

Article 43 of the Income Tax Act of 2058 provides for the transfer of land and house to the husband, wife, or previous wife and previous husband. The person who acquires the transferred land and house and has the right to claim the expenses is considered to be the person who receives the amount equal to the land and house related to its acquisition.
The individual who transfers the property is exempt from paying taxes as long as the property’s expenses and income are equal.
The person who obtained the land and house under this provision.

If the individual who acquired the land and house under this provision wants to obtain the same property again, the amount obtained from it as the expenses equal to its transfer is deducted as the individual who transferred it’s expenses. In such a case, it is subject to different tax provisions.
The individual who transfers the property is exempt from paying taxes as long as the property’s expenses and income are equal.

The individual who acquires the property, as well as any previous expenses that are transferred after its acquisition, are considered expenses. The natural person, wife, husband, previous wife, previous husband who acquired property under this act must submit a written notice to the internal tax office informing them of your choice of tax office.Because personal property is tax-free, the transferred taxable non-professional property is only used as the basis for tax valuation in this article. If the person transferring the land and house has a Personal PAN Number, he or she must go to the relevant Inland Revenue Office; if not, they must go to the office that covers their permanent address and submit it.

Transfer of Land and House after Death

In the event of a natural person’s death, the possession of any property that is transferred to another individual the individual owns will be handled as follows:

a. The valuation of the property’s current market value is considered acquired when the said individual receives the said property.
b. the individual who obtains property through property transfer considers the expenses to be the amount equal to a portion of the property (a).

In the event of an individual’s death, the amount obtained from land and house ownership of such property is considered to be the amount equal to the market value, as specified in the Income Tax Act.
The amount to be included for the deceased individual will be considered as the property’s deductible expenses for the person who acquires such property.

This provision was enacted in order to calculate the wealth creation of property acquired at the time of death and to transfer the equal amount of cost base property to the individual who is to receive it. Because personal property is not burdened, this article allows only transferred taxable non-professional property to be used to calculate tax base.
After the death of an individual, the land and house in his or her possession can be transferred in a variety of ways or in relation to a variety of forms. The Act states that the amount of the expenses will be equal to the market value of the deceased person’s land and house. In some exceptional cases, tax-related issues will be treated differently.

Who is responsible for capital gains?

According to Section 5 of Article 95(a) of the Income Tax Act 2058, the Land Revenue Office is required to collect tax on capital gains from land and houses that fall under the definition of taxable non-professional property. There is a requirement to register the land purchased or sold with the relevant Land Revenue Office.

According to Article 36 of the Income Tax Act of 2058, any individual who has acquired taxable non-professional property and net gains must calculate tax obligations. To invoke the Article 36 provision, the income details must be used. Gains calculated in accordance with Article 37 of the Act for the purpose of depositing tax in advance under Article 95, subsection 5 of said act (a). For the acquisition of land and a house by a natural person, an advance tax must be paid at the relevant Land Revenue Office.

The Capital Gains Tax Rate in Nepal

The tax is levied at a rate of 5% on capital gains of 2.10% for taxable non-professional property land and house-land ownership for a period of 5 years or more.
If you acquire taxable non-professional property, such as land and house-land ownership, for a period of 5 years or less, you will be taxed at a rate of 5%.
The Income Tax Act of 2058 provides that the tax on acquired gains for taxable non-professional property is levied at different rates depending on the time period of ownership of the acquired property.

If the individual owns the land and house for less than 5 years, the gains are taxable at a rate of 7 % since the 2079 fiscal year. Similarly, a 5 percent tax is levied on acquired gains on land and houses owned for more than 5 years. The gains are forfeited if the individual owns the acquired land and house for less than 5 years.

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