In this article, we explain all the tax meanings, types, and rates in Nepal.
Table of Contents
Meaning of Tax
- A tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities.
- Taxes are typically based on income, profits, transactions, or property owned by individuals or businesses. The collected tax funds are utilized to support public services such as healthcare, education, defense, transportation, and social welfare.
Types of Tax?
There are two types of taxes namely
- Direct tax
- Indirect tax
| Direct Tax | Indirect Tax |
| Income tax | Value Added Tax (VAT) |
| Wealth Tax | Custom Duty |
| Gift Tax | Service Tax |
| Capital Gains Tax | Sales Tax |
Direct Tax
- This tax is directly paid to the government. The government levies such taxes directly on an individual or an entity’s income and it cannot get transferred to any other person or entity.
Indirect Tax
- Indirect tax refers to a type of tax that is not directly levied on individuals or businesses but is instead imposed on goods, services, or transactions.
- An indirect tax is collected by one entity in the supply chain, such as a manufacturer, supplier, or retailer, and paid to the government.
Methods of Income Tax computation as per Income Tax Act 2058
- Presumptive Taxation
- Turnover-Based Taxation.
- Presumptive Taxation
- Presumptive taxation is small businessperson taxation, where a businessperson needs to pay tax to the government on the basis of turnover rather than the level of income.
- Eg:- small restaurant, small clothes shop, café, etc.
- Presumptive taxation is levied on those small business persons whose yearly transaction fall under 30 lakhs.
Who is Eligible for filing a Presumptive Tax Return (D0 1)
- A person must be a Resident natural person.
- Yearly Turnover of the business shall not exceed Rs. 30 lakhs.
- Yearly business profit shall not exceed Rs. 3 lacks.
- The person may or may not be registered for VAT.
How much tax need to pay by Presumptive Taxpayer?
| S.N. | Area of business operation. | Amount |
| 1 | Metro & sub metro | 7500/- |
| 2 | Municipality | 4000/- |
| 3 | Areas other than those mentioned above | 2500/- |
2. Turnover-Based Taxation(D0 2)
- In this taxation, System tax is assessed on the basis of turnover a business reach in a year.
- Who is Eligible for filing Turnover Based Taxation?
- A person must be a Resident natural person.
- The yearly Turnover of the business shall exceed Rs.30 lakhs but shall not exceed 1cr.
- Yearly business profit shall not exceed Rs.10 lakh.
- The person may or may not be registered for VAT.
How much tax need to pay by Turnover Based Taxpayer?
| S.N. | Yearly Turnover | Amount |
| 1 | Turnover upto Rs.30lakhs | Calculated as per presumptive taxation methods. |
| 2 | If a person sells goods at a commission or value addition of up to 3% of the purchase price including cigarettes, gas. | 0.25% of turnover Exceeding Rs 30 lakhs to 50 lakhs. 0.3% of turnover Exceeding Rs 50 lakh to 1 crore |
| 3 | If a person deals in goods other than those specified above | 1% of turnover Exceeds Rs 30 lakhs to 50 lakhs. 0.8% of turnover Exceeding Rs 50 lakh to 1 crore |
| 4 | If a person deals in services. | 2% of Excess Turnover. |
Tax Rates For Corporates In Nepal (For FY 2079/80)(IRD)
| Types Of Business | Tax Rate (in %) |
| Normal Business | 25% |
| Taxable income of Schools/Colleges registered under a trust (Guthis) | 30% |
| The following tax rates apply to cooperatives that are registered under the Cooperative Act of 2074 and engaged in commercial activity: If being operated in the area of Municipality If being operated in the area of Sub Metropolitan City If being operated in the area of Metropolitan City | 7.5% 10% 15% |
| Taxable Income of any non-resident person in respect of the income mentioned in section 70 in any income year Non-Resident person providing water transport, air transport, or telecommunication service that does not so depart or transmit from Nepal as not to reach another foreign country | 20% |
| Income sent abroad by any non-resident person’s foreign permanent establishment situated in Nepal in any income year | 5% |
| Taxable Income of any non-resident person in respect of the income mentioned in section 70 in any income year Non-Resident person providing water transport, air transport or telecommunication service that does not so depart or transmit from Nepal as not to reach another foreign country | 5% 2% |
| In the income year 2079/80, business process outsourcing, software programming, cloud computing and other services based on information technology, etc., to earn foreign currency. | 1% |
It is an indirect method of tax collection where the person making the payment deducts a certain percentage of tax from the payment amount and remits it to the government on behalf of the recipient.
How Does TDS Work?
When a payment is made to a party, the person responsible for making the payment is required to deduct a specified percentage of tax from the payment amount and remit it to the government. The deducted amount is then reflected in the tax records of the recipient, which can be adjusted against their final tax liability at the time of filing their income tax return.
Types of TDS
· Salary
· Amount under LIC
· Bank Interest
· Brokerage or Commission
· Commission payments
· Compensation for acquiring immovable property
· Contractor payments
· Deemed Dividend
· Insurance Commission
· Interest apart from interest on securities
· Interest in Securities
· Payment of rent
· Transfer of immovable property
TDS Rate
The income tax rate in Nepal (unmarried)2079/80
| Annual Income | Income Tax Rate |
| Up to Rs 5,00,000 | 1% |
| Rs. 5,00,001-Rs. 7,00,000 | 10% |
| Rs. 7,00,001-Rs. 10,00,000 | 20% |
| Rs. 10,00,001-Rs. 20,00,000 | 30% |
| Above Rs. 20,00,000 | 36% |
| Annual Income | Income Tax Rate |
| Up to Rs 6,00,000 | 1% |
| Rs. 6,00,001-Rs. 8,00,000 | 10% |
| Rs. 8,00,001-Rs. 11,00,000 | 20% |
| Rs. 11,00,001-Rs. 20,00,000 | 30% |
| Above Rs. 20,00,000 | 36% |
NOTE:-
Facilities for deduction from taxable income of a natural person
Remote Allowances threshold: –
| Rs. 50,000/- | In the areas of category “A” |
| Rs. 40,000/- | In the areas of category “B” |
| Rs. 30,000/- | In the areas of category “C” |
| Rs. 20,000/- | In the areas of category “D” |
| Rs. 10,000/- | In the areas of category “E” |
2) Where any resident natural person with a disability, he/she can claim an additional 50% of the standard deduction from his/her taxable income.
3) Where any resident individual has an endowment insurance policy he/she can deduct the annual premium or Rs 20,000, whichever is lesser, from his/her taxable income.
4) Where any resident individual has procured health insurance from any insurance company, he/she can deduct the annual premium paid for such insurance, or Rs 20,000 whichever is lesser, from the taxable income.
5) Where any resident individual is a woman earning income only from remuneration, such an individual shall get a tax credit equal to 10% of the tax amount.
| Payments Types | TDS Rate (%) |
| Income from employment | Natural resources, royalty, service charges, commission, sales bonus, retirement payment |
| Payment of Interest having source in Nepal | 15 |
| Retirement payment from the government of Nepal or remaining payment amount made by approved contributory retirement fund after deducting five hundred thousand or 50 percent of the payment amount whichever is higher | 15 |
| Meeting allowance, teaching allowance on a casual basis, Payment for making question paper or examining answer sheets | 15 |
| Payment to a VAT-registered taxpayer who provides a vehicle in rent against the rental charge. | 5 |
| Commission payment made by a resident employment company for a non-resident person | 5 |
| Payment for aircraft lease | 10 |
| Payment of service charge to the VAT registered service provider resident person or Payment of Service charge to VAT-exempt resident entity. | 1.5 |
| Payment to a resident person except one who is carrying on business against the rental charge of land, building, and articles affixed thereon or any instruments having source in Nepal | 10 |
| A payment made by a natural person against the use of satellite, bandwidth, optical fiber, tools related to communication or electricity transmission line | 1.5 |
| Consideration distributed by the mutual fund to: – A natural person – Others | 5 15 |
| A payment against carriage service and against the rental charge of means of transportation in rent. | 10 |
| A payment against carriage service and against rental charge of means of transportation in rent. | 2.5 |
| Payment against service charge to the VAT registered carriage services or rental charge to the VAT registered person who provides means of transportation in rent. | 1.5 |
| Payment made by the resident banks and financial institutions to the foreign banks against the interest of loan received in foreign currency for the investment in the sector specified by the Nepal Rastra Bank. | 10 |
| Payment of dividend | 5 |
| A return payment against investment insurance | 5 |
| A return payment from an unapproved retirement fund | 5 |
| Payment to a VAT-registered taxpayer who provides a vehicle in rent against rental charge. | 5 |
| windfall gain | 25 |
| In making payment for a resident person of a sum exceeding fifty thousand rupees for payment of deed or contract | 1.5 |
| Payment made by any resident person to any non-resident person under any deed or contract | 5 |
Overview Of Tax Acts in Nepal
Nepal government currently levies the following tax acts in Nepal:-
- Income Tax Act,2058:- Income tax to individuals and entities is levied and collected under this act.
- Value added Tax Act, 2052:- Vat on goods and services is levied and collected under this act.
- Exercise Act,2058:- Exercise duty on manufacturing and trading of exercisable goods is levied and collected under this act.
- Customs Act, 2064:- Custom duty on the import of goods is levied and collected under this act.
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