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 Income Tax in Nepal



Personal Income Tax

For Residents: Natural Person


Tax Banding Tax Rates
Individual FY 2017-18 & 2016-17 FY 2015-16
(a) First Slab 350,000 1%* 250,000 1%*
(b) Second Slab 100,000 15% 100,000 15%
(c) Third Slab Up to 2,500,000 25% Up to 2,500,000 25%
(d) Balance Exceeding Rs 2,500,000 > 2,500,000 35% > 2,500,000 35%
Couple
(a) First Slab 400,000 1%* 300,000 1%*
(b) Second Slab 100,000 15% 100,000 15%
(c) Third Slab 500,001 to 2,500,000 25% 400,001 to 2,500,000 25%
(d) Balance Exceeding Rs 2,500,000 > 2,500,000 35% > 2,500,000 35%

Note

A.  Additional Deductions Remarks
Natural person working at remote areas Remote Area Allowance Additional deduction from taxable amount up to Rs 50,000. (A-50,000, B-40,000, C-30,000, D-20,000, E-10,000)
Natural person with pension income included in the taxable income Additional deduction from taxable amount equal to 25% of amount prescribed under first tax band
Incapacitated natural person Additional deduction from taxable amount equal to 50% of amount prescribed under first tax band
B. Deduction on Income
Life Insurance Premium A natural person who has procured life insurance and paid premium amount thereon shall be entitled to a reduction of actual annual insurance premium or Rs 20,000 whichever is less from taxable
income
Medical Insurance A natural person insured in resident insurer for health insurance shall be entitled to a reduction of actual premium paid or Rs 20,000 whichever is less
Contribution to Retirement Fund 1/3rd of taxable income or Rs 300,000 which-ever is lower;
C. Rebate on Tax Rates
In case of resident individual women having only remuneration income Rebate of 10% on the tax liability calculated as other natural person. i.e. not applicable for women with couple status.
Retirement payment resulting from Merger In case of decision of the organization to provide group retirement to its employees (in the event of merger or acquisition) except to the payment made as per the employment term or the payment made by retirement fund, a rebate of 50% on withholding tax.
D. Foreign Allowances
In case of the employee employed at the foreign diplomatic mission of Nepal Only 25% of the foreign allowances are to be included in the income from employment
E.  Tax Exemption
Compensation received against deceased natural person Compensation received against the deceased of natural person is not required to be included in income
F.  Compulsory Filing
Natural Person Having Taxable Income exceeding Rs 4 million A natural person having taxable income exceeding Rs 4 million during an Income Year shall submit income return u/s 96

* This is the Social Security Tax to be deposited in a separate revenue account (11211) provided for this purpose. However, tax payer registered as sole proprietorship or on Pension Income shall not be taxed at 1 %.

For Non Residents



S.N

Nature of Transaction
FY 2017/18 &
2016-17

FY 2015/16
a. Income earned from normal transactions 25% flat rate 25% flat rate
b. Income earned providing shipping, air or telecom services, postage, satellite and optical fiber project 5% 5%

c.
Income earned providing shipping, air or telecom services through the territory of Nepal.
2%

2%
d. Repatriation of profit by Foreign Permanent Establishment. 5% 5%

Special provisions for Resident Natural Person

S. No Particulars FY 2017/18 & 2016-17 FY 2015/16

a.

Income earned by natural person engaged on special industry under sec(11) for whole year
Tax @ 20% on taxable income for which tax rate of 25% is applicable
-do-

b.

Income earned from export by natural person
Tax @ 15% on taxable income for which tax rate of 25% is applicable
-do-

c.

Income of trust
Tax rate as applicable to Natural Person
-do-

Special Provision for resident natural person  having  income  exceeding  Rs  2  Million  but  less  than  Rs 5 Million

Natural person those who meet following criteria shall be taxed on the basis of turnover as follows:


S. No Natural person engaged in FY 2017/18 &
2016-17
FY 2015/16

a.
Gas, cigarette business doing transaction with 3% margin or commission 0.25 % of Transaction amount
0.5%

b.

Other person except those involved in business as above (a)
0.75 % of Transaction amount
1.5%

c.
Person engaged in service business except doctor, engineer, auditor, player, actor or consultants. 2% of Transaction amount
-do-

Note: If income tax calculated is below Rs 5,000 then above person shall pay Rs 5,000 instead of tax at above rate.

Conditions for turnover taxation:

a)      Person having income from business only.

  1. Person not claiming medical tax credit u/s 51 and advance tax u/s
  2. Person not claiming Advance income tax under section
  3. Having turnover of business more than 2 million but not exceeding Rs 5
  4. Person not registered in
  5. Natural person not having income from consultancy or specialized services such as those provided by doctor, engineer, auditor, layer, player, actor or


Corporate Income Tax

Tax rates for Entity- Company/Firm/Industry


S. No.

Particulars
FY 2017/18 &
2016-17

FY 2015/16
A Tax rate @ 25%


Normal business 25 % 25%
B Tax rate @ 20%

i. Entity operating Special Industry under section 11 for whole year





20%






20%
ii. Other entities involved in business of construction of roads, bridges, tunnels, rope-ways, suspension bridges
iii. Entity operating trolley bus or tramps
iv. On transactions of cooperatives (other than tax exempted transactions) of registered under Cooperative Act, 2048
v. Taxable income Export of entity having income source from Nepal

vi.
Entity those involved in construction or operation of public infrastructure and to be transferred to Nepal Government or involved in construction of hydropower house and its generation and transmission.
C Tax Rate @ 30%

i. Banks and financial institutions (Commercial Banks, Development Banks and Finance Companies)



30%




30%
ii. Entity carrying General insurance business (Non life Insurance)
iii. Entity engaged in petroleum business under Nepal Petroleum Act, 2040
iv. Entity engaged in business of cigarette, tobacco, cigar, chewing tobacco, alcohol and beer

Tax Concessions and Rebate on Corporate Tax


S. No.

Particulars
FY 2017/18 & 2016-17
FY 2015/16
1. Concessions based on employment provided

Special industries and information technology industries providing direct employment to 300 or more Nepalese citizens throughout the year 90% of normal rate (NR)
-do-

Special industries providing direct employment to 1200 or more Nepalese citizens throughout the year
80% of NR

-do-

Industries providing direct employment to 100 or more Nepalese citizens through the year of which at least 33% represented by women, dalit and handicapped.
80% of NR

-do-

Special Industry, Agro-based industry and industry related with Tourism sector providing direct employment to only Nepalese citizens provided that number of employees shall be at least 100 throughout the year
70 % of Normal Rate


-do-

S.No. Particulars FY 2017/18 & 2016-17 FY 2015/16
2. Concessions to Special industries based on locations

- Special industries established in very under developed areas 10% of the NR (for 10 yrs from the year of establishment)
-do-

- Special industries established in under developed areas 20% of the NR (for 10 yrs from the year of establishment)
-do-

- Special industries established in undeveloped areas 30% of the NR (for 10 yrs from the year of establishment)
-do-
3. Concessions to Special industries based on investment amount



- Special industry with capital of Rs 1 billion and providing direct employment to more than 500 persons throughout the year
100% exemption for first five years from the date of operation of business and 50% concession for next 3 years

-do-



- For those Entities in operation, if capital is increased to Rs 1 billion, Installed capacity is increased by 25% and
provided employment is more than 500 persons throughout the year
100% concession for
first 5 years and 50% concession for next 3 years on income generated due to increased capacity



-do-



- Industry related to tourism industry or international flight operation entity established with capital investment of more than Rs 2 billion
100% concession for
5 years from commencement of business and 50% concession for next 3 years


-do-



- For those entities in operation, if capital is increased to Rs 2 billion and installed capacity is increased by 25%
100% concession for 5
years and 50% concession for next 3 years on income generated due to increased capacity.


-do-
4. Concessions to industry established in special economic zone


- Industry established in 'Special Economic Zone' recognized in mountain areas or hill areas by the GON
100% exempt up to 10 yrs from date of operation of business and 50% rebate in subsequent years

-do-


- Industry established in 'Special Economic Zone' other than above locations
100% exempt up to first 5 yrs from date of operation and 50% rebate in subsequent years

-do

- Concession on dividend tax:
Dividend distributed by the industry established in special economic zone
100% exempt for first 5 years and 50% rebate in subsequent 3 years
-do-


- Income derived by the foreign investors from investment in ‘Special Economic Zone’ (Source of income-use of foreign technology, management service fee and royalty) 50% of applicable tax rate
-do-

- On capitalization of accumulated profit through bonus share by Special Industry, Agro-based industry or industry related with tourism for expansion of capacity of industry
No dividend tax

-do-
5. Concessions based on establishment in special area

- Entity established in Technology park, Bio tech park and IT Park engaged in Software development or, data processing or, Cyber Café or, Digital Mapping
50% rebate on applicable tax rate

-do-
6. Concession related to hydropower project

- Institution having license to generate, transmit or distribute electricity shall be provided concession if the commercial electricity generation, transmission or distribution commences before BS 2080 Chaitra End.
(Provisions shall be applicable for electricity generated from solar, wind or organic material)

100% exempt up to 10 years and 50% rebate in
subsequent 5 years



-do-
7. Concession to Petroleum Industry


- If person involved in exploration and extraction of petroleum and natural gas starts commercial operation by BS 2075 Chaitra end.
100% exempt up to 7 years and 50% rebate in
subsequent 3 years


-do-
8. Other Specific concessions

- Income from export of manufactured goods by Manufacturing Industries
75% of NR

-do-

- Income from construction and operation of Bridge, Airport and Tunnel and income from investment in tram and trolley bus 60% of applicable
tax rate (20%)

-do-

- Income of Manufacturing Industry, tourism service industry and hydropower generation, distribution and transmission industry listed in capital market and entities mentioned in section 11 (3 Ga)
85% of applicable tax rate
90% of applicable tax rate

- Industry established in least developed areas producing brandy, wine, cider from fruits 40% exempt up to ten years -do-

- Royalty from export of intellectual asset by a person 25% exempt -do-

- Income from sale of intellectual asset by a person through transfer
50% exempt
-do-

Note:
  1. If any entity is entitled to more than one privilege U/S-11 only one will be entitled as opted by the entity.
  2. “Special industry” refers to all the manufacturing industries as classified in section 3 of Industrial  Enterprises  Act,  2049 except  the industry related to the manufacturing of cigarette, bidi, cigar, chewing tobacco, tobacco, gutkha, pan masala other products having main ingredient as tobacco, alcohol, beer and other such related products but includes agriculture, forestry and mineral


3. Special Provisions

S. No. Particulars Remarks
a. Waiver from audit to small and medium tax payer. Small and medium tax payer, having annual turnover not exceeding Rs 10 Million, are waived from audit and they can self-attest their Income tax return.
b. Financial statement to be stored in information centre. Financial Statements of taxpayer having earning exceeding Rs 4 Million shall be stored in Information centre.

Allowable Deductions

S. No. Particulars FY 2017/18 &
2016/17
FY 2015/16
a. To tax exempt organization - Up to Rs 100,000 or 5% of adjusted taxable income whichever is lower -do-
b. For conservation or promotion of historical, religious or cultural heritage, or for construction of public sports infrastructure. a.    On prior approval of department
b.    Actual up to Rs 1 million or 10% of assessable income whichever is lower
-do-
c. Contribution to Prime Minister Relief Fund or National Reconstruction Fund established by Nepal Government Actual amount of contribution -do-

 Tax Payment

Advance Tax to Normal taxpayer

S. No. Particulars Installment Amount
a. Up to end of Poush Remaining amount of 40% of estimated tax
b. Up to end of Chaitra Remaining amount of 70% of estimated tax
c. Ashad End Remaining amount of 100% of estimated tax

Advance Tax to taxpayer based on turnover

S. No. Particulars Installment Amount
a. Up to end of Poush Tax at the rate specified on transaction up to 20th Poush
b. Up to end of Ashad Remaining Amount of Tax calculated at the rate specified on estimated transaction amount at Ashad End based on actual transaction up to 20th Ashad

Note: It shall not be required to pay advance tax if tax payable is less than Rs 5,000.

Rental tax payment

S. No. Particulars Remarks
a. Rental Tax by Natural Person

Tax applicable on house rent income of a natural person Tax applicable on house rent income of a natural person which is not related to the operation of business shall be payable within Ashad end of the particular Income Year
b. Rental Tax payable turnover basis

Tax withheld by the person paying tax based on turnover (U/S 4 4 (ka)* Payable at the time of payment of installment tax

*This includes the resident natural person meeting the following criteria:
  • Annual business over Rs 2 million and less than Rs 5 million
  • Not registered in VAT
  • Only Nepal source income from business in that FY
  • Medical tax credit not claimed under Section 51
  • Advance tax not claimed under Section 93
  • Not having income arising from consultancy and specialist services such as of a doctor, engineer, auditor, lawyer, sportsperson, artist,


Taxation to Small Taxpayer

Presumptive Taxation

Particulars FY 2017/18 & 2016-17
FY 2015/16
Vehicle Tax (shall be final tax for natural person)

Minibus, Mini Truck, Truck and Bus Rs 3,000 -do-
Car, Jeep, Van, Micro Bus Rs 2,400 -do-
Three Wheeler, Auto Rickshaw, Tempo Rs 1,550 -do-
Tractor and Power Tiller Rs 1,000 -do-
Small Tax Payer having turnover not exceeding Rs 2 Million and taxable income not exceeding Rs 200,000**

Metropolitan, Sub-Metropolitan Rs 5,000 -do-
Municipal Areas Rs 2,500 -do-
Other than municipal areas Rs 1,500 -do-


Note:

Small taxpayer means natural person whose annual turnover is not more than Rs 2 million and income not exceeding Rs 200,000.

** w.e.f. FY 2015/16 such taxpayers are not required to register with VAT.


Tax Withholdings


TDS withholding Rate

S. No. Nature of Transaction FY 2017/18 & 2016/17
FY 2015/16
i. Interest income from deposit under 'Micro Finance Program', 'Rural Development Bank', 'Postal Saving Bank & Co- operative (u/s-11(2)) in rural areas is exempted from tax
Up to Rs 25,000
Up to Rs 25,000
ii. Windfall gains 25%* 25%*
iii. Payment of rent made by resident person having source in Nepal 10% -do-
iv. Payment for vehicle rent to VAT registered service provider 1.5% -do-
v. Profit and gain from transaction of commodity future market 10% -do-
vi. On returns to be distributed by Mutual Fund:
-     Natural person
- Other than Natural Person

5%
15%

-do-
vii. On Dividend paid by the resident company and partnership firm
-  To Resident person
-  To Non-resident Person


5% for both


-do-
viii. On payment of gain on investment insurance 5% -do-
ix. On payment of gain from unapproved retirement fund 5% -do-
x. On payment of interest or similar type having source in Nepal by Resident Bank, financial institutions or debenture issuing entity, or listed company
-    In case of payment to natural person [not involved in any business activity]
-    to case of payment to entities



5%
15%


-do-
Xi. On payment of premium to non- resident insurance company 1.5% -do-
xii. Contract payments exceeding Rs 50,000 1.5% -do-
xiii. Payment of consultancy fee:
-            by resident person against VAT invoice
-            by resident person against Non-VAT invoice

1.5%
15%

-do-
-do-
xiv. Payment on contract to Non-Resident person
-      On repair of aircraft & other contract

5%

-do-
xv. Gain on disposal of Interests in any resident entity (listed) exchange amount is gain calculated under section37
-            To resident natural person
-            To others including nonresident
Gain on disposal of Interests in any resident entity (unlisted) exchange (Taxable amount is gain calculated under section 37)
-            To resident natural person
-            To others including nonresident

5%
10%



10%
15%

-do-
-do-



-do-
-do-
xvi. Gain on Disposal of land or land & building:
-            Owned by individual over 5 years
-            Owned by individual up to 5 years
-            Owned by person other than individual

2.5%
5%
10%

-do-
-do-
-do-
xvii. On payment for use of Satellite, Bandwidth, Optical fibre, telecommunication equipment or electricity transmission by resident irrespective of its location 10% -do

*Windfall tax of 25% will be exempted for the reward up to Rs 500,000 received on behalf of contribution in the field of literature, art, culture, sports, journalism, science and technology and general administration

TDS not applicable payments

S. No. Nature of transaction FY 2017/18 & 2016/17
FY 2015/16
i Payment made by natural person relating to business activity or other payments relating to house rental except house rent
No TDS

-do-
ii Payment for articles published in Newspaper, question setting, answer evaluation
No TDS

-do-
iii Interest payment to resident bank, other financial institutions No TDS -do-
iv Interregional interchange fee paid to credit card issuing bank No TDS -do-
v Interest or fees paid by GON under bilateral agreement No TDS -do-
vi Tax Exempt payment or TDS deductible u/s 87 No TDS -do-
vii Dividend or interest paid to Mutual Fund/ Collective Investment Fund
No TDS

-do-

Final Withholding Payments

S. No. Nature of transaction FY 2017/18 & 2016/17 FY 2015/16
i On Dividend paid by the resident company and Partnership firm
-                         To Resident person
-                         To Non- resident Person
(Note: partnership firm inserted by Finance Act 2073)


5% for both


-do-
ii Payment of rent made to resident natural person having source in Nepal 10% -do-
iii On payment of gain in investment insurance by resident natural person 5% -do-
iv On payment of gain from unapproved retirement fund 5% -do-
v On payment of interest or similar type having source in Nepal to natural person [not involved in any business activity] by Resident Bank, financial institutions or debenture issuing entity, or listed company
5%

-do-
vi Windfall gains 25%* -do-




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Note: Information placed here in above is only for general perception. This may not reflect the latest status on law and may have changed in recent time. Please seek our professional opinion before applying the provision. Thanks.

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This blog is Created by CA Anil Kumar Jain.