1. TAXATION OF INDIVIDUAL
1.1. FOR RESIDENT TAX PAYER
a) Residential Criteria
A natural person (individual) is a resident in Nepal for an income year, if s/he satisfies any of the following three conditions:
- If the habitual (Normal) Place of Abode is in Nepal
- If s/he is Present in Nepal for 183 days or more during a period of 365 consecutive days:
- An Employee of GON deputed in Foreign Country by Government of Nepal:
Note: Residential status is normally based on tax laws of Nepal, but it shall also be affected by Double Tax Avoidance Agreement (DTAA) too.
b) Taxable Income
Worldwide income i.e. Income having source in Nepal and Foreign country. Dual
Residence is not recognized for the purposes of Nepalese tax.
c) General Tax rate
The applicable tax rates for the resident Individual of Nepal shall be as follows:
|Particulars||Tax Rates for F.Y. 2078/79|
|(a) First Slab||400,000||1%*||450,000||1%*|
|(b) Second Slab||100,000||10%||100,000||10%|
|(c) Third Slab||200,000||20%||200,000||20%|
|(d) Fourth Slab||1,300,000||30%||1,250,000||30%|
|(e) Balance Exceeding NRs 20,00,000||> 2,000,000||36%||> 2,000,000||36%|
- *1% is the social security tax to be deposited in a separate revenue account in IRD as Social Security Tax. However, taxpayer registered as sole proprietorship or on pension income or on income from contribution-based pension fund or social security fund (SSF) shall not attract social security tax.
- ** Husband and wife should elect to be treated as couples and the option is not an automatic choice. A declaration from the non-earning spouse is must for election.
- *** The rates are general rates tax rates for proprietorship firms, and may differs on basis of nature of business, due to business concessions and facilities offered.
- **** Non-resident person shall be taxed at a flat rate of 25% on the remuneration earned from source in Nepal.
d) Rebate on Tax Liability for Resident Female with only employment income
A female resident natural person deriving income only from employment in Nepal shall be provided with a rebate of 10% on the tax liability.
This rebate is denied by Inland Revenue Department if the female opts Couple Assessment through a notice in Income Tax Manual, 2066 (Updated 2077).
e) Deductions and Facilities for Resident Persons
- Life Insurance Premium
While calculating taxable income, life Insurance premium paid by a resident natural person is deductible up to the limit of Rs 25,000. Where both husband and wife have opted as couple, the insurance paid can be clubbed to claim for deduction, subject to maximum of Rs. 25,000.
- Employees working in Diplomatic Agencies
75% of foreign allowance is deducted from taxable income in case of an employee employed at diplomatic agencies of Nepal situated at foreign countries.
- Incapacitated natural persons
In case of incapacitated natural persons, the minimum exemption limit (Rs. 400,000 for individual and Rs.450,000 for couples) is increased by additional 50%.
- Remote Area Benefit
In case of resident natural persons working in remote areas, minimum exemption limit shall be increased by Rs 50,000 depending on remote area category, as follows:
|Category A||Rs. 50,000|
|Category B||Rs. 40,000|
|Category C||Rs. 30,000|
|Category D||Rs. 20,000|
|Category E||Rs. 10,000|
- Additional limit for pension income
If income of a resident natural person includes pension income, the taxable income is first reduced by additional 25% or pension amount included in income whichever is lower and tax liability is calculated on balance income.
- Health Insurance Premium
If a resident natural person pays health insurance premium to a resident insurance company, lower of the following amount is deductible for tax purpose:
i. Rs. 20,000; or
ii. Annual Health insurance premium paid to resident insurance company
- Medical Tax Credit
In case of approved medical expenses, medical tax credit is available to resident natural persons as deduction from tax liabilities. The limit prescribed is Rs.750 or 15% of Approved medical expense, whichever is lower. Any unutilized expenses can be carried forward to next year. Approved medical expense does not include cost incurred for cosmetic surgery and reimbursement from insurance companies.
- Foreign Tax Credit
If foreign income is included in taxable income of a resident person, foreign tax credit for tax paid in foreign country in respect of that income. The foreign tax paid can either be deducted as expense or tax liability in Nepal can be reduced by such tax paid up to average rate of tax applicable in Nepal, depending on the option of tax payer. The calculation should be done for each sourced income separately and tax not eligible as credit in a year can be carried forward to claim as foreign tax credit in future year from the same source country.
g) Return of Income submission