Income Tax Rates (FY 2077-78)

1. Personal Income Tax

1.1 For Residents : Natural Person

Particulars	Rs.	Tax Rate
Assessed as Individual
Upto	4,00,000	1%
Next	1,00,000	10%
Next	2,00,000	20%
Next	13,00,000	30%
Balance Exceeding	20,00,000	36%
Assessed as Couple
Upto	4,50,000	1%
Next	1,00,000	10%
Next	2,00,000	20%
Next	12,50,000	30%
Balance Exceeding	20,00,000	36%

The Social Security Tax (1%) is to be deposited in a separate revenue account (11211) provided for this purpose.

However, tax payer registered as sole proprietorship or on pension income or person contributing to contribution based pension fund shall not attract social security tax i.e. 1%.

36 % is computed as 30% plus additional 20% on such tax rate applicable to taxable income above Rs 2,000,000.

A. Deductions on Income
Natural person working in remote areas entitled for Remote Area Allowance	Additional deduction from taxable amount up to Rs 50,000. (A-50,000, B-40,000, C30,000, 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 slab or actual pension receipts whichever is lower.
Incapacitated natural person	Additional deduction from taxable amount equal to 50% of amount prescribed under first tax slab or actual income whichever is lower.
B. Reduction 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 25,000 whichever is lower from taxable income
Medical Insurance	A natural person who has insured with resident insurer/insurance company for health insurance shall be entitled to a reduction of actual premium paid or Rs 20,000 whichever is lower.
Contribution to Retirement Fund	1/3rd of taxable income or Rs 300,000 or Actual contribution whichever 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. Rebated on tax liability
Foreign tax credit	If any resident person has paid tax on income outside Nepal, such person can claim foreign tax credit and while claiming such credit each country has to be considered separately. Amount of credit shall be lower of i. Total foreign income included in assessable income in Nepal as multiplied by the average rate of tax on total income or ii. Actual tax paid in foreign country.
Medical Tax Credit	Resident Natural Person is entitled to Medical Tax Credit at least of following amounts i. Rs 750 or ii. 15% of Medical Expenses along with any carried forward from previous year or iii. Actual tax liability
G. Compulsory Filing of Return
- A natural person with only gains from disposal of Non Business Chargeable Assets (NBCA), may opt not to file the income tax return under Section 96. - Natural person other than sole proprietor with income solely from income from vehicle on hire not required to file the income tax return. - However, a natural person having taxable income exceeding Rs 4 million during an Income Year shall submit income return under Section 96.

1.2 For Non-Residents

Nature of Transaction	Tax Rates
Income earned from normal transactions	25% flat rate
Income earned providing shipping, air or telecom services, postage, satellite and optical fiber project	5%
Income earned providing shipping, air or telecom services through the territory of Nepal	2%
Repatriation of profit by Foreign Permanent Establishment	5%

1.3 Special provisions for Resident Natural Person

Particulars	Tax Rates
Income earned by natural person engaged on special industry under Section 11 for whole year	Tax @ 20% on taxable income for which tax rate of 30% is applicable.
Income earned from export by natural person	Tax @ 15% on taxable income for which tax rates of 20% and 30% applicable
Taxable income of a trust: - acquiring an estate of a deceased resident individual; or - of an incapacitated resident individual for an income year.	Tax rate as applicable to Natural Person.

2. Business Income Tax

2.1 Tax rates for Entity- Company/Firm/Industry

#	Particulars	Normal Rate	Consession	Applicable Rate*
1	Normal business	25%		25%
2	Entity operating as Special Industry under section 11 for whole year	25%	20%	20%
3	Other entities involved in business of operating (after construction) of ropeway, cable car, railway, tunnel or sky bridge	25%	20%	20%
4	Entity investing and operating trolley bus or trams	25%	52%	12%
5	Entity involved in construction and operation of airport	25%	40%	15%
6	Entity operating trolley bus or trams	25%	20%	20%
7	On transactions of cooperatives (other than tax exempted transactions) registered under Cooperative Act, 2074) (sub-metropolitan/metropolitan cities, respectively)	20%	50%	20%
8	On transactions of cooperatives (other than tax exempted transactions) registered under Cooperative Act, 2074) (municipality)	20%	75%	5%
9	Taxable income of Export of entity having income source from Nepal	25%	20%	20%
10	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.	25%	20%	20%
11	Entity involved in the construction and operation of road, bridge or tunnelway	25%	52%	12%
12	Banks and financial institutions (Commercial Banks, Development Banks and Finance Companies)	30%	-	30%
13	Entity carrying General insurance business (Non-life Insurance)	30%	-	30%
14	Entity engaged in petroleum business under Nepal Petroleum Act, 2040	30%	-	30%
15	Entity engaged in business of cigarette, tobacco, cigar, chewing tobacco, pan masala, alcohol and beer	30%	-	30%
16	Entity engaged in Telecommunication and Internet service	30%	-	30%
17	Entity engaged in Money transfer	30%	-	30%
18	Entity engaged in Capital market business, Securities business, Merchant banking, Commodity future market, Securities and Commodity broker	30%	-	30%

By Finance Act 2019-20, tax rates of special industry, entities involved in the operation business of road, bridge, tunnel, ropeway, railway, or sky bridge; operation of trolleybus and tram; export business, construction of infrastructures and construction, production, and distribution of electricity has been removed from the Schedule -1 of the Income Tax Act, 2058. Normal tax rate applicable to the above entities is 25%. However, these entities can avail various concessions given under Section 11 of the Act.

*Above industry-wise applicable tax rate is presented after considering concession available under section 11 of Income Tax Act (ITA) except entities falling under tax holiday period. However, in case of special industry and industry other than presented above, entity can choose any one tax concession available under section 11 of ITA (point 2.2 below).

2.2 Tax Concessions and Rebate on Business Income

In the given section, AR stands for Applicable Rate which should be used in the context of Special Industry as the rate after 20% concession given under Section 11(2Kha) and NR stands for Normal Rate in the context of Industry / business other than Special Industry

#	Particulars	Consession
1	Concessions based on employment provided
	Special industries and information technology industries providing direct employment to 100 or more Nepalese citizens throughout the year	*10% of AR / NR
	Special industries and information technology industries providing direct employment to 300 or more Nepalese citizens throughout the year	*20% of AR / NR
	Special industries and information technology industries providing direct employment to 500 or more Nepalese citizens throughout the year	*25% of AR / NR
	Special industries and information technology industries providing direct employment to 1000 or more Nepalese citizens throughout the year	*30% of AR / NR
* Additional 10% concession is provided if direct employment is provided to 100 or more Nepalese citizens including at least 33% of women, oppressed or handicapped person.
2	Concessions to Special industries based on locations
	Special industries established in very undeveloped areas	90% of the AR (for 10 yrs from the year of establishment)
	Special industries established in undeveloped areas	80% of the AR (for 10 yrs from the year of establishment)
	Special industries established in under developed areas	70% of the AR (for 10 yrs from the year of establishment)
3	Concessions to Special industries based on investment amount
	Special industry with capital of Rs 1 billion or more 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
	For special industry existing at the advent of this Section, if capital is increased to Rs 1 billion, installed capacity is increased by 25% and provided direct employment to 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
	Industry related to tourism industry or international flight operation 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
	For industry related to tourism industry or international flight operation existing at the advent of this Section, if capital is increased to Rs 2 billion and installed capacity is increased by 25% at minimum	100% concession for 5 years and 50% concession for next 3 years on income generated due to increased
4	Concessions to industry established in SEZ
	Industry established in 'Special Economic Zone' 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
	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
	Dividend distributed by the industry established in special economic zone	100% exempt for first 5 years and 50% rebate in subsequent 3 yrs
	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 NR
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% on NR
6	Concession related to hydropower project
	Person or entity having license to generate, transmit or distribute electricity shall be provided concession if the commercial operation 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
7	Concession to Petroleum Industry
	If person involved in exploration and extraction of petroleum, natural gas and starts commercial operation by BS 2080 Chaitra end.	100% exempt up to 7 years and 50% rebate in subsequent 3 years
8	Other Specific concessions
	On capitalization of accumulated profit through bonus share by Special Industry or industry related with tourism for expansion of capacity of industry	No tax on dividend distribution
	Income from export of manufactured goods by Manufacturing Industries	Additional Concession of 25% on rate derived after normal concession
	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)	15% on AR/NR
	Private company with capital of Rs 50 crore or more which conducts its operation by converting into public company	10% on AR / NR for 3 years from the date of conversion
	Domestic tea production and processing industry, Dairy industry, Garments industry	50% on AR
	Health institution operated by community based organization	20% on NR
	Micro entrepreneurial industry	100% on NR for 5 years from the date of operation if it is under entrepreneurship of woman concession of 100% on NR for 7 years from the date of operation
	Industry established in least developed areas producing brandy, wine, cider from fruits	40% on NR for 10 years
	Royalty from export of intellectual asset by a person	25% on NR
	Income from sale of intellectual asset by a person through transfer	50% on NR

Note:-

If any entity is entitled to more than one benefit under section 11 of the Income Tax Act, 2058 only one benefit shall be availed. However, in case of Special Industries, apart from the concessions of 20% given in section 11(2Kha), any one of other benefits available in section 11 can also be availed.

Special industry” refers to all the manufacturing industries as classified in section 3 of the Industrial Enterprises Act, 2073 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 industries

Up to FY 2075-76, cooperatives carrying out transactions other than exempted transaction were liable to tax @20% and this included financial transactions as well. However, from FY 2076-77, only for financials transaction, tax concessions have been granted.

In FY 2075-76, the normal rate applicable for income from special industries operating for a whole year and income from export was 20% as per Schedule 1, however, in FY 2076-77, the normal rate is 25% with 20% concession, that will result in applicable tax rate of 20%.

3. Allowable Deductions

#	Particulars	Deduction
a	Donation to tax exempt organization	Up to Rs 100,000 or 5% of adjusted taxable income whichever is lower.
b	For conservation or promotion of historical, religious or cultural heritage, or for construction of public sports infrastructure On prior approval of department	Actual up to Rs 1 million or 10% of assessable income whichever is lower.
c	Contribution to Prime Minister Relief Fund or National Reconstruction Fund established by Nepal Government	Actual amount of contribution

4. Presumptive Taxation

4.1 Vehicle Tax

Particulars	Tax Amount
Vehicle Tax (Note *)
Minibus, Mini Truck, Water Tanker	Rs 6,000
Mini Tripper	Rs 7,000
Truck and Bus	Rs 8,000
Dozer, Excavator, Roller, Loader, Crane and similar machineries	Rs 12,000
Oil tanker, Gas bullet, Tipper	Rs 12,000
Car, Jeep, Van, Micro Bus
(a) 0 to 1300 cc	Rs 4,000
(b) 1301 to 2000 cc	Rs 4,500
(c) 2001 to 2900 cc	Rs 5,000
(d) 2901 to 4000 cc	Rs 6,000
(e) 4001cc and above	Rs 7,000
Three Wheeler, Auto Rickshaw, Tempo	Rs 2,000
Tractor	Rs 2,000
Power Tiller	Rs 1,500

Note:

*Schedule 1(1) (13): If the owner of the vehicle is a natural person (other than registered individual firm), the tax so paid shall be final.

4.2 Resident natural person/Private Firms having business income upto Rs 20 Lacs [section 4(4)]

Particulars	Tax Amount	Effective Rate (90% Rebate)
Metropolitan, Sub-Metropolitan	Rs 7,500	Rs 750
Municipal Areas	Rs 4,000	Rs 400
Other than municipal areas	Rs 2,500	Rs 250

Note: Conditions for turnover taxation[section 4(4)]:
This includes the resident natural person meeting the following criteria:
(a) Annual transaction not more than Rs 20 Lacs and annual profit up to Rs 200,000.
(b) Not registered in VAT.
(c) Only Nepal source income from business in that fiscal year.
(d) Medical credit not claimed under Section 51.
(e) Advance tax not claimed under Section 93.

4.3 Resident natural person/Private Firms having business income exceeding Rs 20 Lacs but less than Rs 50 Lacs [section 4(4ka)]

While computing tax on transaction, tax up to Rs 20 Lacs shall be computed as above table [section 4(4)] and on remaining transaction amount, tax shall be calculated on the basis of rates mentioned below.

Natural person engaged in	Tax Rates	Effective Rate (75% Rebate)
Gas, cigarette business doing transaction with 3% margin or commission	0.25% of transaction amount	0.0625%
Other person except those involved in business as above	0.75% of transaction amount	0.1875%
Person engaged in service business except doctor, engineer, auditor, player, actor or consultants	2% of transaction amount	0.5%

Note: Conditions for turnover taxation[section 4(4ka)]:
(a) Person having income from business only.
(b) Having turnover of business more than Rs 20 Lacs but less than Rs 50 Lacs.
(c) Person not registered with VAT.
(d) Natural person not having income from consultancy or specialized services such as those provided by doctor, engineer, auditor, lawyer, player, actor or consultants.

5. Special Rebate

Tax Payer Category	Condition	Tax Rebate
1. Person paying tax u/s 4(4)	Transaction Up to 20 Lakhs or Income up to Rs 2 Lakhs	90%
1. Person paying tax u/s 4(4ka)	More than 20 Lakhs, up to 50Lakhs	75%
1. Any Person	Up to 1 Crore	50%
4. Hotel, Trekking, Travels, Cinema Industry, Party palace, Media House, Transportation and Air Transport Service having transaction More than 1 Crore		Around 96% (Only 1% Tax to pay)