Governments implement monetary and fiscal policies to achieve economic objectives, such as increasing production, ensuring price stability, improving the balance of payments, and achieving full employment. While central banks carry out monetary policies, governments, on the other hand, develop fiscal policies. Fiscal policy instruments include public expenditures, taxes, and borrowing. Taxes are effectively used as a major policy instrument. Income tax is imposed directly on taxpayers who bear the tax burden. They are a source of revenue for governments which are used to fund public services, pay government obligations, and provide goods for citizens.
On Saturday, 29 May 2021, Finance Minister, Mr. Bishnu Prasad Paudel unveiled the full budget for the fiscal year 2078-79 (2021-22) through an Ordinance. The major highlights of the income tax are presented in this document.
Tax Rates: Natural Person
- For Resident:
- Couple Status: 1% for up to Rs. 4.5 Lacs ( Includes Widow and Widower)
- Individual Status: 1% for up to Rs. 4 Lacs
- 10% for addition for Rs. 1 lac
- 20% for addition of Rs. 2 lac
- 30% for up to Rs. 20 lacs
-36% for above Rs. 20 lacs (20% surcharge)
- 25% for any amount
-In case of resident disabled natural persons, an additional 50% of exemption limit shall be allowed to be deducted.
-10% tax rebate to resident women earning remuneration income only.
-Deduction up to Rs. 50K as Remote Area Allowance.
-Foreign Allowance Income of an employee posted outside Nepal for the Diplomatic Mission of Nepal will get a 75% rebate of such allowance.
Normal Tax Rates:
General Tax Rates:
- 25% on Private Limited, Limited, Partnership firm
Entities operating in the following area:
- 30% on banking and finance company, general insurance company
- 30% on Manufacturing Co’s in Petroleum Entities, Cigarette, Beer, Liquor, Khaini, Guthka, and Pan Masala
- 30% on telecom, internet, money transfer, capital market, stock exchange, merchant ranking, commodity future market, stockbrokers
- 25% on income of life insurance
- 25% on Casual income
Cooperative Institutes registered under Cooperative Act, 2074 ( Except Tax Exempt Transactions under section 11(2):
- 5% on operating in Municipality Area
-7% on operating in Sub-Metropolitan Area
-10% on operating in Metropolitan Area
Rates after application of Section 11( Business Rebates):-
- 20% on Special industries (Manufacturing, Forest, Agriculture and Mining Industries excluding Liquor, Cigarette, Khaini, Guthka and Pan Parag)
- 10.4% on Manufacturing Special Industries
- 16% on Non- Manufacturing Special Industries
- 15.60% on Non- special Industries having AR/TR of 30%
- 20% on Other Export Entities
3. Presumptive Taxation ( Small- Scale business person) :
- Upto 20 lacs( COVID-19 Package):
- Rs. 7,50 for Metropolitan and Sub-Metropolitan
- Rs. 400 for Municipalities
- Rs. 2,50 for anywhere else in Nepal
4. Withholding Taxes:
- Withholding Tax needs to be deposited along with TDS Return with IRO within 25 days from the end of the month.
- A Withholding Tax Certificate should be issued to the person from whom tax has been deducted based on the TDS Return filed with IRO to get the credit for such tax.
- In case of a delayed payment of withholding tax, the applicable rate of Interest is 15% per annum. A penalty of 2.5% p.a. TDS amount will be levied for non-submission of e-TDS return within the prescribed time limit. A penalty of Rs. 117 and 120 shall be imposed on non-payment of TDS and non-submission of TDS Return.
No TDS is required to be deducted on the following:
- Remuneration to the writer of articles published in Newspaper & Magazines.
- Inter-Regional interchange charges are paid to a bank issuing Credit Cards.
- Interest or fee paid by GoN, under an agreement, to Foreign Govt. or an International Organisation. (To which Nepal is a party)
- Interest and Dividend paid to a Mutual Fund.
- Payment of Interest to a Resident Bank or Other Resident Financial Institution.
- Payments that are exempt from tax.
- Life/General Insurance premium.
- Incentive amount for consumers who have paid their bill through electronic payment instruments like payment cards, e-money(wallet), mobile banking.
- Interest paid or received between cooperative banks and cooperative societies
5. Advance Income Tax:
- 40% for up to mid of January ( Poush end)
- 70% for up to mid of April ( Chaitra end)
- 100% for up to mid of July ( Ashad end)
Major Changes/ Revision in Income Tax as per the Finance Ordinance 2078/79
- Taxpayers having pending cases in IRD/Revenue Tribunal against the tax assessments made up to Asadh 2077 have an option to pay the assessed tax and 50% of the interest on such tax amounts until Mangsir 2078. IRD shall waive off the balance interest, charges, penalties and fees.
- COVID Relief package has been provided in the form of reduced tax rates to the Small & Medium Scale Business persons who have turnover below NPR 1 Crore.
- Capital Gain tax for natural persons who sell the listed securities within 365 days shall be charged at 7.5% (previously 5%).
- Full exemption of tax has been given to startup businesses for the first five years if the turnover does not exceed NPR 1 Crore.
**To be continued in Income Tax Provision under Downloads.