BBS Taxation in Nepal

Meaning and objectives of tax; Types of tax: Direct tax and Indirect tax; Canons of taxation; Historical background of income taxation in Nepal; Tax laws: Constitution, Tax Act, Tax rule, Finance Act, Legal precedents established by court; Features of Income Tax Act, 2058; Meaning of basic terms used in income taxation.

Concepts of: Presumptive taxation, Turnover taxation, Personal (non-corporate) taxation, Corporate taxation; Provisions of presumptive taxation and Provisions of turnover taxation in Nepal.

Relationship between Taxation and Auditing; Concept, types and major functions of auditing; Internal control: Internal auditing and internal check; Concept, scope and objectives of tax auditing; Provisions of tax auditing in Income Tax Act, 2058 and Value Added Tax, Act,2052.

Amount is the raw, unrefined measurement of a physical quantity, while quantification is the formal calculation and verification of that value into structured numerical data. Allocation then distributes and assigns those totals across the relevant processes, products, or units, and characterization analyzes the resulting figures to determine their actual properties, risks, and real-world impacts.

Capital items are non-recurring, long-term transactions that yield benefits beyond one accounting year—such as buying equipment, taking a bank loan, or selling a fixed asset—and are recorded on the Balance Sheet. Revenue items are recurring, short-term transactions exhausted within the current year—such as paying rent, buying inventory, or earning sales income—and are recorded in the Profit and Loss Account to maintain daily operations.

Exempt Amounts: Income, inflows, or receipts that are completely excluded from the calculation of assessable income by law (e.g., bilateral treaty exemptions, government grants, diplomatic privileges, or specified pensions). Because they are tax-free at the source, they do not enter the taxable income base. Concessions (Tax Rebates & Deductions): Special tax incentives, exemptions, or rate reductions granted to specific sectors, regions, or taxpayer classes to promote socioeconomic goals (e.g., tax holidays for special industries, concessions for remote areas, or rebates for female taxpayers on employment income). Tax Rate: The legally defined percentage or fixed monetary schedule applied to net taxable income to determine gross tax liability. These can be progressive/slab-based (increasing as taxable income tiers rise for individuals) or flat (a single uniform percentage applied to entities/companies).Withholding (Tax Deduction at Source / TDS): A tax collection mechanism requiring the payer to deduct tax at source at the time of payment and remit it directly to the tax authority on the recipient’s behalf.

Allowable Deductions are specific expenses and statutory contributions that tax laws permit taxpayers to subtract from their total assessable income, directly lowering the net income subject to tax.

Concept of employment, difference between employment and profession; Features of employment income, Incomes chargeable under income from employment, Non-chargeable employment incomes; Allowable reductions, exemptions and applicable tax rates; Tax liability and tax payable.

Provision for Depreciation (also known as Accumulated Depreciation) is an accounting method where annual depreciation is credited to a dedicated liability/contra-asset account rather than deducted directly from the asset account.

Concept of business income; Concepts of capital and revenue incomes and expenses; Chargeable and non-chargeable incomes from business; Deductible and non-deductible expenses; Assessable income from business; Tax liability and tax payable.

Concept of capital gain and capital gain tax; Computation of capital gain on disposal of depreciable assets, business assets, non-business chargeable assets; Provisions for adjustment and carry-forward of capital loss, Applicable tax rates for individual and entities.

Concept of investment income; Difference between investment and business; Chargeable and non-chargeable incomes from investment; Deductible expenses and non-deductible expenses; Assessable income from investment; Set-off and carry-forward of investment losses; Investment income from domestic sources and foreign sources; Tax liability and tax payable.

Meaning of residential status: Residential status is the tax position of a person that decides the scope of their taxable income in Nepal. It is determined separately for each income year under Section 2(ff) of the Income Tax Act, 2058.

Set-off of losses: Set-off means deducting a loss from income of the same income year. A business loss can be set off against income from any business or investment. A loss from an investment can be set off only against investment income. A loss from a foreign source can be set off only against income from a foreign source, never against Nepal-source income. Carry forward of losses: A loss that cannot be fully set off in the same year (unrelieved loss) can be carried forward and set off against income of future years. The general limit is 7 income years. For specified entities, such as public infrastructure projects built and operated by the private sector, electricity generation and transmission, and petroleum and mining activities, the limit is 12 income years. Older losses are set off first.

Special provisions relating to individuals: A resident individual and their spouse may choose to be assessed as a couple (Section 50), which gives a higher tax-free threshold than a single person. Other individual reliefs include a 10% tax rebate for a resident woman with only employment income, a 50% higher threshold for a person with disability, an additional 25% threshold for pension income, deductions for life, health and private building insurance premiums, a remote area allowance deduction, and a 75% exemption on foreign allowance for employees posted abroad.

Tax administration: Income tax in Nepal is administered by the Inland Revenue Department (IRD) under the Ministry of Finance, through Inland Revenue Offices and Taxpayer Service Offices. The Director General and tax officers have powers to collect information, inspect records, issue notices, make assessments and recover tax. Every taxpayer must obtain a Permanent Account Number (PAN) and use it in tax documents (Section 78).Record-keeping: Every person liable to tax must maintain documents needed to compute their income and tax, such as books of account, bills, invoices and contracts (Section 81). Records must be kept in Nepal for the period set by the Act (generally five years from the end of the income year), and the tax officer can require them to be produced. Filing of returns and assessment: A taxpayer must file an income tax return within three months after the end of the income year, that is by the end of Poush, and the tax officer may extend this by up to three months on application (Sections 96 and 98). The return filed is treated as a self-assessment (Section 99), and the tax officer can make an amended assessment within four years if the return is found incorrect (Section 101).Collection of tax: Tax is collected mainly in three ways. First, through withholding (TDS), where the payer deducts tax at source from payments such as salary, interest, dividend and rent, and deposits it within 25 days after the end of the month. Second, through advance tax installments on estimated income, payable by the end of Poush (40%), Chaitra (70%) and Ashadh (100%) (Section 94). Third, through payment of remaining tax due with the return.

Official documentation: These are documents issued by the tax department, such as notices, assessment orders, PAN certificates and public circulars, which must be in writing and served properly to the taxpayer. Record-keeping: Every taxpayer must keep books of account, bills, invoices and other documents needed to calculate income and tax, maintain them in Nepal (generally for five years), and produce them when the tax officer asks (Section 81). Information collection: The tax officer can collect information by calling for documents, giving notice to any person to provide information, entering and searching premises, and seizing records (Sections 82 to 84).

Return of income: Every taxpayer must file an income tax return within three months after the end of the income year (by Ashoj end), showing income, tax liability and tax paid. The deadline can be extended by up to three months on application (Sections 96 and 98). Some people, like those with only final-withholding income, need not file. Self-assessment: The return filed by the taxpayer is treated as their own assessment of tax