Managing taxes can be a daunting task for many of us. But understanding the tax rate in Nepal and utilizing tools like a tax calculator in Nepal can make compliance seamless. Because the tax authorities also expect you to self-declare your income and pay your taxes accordingly. This updated guide for FY 2024/25 provides everything you need to know about personal and corporate tax rates in Nepal, applicable deductions, and special concessions available to various tax payers in Nepal.

Income Tax Rates in Nepal (2024/25)

1. Personal Income Tax Slabs for Residents

Nepal follows a progressive tax system. So, there is no tax up to a certain limit and as your income goes up, so does the tax rate too. And Nepal's tax system also categorizes taxpayers as individuals or couples. Here is the updated slabs and the applicable income tax rates in Nepal for individuals in FY 2081-82:

*36% includes an additional 20% on the tax rate for incomes between NPR 2,000,000 and NPR 5,000,000.
**39% includes an additional 30% on incomes exceeding NPR 5,000,000.

Note: The 1% tax on the first slab is not actually an income tax but the social security tax. And the social security tax is waived for tax payers who contribute to the Social Security Fund (SSF)​.

2. Corporate Income Tax Rates

Nepal's corporate tax rates depend on the nature and scale of the business:

Concessions: Special industries in underdeveloped areas enjoy up to 100% tax exemptions for up to 15 years​.

Key Deductions and Exemptions

Individual Nepalese taxpayers can reduce their taxable income significantly through these allowances:

1. Retirement Contributions:
   • Maximum: NPR 500,000 or one-third of assessable income.
2. Life Insurance Premiums:
   • Deduction: Lower of actual premiums paid or NPR 40,000.
3. Health Insurance Premiums:
   • Deduction: Lower of actual premiums paid or NPR 20,000.
4. Remote Area Allowances:
   • Additional deduction: NPR 10,000 to NPR 50,000, depending on location classification​.

Special Provisions for Taxpayers

1. Women Sole Earners:

   10% tax rebate on total tax liability.

2. Freelancers With Foreign Currency Income:

   Flat 5% tax on the total income. Here is Everything Freelancers in Nepal Need to Know About the 5% Tax on Foreign Freelancing Income.

3.  Startups:

   100% exemption for the first 5 years for innovative businesses with annual turnover up to NPR 10 million.

4. Export-Oriented IT Services:

   50% tax exemption on export income​.

How to Calculate Taxes in Nepal

Step-by-Step Example

Here’s how you can calculate your tax:

1. Identify Taxable Income:
   • Subtract deductions (e.g., health insurance, retirement savings) from gross income.
2. Apply Tax Rate as per Income Slabs:
   • Use the progressive tax rates for each income range.
3. Add Surcharges (if applicable):
   • For incomes above NPR 2,000,000: Add 20% surcharge or apply flat 36% tax.
   • For incomes above NPR 5,000,000: Add 30% surcharge or apply flat 39% tax.

Example: For an individual (single) with a taxable income of NPR 6,000,000 per year: 

• Tax on the first NPR 500,000: 0% = NPR 0 (assuming the tax payer contributes to SSF)
• Tax on the next NPR 200,000: 10% = NPR 20,000
• Tax on the next NPR 300,000: 20% = NPR 60,000
• Tax on the next NPR 1,000,000: 30% = NPR 3,00,000
• Tax on the next NPR 3,000,000: 36% = NPR 1,080,000
• Tax on the remaining NPR 1,000,000: 39%=NPR 390,000
• Total Tax Liability = NPR 1,850,000.

Tax Tools: Simplifying Calculations Using Tax Calculator Nepal

Why Use a Tax Calculator?

A tax calculator automates the computation of tax liabilities by considering:

• Progressive tax rates.
• Deductions and exemptions.
• Surcharges and special provisions.

Where to Find Tax Calculators?

• Inland Revenue Department (IRD): Offers an official calculator tailored to Nepalese tax regulations.
• Tax Calculator by My Salary Slip: Offers detailed tax calculation for individual tax payers with income from salary in Nepal. 

Advanced Features in Nepal’s Tax System

1. Presumptive Taxation for Small Businesses:
   • For businesses with turnover < NPR 3 million, tax ranges from NPR 2,500 (rural areas) to NPR 7,500 (metropolitan areas). Here is how one can: Start a Business in Nepal and Pay Only Rs. 2,500 in Taxes: A Simple Guide for Small Business Owners
      
2. Transaction-Based Taxation:
   • For turnover between NPR 3 million and NPR 10 million, tax is based on a flat percentage of turnover​. Click here to know more about Simplified Method of Taxation for Small Businesses in Nepal
      

Additional Taxation Insights

1. Non-Residents:
   • Flat rate: 25% on taxable income sourced in Nepal.
   • Special provisions for shipping, air transport, and telecommunication services: 5%​.
2. Withholding Taxes (TDS):
   • Dividends: 5%.
   • Rent payments: 10%.
   • Contractual payments: 1.5%-15% depending on VAT registration​ i.e. TDS rate on payment to VAT registered contractors is only 1.5% while the TDS for others (i.e. only registered in PAN) is 15%. 

FAQs: Navigating Nepal’s Tax System

1. What are the latest tax rates in Nepal for individual tax payers?

Personal income tax starts at 0% for incomes up to NPR 500,000 (NPR 600,000 in case of married) and rises progressively to 39% for incomes above NPR 5,000,000.

2. Can startups get tax exemptions in Nepal?

Yes, startups with innovative solutions (specified/recognized by the Inland Revenue Department) and annual turnover below NPR 10 million are exempt for the first 5 years.

3. What is the tax rate for exporting IT services?

Export-oriented IT services enjoy a 50% tax exemption on their income​.

Final Thoughts

Nepal’s updated tax policies for FY 2081-82 (2024-25) introduce opportunities for deductions, exemptions, and simplified compliance. With tools like tax calculators and a robust understanding of tax rates in Nepal, managing your finances can become a streamlined process. And if you have any questions or need any tax related solution, drop an email to admin@khatapana.com