A Comprehensive Guide to Taxation Arrangements for Natural Persons in Nepal for F/Y 2080/81
Jun 8, 2023 - 6 min read
Discover the taxation arrangements for natural persons in Nepal for the upcoming fiscal year 2080/81. Understand the distinctions between resident and non-resident persons, explore tax rates for married and unmarried individuals, and learn about deductible amounts from taxable income. Stay informed about the latest tax provisions to ensure compliance and optimize your financial planning.
As per foundation laid by the budget for fiscal year(F/Y) 2080/81 for the reformation of the tax regime, Financial Bill, 2080 has provided various arrangements for commercial and individual taxation that will be prevalent for the upcoming F/Y 2080/81. Taxation regime of any country is more jurisdictional than universal in nature. In Nepal, the application of tax arrangements is different for natural persons and legal persons, residents and non-residents, even married and unmarried individuals.
In this comprehensive guide we will understand the taxation arrangements for natural persons with personal income.
In Nepal, tax is applied to resident natural persons on the basis of the personal income generated, regardless of the source of the income. While the non-resident natural persons are taxed on the basis of the income generated from the source in Nepal.
But first, how are resident and non-resident persons determined for tax application in Nepal?The distinction is simple, persons who have been living in Nepal for more than 183 days in a period of 365 days, including citizens and foreigners are considered residents of Nepal.
In the same manner considering the financial dependency of married individuals, the tax slab on income of married individuals i.e. couples is slightly more flexible than that for single individuals.
Personal Income Tax Rates for Resident Natural Persons in Nepal for FY 2080/81
Lets learn about the new tax rates applicable in the upcoming F/Y 2080/81, for married and unmarried individuals with varied taxable income from the table illustrated below along with an illustration:
|S.N||Taxable income (in Rs)||Applicable tax rates (Updated for F/Y 2080/81)||Illustration: For an individual with 6,000,000 taxable income the tax payable are:|
|1.||Up to 500,000||Up to 600,000||1% * (by special provision)||5,000||6,000|
|2.||Above 500,000 up to 700,000||Above 600,000 up to 800,000||10%||20,000||20,000|
|3.||Above 700,000 up to 1,000,000||Above 800,000 up to 1,100,000||20%||60,000||60,000|
|4.||Above 1,000,000 up to 2,000,000||Above 1,100,000 up to 2,000,000||30%||300,000||270,000|
|5.||Above 2,000,000 up to 5,000,000 (additional 20% in the tax slab of S.N. 4)||Above 2,000,000 up to 5,000,000 (additional 20% in the tax slab of S.N. 4)|
(additional 20% of 30)
(additional 30% in the tax slab of S.N. 4)
(additional 30% in the tax slab of S.N. 4)
(additional 30% of 30)
|Payable tax for an individual earning Rs. 6,000,000||18,55,000||18,26,000|
*However, the tax rate of 1% under S.N 1 is not applicable to taxpayers registered as a sole proprietorship or on pension income or income from contribution-based pension fund or natural perosns depositing the amount in Social Security Fund (SSF).
Amount Deductible from Taxable Income of Natural Person
1. Retirement Contribution and SSF Contribution Amount
- Rs. 300,000 or one third of the person's declarable income, whichever is lesser, is deductible from the taxable income of a natural person who is the beneficiary of a retirement fund.
- Rs. 500,000 or one third of the person's declarable income, whichever is lesser, is deductible from the taxable income of a natural person who is the beneficiary of a SSF established as per the SSF ACT, 2074.
2. Remote Area Allowance
Amount deductible from the taxable income of natural person working in varied remote areas:
|Classification of Remote Area||Deductible Amount from Taxable Income in Rs.|
3. Diplomatic Allowance
75% of the diplomatic allowance is deductible from taxable income of employees working in the foreign based diplomatic agencies of Nepal.
4. Pension Income
Resident natural persons with pension income can get 25% deduction from taxable income, in addition to the existing exemption limit.
5. Income of Incapacitated Natural Person
Resident natural persons with incapacitation can get an 50% deduction from taxable income, in addition to the existing exemption limit.
6. Investment Insurance Premium
Rs. 40,000 or payment made for the annual premium of insurance, whichever is lesser, is deductible from the taxable income of a resident natural person with investment insurance.
7. Health Insurance Premium
Rs. 20,000 or payment made for the annual premium of insurance, whichever is lesser, is deductible from the taxable income of a resident natural person with health insurance insured from the resident insurance company.
8. Private Residence Insurance Premium
Rs. 5,000 or payment made for the annual premium of insurance, whichever is lesser, is deductible from the taxable income of a resident natural person having ownership of private residence with its insurance insured from the resident insurance company.
9. Salaried Income of Resident Female
A resident female who only derives salaried income will get 10% exemption on tax liability.
10. Medical Tax Credit
Rs. 750 or 15% of the approved medical expense, whichever is lesser, is deductible from tax liability.
Presumptive Tax: For Those filing D-01 Income Tax Returns
Criteria for presumptive taxpayers:
a) Person is a resident natural person.
b) Person having only Nepal source business income.
c) Has not claimed a medical tax credit under section 51 and advance tax credit under section 93.
d) Having taxable business income not exceeding Rs 300,000 and business turnover not exceeding Rs 3 million.
Resident natural persons with taxable income of not more than Rs. 300,000 earned from business and taxpayers with business turnover of not more than Rs. 3 million will be subject to following provisions of taxation:
Tax rates(D01 Income Tax Returns) for resident natural persons with taxable income of not more than Rs. 300,000 and business turnover of not more than Rs. 3 million for F/Y 2080/81
|Business Area||Tax Liable for F/Y 2080/81 in Rs.|
Turnover Tax: For Those filing D-01 Income Tax Returns
Resident natural person as taxpayer fulfilling the following criteria in Note 1 will be subject to payment of tax in the combination of either section (a) or section (a) + section (b) or section (b) + section (c) as illustrated below:
Note 1: Criteria for Turnover Taxpayers:
1. With income only from business sourced in Nepal,
2. With taxable income of not more than Rs. 1 million and business turnover of above Rs. 3 million up to Rs. 10 million
3. With no income providing professional consultancy and expertise service
Section (a)- For Turnover up to Rs. 3 million
|Business Area||Tax Liablilty in Rs.|
Section(b) -For Turnover from Rs. 3 million up to Rs. 5 million
|Nature of Business||Tax Liability in % of Rs. 3 million up to Rs. 5 million|
|Person conducting transaction of goods including gas, cigarette by adding up to three percent commission or price||0.5|
|Person dealing in goods not specified above||1|
|Person dealing in Services*||2|
Section(c) -For Turnover from Rs. 5 million up to Rs. 10 million
|Nature of Business||Tax Liability in % of Rs. 5 million up to Rs. 10 million|
|Person conducting transaction of goods including gas, cigarette by adding up to three percent commission or price||0.3|
|Person dealing in goods not specified above||0.8|
|Person dealing in Services*||2|
*However, the person who derives income from consultancy or expert services that are provided by a natural person including doctor, engineer, auditor, lawyer, sportspersons, artist or consultant cannot choose to pay turnover tax
Persons subject to Turnover Tax should pay tax on two instalments as illustrated below according to section 94(1a) of Income Tax Act, 2058:
|Due Date for Payment||Payable Tax Amount|
|Until the end of Poush||Tax amount according to the rate prescribed for the actual turnover until Poush 20|
|Until the end of Asar||Tax amount that is equal to the sum of the tax amount for the actual turnover until Asar 20 added with assumed turnover till the end of Asar, which is deducted from tax amount paid until the end of Poush|