Nepal's Income Tax Act, 2058 does not just tell taxpayers what they owe. Section 113 also covers what happens when a taxpayer pays more than required, whether through over-withholding, an estimate that turned out too high, or a mistaken filing. This article sets out the statutory text of Section 113 alongside its worked examples and a real Inland Revenue Department circular, organized so the rules, the process, and the exceptions are easy to find.
Overview of Section 113
Section 113 of Income Tax Act 2058(2002) - Tax refund and adjustment of amount
(1) If any person has paid tax exceeding the tax liability payable by that person, the Department may give direction to subtract the excess amount of tax paid from the amount of tax payable by that person pursuant to this Act. The Department shall refund the excess amount resulting from such subtraction to the concerned person.
When Does Excess Tax Arise?
In any one or more of the following circumstances, the tax filed by any person for any income year may exceed the tax required to be filed for that year:
(a) If tax was withheld on a payment that should not have been subject to withholding, or if tax was withheld at a higher rate: If tax was withheld and deposited on a payment received by any person in any income year that should not have been subject to withholding, or if tax was withheld at a rate higher than the prescribed rate, the tax filed by that person may exceed the tax required to be filed.
Example 28.15.1: Suppose Uttam Prasad is an accountant registered for Value Added Tax (VAT). He earned Rs. 5,00,000 from such profession in income year 2080/81, and all payors withheld tax at 15 percent instead of the correct 1.5 percent. In this situation, the tax withheld and deposited may exceed the tax he is required to pay per his assessment, and he may claim a refund of the excess withheld amount.
(b) If tax has been withheld from a tax-exempt person: If tax is withheld and deposited from a payment received by a tax-exempt person in any income year for an activity consistent with their purpose, and if that person has no taxable income, the tax filed will exceed the required tax.
Example 28.15.2: Suppose Skill Development Centre is a non-governmental organisation with tax exemption for providing skill-based training. In income year 2080/81, this organisation conducted a skill-based training pursuant to the request of the Ministry of Finance and consistent with its own purpose. For this, when the Ministry of Finance paid Rs. 2,00,000 pursuant to the agreement, it withheld Rs. 30,000 as tax and deposited it. Since this organisation did not engage in any activity contrary to its purpose in this income year and did not earn any taxable income, it is deemed to have filed Rs. 30,000 in excess tax and may claim a refund.
(c) If the estimated tax paid in instalments exceeds the tax payable under the assessment: If the estimated tax paid in instalments by any person exceeds the tax payable under the assessment, the tax filed exceeds the required tax.
Example 28.15.3: Suppose N.N. Company estimated its income for income year 2080/81 at Rs. 3 crore and filed estimated tax of Rs. 75,00,000 in instalments. However, when the company prepared its tax assessment, the tax payable came to only Rs. 50,00,000. In this situation, since the tax filed exceeds the required tax, it may claim a refund of the excess amount.
(d) If any person filed tax pursuant to an estimated, amended or re-assessed tax determination but is found not to owe such tax: If the Department issued an amended or re-assessed tax determination ordering a person to pay tax, penalty or interest, and that person filed all or part of such ordered amount, and if the Department or any court determines that all or part of such ordered amount is not owed by that person, the amount filed minus the amount found to be owed becomes excess tax.
Example 28.15.4: Suppose N.N. Company filed Rs. 50,00,000 as tax for income year 2080/81 in its tax assessment. The office issued an amended tax assessment ordering an additional Rs. 12,00,000 as tax, penalty and interest. The company, not agreeing with the decision, filed one-quarter, Rs. 3,00,000, and submitted a petition for administrative review to the Department. The Department determined that only Rs. 2,00,000 of the additional tax ordered by the office needed to be paid. From the Rs. 3,00,000 filed, subtracting the Rs. 2,00,000 determined to be payable, the remaining amount is excess tax filed by the company, and it may claim a refund of that excess.
(e) If any person mistakenly files tax: If any person, whether or not they have a tax payment obligation, mistakenly files an amount as tax when they have no obligation to do so, that person is deemed to have filed excess tax.
The tax paid by any person means the total of: tax withheld and deposited when receiving payments; tax paid in instalments; tax, penalty and interest paid when submitting an income return or at any other time; and tax, penalty and interest paid pursuant to an estimated, amended or re-assessed tax determination.
Example 28.15.5: Suppose Ram Narayan operates a medicine business from his own home. He had a turnover of Rs. 5 crore in income year 2080/81, estimated a tax liability of Rs. 5 lakh on the income earned and filed an income return, and paid Rs. 5 lakh as instalment tax. He supplied medicine worth Rs. 1 crore to a hospital, and the hospital withheld Rs. 1,50,000 as tax and deposited it. He also had interest income from an insurance company on which Rs. 5,000 was withheld. Ram Narayan opted for couple status that year. Total tax filed by Ram Narayan: instalment tax Rs. 5,00,000 + tax withheld by the hospital Rs. 1,50,000 + tax withheld on bank interest Rs. 5,000 = Total tax filed Rs. 6,55,000.
(2) If the tax in relation to which any person has paid interest pursuant to Section 119 is not required to be paid, the Department shall refund such interest to that person.
If any person has filed more tax than required and has outstanding tax under the Act, the Department may direct that person to offset the excess filed tax against any other tax payable or outstanding under the Act. Such a direction may be given by the Department at the request of that person or on its own initiative.
Example 28.15.7: Suppose N.N. Company filed Rs. 50,00,000 as tax for income year 2080/81 in its tax assessment. The office issued an amended tax assessment ordering an additional Rs. 12,00,000 as tax, penalty and interest. The company filed one-quarter, Rs. 3,00,000, and submitted a petition for administrative review. The Department determined that only Rs. 2,00,000 of the additional tax needed to be paid. From the Rs. 3,00,000 filed, subtracting the Rs. 2,00,000 determined to be payable, the remaining balance is excess tax. The company submitted an application for a refund of Rs. 1,00,000. However, the company has outstanding tax of Rs. 1,00,000 from the amended tax assessment for income year 2079/80. In this situation, the Department may direct the company to offset the Rs. 1,00,000 excess filed in income year 2080/81 against the outstanding tax of income year 2079/80.
Refund Process and Offsetting Against Other Tax
(3) If any person makes an application to the Department, as prescribed, for the refund of the amount pursuant to sub-section (1), the Department shall refund such amount within sixty days of the date on which the application was made.
Rule 36: When claiming a refund pursuant to Section 113(3) of the Act, an application must be submitted to the Department along with documents substantiating that the claimed amount was filed in excess and any other documents required by the Department, in the form prescribed by the Department.
Filing Deadlines for a Refund Application
(4) The person who makes an application pursuant to sub-section (3) shall do so within five years from the latest of the following dates. If an application is not made within that time-limit, the amount referred to in sub-section (1) shall not be refunded:-
(a) The date of expiration of the income year to which the excess payment relates,
(b) The date on which the excess amount is paid, or
(c) The date on which the case is decided.
Example 28.15.9: Suppose N.N. Company filed Rs. 50,00,000 as tax for income year 2079/80. The office, on date 2081.4.10, made an amended tax assessment ordering an additional Rs. 12,00,000 as tax, penalty and interest. The company filed one-quarter, Rs. 3,00,000, and submitted a petition for administrative review. The Department, on date 2081.7.5, determined that only Rs. 2,00,000 needed to be paid. From the Rs. 3,00,000 filed, subtracting Rs. 2,00,000, the remaining amount is excess tax. The company has no outstanding tax. In this situation, the company may submit an application for the refund of Rs. 1,00,000 by date 2083.7.4.
Example 28.15.10 (Incorrect in directive) : Suppose Skill Development Centre is a non-governmental organisation with tax exemption for providing skill-based training. In income year 2080/81, this organisation conducted a training pursuant to the request of the Ministry of Finance and consistent with its own purpose. For this, on date 2080.8.10, when the Ministry of Finance paid Rs. 2,00,000 pursuant to the agreement, it withheld Rs. 30,000 as tax and deposited it. Since this organisation did not engage in any activity contrary to its purpose in this income year and did not earn any taxable income. Pursuant to Section 102(4), the organisation must submit its refund application within two years from the latest of:
the expiration of Income Year 2080/81,
the date the excess tax was paid (2080.8.10), or
the date on which the case is decided, if applicable.
As there was no later decision, the relevant date is the expiration of the income year, and the refund application should be filed within two years from that date.
(5) The Department shall give a written notice of the decision made by it on the application made pursuant to sub-section (3).
Simplified Refund Procedure in Practice
The procedure for income tax refunds pursuant to Section 113 of the Income Tax Act, 2058 has been simplified as follows:
(1) If any person has paid tax in excess of their tax liability, the excess amount shall first be offset against any other outstanding tax; any remaining amount shall be refunded;
(2) The format for a refund application shall be as per Schedule 12;
(3) The application must be submitted at the relevant office in the prescribed format with documents substantiating the excess and any other documents required by the Department;
(4) After receiving a refund application, the relevant office must conduct a full tax audit or TDS audit only as needed, make a decision on the income tax refund, and write to the Department requesting release of the amount;
(5) The office's decision must include the taxpayer's name, PAN, address, date of application, amount claimed, confirmation the application was submitted within the deadline, date of approval of the tax audit report, confirmation the taxpayer has no tax arrears, total tax filed and total tax payable for the relevant income year, and the excess amount filed; (
6) Excess income tax must be refunded within 60 days from the date of receipt of the application.
Interest on Refunds
(6) When refunding any amount of tax to any person by virtue of the order of a court or any other reason, the Department shall pay to such person interest at the normal rate for the following period:-
(a) If such tax refund is related to the excess tax adjustment available to any person in any income year pursuant to Section 93, 94 or 100, the period between the due date for submission of the income return pursuant to Section 96 and the date of tax refund, and
(b) In any other case, the period between the date of payment by such person of the refundable tax and the date of tax refund.
When refunding excess tax filed by any person, interest at the general interest rate, i.e., 15 percent per annum, must also be paid regardless of the reason for which the excess tax is refunded. Interest for the following periods must be paid:
(a) If the tax amount to be refunded is related to tax withheld in any income year, interest must be paid for the period from the due date for submitting the income return for that income year to the date of the refund.
(b) If the tax amount to be refunded is instalment tax paid under Section 94, interest must be paid for the period from the due date for submitting the income return for that income year to the date of the refund.
(c) If the tax amount to be refunded is tax filed pursuant to an estimated tax assessment made by the Department under Section 100, interest must be paid for the period from the due date for submitting the income return for that income year to the date of the refund.
Example 28.15.11: Suppose Ram Narayan operates a medicine business. He supplied medicine worth Rs. 1 crore to a hospital, and on date 2080.10.5 the hospital withheld Rs. 1,50,000 as tax and deposited it. The income return for Ram Narayan for that year was not subject to an amended assessment. From the tax filed, Rs. 1,50,000 is found to be excess. Ram Narayan submitted an application for refund on date 2082.5.4. If a refund decision is made, interest at 15 percent per annum must also be paid for the period from date 2081.7.1 (the due date for filing the income return) to the date of the refund.
Example 28.15.12: Suppose N.N. Company estimated its income at Rs. 3 crore for income year 2079/80 and filed estimated tax of Rs. 75,00,000 in instalments. Rs. 30 lakh as the first installment in Poush end of 2079, Rs. 25 lakh as the second installment in Chaitra end of 2079,The third instalment of Rs. 20 lakh was paid on Ashadh 20, 2080. However, the tax payable came to only Rs. 50,00,000 and the office's amended tax assessment determined an additional tax liability of Rs. 5 lakh. The company did not submit any petition and has no outstanding tax. The Rs. 20 lakh paid on Ashadh 20, 2080 is excess tax. The company submitted an application for refund on Baisakh 19, 2081. If it is determined that the amount is to be refunded, interest at 15 percent per annum must also be paid on the Rs. 20 lakh from Kartik 1, 2080 to the date of the refund.
Example 28.15.13: Suppose Ram Narayan is an agent of a foreign company. He had a turnover of Rs. 5 crore up to Mansir month of income year 2079/80. He closed his business on the 5th of Poush 2079 without reporting this to the office or filing any tax. The office made an estimated tax assessment of Rs. 5 lakh on date Chaitra 2, 2079. He filed the tax per the assessment but appealed to the Department. The Department, on date 2080.6.6, determined that only Rs. 2 lakh needed to be paid. From the tax filed, Rs. 3,00,000 is excess tax. Ram Narayan submitted an application for refund on date 2081.10.4. If a refund decision is made, interest at 15 percent per annum must also be paid for the period from date 2080.7.1 to the date of the refund.
Exclusions: What Cannot Be Refunded or Carried Forward
(7) Tax deduction that can be claimed pursuant to Section 51 or 71 in any year shall not be adjusted, and such tax deduction shall not be adjusted in amounts or refunded pursuant to this sub-section.
Provided that the tax deduction adjustment may be made in that year in accordance with the provisions of sub-section (2) of Section 4, sub-section (4) of Section 51 and sub-section (3) of Section 71.
When calculating excess tax filed by any person, the tax credit claimable for approved medical treatment expenses of a natural person and any foreign tax of any person are not included. Therefore, if the tax credit claimable for approved medical treatment expenses, i.e., Rs. 1,500, cannot be offset against the tax payable in any income year, or if the foreign tax of any person is filed in excess in any year, such amounts cannot be offset against any other income tax payable by that person or claimed as a refund. However, the tax credit settlement for that year may be carried out pursuant to Section 4(2), Section 51(4) and Section 71(3).
Illustrative Examples: Adjusting an Excess Deposit Credit
Example 16.4.4: Suppose that in a given income year, BCZ & Co.'s tax liability is only Rs. 50,000, but the amount it deposited after deducting tax on payment in that income year is Rs. 60,000. After adjusting the tax, it may, under Section 113 of the Act, either carry the excess forward for adjustment in the following income year or claim a refund.
Example 16.4.5: Suppose the same BCZ Co. has a tax liability of Rs. 1,00,000 for income year 2080/81, and in that same fiscal year it failed to adjust the tax on a house rent payment made through ABC Company. BCZ Co. cannot claim adjustment, in a later income year, of the tax deducted at source and paid in income year 2080/81. However, it may claim a refund of the excess tax paid under Section 113 of the Act.
Case Study: IRD Circular on Transfer of Credit (TC)
Circular
मिति: २०७९/०९/२४, च.नं.: ४०, आ.रा.वि बाट जारी विगत आय वर्षमा बढी दाखिला कर TRANSFER OF CREDIT (TC) मार्फत मिलान गर्ने सम्बन्धमा ।
बिगत आय वर्षहरूको पुन: कर निर्धारणबाट बढी दाखिला कायम भएको कर रकम आगामी आय वर्षहरूमा मिलान गर्न करदाता स्वयंले अनुसूची १० मा सार्न नसक्ने भएको हुँदा सो सम्बन्धमा कार्यालयको निर्णय बमोजिम उक्त बढी दाखिला मिलान गर्न पाउने क्रेडिट रकम (TC) लाई करदातालाई कुन आय वर्षमा मिलान गर्न पाउने हो सोही आ.व.मा कार्यालयले नै ITS मा Officer Portal भित्र रहेको Income tax System को Transfer of Credit (TC) बाट मिलान गर्न पाउने क्रेडिट रकम प्रविष्टि गर्ने र TC मिलान गर्ने कारणको लागि कैफियत महलमा कार्यालयले गरेको निर्णयको संक्षिप्त व्यहोरा प्रविष्टि गर्नसकने गरी विगत आय वर्षमा बढी दाखिला कर रकम मिलान गर्न पाउने।
English Translation:
Date: 2079/09/24 B.S., Letter No.: 40, issued by the Inland Revenue Department regarding adjustment of excess tax deposited in a previous income year(s) through TRANSFER OF CREDIT (TC).
Since a taxpayer cannot, on their own, carry forward to future income years the excess tax amount established as an excess deposit through re-assessment of previous income years (as it cannot be entered in Schedule 10), the Office, per its decision on this matter, shall itself enter in the same income year in which the taxpayer is entitled to have the excess deposit adjusted the credit amount eligible for such adjustment through the Transfer of Credit (TC) feature of the Income Tax System, available within the Officer Portal in ITS. The Office shall also enter, in the remarks field, a brief account of its decision explaining the reason for the TC adjustment. This will allow the excess tax deposited in the previous income year to be adjusted accordingly.
Key Takeaways
Section 113 gives taxpayers a real, enforceable right to recover overpaid tax, whether the excess arose from over-withholding, an estimate that ran high, or a re-assessment that was later reduced. The mechanics matter as much as the entitlement: excess tax is first applied against other outstanding tax, refund applications must meet the prescribed format and the five-year deadline, and interest at 15 percent per annum runs from the filing due date, not from the date of application. Medical and foreign tax credits sit outside this ordinary route, and the Transfer of Credit circular shows how the Department has, in practice, closed a gap that Schedule 10 could not handle on its own.
