Chapter-20 Collection, Remission and Refund of Tax

103. Security for tax payable by withholding

(1) The tax required to be withheld by a person who has to withhold advance tax pursuant to Chapter-17 shall be given preference over any payment to be made by the order of a court or as per any other law or in any other manner.

Example 28.2.1: Suppose Annapurna Company is required to pay Rs. 1,00,000 for purchases, Rs. 50,000 as bank interest, and Rs. 10,000 as tax withheld in Kartik of 2080, on the 15th day of Mansir 2080. However, on that day only Rs. 1,00,000 is available for payment. In this situation, since the withheld tax is deemed to be held in trust for the Government of Nepal, the company must first pay the Rs. 10,000 withheld in Kartik 2080. The company may not pay any other obligation until that tax has been paid.

(2) The following provisions shall apply in respect of the tax withheld by a person who has to withhold advance tax pursuant to Chapter-17:-

(a) The tax withheld by such person as well as the property, if any, received for such tax shall be deemed to have been held for the Government of Nepal,

If any person withholds tax from any payment under Chapter 17, the withheld amount is deemed to be automatically held in trust for the Government of Nepal. Similarly, if any person receives any property as consideration for tax required to be withheld from any payment, such property together with the tax is deemed to be automatically held in trust for the Government of Nepal. The government's right and claim over that tax amount vests from the moment of withholding. If more tax was withheld than required, the person from whom tax was withheld may claim a refund of the excess.

Example 28.2.3: Suppose Annapurna Company in Mansir 2080 withheld Rs. 15,000 from a fee of Rs. 1,00,000 payable to Chandani and Company for audit services and paid the balance of Rs. 85,000. Chandani and Company, being registered for Value Added Tax (VAT), claimed that only Rs. 1,500 should have been withheld and sought a refund of the excess Rs. 13,500. If the person from whom tax was withheld claims that more tax was withheld than required, and if the amount has not yet been deposited as revenue, the excess must be refunded. If it has already been deposited, Chandani and Company may either offset the excess against its tax liability for that year or claim a refund from the Department.

Example 28.2.4: Suppose Annapurna Company in Mansir 2080 had a service fee payment of Rs. 1,00,000 due to N. Company. N. Company had already received Rs. 1,00,000 in advance and Annapurna Company paid the full amount without making any tax deduction. Annapurna Company requested N. Company to return the Rs. 15,000 that should have been withheld. N. Company, unable to pay cash, proposed instead to transfer a debenture of Rs. 15,000 in another company's name to Annapurna Company, and Annapurna Company agreed. In this situation, the debenture received in Annapurna Company's name is deemed to be held in trust for the Government of Nepal until the tax withheld from N. Company is deposited. Therefore Annapurna Company cannot transfer the right to that debenture to anyone at any time.

(b) The amount of tax so withheld shall not be attached to the loan or liability of such person, and

No person with the withholding obligation may set off the withheld tax amount, or the amount of tax required to be withheld, against their own debts or liabilities. A person cannot refuse to withhold tax on a payment to another merely because that other person owes them money. Similarly, the withheld or required-to-be-withheld tax cannot be shown as a payable liability and its payment deferred.

(c) If the person withholding advance tax becomes bankrupt or is dissolved, the amount of tax so withheld shall not be treated as a part of the assets so dissolved or become bankrupt; and in making distribution upon such dissolution or bankruptcy, the Department shall have the first lien over the tax withheld or over such property.

Security for withheld tax (Sec 103): tax withheld (or required to be withheld) under Chapter 17 is held IN TRUST for the Government from the moment of withholding, and must be paid in PRIORITY over every other obligation - even a court-ordered payment or a bank loan. The agent cannot set it off against its own debts/liabilities (103(2)(b)); on the agent's insolvency/dissolution the withheld tax is NOT part of the estate and the Department has the FIRST lien over it (103(2)(c)). Excess wrongly withheld is refundable to (or set off by) the withholdee

104. Lien over property

(1) Notwithstanding anything contained in the laws in force, if any person does not pay tax on the due date for payment of tax, the lien of the Government of Nepal shall be deemed to have been created over the property of the person who is in arrear of tax.

Under this provision, where a person has tax arrears, the Government of Nepal may acquire a statutory claim over that person's property. The claim extends to immovable property owned by the taxpayer and to movable property in the possession of the taxpayer, an associated person, or any other person in which the taxpayer has a legal interest. Such property may include business assets, depreciable assets, or non-business taxable property. Once the government's claim is validly established, the property is treated as being subject to the Government's claim and cannot be transferred or otherwise disposed of. However, the claim does not arise automatically merely because tax arrears exist; it arises only after the Department has complied with the procedures and requirements prescribed under the Act.

(2) When claiming the property over which the lien is created pursuant to sub-section (1), the Department shall give that person a written notice setting out the following matters:-

(a) Description of the property claimed,

(b) Limit of the claim referred to in sub-section (3),

(c) Tax related to the claim, and

(d) Other matters, if any.

The description of the claimed property means, for land, land and buildings, or a building, the location, area, plot number and the name and address of the owner. For other tangible property such as machinery, equipment, business stock, goods, cash or valuables, it means the location, type and quantity. The limit of the claim means the total amount of outstanding tax, interest payable under Section 119, and the costs of making the claim and conducting the auction sale. If the proceeds exceed that amount, the excess must be returned to the person. The tax related to the claim means the tax liability that gave rise to the claim, including the year for which the outstanding tax is owed and how the tax liability arose.

(3) When making a claim over property pursuant to sub-section (2), the claim shall be created only to the extent of the tax due and payable by such person, the interest payable in respect of such tax pursuant to Section 119 and the expenses incurred in auction sale.

When claiming any property of a person with tax arrears, the Department must give that person written notice specifying the limit of the claim. The limit of the claim means the total amount the Department may collect due to the person's tax arrears: outstanding tax, interest for late payment under Sections 118 and 119, and the costs of making the claim and auctioning the property. From the proceeds of any claimed property, the Department's rights extend only up to that calculated amount; any remainder must be returned to the person.

(4) The claim made pursuant to sub-section (2) shall not take effect unless and until the following matters take place:-

(a) In respect of a building and land, until the Department gives information to have the claim registered pursuant to sub-section (6),

(b) In respect of other tangible property, until the Department takes possession of such property pursuant to sub-section (3) of Section 105, and

(c) In any other circumstances whatsoever, until the notice referred to in sub-section (2) is given to the person who is in arrear of tax.

For the Department's claim to have legal effect over any property of a person with tax arrears, the Department must fulfil the following conditions: (a) For land, land and buildings, or a building, the Department must give information to the relevant land revenue office and cause the property to be frozen; this is called registering the claim. On receiving such written instructions, the land revenue office must freeze the property so that the owner cannot sell or transfer it. (b) For other tangible or movable property, the Department must take possession of such property after giving the person written notice of the claim.

(5) If the person in arrear of tax pays to the Department all the amounts referred to in sub-section (3) and covered by the claim made pursuant to sub-section (2), the property so claimed shall be released.

The Act provides that if a person with tax arrears files the outstanding amount, property that has been frozen or claimed must be returned. If the person pays the amount specified in the notice, the Department must release the claimed, possessed or frozen property. If the property is land, land and buildings, or a building, the Department must write to the relevant land revenue office to release it. For any other property, the Department must itself release it or hand it back to the person.

(6) If the Department makes a claim over any land or building pursuant to sub-section (2), information shall be given to the concerned Land Revenue Office; and that Office shall withhold such land or building so that it cannot be sold and disposed of or ownership transferred to any person.

If the Department needs to claim and enforce its right over land, land and buildings, or a building owned by a person with tax arrears, it must provide written information to the relevant land revenue office specifying the address, area and owner's name and address of the property and requesting it be frozen. On receiving such written instructions, the land revenue office must freeze the property so that the owner cannot sell or transfer it. Until the Department provides written instructions to freeze such property or registers its claim, the Department's claim or right over such property is not deemed to have arisen.

(7) If the claim over land and building has to be released pursuant to sub-section (5), the Department shall give information thereof to the Land Revenue Office. Upon receipt of such information, the Land Revenue Office shall release the withheld land and building.

(8) The Department shall promptly give the person in arrear of tax a notice setting out the following matters in respect of the expenses to be charged pursuant to sub-section (3):-

(a) The expenses incurred by the Department for the claim on the property of the person in arrear of tax and for the auction sale thereof, prior to giving such notice, and

(b) The date on which the person in arrear of tax shall pay such expenses to the Department.

The costs of making the claim and conducting the auction sale means the costs incurred or to be incurred by the Department in establishing, maintaining or releasing a claim, or taking possession of, maintaining and auctioning the claimed property. The Department must give the relevant person prompt notice of such costs, clearly stating the total amount and the date by which it must be paid.

Explanation: For the purposes of this Section, "expenses incurred for claim and auction sale" means the following expenses incurred or to be incurred by the Department:-

(a) The expenses incurred or to be incurred by the Department in creating or releasing the claim over the property pursuant to this Section, or

(b) The expenses incurred or to be incurred by the Department pursuant to Section 105 in possessing, holding and auctioning the claimed property.

105. Auction sale of claimed property

(1) The Department shall give the person in arrear of tax a notice on auctioning the claimed property held by the person in arrear of tax.

Before the Department auctions claimed property, it must give the person written notice specifying the property to be auctioned, the manner and time of the auction or sale, and the manner and location of taking possession of movable property. Such notice may be included in or given separately from the claim notice.

(2) The notice given pursuant to sub-section (1) may be included in or attached to the notice given pursuant to sub-section (2) of Section 104. Such notice shall clearly set out the following matters and be given to the person in arrear of tax:-

(a) The claimed property and the mode and time for its auction or sale, and

(b) In respect of tangible property, the mode and place of possessing the property by the Department.

(3) After the Department has given the notice referred to in sub-section (1) or (2) to the person in arrear of tax, it may do as follows:-

(a) Take possession of the tangible property mentioned in the notice at any time,

(b) For the purpose of taking possession of the tangible property, enter any premises mentioned in the notice referred to in sub-section (1) at any time, and

(c) In respect of tangible property except land or building, keep such properties at such place as thought proper by the Department, at the expense of the person in arrear of tax.

For the Department's claim over property to have legal force, it must give the person written notice of the claim. After giving such notice, the Department has the authority to take possession, enter any premises at any time, and cause movable property to be placed at any location it deems appropriate at the person's expense.

(4) If the Department has given the notice referred to in sub-section (1) to the person in arrear of tax, it may, at the following times, publicly auction such claimed property or sell, dispose of or use such property in such manner as thought proper:-

(a) If the claimed property is land or building, after thirty days from the date of possession of such property pursuant to sub-section (3),

(b) If the claimed property is a perishable tangible property, after one day from the date of possession pursuant to sub-section (3),

(c) If the claimed property is a tangible property except those mentioned in clause (a) or (b), after ten days from the date of possession pursuant to sub-section (3), and

(d) If the claimed property is any other kind of property, after ten days from the date of possession of such property pursuant to sub-section (3).

Rule 35(1): The Department shall, taking into account the nature of the property and the appropriate place for its sale, determine the location for the auction sale.

Rule 35(2): The Department shall conduct the auction sale of the possessed property subject to Section 105(4) of the Act as follows:

(a) publish a notice of the auction sale for at least ten days in at least one local newspaper in the area mentioned in sub-rule (1), if possible; but this provision does not apply to perishable or easily destroyed property;

(b) determine the market value of the property in the presence of the representative of the local government authority (municipality or rural municipality) of the area mentioned in sub-rule (1) and a representative of the nearest government office.

Rule 35(3): The auction shall be conducted in the presence of a representative of the local government authority nearest to the area mentioned in sub-rule (1), and the property shall not be sold unless a bidder offers a price at least equal to the market value determined under sub-rule (2)(b).

Rule 35(4): If the property fails to attract a bid at or above the market value, a second auction shall be held after publishing a seven-day notice pursuant to sub-rule (2)(a).

Rule 35(5): If the second auction also fails to attract a bid at or above the market value, a third auction shall be held after publishing a three-day notice pursuant to sub-rule (2)(a), and the property may then be sold at whatever price it fetches.

Rule 35(6): The Department shall issue a bill of transfer to the person who purchases the property at the auction.

Even after the Department has claimed, frozen or taken possession of property, if the person fails to file the outstanding tax, the Department may sell or dispose of such property. The procedure for auction sale is as follows:

(a) Determining the auction sale location: Before auctioning any claimed or possessed property, the Department must first determine the auction location appropriate to the nature of the property.

(b) Determining the value: Before auctioning, the Department must determine the minimum value of the property in the presence of the representative of the local government authority of the auction location and the representative of the nearest government office.

(c) Determining the time: Land or land and buildings must be auctioned thirty days after possession; other movable property ten days after possession; perishable movable property one day after possession.

(d) Publishing the auction sale notice: The Department must publish a notice clearly stating the type of property, auction location and date in one or more national or local newspapers for at least ten days before the date of the auction, except for perishable property.

(e) Selling the claimed property: In an open auction, the auction must be conducted in the presence of a representative of the local government authority. If no bidder offers at or above the minimum value, a second auction must be held after a seven-day notice; if the second auction also fails, a third auction is held after a three-day notice and the property may be sold at whatever price it fetches.

(f) Issuing a bill of transfer: The Department must issue a bill of transfer to the person who purchases the property at auction; if the auctioned property is land or a building, the Department must inform the relevant land revenue office to transfer ownership to the buyer's name.

(5) From the proceeds derived from the auction sale pursuant to sub-section (4), the expenses incurred in making the claim and auctioning the property shall first be deducted. After such expenses are deducted, the payable tax and the interest payable on the tax pursuant to Section 119 shall be deducted; and if any amount then remains, such amount shall be refunded to the person in arrear of tax.

The Department must use the auction or sale proceeds to settle the person's tax arrears. First, all costs of claiming and auctioning the property must be settled. The remaining amount must then be used to settle the outstanding tax and interest due under Section 119 up to the date of settlement. After settling the outstanding tax, interest and all costs, if any amount remains from the proceeds, it must be returned to the relevant person.

(6) After the proceeds derived from the auction sale have been adjusted pursuant to sub-section (5), the Department shall give the person in arrear of tax a written notice setting out the process of adjustment.

(7) If, in adjusting the proceeds derived from the auction sale by following the process referred to in sub-section (5), the proceeds are not sufficient to fully pay the amounts for the expenses, tax and interest mentioned in that sub-section, the Department shall re-institute action to recover the shortfall amount pursuant to Section 104, 111 or this Section.

If the auction proceeds are insufficient to settle all costs, outstanding tax and interest, the Department must proceed as follows:

(1) If the person has other assets or property besides the auctioned property, the Department must establish a fresh claim over such property pursuant to Sections 104 and 105 and initiate fresh auction sale proceedings;

(2) If the person has no other assets or property besides the auctioned property, the Department must file a lawsuit against that person at the relevant district court pursuant to Section 111 to recover the tax arrears.

Explanation: For the purposes of this Section,-

(a) "Claimed property" means the property of the person in arrear of tax mentioned in sub-section (2) of Section 103 or sub-section (2) of Section 104.

(b) "Expenses incurred in making claim and auction sale" means the expenses incurred in making claim and auction sale pursuant to Section 104.

(c) "Person in arrear of tax" includes the person withholding advance tax mentioned in Sections 103 and 104.

Lien & auction for tax arrears (Sec 104-105): unpaid tax by the due date creates a Government LIEN over the defaulter's property. The Department serves notice describing the property and the claim limit = outstanding tax + Sec 119 interest + claim/auction costs. The lien takes effect only on registration with the Land Revenue Office (land/building), taking possession (movable property), or service of notice (other) - and is released on full payment.

AUCTION (Sec 105, Rule 35): after notice and possession, property is auctioned - land after 30 days, perishables after 1 day, other property after 10 days; minimum price = market value set with a local-government representative; if unsold, a 2nd auction after 7 days' notice, then a 3rd after 3 days' notice at WHATEVER price it fetches. Proceeds: first costs, then tax + Sec 119 interest, surplus refunded; any shortfall pursued afresh under Sec 104/105/111

106. Prevention from leaving Nepal

(1) If any person does not pay tax within the time-limit due for the payment of tax, the Department may, by giving written notice to the concerned office of the Government of Nepal, issue an order to prevent such person from leaving the country for a period not exceeding 72 hours from the date of expiration of the time of issue of the notice to such person to pay tax.

If a person with tax arrears persistently avoids paying outstanding tax, or the Department deems it necessary, the Department may prohibit that person from travelling abroad for up to 72 hours. The Department must give written notice to the Ministry of Home Affairs, the Department of Immigration and border security agencies to prevent the person from leaving the country. Upon receiving such a request, the Ministry of Home Affairs must confiscate that person's passport, and the Department of Immigration and border security agencies must prevent travel.

(2) If it is required to extend the period mentioned in sub-section (1), the Department shall obtain prior leave of the concerned High Court.

For a prohibition on travel beyond 72 hours, prior approval must be obtained from the relevant High Court before extending the restriction period.

(3) If the person referred to in sub-section (1) pays tax or the Department considers that such person has made a satisfactory arrangement for payment of tax, it may withdraw such order by giving notice to the concerned office pursuant to sub-section (1).

Travel ban (Sec 106): the Department may bar a tax defaulter from leaving Nepal for up to 72 HOURS (passport confiscated via Home Ministry/Immigration); any longer needs prior HIGH COURT approval; lifted on payment or satisfactory arrangement (Sec 106).

107. Officer employees of entity to be held responsible

(1) If any entity does not observe anything required to be observed under this Act, each person who acts as the officer of that entity at that time shall be responsible therefor.

(2) If any entity does not pay tax on the due date for payment of tax, all officers who are incumbent in that entity at the time or were incumbent until six months prior shall be jointly and severally liable to pay that tax.

If any entity with a tax payment obligation fails to file the required tax within the prescribed time, the obligation to file such tax rests with the authorized officials of that entity. An entity means a partnership, trust or company, rural municipality, municipality or district coordination committee, the Government of Nepal, any foreign government or an authority or local government thereof, or any public organization established by a treaty or a foreign permanent establishment. Generally, the manager or a person of equivalent status currently working in, or who has worked in the last six months in, any entity with outstanding tax must file that tax. These officials are jointly and severally liable.

(3) Notwithstanding anything contained in sub-sections (1) and (2), those sub-sections shall not apply in the following circumstances:-

(a) Where the entity has committed such offence without the knowledge or consent of such person, and

(b) Where that person has, in order to avoid such offence, observed or exercised the same care, effort and skill which a reasonable person would observe or exercise in similar circumstances.

(4) If any person pays the tax required to be paid pursuant to sub-section (2), that person may do as follows:-

(a) Recover from that entity the amount so paid, and

(b) For the purposes of clause (a), hold under own control the property including the moneys of that entity which is in that person's possession or which may come under that person's possession, to the extent not exceeding the amount so paid.

(5) If any person holds any property under own control pursuant to clause (b) of sub-section (4), the entity or any other person shall not be entitled to make any claim against such person.

If an authorized official files outstanding tax on behalf of the entity, that official may recover from the entity the amount so filed. If recovery is not possible, the official may retain in their possession any cash or other property of the entity currently in or likely to come into their possession. No entity or other person may claim against such an authorized official over property so retained. The official may also recover from such retained property an amount equal to the tax they paid on behalf of the entity.

Explanation: For the purposes of this Section, "officer of any entity" means the manager of that entity or any person who acts in that capacity.

Officer liability (Sec 107): an entity's officers (manager or equivalent) - those in office at the time OR within the prior 6 months - are JOINTLY and severally liable for the entity's unpaid tax. EXCEPTION: an officer is not liable if the default occurred without their knowledge or consent AND they exercised the care, effort and skill a reasonable person would in the circumstances

108. Recovery of tax from recipient

(1) Each recipient shall give notice of the matter to the Department in writing within fifteen days of the date of appointment to the post of recipient or the date of having possession of the property situated in Nepal, whichever is earlier.

As soon as the Department receives information that a person with tax arrears has a receiver or that a receiver has been appointed, it must give the receiver written notice to pay or file the outstanding tax. Until the Department gives such written notice, the receiver is not obligated to file the outstanding tax.

(2) The Department shall give the recipient a written notice of the amount to be paid by the person in arrear of tax.

(3) On receipt of the notice referred to in sub-section (2), the recipient shall do as follows:-

(a) Set aside the amount notified by the Department under sub-section (2), after making payment of the loan, if any, which is preferential to the tax payable pursuant to sub-section (2) subject to clause (c) of sub-section (2) of Section 103, from the proceeds of the sale of the required portion of the property which has come under possession of the recipient, and

(b) Pay to the Department the amount so set aside for the tax liability of the person in arrear of tax.

(4) To the extent that no amount has been set aside by the recipient pursuant to sub-section (3), it shall be the personal liability of the recipient to pay to the Department the amount equal to the tax liability payable by such person in arrear of tax.

Provided that the recipient may recover from the person in arrear of tax the amount of tax so paid.

A receiver of a person with tax arrears must fulfil the following duties:

(a) Every receiver must give the Department written information of their appointment or role;

(b) such information must be given within ten days from the earlier of the date of appointment or the date of taking possession of any property in Nepal;

(c) if the Department gives the receiver written notice to pay or file the outstanding tax, the receiver must sell the necessary portion of the property in their possession and separately set aside the amount notified by the Department;

(d) the receiver must file the set-aside amount with the Department on behalf of the person with tax arrears;

(e) if any receiver fails to set aside any amount for the purpose of filing the outstanding tax, the receiver shall have personal liability to file that tax; however, if any receiver files the outstanding tax of a person with tax arrears pursuant to this legal provision, the receiver may recover from that person an amount equal to the tax so filed.

Explanation: For the purposes of this Section,-

(a) "Recipient" means any of the following persons:-

(1) A liquidator,

(2) A person appointed from outside or by a court as a recipient in respect of any property or entity,

(3) A person possessing property by mortgage,

(4) An heir apparent, administrator or manager of the property belonging to a deceased natural person, or

(5) A person looking after the affairs of an incapacitated natural person.

(b) "Person in arrear of tax" means the person whose property has come under the possession of the recipient.

109. Recovery of tax from the person liable to pay amount

(1) If a person in arrear of tax does not pay tax within the due date for payment of tax, the Department may, by giving a notice in writing, order any of the following payers to pay to the Department the amount to the extent of the tax payable on behalf of the person in arrear of tax, within the date mentioned in that notice:-

(a) The person who has to pay an amount to the person in arrear of tax,

(b) The person who holds money for or on behalf of the person in arrear of tax,

(c) The person who holds money on behalf of any third person in a manner to pay it to the person in arrear of tax, or

(d) The person who has received authority from a third party to pay the amount to the person in arrear of tax.

If the Department needs to collect outstanding tax from a person who owes money to a person with tax arrears, it may give written notice ordering that person to file an amount up to the outstanding tax with the Department within the specified date. Until the Department issues such an order, that person is not obligated to file the outstanding tax.

(2) The Department shall give a copy of the notice given to the payer pursuant to sub-section (1) to the person in arrear of tax.

(3) Notwithstanding anything contained in sub-section (1), the date mentioned in the notice referred to in that sub-section shall not be earlier than the dates mentioned in clauses (a) and (b):-

(a) The date on which the amount has to be paid to the person in arrear of tax or the date on which such amount has been held on behalf of that person, and

(b) The date on which the notice has been given pursuant to sub-section (2).

(4) The amount paid by the payer pursuant to sub-section (1) shall be deemed as paid to the person in arrear of tax. The person in arrear of tax or any other person shall not be allowed to claim such amount against the payer.

110. Recovery of tax from the agent of a non-resident person

(1) If a non-resident person in arrear of tax does not pay tax within the due date for payment of tax, the Department may, by giving a written notice, order any person in possession of any property owned by such non-resident person in arrear of tax to pay tax, on behalf of the person in arrear of tax, from the amount equivalent to the market value of that property, in respect of the tax liability of the third person, in a sum not exceeding the amount of tax payable by such person in arrear of tax, within the date mentioned in the notice.

If a non-resident person with outstanding arrears has any agent in Nepal, the Department may give that agent written notice ordering them to file, within the specified date, an amount up to the outstanding tax on behalf of the non-resident person. For this purpose, an agent of a non-resident person in Nepal means any person who holds any property owned by that non-resident person in their possession. Until the Department issues such an order, the agent is not obligated to file the outstanding tax.

(2) If any person pays the amount of tax as per the order referred to in sub-section (1), that person may do as follows:-

(a) Recover the amount of such payment from the person in arrear of tax, and

(b) For the purposes of clause (a), take under own control any property whatsoever, including the money belonging to the person in arrear of tax which is or would come in that person's possession, in a sum not exceeding the amount so paid.

(3) If any person takes possession of any property pursuant to clause (b) of sub-section (2), the person in arrear of tax or any other person shall not be allowed to make any claim against such person.

If any Nepal-based agent files the outstanding tax of a non-resident person pursuant to the Department's order, that agent has the following special rights: (a) the right to recover from the non-resident person the amount equal to the tax so filed; (b) the right to retain in their control, from among the non-resident person's property, any property currently in or likely to come into their possession, up to the amount so paid; and (c) if any person retains any property of a non-resident person pursuant to the above, the non-resident person with tax arrears or any other person shall not have any claim over such property.

Recovery from third parties (Sec 108-110): the Department can collect a defaulter's tax from others on written notice. RECEIVER/liquidator (Sec 108) - a liquidator, court-appointed receiver, mortgagee in possession, or administrator/heir of a deceased or incapacitated person must notify the Department within 15 days, set aside the noticed amount from sale proceeds (after any prior-ranking secured loan) and pay it; failing to set aside = personal liability. PERSON OWING MONEY to the defaulter (Sec 109) - a debtor, or anyone holding/authorised to pay money to the defaulter, must pay it to the Department up to the arrears (the notice date cannot precede when the money falls due). NON-RESIDENT's AGENT (Sec 110) - a person holding a non-resident defaulter's property pays from its market value. In each case the payer is treated as having paid the defaulter and may recover from / retain the defaulter's property; no claim lies against the payer

110A. Recovery of arrear tax in installments

If, prior to the institution of a case pursuant to Section 111, any person makes a written request to pay the arrear amount in installments, the tax officer may give approval to pay in installments, giving a reasonable time-limit.

Upon receiving such a petition, the Department may, considering the outstanding amount and the person's financial condition, permit that person to file the outstanding tax within a reasonable monthly period. If the Department grants such permission, it cannot file a lawsuit until the approved period expires. However, if the person fails to pay within such period, the Department is free to take action pursuant to Chapter 20.

110B. Responsibility of tax payment of joint venture

The persons involved in a joint venture shall be jointly or severally responsible for payment of the tax obligation of the joint venture in which they are involved.

No partner can claim that it was another partner who did it, or that they knew nothing about it, and attempt to escape liability.

110C. Person receiving real consideration to be responsible for payment of tax

If it is proved that the person receiving the real consideration of a business is different from the person registered for business, the person receiving such consideration shall be responsible for payment of tax of such business.

If it is proved that the person who actually receives the benefits of a business is different from the person in whose name the business is registered, the obligation to pay the tax of such business shall rest with the person actually receiving such benefits.

Arrears instalments, JV & real-beneficiary liability (Sec 110A-110C): 110A - before a Sec 111 lawsuit, a defaulter may apply in writing to pay arrears in monthly instalments; if the Department approves a reasonable period it cannot sue until that period lapses (but may act on default). 110B - partners in a JOINT VENTURE are JOINTLY and severally liable for the JV's tax; a partner cannot escape by blaming another or pleading ignorance. 110C - if the person actually RECEIVING the real consideration/benefit of a business differs from the registered owner, the real beneficiary is liable for that business's tax

111. Institution of case on failure to pay tax

The Department may file a case in the concerned District Court for the recovery of tax from the person who does not pay tax within the due time-limit for payment of tax.

Generally, the outstanding tax must be collected from any property of the person with tax arrears over which no other person has a prior claim. If the outstanding tax cannot be collected from the person's property, and if that person is an entity, the Department must seek collection from authorised officials of that entity, from the receiver, from a person who owes money to the person with tax arrears, and if the person is a non-resident, from that person's agent. Even where collection through these methods fails, a lawsuit must still be filed against the person with tax arrears pursuant to this section.

112. Remission

(1) If the tax payable by any person cannot be recovered, the Government of Nepal may remit such tax in full or in part.

(2) Notwithstanding anything contained in sub-section (1), the Government of Nepal may remit, in full or in part, the fee or interest imposed pursuant to Chapter-22.

The government periodically reviews tax arrears and forms high-level arrears screening committees or commissions to identify arrears to be remitted and to recommend remission, and remits such arrears based on the recommendations. If the government or such committees request any information or details regarding the person with tax arrears, the outstanding amount, and whether the arrears are collectible or not, the Department and relevant offices have the duty to provide such information.

Recovery suit & remission (Sec 111-112): Sec 111 - if tax is unpaid by the deadline, the Department files a recovery suit in the relevant DISTRICT COURT. Recovery is sought first from the defaulter's own (unencumbered) property, then (for an entity) from officers, the receiver, debtors of the defaulter, and a non-resident's agent - but a suit must still be filed even if those fail. Sec 112 - the Government of Nepal may REMIT uncollectible tax, and any fee or interest under Chapter 22, fully or partly; high-level arrears-screening committees review and recommend remission, and offices must supply requested arrears information

113. 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.

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.

(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.

(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).

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.

(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.

(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).

Tax refund & adjustment (Sec 113): excess tax arises where - (a) tax was wrongly withheld or withheld at too high a rate (e.g. 15% instead of 1.5%); (b) tax was withheld from a tax-exempt person with no taxable income; (c) instalment tax exceeds the assessed tax; (d) an amended/re-assessed amount is later reduced by the Department or a court; (e) tax was paid by mistake with no obligation. The Department first SETS OFF the excess against any other outstanding tax (on request or on its own), then REFUNDS the balance within 60 DAYS of a complete application. Interest paid under Sec 119 on tax later found not due is also refunded (113(2)).

The refund application must be filed within 2 YEARS of the LATEST of: the income-year end, the date of the excess payment, or the date the case was decided - otherwise no refund