Chapter-22 Fees and Interest

117. Fees to be charged in event of failure to maintain documents or to submit return or income return

(1) If any person does not submit the following details, the following charge shall be imposed on that person:-

(a) If the return of any income year has not been submitted pursuant to sub-section (1) of Section 95, five thousand rupees or 0.01 percent of the assessable income amount mentioned in the return, whichever is higher,

Section 95(1) of the Act requires a person who has to pay installment tax to file an estimated return stating the estimated installment amount payable by the due date for that year's installment, in the format and manner prescribed. A person who fails to file such a return shall be liable to a fee of five thousand rupees per return or 0.01 percent of the assessable income shown in the income return, whichever is higher.

Example 29.2.1: Suppose that in income year 2080/81, a person's estimated tax liability based on estimated income is Rs. 10,000. Such person must file the relevant return with the concerned office by end of Poush 2080 under the provisions of Section 95 of the Act. If such person fails to file such return by that date, the person must pay a fee of Rs. 5,000. If the assessable income of such person is Rs. 6 crores, a fee of Rs. 6,000 shall be payable. Such fee must also be paid by a person who pays the tax amount but fails to file the return.

(b) If any person required to collect advance tax has not submitted the details pursuant to sub-section (9) of Section 95A, such person shall be imposed a charge of one and half percent per year of the amount of advance tax to be collected, for each month and portion of the month, from the date required to make submission until the date of actual submission,

As per Section 95A(9) of the Act, every person required to collect advance tax has a legal obligation to submit the advance tax collection return in the format and manner prescribed by the Department within 25 days of the end of each month. A fee shall be levied on those who fail to fulfil this obligation. Such person is liable to a fee at the rate of 1.5 percent per year of the amount required to be collected, from the due date of the return to the date the return is filed. Such fee applies to each month or part of a month.

(c) If the income return of any income year is not submitted pursuant to sub-section (1) of Section 96, for the person mentioned in sub-section (4) of Section 4, an amount at the rate of one thousand two hundred rupees per return and one hundred rupees per month for a period of less than one year; and for other persons, an amount at the rate of 0.1 percent per year of the assessable income computed without deducting any amount that can be deducted and by including any amount that has to be included, or one thousand two hundred rupees per return and one hundred rupees per month for a period of less than one year, whichever is higher, and

Every person with taxable income must file an income return as per Section 96(1) with the concerned office within 3 months of the end of the income year, or within the extended period if granted. A person who fails to file such a return shall be liable to fees under Section 117(1)(c). Such fees, for persons covered under Section 4(4) (persons required to pay presumptive lump-sum tax), shall be twelve hundred rupees per return and, for periods of less than one year, an amount at the rate of one hundred rupees per month. For any other person, a fee equal to the higher of: 0.1 percent per year of the assessable income for that income year calculated without deducting deductible amounts and including amounts required to be included, or twelve hundred rupees per return and, for a period of less than one year, an amount at the rate of one hundred rupees per month, shall be levied.

Example 29.2.2: Suppose Gaurav and Sons Pvt. Ltd. received an extension under Section 98 until end of Poush 2081 to file its income return for FY 2080/81. Despite the extension, the company failed to file the return within the extended period and filed its income return at the income tax office only on Magh 9, 2081. For that year, the amount to be included in income under Section 7 of the Act was Rs. 50 lakhs, and the claimable deduction was Rs. 40 lakhs. The fee payable by the said company under Section 117(1)(c) of the Act shall be calculated as follows:

• Amount to be included in income: Rs. 50,00,000

• Deductions: Not claimable (not to be deducted)

• Assessable income for the purpose of Section 117(1)(c): Rs. 50,00,000

• Period of fee liability (from Kartik 2081 to Magh 2081): 4 months

• Fee under Section 117(1)(c):

• Rs. 50,00,000 x 0.1% / 12 x 4 = Rs. 1,667

Since Gaurav and Sons Pvt. Ltd. received an extension until end of Poush 2081 for filing the income return, and if the return had been filed within that extended deadline, the fee under Section 117(1)(c) would not have been applicable. However, since the return was not filed within the extended deadline, the fee under Section 117(1)(c) of the Act applies from the deadline for filing the return under Section 96(1), i.e., from the three-month deadline after the end of the income year (from Kartik month).

(d) If the income return of any income year is not submitted pursuant to sub-section (2) of Section 97, an amount at the rate of 0.1 percent per year of the assessable income after deducting the income subject to final withholding tax, or one thousand two hundred rupees per return and one hundred rupees per month for a period of less than one year, whichever is higher.

For Natural Person with income over 40 lakh

(2) If any person does not maintain the documents required to be maintained in any income year pursuant to Section 81, a charge of 0.1 percent per year of the assessable income computed without deducting any deductible amount and by including any includable amount, or one thousand rupees, whichever is higher, shall be imposed on such person for each month and portion of the month.

As per Section 81 of the Act, every person with a tax liability must maintain for 5 years from the date of the relevant income year documents of the kind prescribed by the Department, including auditor-certified reports, income returns, and documents supporting tax determination and expense deductions. Failure to maintain such documents results in a fee equal to the higher of 0.1 percent of the assessable income for that income year calculated without deductions and with all required inclusions, or Rs. 1,000.

Example 29.2.3: Suppose Old Company Private Ltd. sold goods worth Rs. 40 lakhs in income year 2080/81. The total expenses for that year were Rs. 30 lakhs. The company did not maintain documents substantiating the expenses. In this situation, since the company failed to maintain documents as required under Section 81, the fee under Section 117(2) shall be calculated as follows:

(1) Assessable income for this purpose: Rs. 40 lakhs;

(2) Amount at 0.1 percent of assessable income: Rs. 4,000;

(3) Minimum fee: Rs. 1,000.

In this situation, the company must pay a fee of Rs. 4,000.

(3) If any person withholding tax does not submit the return referred to in sub-section (1) of Section 90, a charge of two and half percent per year of the amount of tax to be withheld shall be imposed on such person for each month and portion of the month from the due date for submission of the return until the date on which such return is submitted.

As per Section 90(1) of the Act, every person required to withhold tax has a legal obligation to submit the withholding tax return in the format and manner prescribed by the Department within 25 days of the end of each month. A fee shall be levied on those who fail to fulfil this obligation. Such person is liable to a fee at the rate of 2.5 percent per year of the amount required to be withheld, calculated from the due date of the return to the date the return is filed. Such fee applies to each month or part of a month.

Example 29.2.4: Suppose Jivandhara Ltd. withheld Rs. 20,000 in tax during payments in Shrawan 2080. The entity paid the said tax within Bhadra 25, 2080, but filed the return only on Asoj 3, 2080. In this situation, the following fee must be paid under Section 117(3) of the Act: Amount of tax withheld in Shrawan 2080: Rs. 20,000. Due date for filing withholding tax return: Bhadra 25, 2080. Date the withholding tax return was filed: Asoj 3, 2080. Period of fee liability under Section 117(3): 2 months. Fee under Section 117(3): Rs. 20,000 x 2.5% / 12 x 2 = Rs. 83.33.

Fees for non-submission (Sec 117): (1)(a) estimated-tax return (Sec 95) not filed = Rs. 5,000 or 0.01% of assessable income, whichever higher;

(1)(b) advance-tax-collection statement (95A(9)) not filed = 1.5% p.a. (per month) of the advance tax;

(1)(c) income return (Sec 96) not filed = for presumptive Sec 4(4) persons Rs. 1,200/return + Rs. 100/month, for others the HIGHER of 0.1% p.a. of assessable income (computed without deductions) or Rs. 1,200/return + Rs. 100/month;

(1)(d) Income return not filed by natural person with transaction over 40 lakh = higher of 0.1% p.a. of assessable income (excluding final-WHT income) or Rs. 1,200 + Rs. 100/month;

(2) documents not kept (Sec 81, 5-year retention) = higher of 0.1% p.a. of assessable income or Rs. 1,000, per month;

(3) WHT return (Sec 90) not filed = 2.5% p.a. (per month) of the tax to be withheld. A part of a month counts as a full month

118. Interest to be charged where person paying in installments makes lesser payment than estimated tax

(1) If, with respect to the amount of installment tax to be paid by any person in any income year under Section 94, the amount mentioned in clause (b) exceeds the amount mentioned in clause (a), interest shall be charged on such excess amount pursuant to sub-section (2):-

(a) Amount of each installment paid by such person in any income year, and

(b) The estimated amount or revised estimate amount, if correct; and, if not correct, ninety percent of the tax amount to be submitted as installment for each installment period in that income year by the person mentioned in clauses (a) and (b) of Section 3.

(2) The person referred to in sub-section (1) shall be charged interest at the general rate of interest for each month and portion of the month from the due date for payment of the installment of that year for the following period:-

(a) In the case of a person whose tax is assessed pursuant to sub-section (1) of Section 99, until the due date for submission of the income return, and

(b) In the case of a person for whom the revised tax has been assessed by the Department for the first time under Section 101 as not having been assessed pursuant to sub-section (1) of Section 99, until the date of submission of notice of such amended tax assessment under Section 102.

Explanation: For the purposes of this Section, "amount to be submitted as installment" means the installment amount computed pursuant to sub-section (5) of Section 95 for those who have not submitted a revised estimate after submitting an initial estimate, for those who have not submitted an estimate and the Department has estimated pursuant to sub-section (7) of Section 95, and for those who have submitted a revised estimate and where the Department has estimated being not satisfied with the estimate or revised estimate pursuant to sub-section (7) of Section 95.

Persons required to pay tax pursuant to clauses (a) and (b) of Section 3 of the Act must file and pay tax in the form of installments based on the estimated tax return filed. Since the estimated return must be filed by end of Poush, considering the situation where the person cannot fully estimate turnover and income accurately at that time, the Act also provides that if the installment filed is up to 90 percent of the actual tax liability, no interest will be charged.

Example 24.14.1: Nepal Bikas Company filed a return at end of Poush 2080 showing estimated tax of Rs. 50,00,000/- for income year 2080/81. Based on that estimated return, the company filed Rs. 22,00,000/- by end of Poush, Rs. 17,00,000/- by end of Chaitra, and Rs. 17,00,000/- by end of Ashadh, totaling Rs. 56,00,000/- in installments. At the end of the income year, the company's actual tax liability based on income turned out to be Rs. 60,00,000/-. In this situation, there is a difference of Rs. 10,00,000/- between the estimated tax and the actual tax payable. Section 118(1) of the Income Tax Act, 2058 provides that if 90 percent of actual tax liability has been paid, no interest applies, and since Nepal Bikas Company's paid installments exceeded Rs. 54,00,000/- (90 percent of Rs. 60,00,000/-), that company does not need to pay interest pursuant to Section 118 of the Act.

Example 24.14.2: The actual tax liability at the end of the income year of Nepal Bikas Company mentioned in Example 24.14.1 turned out to be Rs. 80,00,000/-. The installment tax paid by that company of Rs. 50,00,000/- based on the estimated tax return was less than Rs. 72,00,000/- (90 percent of actual tax liability Rs. 80,00,000/-), so in this situation Nepal Bikas Company must file interest calculated as follows pursuant to Section 118(2) of the Act:

If a person pays less than 90 percent of the installment amount due in any income year, interest at the normal rate, i.e., 15 percent per annum, shall be charged on such shortfall. For the purpose of calculating interest, when computing the period, a full month is counted as one month and a period less than one month is also counted as one month.

Interest rate and period:

(a) A person who does not pay the installment amount shall be charged interest at the normal interest rate, i.e., 15 percent per annum, from the due date of the installment to the date of filing the income return under Section 99(1) through self-assessment, i.e., three months after the end of the income year, on the balance unpaid tax amount.

(b) A person who is required to pay the installment amount but has not filed the income return through self-assessment under Section 99(1), resulting in the Department making a first revised assessment under Section 101, shall be charged interest at the normal rate of 15 percent from the due date of the installment to the date of service of notice of such revised assessment.

Example 29.3.1: Suppose Gaurav and Sons Pvt. Ltd. filed its income return for income year 2080/81 on Magh 9, 2081. For that year, the company's taxable income was Rs. 10 lakhs and the tax liability under self-assessment was Rs. 2 lakhs 50 thousand. The company paid Rs. 50 thousand within Poush 2080, an additional Rs. 50 thousand in Chaitra, and a further Rs. 90 thousand by end of Ashadh 2081, making a total of Rs. 1 lakh 90 thousand by the end of that income year. Additionally, the company paid a further Rs. 60 thousand on Shrawan 13, 2081. The interest under Section 118(1) and (2) of the Act shall be calculated as follows:

Total interest under Section 118: Rs. 4,093.75

Interest on instalment shortfall (Sec 118): if a person pays less than 90% of the instalment tax due under Sec 94, interest at the general rate (15% p.a.) is charged on the shortfall, for each month (part-month counts as full). The benchmark per instalment = 90% of (40% / 70% / 100% cumulative) of the FINAL actual tax. If total instalments reach 90% of the actual tax, NO interest applies (a margin for estimation error). Interest runs from each instalment's due date to the self-assessment return date (Sec 99) or, where the Department first assesses under Sec 101, to the Sec 102 notice date

119. Interest to be charged if tax is not paid

(1) If any person does not pay tax on the prescribed due date for payment of tax, that person shall be charged interest at the general rate of interest for each month and portion of the month, on the amount remaining due and payable, for the entire period during which tax is so due and payable.

Under Section 119(1), if a person with a legal obligation to pay tax fails to pay the tax by the determined date prescribed by law for paying tax, interest at the normal rate shall be charged on the outstanding balance for each month and part of a month during which it remains unpaid. The tax amount is confirmed in two ways:

(a) through tax assessment, where the amount remaining after adjusting credits including withheld tax is the tax amount payable; and

(b) through statutory deduction, where the law finalises the taxable income as an absolute matter, for example Section 92 which lists payments subject to final withholding tax.

Example 29.3.2: Suppose Gaurav and Sons Pvt. Ltd. filed its income return for income year 2080/81 on Magh 9, 2081. For that year, the company's taxable income was Rs. 10 lakhs and the tax liability under self-assessment was Rs. 2 lakhs 50 thousand. The company paid Rs. 50 thousand within Poush 2080, an additional Rs. 50 thousand in Chaitra, and a further Rs. 90 thousand by end of Ashadh 2081, making a total of Rs. 1 lakh 90 thousand by the end of that income year. The company paid the remaining Rs. 60 thousand along with the income return. The interest under Sections 118 and 119 of the Act shall be calculated as follows:

Total interest under Section 118: Rs. 4,968.75

(2) For the purpose of computing the interest to be charged pursuant to sub-section (1), interest shall not be exempted for the extended time-limit given pursuant to Section 98.

Under Section 119, a person with a legal obligation to pay tax must pay the tax within the period that begins when the obligation arises. That is, interest is charged from the day after the expiry of the three-month period following the end of the income year until the date the tax is paid. Under the provision of Section 119(2), even if a person has received an extension for filing the income return under Section 98, interest shall also be payable for such extended period.

(3) The person responsible for collecting advance tax who has not complied with sub-section (8) of Section 95A, or the person withholding tax who has not complied with sub-section (4) of Section 90, shall not be allowed to recover the interest payable by that person from the person required to make advance tax payment or the person subject to tax withholding.

A withholding agent with the obligation to withhold tax under Chapter 17 of the Act must pay the withheld amount within 25 days of the end of each month, as per Section 90(4). If such person fails to pay the amount within the deadline, interest at 15 percent shall be charged for the late period. The withholding agent cannot recover the interest for such period from the person from whom tax is withheld.

(4) If tax is not paid within the time-limit given pursuant to Section 110A, such person shall be liable to pay an additional interest of five percent per annum on the outstanding tax.

In a situation where the agent of a non-resident person with tax arrears has agreed to pay such arrears in instalments within a specified time limit under Section 110A, if such person fails to clear the arrears within the time limit specified in the agreement, in addition to the interest under Section 119, an additional five percent interest per annum must also be paid.

Interest on unpaid tax (Sec 119): tax not paid by its due date bears interest at the general rate (15% p.a.) on the outstanding balance, for each month (part-month = full month) it remains unpaid. Applies both to assessed tax (the balance after WHT/instalment/other credits) and to statutorily-fixed tax such as final withholding under Sec 92.

Sec 118 interest (instalment shortfall) and Sec 119 interest (late payment) can both apply in the same year for different periods

119A. Charge to be imposed

(1) A taxpayer who issues electronic invoices pursuant to Section 81(4) shall be liable to:

(a) a penalty of NPR 500,000 (Five Hundred Thousand) if software capable of deleting or modifying data is used; and

(b) a penalty of NPR 100,000 (One Hundred Thousand) if the other requirements of that section are not complied with.

(2) If a person who manufactures, installs or operates software or a device for issuing electronic invoices pursuant to sub-section (4) of Section 81 does not comply with the working procedure issued by the Department, a charge of five hundred thousand rupees shall be imposed.

A fee of five lakh rupees shall be levied if a person manufacturing, installing, or operating electronic invoice software or equipment fails to comply with the guidelines issued by the Department.

(3) If Section 81A is violated, a charge of five thousand rupees or two percent of the total amount, whichever is higher, shall be imposed for each instance of monitoring.

For depositing business transaction amounts into personal accounts in violation of Section 81A, a fee equal to the higher of five thousand rupees or two percent of the total amount shall be levied per monitoring instance.

(4) Except as otherwise provided in this Act, a charge of five thousand to twenty-five thousand rupees shall be imposed on a person who does not comply with any provision of this Act or the Rules framed under this Act.

Section 119A is the residuary provision of the fee-related provisions in the Act. Except as otherwise provided in the Income Tax Act and for other matters mentioned therein, a fee ranging from five thousand rupees to twenty-five thousand rupees shall be levied on a person who fails to comply with any provision of this Act or the rules made thereunder.

Additional charges (Sec 119A): Rs. 5,00,000 if a taxpayer issuing electronic invoices (whether or not approved under Sec 81(4)) uses software capable of deleting or altering data (119A(1)); Rs. 5,00,000 if a maker/installer/operator of e-invoicing software or devices ignores the Department's procedure (119A(2)); for depositing business receipts into a personal account in breach of Sec 81A, the higher of Rs. 5,000 or 2% of the amount, per monitoring instance (119A(3)); and a residuary charge of Rs. 5,000 to Rs. 25,000 for any other non-compliance with the Act or Rules not otherwise penalised (119A(4))

120. Charge to be imposed on the person who submits a false or misleading statement

If any person submits to the Department a false or misleading statement on any matter, or the information mentioned in the statement becomes misleading as a result of concealing or removing information of any matter or thing required to be submitted, the following charge shall be imposed on such person:-

(a) If it has become false or misleading not knowingly or recklessly but by mistake, fifty percent of the amount of tax less resulted therefrom.

If a return or information filed by any taxpayer with the Department or office is found to be false or misleading by mistake and not due to intentional or careless action, a fee of fifty percent of the resulting tax underpayment shall be levied.

(b) If it has become false or misleading knowingly or recklessly, one hundred percent of the amount of tax less resulted therefrom.

If it occurred due to deliberate or careless action, one hundred percent of the amount of tax underpaid as a result thereof shall be levied as a fee.

Example 29.2.5: Suppose ABC Company filed its income return for income year 2080/81 at the tax office. Based on the income return submitted by the company, Jiwan Rai filed a written complaint with the Director General of the Department that the company had concealed income, as Rs. 10 lakhs received as insurance claims were not included in the return. Upon investigation by the office, based on evidence, a revised tax assessment was made and a tax amount of Rs. 2 lakhs 50 thousand was established on the concealed income at the rate of 25 percent. Since the company intentionally concealed income, a fee of Rs. 2 lakhs 50 thousand shall be levied under Section 120(b) of the Act.

Explanation: For the purposes of this Section, "statement submitted to the Department" means any statement submitted in writing to the Department or to the officer authorized by the Department in the course of performing duties pursuant to this Act, and includes the following:-

(a) Application, notice, description, complaint, deposition, or other document submitted, prepared, given or furnished pursuant to this Act,

(b) Document submitted to the Department or any officer of the Department except under this Act,

(c) Reply to any question asked by the Department or any officer to any person, or

(d) Information given by any person who has reasonable knowledge of the matter to be informed, to the Department or any officer through any other person.

Fee for false/misleading statement & abetment (Sec 120): where a person files a false or misleading statement (or one made misleading by omitting/removing information) that understates tax - fee = 50% of the tax shortfall if it happened by MISTAKE (not knowing or reckless); 100% of the shortfall if done KNOWINGLY or recklessly (Sec 120). 'Statement to the Department' covers any application, return, notice, complaint, document or answer given under (or even outside) the Act.

121. Charge to be imposed on accomplice

An accomplice who knowingly or recklessly aids, abets or advises any offender referred to in this Act in committing any offence mentioned in this Act shall be charged a sum equal to one hundred percent of the tax less paid by such person.

Example 29.2.7: In the context of the company mentioned in Example 29.2.5 above, consultant Avishwasi Kapoor provided written advice to credit the Rs. 10 lakhs received as insurance claims to the personal account of the director instead of including it in the company's financial statement, and this was established as having been credited to the director's personal account. Therefore, consultant Avishwasi Kapoor is considered an abettor under this section and shall be liable to a fee of Rs. 2 lakhs 50 thousand.

Sec 121: an ACCOMPLICE who knowingly/recklessly aids, abets or advises the offender is charged 100% of the tax that person underpaid. These fees are civil and do not bar the criminal proceedings in Chapter 23

122. Assessment of fee and interest

(1) The Department shall assess the fee and interest required to be paid by any person pursuant to this Chapter.

The authority to determine fees and interest rests with the Department. The Department may determine fees and interest for failure to comply with or violation of the law requiring maintenance of documents or submission of returns or income returns.

(2) In computing the liability for fee and interest chargeable where any particular act has not been performed or chargeable in respect of any statement pursuant to this Chapter, it shall be computed separately in the case of each Section of this Chapter.

That is, the fees or interest applicable under each section must be computed separately and the amount of fees or interest must be arrived at for each applicable section. Where more than one section applies for fees and interest, the determination must be made separately under each section.

(3) The fee and interest chargeable pursuant to this Section shall be added to any other tax, if any, payable pursuant to this Act; and mere payment of such fee and interest shall not be deemed to release any person from the liability related to criminal proceedings mentioned in Chapter-23.

(4) If the fee and interest have been assessed pursuant to this Section, the Department shall give that person a written notice of the assessment setting out the following matters. Such notice may be attached to and sent along with the notice issued pursuant to Section 102:-

(a) The reasons why the Department has to assess the fee and interest,

(b) The amount of fee and interest payable,

(c) The method by which the amount has been computed, and

(d) The time, place and mode for making a complaint against the assessment.

The determination notice may be sent separately or may be sent attached to the notice sent under Section 102. Since fees and interest are generally computed along with the tax assessment, it is more convenient and practical to send it with the Section 102 notice.

(5) It shall be as follows in assessing the fee and interest pursuant to this Section:-

(a) The matters contained in sub-section (1), sub-section (2), clause (b) of sub-section (3), sub-sections (4) and (5) of Section 101 shall also apply in assessing the fee and interest pursuant to this Section, and

(b) The matters contained in clauses (b) and (c) of sub-section (3), sub-sections (4) and (5) of Section 101, and Section 102 shall also apply in the case of sub-section (4) of this Section.

When determining fees and interest, the matters written in Section 101(1), (2), (3)(b), (4) and (5) shall also apply. Similarly, the matters written in Section 101(3)(b), (c), (4), (5), and Section 102 shall also apply for the notice sent after the determination of fees and interest under this section. The Department has authority to make an amended or re-amended assessment of fees and interest in the same manner as for an amended tax assessment, subject to the same time limits.