Schedule-1 Tax Rates (Related to Section 4)

1. In respect of a natural person

(1) Subject to sub-sections (2), (4) and (4a) of this Schedule, tax shall be levied on the taxable income of a resident natural person in any income year at the following rates:-

(a) If taxable income from employment is up to ten lakh rupees, at the rate of one percent,

Provided that for a taxpayer registered as a sole proprietorship firm, no tax pursuant to this clause shall be levied on income from pension, pension fund and the income of a natural person contributing to a contribution-based social security fund.

(b) If taxable income exceeds ten lakh rupees but does not exceed fifteen lakh rupees, ten thousand rupees on taxable income up to ten lakh rupees pursuant to clause (a), and ten percent on taxable income exceeding ten lakh rupees,

(c) If taxable income exceeds fifteen lakh rupees but does not exceed twenty five lakh rupees, sixty thousand rupees on taxable income up to fifteen lakh rupees pursuant to clause (b), and twenty percent on taxable income exceeding fifteen lakh rupees,

(d) If taxable income exceeds twenty five lakh rupees but does not exceed forty lakh rupees, two lakh sixty thousand rupees on taxable income up to twenty five lakh rupees pursuant to clause (c), and twenty seven percent on taxable income exceeding twenty five lakh rupees, and

(e) If taxable income exceeds forty lakh rupees, an additional tax at the rate of two percentage on the rate prescribed in clause (d) shall be levied on the amount of taxable income exceeding forty lakh rupees.

(2) [Removed by the Finance Act, 2083. The rates under Sub-section (1) now apply to both a resident natural person and a resident couple.]

(3) The provision of sub-section (4) shall apply in the following circumstances:-

(a) In the case of a resident natural person or a resident couple, where income exceeds NPR 1,000,000 in any income year, and

(b) Where the net profit derived from the disposal of non-business taxable assets is included in the income and taxable income computation of such natural person or couple.

(4) Subject to sub-section (3), tax shall be levied on the following persons as follows:-

(a) Tax shall be levied at the rate specified in sub-section (1) or (2) of this Schedule on such natural person or couple, treating only the higher of the following amounts as the taxable income:-

(1) The amount resulting from subtracting the amount of such profit from the total taxable income of such natural person or couple, and

(2) Ten lakhs rupees in the case of a natural person, or a couple.

(b) Tax shall be levied on the remaining amount of such taxable income at the rate of ten percent.

Provided that

(1) If the disposed non-business taxable asset (land and building) has been in ownership for five years or more, tax shall be levied at the rate of seven and half percent,

(2) If the disposed non-business taxable asset (land and building) has been in ownership for less than five years, tax shall be levied at the rate of ten percent, and

(3) In the case of profit derived from the disposal of interest held for more than three hundred sixty-five days in an entity listed on the Securities Board of Nepal, tax shall be levied at the rate of seven and half percent, and in the case of interest held for three hundred sixty-five days or less, at the rate of ten percent.

Schedule 1 Section 4 Explanation

Total taxable income = Rs. 1,200,000

Included capital gain = Rs. 300,000

Taxable income excluding gain: Rs. 1,200,000 − Rs. 300,000 = Rs. 900,000

Compare with threshold

For an individual, compare:

Higher amount = Rs. 1,000,000

This Rs. 1,000,000 is taxed under the normal individual tax slabs.

Remaining amount: Rs. 1,200,000 − Rs. 1,000,000 = Rs. 200,000. This Rs. 200,000 (the gain) is taxed at the special rate.

(4a) Notwithstanding anything contained elsewhere in this Section, tax shall be levied at the rate of five percent on the income of a resident natural person not involved in the operation of a business, received pursuant to sub-sections (6b), (6c) and (6d) of Section 95A of the Act.

(5) In computing the tax pursuant to this Section, the remote area allowance as prescribed of a natural person working in a remote area as specified by the Government of Nepal, up to a maximum of fifty thousand rupees, shall be deducted from the taxable income and the tax shall be computed only on the remaining amount.

Rule 38: For purposes of Sub-section (5) of Section 1 of Schedule-1 of the Act, the amount for remote allowances to be added to the threshold of non-taxable amount of any person shall be as follows: (a) Fifty Thousand Rupees in the areas of category 'a'; (b) Forty Thousand Rupees in the areas of category 'b'; (c) Thirty Thousand Rupees in the areas of category 'c'; (d) Twenty Thousand Rupees in the areas of category 'd'; (e) Ten Thousand Rupees in the areas of category 'e'.

Directive Annexure 3: Provisions relating to remote areas

The classification of remote areas is as follows.

1. Areas falling under Category "A"

(1) Manang District (2) Kalikot District (3) Mugu District (4) Dolpa District (5) Humla District (6) Bajura District

2. Areas falling under Category "B"

(a) Dhungesangu, Olangchunggola of Taplejung District and the VDCs falling under it

(b) The following Village Development Committees of Sankhuwasabha District:

1. Chepuwa 2. Hedangna 3. Kimathanka 4. Syaksila 5. Waling 6. Simajor

(c) The following Village Development Committees of Solukhumbu District:

1. Khumjung 2. Namche 3. Chaurikharka

(d) Gogar Village Development Committee of Dolakha District

(e) Timure Village Development Committee of Rasuwa District

(f) The following Village Development Committees of Gorkha District:

1. Sirdibas 2. Prok 3. Lho 4. Keraja 5. Chhekampar 6. Manbu

(g) The following Village Development Committees of Baglung District:

1. Bonga 2. Nisi 3. Hukam 4. Ramma 5. Mekot 6. Takwachi

(h) Mustang District

(i) Jumla District

(j) Bajhang District

(k) The part of Khaptad Herbal Garden of Doti District above 900 feet altitude

(l) Darchula District

3. Areas falling under Category "C"

(a) Rukum District

(b) Jajarkot District

(c) Dailekh District

(d) Achham District

4. Areas falling under Category "D"

(a) Village Development Committees of Taplejung District other than those falling under Category "B"

(b) Bhojpur District

(c) Terhathum District

(d) Village Development Committees of Sankhuwasabha District other than those falling under Category "B"

(e) Khotang District

(f) Okhaldhunga District

(g) Village Development Committees of Solukhumbu District other than those falling under Category "B"

(h) The following Village Development Committees of Dhading District:

1. Budhathum 2. Lapa 3. Fulkharka 4. Rigaun 5. Salyankot 6. Salyantar

(i) The following Village Development Committees of Sindhupalchok District:

1. Baramchi 2. Baruwa 3. Mautada 4. Birta Golde 5. Gunsa 6. Guwa 7. Kiul 8. Listikot 9. Mahankal 10. Pagtag 11. Fulping Kati 12. Dhagpalkot 13. Tisun Thagal Tinas Dhyagal

(j) The following Village Development Committees of Lamjung District:

1. Bahundanda Mahendrodaya 2. Shrikali Katadhi 3. Thulibesi Patango 4. Thakan Falikadevi

(k) Myagdi District

(l) Rolpa District

(m) Salyan District

(n) Pyuthan District

(o) Areas of Doti District other than those falling under Category "B"

(p) Dadeldhura District (q) Baitadi District

5. Areas falling under Category "E"

(a) Panchthar District

(b) Dhankuta District

(c) Ramechhap District

(d) Dolakha District

(e) Village Development Committees of Rasuwa District other than those falling under Category "B"

(f) Village Development Committees of Sindhupalchok District other than those falling under Category "D"

(g) Village Development Committees of Dhading District other than those falling under Category "D"

(h) Village Development Committees of Lamjung District other than those falling under Category "D"

(i) Village Development Committees of Gorkha District other than those falling under Category "B"

(j) Gulmi District (k) Arghakhanchi District (l) Parbat District

(m) Village Development Committees of Baglung District other than those falling under Category "B"

Example 11.4.1: Suppose Shyam Mahato (single individual) is an employee at the Dailekh branch of Bikas Bank Limited. In FY 2080/81, his monthly salary and allowances total Rs. 60,000. He received Rs. 50,000 as Dashain allowance and Rs. 50,000 as bonus in that year. The bank contributed a total of Rs. 60,000 to the provident fund (approved retirement fund) by adding that amount to his income and deducting the same from his remuneration. His taxable income and tax for the year shall be as follows:

Since this concession based on remote area is available only to natural persons, employees, business persons, and investors working in remote areas are entitled to this concession. However, a person with a permanent residence in a remote area but working in another area shall not receive this concession solely on account of permanent residence.

(6) Seventy-five percent of the foreign allowance of an employee working in a diplomatic mission of Nepal situated abroad shall be deducted from the taxable income and the tax shall be computed only on the remaining amount pursuant to this Section.

Example 11.4.2: Suppose the Government of Nepal deputed employee Shyam Mahato to work at the Nepali Embassy in the United States of America. In FY 2080/81, the employee's monthly salary is Rs. 65,000. He received Rs. 65,000 as Dashain allowance in that year. The Government of Nepal provided a foreign allowance of Rs. 60,000 per month. The Government of Nepal contributed a total of Rs. 78,000 to the provident fund (approved retirement fund) by adding that amount to his income and deducting the same from his remuneration. The employee opted as a single individual for that year. His taxable income and tax for the year shall be as follows:

(7) The tax amount pursuant to sub-section (4) of Section 4 of the Act shall be as follows:-

(a) For a natural person carrying on business in a Metropolitan or Sub-metropolitan Municipality area, seven thousand five hundred rupees,

(b) For a natural person carrying on business in a Municipality area, four thousand rupees, and

(c) For a natural person carrying on business in areas other than those mentioned in clauses (a) and (b), two thousand five hundred rupees.

(8) Tax shall be levied at the rate of twenty-five percent on the taxable income of a non-resident natural person in any income year.

(9) ......

(9a) Notwithstanding anything contained elsewhere in this section, where a resident natural person has retirement income, for such individual or couple, twenty-five percent (25%) of the amount referred to in clause (a) of sub-section (1) for a natural person, or clause (a) of sub-section (2) for a couple, shall be deducted from taxable income, and tax under this section shall be computed on the remaining amount.

Provided that the amount so deducted shall not exceed the prescribed limit.

Rule 39: The amount to be deducted pursuant to Sub-section (9A) of Section 1 of Schedule-1 of the Act shall not be more than the pension income.

Example 11.4.3 Suppose Shyam Mahato is an employee at the Dailekh branch of Bikas Bank Limited. In FY 2080/81, his monthly salary and allowances total Rs. 50,000. He received Rs. 40,000 as Dashain allowance and Rs. 1,00,000 as bonus. The bank contributed Rs. 30,000 to the provident fund (approved retirement fund) by adding that amount to his income and deducting the same from his remuneration. In addition to the remuneration from the bank, he also received pension income of Rs. 4,50,000 from the Government of Nepal in that year. He opted as a couple for that year. His taxable income and tax shall be as follows:

Pension income is retirement payment for past employment. Pension income must be included in employment income as per Section 8(2)(f) of the Act. Tax calculated on taxable pension income as per Schedule 1 must be deducted at source as per Section 87. In calculating taxable pension income, the following deductions are available:

(1) Pension deduction: individual natural persons may deduct 25% of Rs. 5,00,000 (i.e., Rs. 1,25,000) and couples may deduct 25% of Rs. 6,00,000 (i.e., Rs. 1,50,000) from pension income.

(2) Disability benefit: a disabled individual natural person may deduct 50% of Rs. 5,00,000 (i.e., Rs. 2,50,000) and a disabled couple may deduct 50% of Rs. 6,00,000 (i.e., Rs. 3,00,000).

(3) Life insurance premium: actual annual premium paid or Rs. 40,000, whichever is lower, can be deducted from taxable income.

(4) Remote area benefit: applicable to pensioners residing in designated remote areas.

Example 17.12.1 Suppose Bhai Raja Nepali is a retired disabled government employee. He currently lives in Dailekh, a 'C' class remote district. He received the following income in FY 2081/82: Monthly pension Rs. 65,000; life insurance premium Rs. 10,000; private building insurance premium Rs. 10,000; approved medical treatment expenses Rs. 20,000. He chose couple status for that FY. His assessable income, taxable income, and tax must be calculated as follows:

Bhai Raja Nepali spent Rs. 20,000 on approved medical treatment, and 15% of that amounts to Rs. 3,000. Since there is no tax liability for this year, such amount can be claimed in the following year.

Example 17.12.2 Suppose Dipika Basnet is a single retired woman who retired from Nepal Bikash Bank service. She currently lives in Hankuta, an 'E' class remote district. She received the following income from Nepal Bikash Bank in FY 2081/82: Annual pension Rs. 4,20,000; Dashain allowance Rs. 35,000; previous year's increased pension payment Rs. 40,000. Her assessable income, taxable income calculation:

(10) Notwithstanding anything contained elsewhere in this section, where a resident natural person is a person with disability, for such individual or couple, an additional amount equal to fifty percent (50%) of the amount referred to in clause (a) of sub-section (1) for a natural person , or clause (a) of sub-section (2) for a couple, shall be deducted from taxable income, and tax under this section shall be computed on the remaining amount.

Refer Example 17.12.1

(11) Notwithstanding anything contained elsewhere in this Section, if any resident natural person is a woman earning remuneration income only, ten percent rebate shall be given on the amount of tax payable by such natural person.

Example 11.4.5: Suppose Sushri Shashikala Rai is an employee at the Achham branch of Nepal Bank Limited. In FY 2081/82, her monthly salary and allowances total Rs. 60,000. She received Rs. 50,000 as Dashain allowance and Rs. 40,000 as bonus in that year. The bank contributed Rs. 30,000 to the provident fund (approved retirement fund) by adding that amount to her income and deducting the same from her remuneration. Her taxable income and tax for the year shall be as follows:

(12) Notwithstanding anything contained elsewhere in this Section, if any resident natural person has made an investment insurance with a resident insurance company, the annual premium paid for such insurance or forty thousand rupees, whichever is lower, shall be deducted from the taxable income, and the tax pursuant to this Section shall be computed only on the remaining amount.

Example 11.4.6: Suppose Shyam Mahato mentioned in Example 11.4.4 above has taken out life insurance and paid an insurance premium of Rs. 45,000 and Health insurance Premium of Rs. 25,000 in that year. Also, the Person has paid home insurance premium of Rs. 10000. His taxable income and tax for the year shall be as follows

(13) Notwithstanding anything contained elsewhere in this Section, the following annual income tax shall be collected at the time of registration or renewal of a vehicle from the owner of vehicles on hire through the Traffic Management Office:-

(14) ......

(15) ......

(16) Notwithstanding anything contained elsewhere in this Section, if any resident natural person has made a health insurance with a resident insurance company, the annual premium paid for such insurance or twenty thousand rupees, whichever is lower, shall be deducted from the taxable income, and the tax pursuant to this Section shall be computed only on the remaining amount.

See Example 11.4.6

(16a) Notwithstanding anything contained elsewhere in this Section, if any resident natural person has made an insurance of a private building under own ownership with a resident insurance company, the annual premium paid for such insurance or ten thousand rupees, whichever is lower, shall be deducted from the taxable income, and the tax pursuant to this Section shall be computed only on the remaining amount.

See Example 11.4.6

(16b) Notwithstanding anything contained elsewhere in this Section, where a resident natural person has made payment of tuition fees to a resident person for the education of his or her descendant, an amount equal to twenty-five percent of the annual tuition fee paid or twenty-five thousand rupees, whichever is lower, shall be deducted from the taxable income.

(17) In computing the tax on the turnover amount pursuant to sub-section (4a) of Section 4 of the Act, the tax applicable to transactions up to thirty lakh rupees shall be the tax pursuant to sub-section (4) of Section 4 of the Act; and for the turnover amount exceeding that, the tax shall be levied at the following rates:-

(a) For a person carrying on trade in goods by adding up to three percent commission or value, including gas and cigarettes, at the rate of 0.25 percent on the turnover amount exceeding thirty lakh rupees up to fifty lakh rupees, and 0.3 percent on the turnover amount exceeding fifty lakh rupees up to one crore rupees,

(b) For a person carrying on a business other than that mentioned in clause (a), at the rate of one percent on the turnover amount exceeding thirty lakh rupees up to fifty lakh rupees, and 0.8 percent on the turnover amount exceeding fifty lakh rupees up to one crore rupees, and

(c) For a person carrying on a service business, at the rate of two percent of the turnover amount.

2. In respect of an entity

(1) Subject to sub-sections (2), (3), (5) and (7) of this Section, tax shall be levied on the taxable income of any entity in any income year at the rate of twenty-five percent.

(2) In any income year, tax shall be levied on the taxable income of any bank, financial institution, general insurance business, entity carrying on financial transactions, or entity engaged in telecommunications and internet services, money transfer, capital market business, securities business, merchant banking business, commodity future market, securities and commodity brokerage business, or in the business of cigarettes, bidi, cigar, chewing tobacco, khaini, gutkha, paan masala, liquor or beer, or carrying on petroleum operations pursuant to the Nepal Petroleum Act, 2040, at the rate of thirty percent.

Explanation: For the purposes of petroleum operations, "taxable income" means the taxable income determined in accordance with the procedure specified in the petroleum agreement and pursuant to this Act and the Rules framed under this Act.

(3) If a cooperative institution registered pursuant to the Cooperative Act, 2074 carries on transactions other than transactions exempt from tax, tax shall be levied at the following rates:-

(a) If operating within the area of a Municipality, at the rate of five percent,

(b) If operating within the area of a Sub-metropolitan Municipality, at the rate of seven percent, and

(c) If operating within the area of a Metropolitan Municipality, at the rate of ten percent.

Provided that in the case of a cooperative institution carrying on savings and credit transactions, tax shall be levied at the following rates:-

(1) If operating within the area of a Municipality, at the rate of ten percent,

(2) If operating within the area of a Sub-metropolitan Municipality, at the rate of fifteen percent, and

(3) If operating within the area of a Metropolitan Municipality, at the rate of twenty percent.

(3a) ......

(3b) Tax shall be levied on the taxable income of a school or college registered and operated under a public trust at the rate of twenty percent.

(4) ......

(5) Tax shall be levied on the taxable income of the trust receiving or managing the property of any deceased resident person or the trust of an incapacitated resident natural person in any income year, treating such trust as a resident natural person, pursuant to sub-sections (1) and (4) of Section 1 of this Schedule.

Although a trust is an entity, since the purpose of the trust mentioned in this subsection is to manage the property of a natural person (deceased or incapacitated resident natural person), tax rates applicable to natural persons apply to the income of such trust. Such a trust is treated as a single person and taxed as per Subsections (1) and (4) of Section 1.

(6) Tax shall be levied at the rate of five percent on the income remitted abroad by the foreign permanent establishment of a non-resident person situated in Nepal in any income year.

(7) Tax shall be levied at the rate of five percent on the taxable income of a non-resident person in respect of the income mentioned in Section 70 of the Act in any income year.

Provided that in the case of a non-resident person providing water transport, air transport or telecommunications services without departing from Nepal to any other foreign country, tax shall be levied at the rate of two percent.

The tax rate provisions for entities, including exemptions on business income under Section 11 of the Income Tax Act, 2058, are clarified in the following table: