Client Briefing

July 20, 2023

Income Tax Rates 2080-2081 (2023-2024 A.D.)

Introduction nationals who travel foreign countries as

tourists.
The Finance Act 2080 (2023 A.D.) (“Finance
Act”) has been ratified by the Parliament and  Further Public Offering: In the event an
received Presidential authentication on July 16, entity, which has not included dividend
2023. The Finance Act shall be enforceable for income derived from shares issued at a
the fiscal year 2080-2081 (2023-2024 A.D.) with premium through further public offering for
effect from July 17, 2023 (Shrawan 1, 2080 B.S.). the distribution of bonus shares in its income
A Finance Bill is tabled at the Parliament by the up to fiscal year 2078-2079 (2021-2022 A.D.),
Government of Nepal (“GON”) annually in order pays the outstanding taxes by December 16,
to amend various tax legislations. 2023, then the incurred charges and interest
shall be waived.
With respect to income tax, the Income Tax Act
2058 (2002 A.D.) (“ITA”) forms the framework There has been a widespread criticism to this
law. This Briefing highlights major aspects of new tax heading from the corporate sector
ITA as amended by the Finance Act. especially from financial institutions as this
tax head is contrary to the principles of
Major Highlights taxation and being an ex post facto law.
 Digital Service Tax: The Digital Service Tax  Merger and Acquisition: In the event an
at the rate of two percent shall be imposed on entity, which has not paid applicable tax on
the transaction value of digital services the gain from bargain purchase as a result of
provided by a non-resident person (foreign merger or acquisition up to fiscal year 2078-
entity) to customers in Nepal. 2079 (2021-2022 A.D.), pays the outstanding
taxes by December 16, 2023, then the
The GON has introduced Digital Service Tax incurred charges and interests shall be waived.
with an aim to cover all types of foreign
entities, who are engaged in providing The rates of personal and corporate income tax,
services through electronic means, especially withholding tax, advance tax, and details of tax
social media platforms, e-commerce, etc. exemption and concession are provided in
within the ambit of tax. Nonetheless, a non- respective tables hereto.
resident person, who has transaction not
more than NPR two million in a year, is
exempt from this tax.

 Luxury Fee: The Luxury Fee at the rate of

two percent shall be imposed on the service
fees charged by hotels and luxury resorts
having rated five stars or higher, as well as on
the purchase price of imported liquor valued
above NPR one million.

 Foreign Tourism Fee: The Foreign Tourism

Fee at the rate of five percent shall be
imposed on the service fees paid by Nepali

P&A Client Briefing – Income Tax Rates 2080-2081 (2023-2024 A.D.) Page | 1
1. Personal Income Tax
Schedule 1.1 of ITA as amended by the Finance Act prescribes income tax rates which are applied to
income falling within each tax bracket:

Unmarried Individual

Tax Bracket Annual Income Tax Rate Maximum Tax

(NPR) Amount (NPR)
1 1 to 500,000 1 percent* 5,000
2 500,001 to 700,000 NPR 5,000 plus 10 percent on the amount 25,000
exceeding NPR 500,000
3 700,001 to 1,000,000 NPR 25,000 plus 20 percent on the amount 85,000
exceeding NPR 700,000
4 1,000,001 to NPR 85,000 plus 30 percent on the amount 385,000
2,000,000 exceeding NPR 1,000,000
5 2,000,001 to 385,000 plus additional 20 percent to the rate 1,465,000
5,000,000 charged under 4th tax bracket (i.e., 36 percent
on amount exceeding 2,000,000)♦
6 5,000,001 and above 1,465,000 plus additional 30 percent to the rate
charged under 4th tax bracket (i.e., 39 percent
on amount exceeding 5,000,000)♦

Married Couples (who choose to be assessed jointly)

Tax Bracket Annual Income Tax Rate Maximum Tax

(NPR) Amount (NPR)
1 1 to 600,000 1 percent* 6,000
2 600,001 to 800,000 NPR 6,000 plus 10 percent on the amount 26,000
exceeding NPR 600,000
3 800,001 to 1,100,000 NPR 26,000 plus 20 percent on the amount 86,000
exceeding NPR 800,000
4 1,100,001 to NPR 86,000 plus 30 percent on the amount 356,000
2,000,000 exceeding NPR 1,100,001
5 2,000,001 and 356,000 plus additional 20 percent to the rate 1,436,000
5,000,000 charged under 4th tax bracket (i.e., 36 percent
on amount exceeding 2,000,000♦
6 5,000,001 and above 1,436,000 plus additional 30 percent to the rate
charged under 4th tax bracket (i.e., 39 percent
on amount exceeding 5,000,000)♦

P&A Client Briefing – Income Tax Rates 2080-2081 (2023-2024 A.D.) Page | 2
Notes:

* Not applicable in case of a taxpayer having registered as a private firm, income from pension, income
of natural person contributing to pension fund and contribution-based social security fund.

♦ Tax rates for tax brackets 5 and 6 are computed differently in practice. For example, if the annual
income of an unmarried individual is NPR 5,500,000, the tax amount up to NPR 2,000,000 would be
NPR 385,000 as shown in the table. With regard to additional income of NPR 3,500,000, which
falls under the two tax brackets, i.e., NPR 3,000,000 (Tax Bracket 5) and NPR 500,000 (Tax Bracket
6), tax is calculated differently.

For Tax Bracket 5:

With regard to additional income of NPR 3,500,000, the first NPR 3,000,000 (Tax Bracket 5) is taxed
at the rate of 30 percent = NPR 900,000. Thereafter, additional 20 percent is applied to NPR
900,000 = NPR 180,000. Hence, the total tax on NPR 3,000,000 is (NPR 900,000 + NPR 180,000)
= NPR 1,080,000 (36 percent in actual basis).

For Tax Bracket 6:

With regard to additional income beyond NPR 5,000,000, the excess amount of NPR 500,000 is
taxed at 30 percent = NPR 150,000. Thereafter, additional 30 percent is applied to NPR 150,000 =
NPR 45,000. Hence, the total tax on the additional NPR 500,000 is (NPR 150,000 + NPR 45,000) =
NPR 195,000 (39 percent in actual basis).

Hence, the total tax imposed on an unmarried individual with an annual income of NPR 5,500,000 is
(NPR 385,000 + NPR 1,080,000 + NPR 195,000) = NPR 1,631,000.

 Income tax on salary shall be collected as withholding taxes under Section 87 of ITA.
 Income tax levied in the 1st tax bracket shall be deposited to the Social Security Fund.

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2. Corporate Income Tax

Schedule 1.2 of ITA prescribes following rates of tax on income of corporate bodies:

Businesses/ Entities Tax Rate

Corporations in general 25%

Banking and financial institutions

Insurance companies

Entity engaged in financial transactions

Telecommunication and internet services 30%

Money transfer

Securities business, merchant banking, commodity future market, securities and commodities

broker business

Tobacco and tobacco products

Entity engaged in petroleum business

Water travel, air transport or telecommunication services by a non-resident person where 5%

services extend beyond the border of Nepal

Water travel, air transport or telecommunication services by a non-resident person where 2%

services do not extend beyond the border of Nepal

Repatriation of income by a foreign permanent establishment of a non-resident person 5%

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3. Withholding Tax

Chapter 17 of ITA prescribes withholding taxes on various types of income in the following manner:

Income Tax Rate

Interest, natural resource, royalty, service fee, commission, sales bonus, retirement fund unless 15%
specified in other provisions
Retirements benefits receivable from GON or government approved contribution-based 5%
retirement fund
Commission to a non-resident person by a resident employer company 5%
Payment against aircraft lease 10%
Service fee made to a VAT registered entity or a VAT exempt entity 1.5%
Rent with source in Nepal 10%
Rent for vehicle to a VAT registered service provider 1.5%
Returns from mutual funds distributed to a natural person 5%
Payments made by a resident person for usage of satellite, bandwidth, optical fiber, 10%
telecommunications related equipment or electricity transmission line
Transportation service and rent for transportation service 2.5%
Transportation service and rent for transportation service to an entity registered under VAT 1.5%
Interest remitted against the loan obtained from a foreign bank or financial institution by a 10%
resident bank or financial institution to invest in areas prescribed by Nepal Rastra Bank
Interest paid against the loan taken from a foreign bank and financial institution by storage or 5%
semi-storage-based hydropower projects (above 200 MW) attaining financial closure by April 13,
2026
Interests paid by a resident bank or financial institution to life insurance companies for deposits 5%
Dividend having source in Nepal 5%
Proceeds from investment insurance 5%
Proceeds from unapproved retirement funds 5%
Interest or equivalent amount having source in Nepal and not related to operation of business) 6%
for deposit, bonds, debentures or government bonds
Windfall gains 25%
Amount exceeding NPR 50,000 in return for contractual work 1.5%

Exemptions from Withholding Tax:

 Payments made by a natural person except in relation to operation of business.

 Payment concerning literary creation published in newspaper, magazines.
 Interest paid to resident banks and financial institutions.
 Tax exempt payments and withholding tax under Section 87 of ITA.
 Inter-regional interchange fees paid to banks issuing credit cards.
 Incentive amounts paid to consumers using electronic payment mechanism such as payment card, e-
money, mobile banking for the purchase of goods and services.

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4. Advance Tax

As per Section 95A of ITA, taxes are collected in advance for the following transactions:

Income Tax Rate

Gain from commodity future market 10%

Gain from disposal of interest in an entity listed with the Securities Exchange Board of 5%

Nepal (“SEBON”) by a resident natural person (ownership for more than 365 days)

Gain from disposal of interest in an entity listed with SEBON by a resident natural 7.5%

person (ownership for less than 365 days)

Gain from disposal of interest in an entity listed with SEBON by a resident person 10%

other than a natural person

Gain from disposal of interest in an entity listed with SEBON by others 25%

Gain from disposal of interest in a non-listed entity by a resident natural person 10%

Gain from disposal of interest in a non-listed entity by a resident person other than a 15%

natural person

Gain from disposal of interest in a non-listed entity by others 25%

Capital gain from disposal of immovable property by a natural person when the 5%

immovable property has been owned for 5 years or more

Capital gain from disposal of immovable property by a natural person when the 7.5%

immovable property has been owned for less than 5 years

Capital gain from disposal of immovable property by a person other than a natural 1.5%

person

Payment received in return for software or IT related services provided by a resident 5%

natural person (not engaged in business operation) to a foreign resident

Payment received in return for consultancy services provided by a resident natural 5%

person (not engaged in business operation) to a foreign resident

Payment received in foreign currency for uploading audio-visual content on social media 5%

by a resident natural person (not engaged in business operation)

Payment made to a seller of goods and/or services on a platform operated by an 1%

e-commerce operator

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5. Tax Exemption

As per Section 11 of ITA following tax exemptions are provided:

General Exemptions:

 Income generated by a natural person through agriculture from land within ownership ceiling.

 Income generated and dividends distributed by cooperatives engaging in agro-forestry industry.

 Income generated in interest derived from deposits made into micro-finances, rural development
banks, postal savings banks and cooperatives engaged in agro-forestry not exceeding NPR 25,000 per
year.

Special Exemptions (Tax Holiday):

Type of Industry Condition Duration

 Special  Established with investment of more than NPR 1 billion 5 years from the date of
Industry  Providing employment to 500 or more people throughout operation
 Tourism the year
Industry  Increased 25% installed capacity 5 years from the date of
 Increased capital up to NPR 2 billion increment of capital
 Providing employment to 300 or more people throughout
the year
 Special  Special industries established in Karnali Province and hilly 15 years from the date of
Industry districts of Far Western Province commercial operation
 Information  Direct employment to more than 100 Nepalese citizens
Technology
Industry in Special Industries in the districts of Himalayan region and the districts 10 years from the date of
Economic Zone of Hilly region specified by GON commercial operation
Industries in the districts except specified above 5 years from the date of
commercial operation
 Mining Commencement of commercial operation within April 12, 2024 7 years from the date of
 Petroleum commercial operation
Products
 Natural Gas
 Fuels
Energy Based Commencement of commercial operation by April 12, 2028 10 years from the date of
Industry commercial operation
Aviation Industry  Established with investment of more than NPR 5 billion 15 years from the date of
 Conducting international flights operation
 Established with investment of more than NPR 3 billion 10 years from the date of
 Conducting international flights commercial operation
 Established with investment of more than NPR 1 billion 5 years from the date of
 Conducting international flights operation

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6. Tax Concession

As per Section 11 of ITA following tax concessions have been provided:

Type of Industry Condition/Activity Tax Concession Duration

Agricultural Sector Income of a firm, company, partnership firm, and 50%

other corporate body carrying on business of

agriculture, dehydrating vegetables, and cold store.

Special Industry If income of individual falls under 30% tax bracket One third of

income tax

Tax levied on income tax of an entity operating 20%

special industry throughout a year

Information Tax levied on income generated from the export of 50% Up to fiscal year

Technology information technology based services including 2084-2085

Industry business process outsourcing, software (2027-2028 A.D.)

programming, cloud computing, etc.

 Special Industry Direct employment to more 100 or more Nepalese 10%

 Information citizens throughout the year

Technology Direct employment to 300 or more Nepalese 20%

Industry citizens throughout the year

Direct employment to 500 or more Nepalese 25%

citizens throughout the year

Direct employment to 1000 or more Nepalese 30%

citizens throughout the year

 Direct employment to 100 or more Nepalese Additional 10%

citizens through the year discount on top of

 At least 33% jobs allocated for women, above-mentioned

scheduled castes and physically disabled people concessions

Industry  Industries in the districts of Himalayan region 50% Following the tax

established in and the districts of hilly region specified by holiday period

Special Economic GON

Zone  Industries in the districts except specified above 50% Following the tax
holiday period

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 Special Industry  Investment of NPR 1 billion or more 50% 3 years following

 Tourism  Providing employment to 500 or more people the tax holiday

Industry (except period

casino)  Increased investment up to NPR 2 billion after 50% 3 years following

establishment the tax holiday

period
 Providing employment to 300 or more people

throughout the year

 Increment amounts to minimum 25% of

installed capacity

 Mining Commencement of commercial operation by April 50% 3 years following

 Petroleum 12, 2024 the tax holiday

Products period

 Natural Gas

 Fuels

Energy based Commencement of commercial operation by April 50% 5 years following

12, 2028 the tax holiday

period

Manufacturing Export of products Additional 50% to

other specified

concessions

Construction Construction and operation of ropeway, cable car 40% 10 years from the

and flyover date of

commercial
operation
Construction and operation of road, bridge, tunnel, 50% 10 years from the

railway and airport. date of

commercial
operation

 Manufacturing Listed in the stock exchange 15%

 Tourism Service

 Hydroelectricity

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Any Industry Income in royalty from export of intellectual 25%

property

Income from transfer of intellectual property via 50%

sale

Aviation Industry  Established with investment of more than NPR 50% 3 years following

1 billion the tax holiday

 Conducting international flights period

 Established with investment of more than NPR 50% 5 years following

3 billion the tax holiday

period
 Conducting international flights

Manufacturing Manufacture and assemble electronic vehicle by July 40% 5 years from the

Industry 15, 2025 date of operation

This Briefing is authored by:

Devendra P.N. Pradhan Sadikshya Acharya

Managing Partner Associate

For further information about the subjects covered in this Briefing, please contact:

Sadikshya Acharya
Associate
Tel: +977 1 545 1900 (Ext. 108)
Email: sacharya@pradhanlaw.com

DISCLAIMER: INFORMATION CONTAINED IN THIS DOCUMENT IS ONLY FOR GENERAL INFORMATION PURPOSE AND
SHALL NOT BE CONSIDERED TO BE LEGAL OPINION.

For further information about the subjects covered in this Briefing, please contact:

Pradhan & Associates Pvt. Ltd.

559, Bakhundole Marg (Maitri Marg), Bakhundole – 3

Lalitpur 44770, Nepal
Tel: +977 1 545 1900 | Fax: +977 1 543 3344
Email: info@pradhanlaw.com
Web: www.pradhanlaw.com

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