An Act Made to Amend and Consolidate the Law relating
to Income Tax
Preamble: Whereas, it is expedient to make timely the law relating to income tax by amending and consolidating it in order to enhance revenue mobilization by making the process of collecting revenue effective for the economic development of the country;
Now, therefore, be it enacted by Parliament in the first year of reign of His Majesty the King Gyanendra Bir Bikram Shah Dev.
1. Short title and commencement: (1) This Act may be called as the Income tax Act, 2058 (2002).
(2) This Act shall come into force throughout Nepal and also apply to the resident person in any place outside the Nepal.
(3) This Act shall come into force immediately.
2. Definitions: Unless the subject or the context otherwise requires in this Act,-
(a) "Person withholding advance tax" means a person with a duty to withhold advance tax pursuant to Chapter-17 in making payments for employment, investment return, service charge and contract or contraction, as well.
(b) "Officer" means the Director General, Deputy Director General, Chief Tax Administrator, Director, Chief Tax Officer, Tax Officer and other Officers in the Department, as referred to in Section 72.
(c) "Payment from which tax is withheld finally" means any dividend, rent, profit, interest and payment from which tax has to be withheld made to the non-resident person, as referred to in Section 92.
(d) "Retirement fund" means an entity established with a sole objective to accept retirement contribution funds for the purpose of making retirement payments from the fund to the entity's beneficiary natural persons or their dependents, and invest such funds.
(e) "Retirement payment" means any payment made to the following person:
(1) Payment made to a natural person where such person has got retirement, or
(2) Payment to the dependent of a natural person where such person has died.
(f) "Retirement contribution fund" means any payment made to a retirement fund for provisions of retirement payment or for future provisions thereof.
(g) "Incapacitated person" means a person who is not capable of making his dealings because of physical or mental illness.
(h) "Income" means the income earned by any person from employment, profession or investment and the total amount of that income calculated under this Act.
(i) "Income year" means a period from the first day of Shrawan (tentatively 15 July) of any year to the last day of Ashad (tentatively 14 July) of the next year.
(j) "Gift" means any payment made without any consideration or in the case of any payment with consideration, where the market value of payment exceeds the market value of consideration, payment to the extent of such excess.
(k) "Debt liability" means the liability equivalent to the debt claim.
(l) "Debt claim" means the right of any person to receive payment from another person, and this term also includes the right of any person to have repaid a loan lent by such person to another person, the right to receive deposits made in a bank and financial institution, to receive sums to which such person is entitled and to receive moneys from the sale of debentures, bills of exchange, bonds, rights under annuities, financial lease and installments.
(m) "Company" means any company incorporated under the companies' law in force, and for the purpose of tax the following institutions shall also be treated as if they were companies:
(1) Any corporate body established under the law in force,
(2) Any unincorporated union, board, association or society or sole proprietorship whether incorporated or not and any group of persons or trust except a partnership,
(3) Any partnership firm consisting of Twenty or more partners whether registered or not under the law in force, any retirement fund, cooperative institution, unit trust, joint venture,
(4) Any foreign company;
(5) Any other foreign institution as specified by the Director General.
(n) "Tax" means the tax chargeable under this Act, and this term also includes the following payments:
(1) The expenditures referred to in clause (a) of Sub-section (8) of Section 104 as incurred by the department for any claim in respect of, and auction sale of, the property in which the tax is due and outstanding,
(2) The amount payable by the person withholding advance tax or the person subject to tax withholding under Section 90 or the amount payable by the person making payment in installment under section 94 or the amount payable after the assessment of tax under Sections 99, 100 and 101,
(3) The amount payable to the Department in respect of tax liability of the third party under Sub-section (2) of Section 107, Sub-section (3) or (4) of Section 108, Sub-section (1) of Section 109, Sub-section (1) of Section 110,
(4) The amount as referred to in Chapter -22 payable for a fee and interest, and
(5) The amount of fine referred to in section 129 required to be paid as per the order of the department.
(o) "Person subject to tax withholding" means any person who receives payment or has the right to receive payment by withholding tax under Chapter-17 in making payment for employment, investment return, service fee or contract or contraction.
(p) "Tax assessment" means the assessment of tax to be made under this Act and this term includes the assessment of a fee and interest under Section 122.
Provided that, this term does not mean the previous tax assessment substituted by the amended tax assessment under section 101.
(q) "Non-resident person" means any person save the resident person.
(r) "Non-occupational taxable assets" means any land, building and interest or security in any entity except the following properties:
(1) Occupational assets, depreciable assets or stocks-in-trade,
(2) A private building owned by a natural person in the following situation,-
(a) Being under ownership for a continuous period of three years or more, and
(b) Where that person has resided for a total period of Three years or more continuously or at several times.
(3) A private building belonging to and disposed of by any natural person for a value less than ten million rupees, or
(4) An asset disposed of by way of transfer in any manner other than the purchase and sale within three generations.
(s) "Organization entitled to enjoy exemption" means the following entity:
(1) A social, religious, educational or benevolent organization of public nature established with non-profit motive,
(2) An amateur sports organization so formed with a view to promoting social or sports related facilities that the organization or its members does not derive profits,
(3) A political party registered in the Election Commission,
(4) Village Development Committee, Municipality or District Development Committee,
(5) Nepal Rastra Bank,
(6) Government of Nepal,
(7) An entity as prescribed and entitled to use tax exemption by an advance ruling issued under Section 76,
Provided that, in cases where any person has derived any benefit from the property of that organization and the monies obtained from that organization except in making payment for the property or the service provided by any person to that organization or in discharging functions in consonance with the objective of the organization entitled to exemption, tax exemption shall not be granted.
(t) "Trust" means an arrangement whereby a trustee holds any property.
Provided that, this term does not include a partnership, corporate body or organization referred to in sub-clause (3) of clause (m).
(u) "Trustee" means a natural person, trust (Guthi) or other body corporate who, individually or jointly with other natural person, trust (Guthi) or corporate body, holds a property in trust, and this term includes the following person:
(1) The operator or administrator of the assets of a deceased,
(2) A liquidator, recipient or trustee,
(3) Any person who protects, directs, controls or manages the assets of an incapacitated person in individual or official capacity,
(x) "Entity" means the following organization or body:
(1) A partnership, trust or company,
(2) Village Development Committee, Municipality or District Development Committee,
(3) Government of Nepal,
(4) Any foreign government or provincial or local government under that government or a public international organization established by any treaty, or
(5) A permanent establishment of the organization or body referred to in clauses (1), (2) and (3), which is not situated in a country of which it is a resident.
(y) "Interest in entity" means and includes the contingent right to receive income or capital of any entity.
(z) "Disposal" means a disposal inclusive of the sale or transfer of any property or liability as mentioned in Section 40.
(aa) "Vested ownership" means the following ownership:
(1) In the case of any entity, ownership created on the basis of the interest which any natural person or any entity in which a natural person has no interest has in that entity directly or indirectly through one or more interposed entities, or
(2) In the case of the assets owned by any entity, ownership of the assets as determined in proportion to the ownership of the persons who have vested ownership in that entity.
(ab) "Lease" means the provisional right of any person to enjoy or use any property except movable property belonging to another person, and this term also includes a license, rent agreement, trenches, royalty agreement or right of a lessee/ tenant.
(ac) "Natural person" means an individual, and, for the purposes of this Act this term includes a sole proprietorship owned by an individual, whether registered or not, and a spouse so selected under Section 50 as to be considered as the single individual.
(ad) "Payment for natural resources" means an amount of any of the following payments:
(1) Amounts received for having extracted water, minerals or other living and non-living resources from the earth, or
(2) Amounts calculated in full or in part on the basis of the quantity or value of living or non-living resources of the natural resources and minerals extracted from the earth.
(ae) "Market value" means ordinary transaction value of any property or service in the ordinary course of trade between unrelated persons in respect of such property or service.
(af) "Rent" means a premium received for the house rent as well as for the lease of a tangible property and payment for the provision of that lease. Provided that, this term does not include any payment made for natural resources.
(ag) "Payment" means the following activities:
(1) If the money or property owned by any one person is transferred to another person and the liability of any other person is transferred to that person,
(2) If the ownership over any property created by any person devolves on another person after the creation of that property or if any person bears the onus of liability of another person,
(3) If any person delivers service to another person,
(4) If any person uses any property owned by another person or such property is available for such use.
(ah) "Distribution of profit" means the distribution of profits of any entity made pursuant to Section 53, including the capitalization of profits.
(ai) "Unit trust" means a trust to be divided on the basis fixed with the number of the units holding the right of the persons entitled to participate in income or capital, with a provision that the trustee holds property for the benefits of at least twenty persons.
(aj) "Employment" means any kind of past, present or future employment.
(ak) "Royalty" means any payment made under the lease of any intangible property, and this term includes any payment made for the following purpose:
(3) To provide the right to use any motion picture film, video tape, sound recording or similar other means and to render industrial, occupational or scientific experience,
(4) To render any assistance in a manner to be ancillary to the matters referred to in clauses (1), (2), or (3), or
(5) To have full or partial restrictions on the matters referred to in (1), (2), or (3) or (4).
Provided that, this term does not mean any payment made for natural resources.
(al) "Investment" means the act of holding one or more properties of similar nature used in an integrated manner or investing such properties, except with the followings:
(1) Holding any property other than a non-occupational taxable property used by the owner thereof in personal use or investing money in such property, or
(2) Employment or occupation.
(am) "Investment insurance" means any of the following insurance:
(1) An insurance against the death of the insured or of the associated person of the insured,
(2) An insurance against personal injuries of the insured or his associated person or against any event leading to incapacity in any particular manner,
Provided that, the validity period of the insurance contract shall be at least five years or the contract shall be without any validity period and the contract is so made that it cannot be terminated by the insurer prior to expiration of a period of five years except in exceptional circumstances.
(3) An insurance so made that any money or series of moneys are paid to the insured in the future,
(4) Reinsurance of the insurance referred to in clauses (1), (2) or (3), or
(5) Reinsurance of the reinsurance referred to in clause (4).
(an) "Dividend" means the distribution to be made by an entity.
(ao) "Resident person" means the following person in respect of any income year:
(1) In respect of a natural person,
(a) Whose normal abode is in Nepal,
(b) Who has resided in Nepal for 183 days or more during a continuous period of 365 days of any income year, or
(c) Who is deputed by Government of Nepal to a foreign country in any time of the income year.
(3) The amounts referred to in Section 32 receivable as an interest out of the payment to be made by a person who acquires any property under annuities or installment sale or of the payment made to any person for the use of any property under a financial lease.
(at) "Stock-in-trade" means the property owned by any person and sold or to be sold in the course of regular business carried on by such person, the property in work-in-progress and the inventory of materials to be incorporated in the property. Provided that, this term does not include a property held in foreign currency.
(au) "Occupational asset" means any property used in any occupation.
Provided that, this term does not mean stock-in-trade or depreciable assets of the occupation.
(av) "Distribution" means a distribution to be made by any entity as referred to in Section 53.
(aw) "Income sent abroad" means an income required to be sent abroad by a foreign permanent establishment of a non-resident person situated in Nepal as referred to in Section 68, which has been sent abroad through a bank or paid in any other manner.
(ax) "Foreign income tax" means a foreign income tax referred to in Sub-section (8) of Section 69 levied by any foreign country.
(ay) "Foreign permanent establishment" means an entity referred to in paragraph (4) of clause (x).
(az) "Department' means the Department of Inland Revenue.
(aaa) "Property held in foreign currency" means any property held in a foreign currency other than Nepalese rupees.
(aab) "Permanent establishment" means a place where any person carries on a business fully or partly, and this term includes the following place:
(1) A place where any person carries on a business fully or partly, through any agent except a general agent who acts independently in the ordinary course of carrying on business,
(2) A place where any person's main equipment or main machinery is situated or used or installed,
(3) One or more than one place in any country where any person has delivered technical, professional or consultancy service through an employee or in any other manner for more than ninety days at one or several times in a period of any twelve months, or
(4) A place where any person is involved in a construction, installation or establishment project and has carried out supervisory works of that project for a period of ninety days or more.
(aac) "Property" means a tangible or intangible property of any kind, and this term includes currency, good-will, technological knowledge, assets, any person's ownership or interest in a foreign branch, a right to make income or acquire income in the future and any part of such property.
(aad) "Associated person" means any one or more than one person or group of persons who act as per the intention of each other, and this term includes the following persons:
(1) A natural person and relative of that person or any person or a partner of that person,
(2) A foreign permanent establishment and a person having ownership in that establishment, and
(3) Any entity which by itself or jointly with any other person related with it or with an assisting entity or any other person or entity related with such assisting entity controls Fifty percent or more of the income, capital or voting right of any entity or derives benefits therefrom.
Provided that, the following person shall not be an associated person:
(1) An employee,
(2) A person specified by the Department as a non-associated person.
(aae) "Partnership" means a firm consisting of less than twenty partners, whether registered under the law in force or not.
Provided that, this term does not include a sole proprietorship or joint venture, whether registered or not.
(aaf) "General insurance" means insurance other than investment insurance.
(aag) "General interest rate" means the rate of interest by Fifteen percent per annum.
(aah) "Approved retirement fund" means a retirement fund having obtained approval from the Department pursuant to Sub-section (1) of Section 63.
(aai) "Service charge" means any charge paid to any person, according to the market value, for the service rendered by such a person, and this term includes any commission, meeting allowance, management fee or technical service charge.
(aaj) "Shareholder" means a beneficiary of any company.
(aak) "Depreciable property" means a property, which is used in any business or investment for earning income, and declines in value because of wear and tear, being old or passage of time.
Provided that, this term does not mean stock-in-trade.
(aal) "Beneficiary" means a person who has an interest in any entity related with the work.
(aam) "Prescribed" or "as prescribed" means prescribed or as prescribed in the Rules framed under this Act.