Income Tax Act, 2058 (2002)



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Chapter-2

Tax Bases


3. Tax to be levied: Tax shall be levied on each of the following persons in each income year and be collected/ realized pursuant to this Act:

(a) A person who has taxable income in any income year,

(b) A non-resident person's foreign permanent establishment situated in Nepal, which sends income of any income year pursuant to Sub-sections (3) and (4) of Section 68, and

(c) A person who receives payment final tax withholding in any income year.

4. Computation and rate of tax: (1) The amount of tax required to be paid by any person referred to in Section 3 for any income year shall be equal to the total amount of tax required to be paid by such person.

(2) In computing the tax required to be paid by any person referred to in clause (a) of Section 3, it shall be computed by applying the related rates mentioned in Schedule-1 to the taxable income of that person. In so computing the tax, it shall be computed by deducting the amount that is adjustable in tax, and claimed by that person pursuant to Section 51 or 71.

(3) Notwithstanding anything contained in Sub-section (2), the tax payable by a resident natural person referred to in clause (a) of Section 3, who has fulfilled all of the following requirements, shall be equal to the total amount of tax deducted pursuant to Section 87 from the payments made by the employer to such a natural person in that income year:

(a) Only the income of any employment having source in Nepal is included in the income of that income year,

(b) All employers have become non-resident persons in that income year and there is only one employer at one time, and

(c) The employer has not made a claim for the adjustment of tax pursuant to Section 51 in taxable income, except for the medical expenses and retirement contribution paid by him and for subtraction of the expenses referred to in Sub-sections (2) and (3) of Section 63 and of the expenses referred to in Section 12.

(4) Notwithstanding anything contained in Sub-section (2), the tax payable in any income year by a resident natural person referred in clause (a) of Section 3, who has fulfilled all of the following requirements, shall be equal to the amount mentioned in Sub-section (7) of Section (1) of Schedule –1:

(a) That person has only income earned from his business having source in Nepal in that income year,

(b) The income earned from the business and turnover of the business do not exceed the ceiling mentioned in Sub-section (6) of Section (1) of Schedule –1, and

(c) That person has so opted that this provision is applicable in that income year.

(5) In computing the tax required to be paid by any foreign permanent establishment referred to in clause (b) of Section 3, it shall be computed by applying the related rates mentioned in Sub-section (6) of Section 2 of Schedule-1 to the income sent abroad by such establishment in that income year.

(6) The amount of tax required to be paid by the person referred to in clause (c) of Section 3 shall be equal to the total amount computed by applying the rates mentioned in section to the amount of each payment liable to final tax deduction received by that person in that income year.

5. Taxable income and classification of income headings: The taxable income of any person in any income year shall be equal to the amount computed by subtracting the amount, if any, claimed pursuant to Section 12 or 63 from the grand total amount of assessable income of each of the following income headings in that income year:

(a) Business,

(b) Employment, and

(c) Investment.

6. Assessable income: Subject to this Act, the following incomes earned by any person for any business, employment or investment in any income year shall be considered assessable income:

(a) Income earned by any resident person from his employment, business or investment in that income year irrespective of the place of his source of income, and

(b) Income earned in that income year by any non-resident person from employment, business or investment having income source in Nepal.

Provided that, the assessable income shall not include any income exempted from tax pursuant to section 11 or 64.



Chapter-3

Computation of Tax


7. Computation of income from business: (1) The profits and benefits made by any person in any year from any business shall be computed in the income of that business of that person in that income year.

(2) In computing the profits and benefits earned by any person from the business in any income year, it shall be computed so as to include the following amounts received by that person within that year:

(a) Service charge,

(b) Amount obtained from the disposal of stock-in-trade,

(c) Net profit derived from the business property or business liability of any person computed pursuant to Chapter-8,

(d) Amount considered to have been derived pursuant to clause (a) of Sub-section (2) of Section 4 of Schedule-2 from the disposal of depreciable property of the business,

(e) Gift received from any person in respect of the business,

(f) Amount received for having accepted any restriction in respect of the operation of the business,

(g) Notwithstanding that the amount received by any person is of such nature that it is included in income from investment, the amount received by such a person being directly related with his business, and

(h) Other amounts liable to be included pursuant to Chapter-6 or 7 or Section 56 or 60.

(3) Notwithstanding anything contained in Sub-section (2), the amounts deductible under sections 10, 54 and 69 and payments from which tax is withheld finally may not be included in computing the profits and benefits derived from the operation of business.

8. Computation of income earned from employment: (1) The remuneration derived by any natural person from employment in any income year shall be computed as the income earned by that person in that year.

(2) The following payments made by an employer to a natural person in any income year shall be included in computing the remuneration earned by such natural person from employment in that income year:

(a) Amount for wages, salary, leave, amount for overtime work, fee, commission, prize, gift, bonus, and payment for other facilities,

(b) Payment for any personal allowance including amount for dear allowance, subsistence allowance, entertainment and transport allowance,

(c) Payment received for settlement of or reimbursement of expenses incurred by him/her or his/her associated person for personal purpose,

(d) Payment made for having given consent to any terms of employment,

(e) Payment made for termination, loss of employment, or for compulsory retirement,

(f) Retirement payment and retirement contribution including the amount deposited by the employer for that employee in the retirement fund,

(g) Other payments made in respect of employment, and

(h) Other amounts required to be included pursuant to Chapter-6 or 7.

(3) Notwithstanding anything contained in Sub-section (2), the following matters need not be included in computing the remuneration earned by any natural person from employment:

(a) The amounts deductible under Sections 10 and payment from which tax is withheld finally,

(b) Food and Tiffin provided by the employer to the employee at the work site in a manner that it is available to all employees on the same terms,

(c) The settlement or reimbursement of the following expenditure incurred by any employee:

1. The expenditure fulfils the business purpose of the employer, or

2. The expenditure exempted or to be exempted in the computation of the income earned from investment.

(d) Payment of such petty amounts of which accounts are impracticable to be maintained or difficult to be maintained administratively as prescribed.



Explanation: For purposes of this section, "payment" means the payment:-

(a) made by the employer,

(b) made by the associated person of the employer, and

(c) made by any third person as referred to in the agreement made with the employer or his associated person.

9. Computation of income earned from investment: (1) the profits and benefits derived by any person from investment in any income year shall be computed as the income earned by that person from investment in that year.

(2) The following amounts received by any person in any income year shall be included in computing the profits and benefits derived by that person from investment in that income year:

(a) Dividend, interest derived from that investment, payment for natural resources, rent, royalty, profit from investment insurance, profit from interest in a retirement fund which has not got approval pursuant to Sub-section (1) of Section 63 or retirement payment made from the approved retirement fund,

(b) Net profits derived from the disposal of non-business taxable property of the investment of that person, computed pursuant to Chapter-8,

(c) If, in disposing the depreciable property of the investment made by that person, the incomings to be received exceed the remaining value comprising the outgoings made for the property of the group of depreciable property pursuant to clause (a) of Sub-section (2) of section 4 of Schedule-2, the excess amount,

(d) Gift received by that person in respect of investment,

(e) Retirement payment made in respect of that investment and retirement contribution including the amount deposited in the retirement fund for that person,

(f) Amounts received for having accepted any restriction in respect of investment, and

(g) Other amounts required to be included pursuant to Chapter-6 or 7 or Section 56.

(3) Notwithstanding anything contained in Sub-section (2), the following matters shall not be included in computing profits and benefits derived by any person from investment:

(a) The amounts deductible under Sections 10, 54 and 69 and payment from which tax is withheld finally, and

(b) The amounts to be included in computing income by that person from employment or business.



Chapter-4

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