Income Tax Act, 2058 (2002)

Income tax is imposed on every person who has taxable income during an income year. A resident person is taxed on worldwide income; a non-resident is taxed only on income sourced in Nepal.

An individual is resident for an income year if present in Nepal for one hundred and eighty-three days or more in any three hundred and sixty-five day period. A company is resident if incorporated in Nepal or effectively managed from Nepal.

Taxable income is calculated under the heads of business, employment and investment. Windfall gains are taxed separately at the rate fixed by the Finance Act.

Expenses incurred wholly and exclusively in earning business or investment income are deductible in the year incurred. Personal and capital expenses are not deductible except as allowed by specific provisions.

Depreciable assets are grouped into pools and written off at the rates set out in the schedule. Intangible assets are depreciated over their useful life.

A business loss may be carried forward and set off against business income for the next seven years. Losses from a project under a long-term contract may be carried back in limited circumstances.

Contributions to an approved retirement fund are deductible up to one third of assessable income or the amount fixed by the Finance Act, whichever is lower.

An employer must withhold tax from salary payments at the rates applicable to the employee and remit it to the Inland Revenue Department by the twenty-fifth of the following month.

Tax must be withheld at the prescribed rate on rent, interest, dividends, service fees and contract payments made to resident persons. The payer must issue a withholding certificate to the recipient.

A person with business or investment income pays estimated tax in three instalments: forty percent by Poush end, seventy percent by Chaitra end and one hundred percent by Ashadh end.

Every person with taxable income must file an income return within three months of the end of the income year, that is by Ashwin end. An extension of up to three months may be granted on application.

The Department may amend an assessment within four years of the original filing where it believes the return was inaccurate. A taxpayer must be given an opportunity to respond before an amended assessment is issued.

A person who fails to file a return on time is liable to a penalty of a fixed amount per month or a percentage of assessable income, whichever is higher. Interest also accrues on unpaid tax.

A taxpayer aggrieved by an assessment may apply for administrative review within thirty days and thereafter appeal to the Revenue Tribunal. A deposit of part of the disputed tax is required.