Home » Policies » Tax Policy Tax Policy The Income Tax Act, 1962 was replaced by income Tax Act, 1974, which was amended for eight times and existed for a period of 28 years. The New Income Tax Act, 2058 became effective from Chaitra 19, 2058 (01, April 2002). The Act governs all income tax matters. The tax is imposed and calculated for an income year. The income year corresponds with Government's Fiscal Year, i.e., the period from the start of Shrawan of a year to the end of Ashad of the following year (mid-July to mid-July). The taxable income of a resident individual and family for an income-year will be taxed at the following rates: » For individual Rs. 1,15, 000 not taxable » For family Rs. 1,40,000 not taxable On taxable income Income upto Rs 75,000 beyond the exemption amount 15% On all further incomes beyond taxable income of Rs. 75,000 25% The tax for individuals conducting small businesses in the Metropolitan or Sub-Metropolitans, Municipalities and anywhere else in Nepal shall be taxed amounting Rs 2,000 Rs. 1,500 and Rs.1, 000 respectively. The taxable income of a non-resident individual is taxed at the rate of 25 percent. The taxable income of a bank, or financial institution, or general insurance business, or an entity conducting petroleum work under Petroleum Act, 2040 for an income-year is taxed at the rate of 30 percent. The taxable Income derived by an entity engaged in an industrial enterprise or from operating any road, bridge, tunnel, ropeway, or flying bridge constructed by the entity or any trolley bus, or tram manufactured by the entity will be taxed at the rate of 20 percent. The taxable income of an entity engaged in power generation, transmission, or distribution is taxed at the rate of 20 percent. The repatriated income of a foreign permanent establishment of a non-resident person situated in Nepal will be taxed at the rate of 10 percent. The taxable income of a non-resident person deriving income from providing shipping, air transport or telecommunication services in Nepal will be taxed at the rate of 5 percent. All industrial establishments accepted as industry by Industrial Enterprise Act (except alcohol & tobacco based units) will be charged 20%. An agricultural income derived from sources in Nepal during an income-year by a person, other than the income from an agriculture business derived by a registered firm, or company, or partnership, or a corporate body, or through the land above the land holding ceiling as prescribed in the Land Act, 2021, is exempt from income tax. Incomes derived by cooperative societies, registered under Cooperative Act, 2048 (1991), from business mainly based on agriculture and forest products such as sericulture and silk production, horticulture and fruit processing, animal husbandry, diary industries, poultry farming, fishery, tea gardening and processing, coffee farming and processing, herbiculture and herb processing, vegetable seeds farming, bee-keeping, honey production, rubber farming, floriculture and production and forestry related business such as lease-hold forestry, agro-forestry, cold storage established for the storage of vegetables and business of agricultural seeds, insecticide, fertilizer and agricultural tools (other than machine operated)and rural community based saving & credit cooperatives are exempt from tax. Dividends distributed by such societies are also exempt from tax. Unrelieved business losses of previous 4 years are allowed to carry forward. In case of electricity projects involving in building power station, generating and transmitting electricity and the projects conducted by any entity so as to build public infrastructure, own, operate and transfer to the Nepal Government, any unrelieved loss of the previous seven years are allowed to carry forward. If a person incurs a loss for an income-year from any banking business, the person may carry back the loss and deduct it in calculating the income from the business for any of the five preceding income-years. A resident natural person and a resident spouse of the person may, by notice in writing, elect to be treated as a single individual for a particular income-year. Each spouse of a couple making an election as above with respect to an income-year is jointly and severally liable with the other spouse for any tax payable by the couple for the year. Every taxpayer is required to maintain, in Nepal and in Nepali language, documents as prescribed by the Department, which are necessary to explain information to be provided in a return, enable an accurate determination of the tax payable and substantiate deductions and outgoings. The documents must be retained for at least 5 years after the end of the income year to which they are relevant. If the documents are not in Nepali, the taxpayer may be requested to provide at his expense a translation by an approved translator. In general, every taxpayer will file a signed return of income not later than 3 months after the end of each income year. In order to avoid the double taxation on incomes of foreign investors, the agreement for the same have been concluded with India, Norway, Thailand, Sri Lanka, Morisas, Austria, Pakistan, China and Korea. Value Added Tax (VAT) The Value Added Tax (VAT) is a broad based tax. It is a modern tax system intended, when fully operational, to improve the collection of taxes, to increase efficiency and to lessen tax evasion. VAT will replace the existing Sales Tax, the Contract Tax, the Hotel Tax and the Entertainment Tax. It has been designed to collect the same revenue as the four taxes it replaces. VAT is levied at a single rate of 13 percent. In certain cases, the rate may be zero and certain goods and services are exempted from VAT. Value Added Tax is collected at every stage of selling goods and services. Exports of taxable goods are zero rated. VAT Registration is required for any business whose with annual taxable sales of more than Rs. 20,00,000. However, all firms conducting business in Metropolitan, Sub-Metropolitans or Municipalities related to hardware, sanitary, furniture, fixture, furnishing, electrical and marble should be compulsory registered in VAT office. A firm registered with the VAT Office may claim credit on tax paid on inputs / purchases. The VAT Act, Schedule I lists imports items which are tax-exempt. Some of these include: prescription drugs, basic groceries, medical devices and agricultural products. Most imports, however, are fully taxable at the time of importation. The VAT on imported goods is collected by Customs. It is calculated on the duty paid value of the goods. The value for the duty of the goods is determined in accordance with the valuation provisions contained in the Customs Act. The obligations of VAT registrants are required to pay VAT on or before the 25th day following the end of each month, provide their customers with a tax invoice , maintain records ,keep their VAT records for a period of 6 years ,advise the VAT Office of changes to the business such a new address, telephone number or a reorganization of a partnership ,post their Certificate of Registration where customers may observe it, and allow tax officers to enter the business to examine the business records and the stock on hand. Tax Officers may grant permission for a VAT registrant to issue an abbreviated invoice for retail sales below the value of Rs. 5000. An abbreviated invoice does not require the name and address of the purchaser. A registrant will make his VAT payment at a bank where he will receive a voucher number as proof of payment. This number is to be entered on his VAT return and submitted within 25 days of the end of the proceeding month.