Sources of Income Tax Law of Nepal
Income Tax Law of Nepal is prescribed by the following:
- Income Tax Act
- Income Tax Rules
- Income Tax Directive
In addition to the above, the Parliament of Nepal passes Finance Act on an annual basis to make changes to the tax rates and other provisions.
Regulatory Agency
Inland Revenue Department, under the instructions of Ministry of Finance.
Salient Aspects of Income Tax Law
Income Tax Act, being the primary source of income tax law of Nepal, imposes income tax upon the following:
- any person having taxable income
- permanent establishment of a foreign person remitting money abroad
- any person receiving income upon final tax deduction
Taxable income is divided into the following categories:
- business
- employment
- investment
- windfall gain
Income Tax Act provides a number of exemptions from income tax and discounts depending on the nature of businesses, category of taxpayers, geographic region etc that are guided by the State’s monetary and fiscal policies. Income Tax Act permits deduction from the income, of various expenses and losses incurred by the taxpayer along with depreciation of assets.
Tax accounting shall be done under generally accepted accounting principles. Income assessment of a natural person from employment and investment shall be done on cash basis. Company shall maintain accounts on the accrual basis.
Tax payable by en employee shall be deducted by the employer and reported to the tax authorities. Tax payable by recipient of interest, royalty, service fee, retirement payments shall be deducted and reported by the person making such payment. Tax payable by a person selling any property or asset shall be deducted and paid at the instance such transaction takes place.
Annual tax returns must be filed within 3 months from the end of each fiscal year. This timeline may be extended for a maximum aggregate period of 3 months.
Taxpayer may apply to Inland Revenue Department to administratively review the tax assessment carried out by the Tax Office. The decision of the Inland Revenue Department may be appealed at the Revenue Tribunal.
Consequences of Violation of Tax law
- Failure to pay taxes in a timely manner shall result in imposition of interest
- Submission of false or misleading information shall result in levying of charge as well as fines and imprisonment
- Failure to pay taxes without any appropriate reason shall result in fines and imprisonment
- Government of Nepal shall have claim upon assets of the taxpayer for the failure of taxpayer to pay taxes
- Taxpayer may be prevented from traveling abroad for failure to pay taxes.
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