Maximizing Tax Benefits: Understanding Insurance Premium Deductions in Nepalese Income Tax

Question: If an employee is not enrolled in any retirement fund but has paid 40,000 for life insurance or 10,000 for health insurance, should these insurance payments be subtracted from their taxable income or not? (this was posed in one of the facebook group)

Answer: Regardless of whether an individual has contributed to a retirement fund, they remain eligible to reduce Rs. 40,000 for life insurance and Rs. 10,000 for health insurance from their taxable income.

You might be wondering how? Let's delve into the deductions permitted by the Nepalese Income Tax Act, 2058, regarding life, health, and property insurance premiums. This blog should help you understand how insurance payments can impact your taxable income.

1) Life Insurance Deduction:

For residents holding life insurance, you can claim a deduction of up to Rs. 40,000 or the actual annual premium amount (whichever is lower) from your taxable income. Refer to Annex-1, Clause 12 for this provision.

2) Health/Medical Insurance Deduction:

If you've enrolled in medical insurance from a resident general insurance company, you're eligible for a deduction of Rs. 20,000 or the actual annual premium amount (whichever is lower) from your taxable income. This provision is outlined in Clause 16 of Annex-1.

3) Property Insurance Deduction:

For residents who have insured their residential property, a deduction of Rs. 5,000 or the actual premium amount (whichever is lower) is available from their taxable income. This provision is stated in Clause 16Ka of Annex-1.

Tabulated View for easy reference

Understanding these provisions allows you to optimize your tax benefits while securing essential coverage for life, health, and property. Explore how these deductions can work for you and maximize your savings this tax season!

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