Filing Taxes in Nepal with Both Salary and Business Income: A Practical Guide

Many individuals in Nepal find themselves in a situation where they earn income from a salaried job while also running a small business. This can lead to confusion about how to file taxes correctly. One common question I recently received highlights this perfectly.

The Question (प्रश्न)

In Nepali (नेपालीमा):

मेरो बाबाको व्यवसाय पान पसल हो। मेरो बाबाले अर्को कम्पनीमा काम पनि गर्नुभएको छ। त्यसैले उहाँको तलब आय र व्यवसाय आय दुवैको कर कसरी तिर्नुपर्ने हो? केही आइडिया भए सुझाव दिनुहोला है।

In English:

My father runs a betel nut (pan) shop as a business. He also works at another company. So, how should he pay tax on both his salary income and his business income? Please suggest if you have any idea.

The Expert Opinion: How to Handle Dual Income and Which Form to File

Thank you for this important question. Your father's situation is quite common, and the answer hinges on understanding which tax return form applies. Let me clarify the process step by step.

1. Calculating Total Taxable Income

Under Nepal's Income Tax Act, 2058, a resident individual must combine all sources of income earned in a financial year. For your father, this means:

- Employment Income: The total salary, allowances, and benefits received from his job over 12 months.

- Business Income: The net profit from his pan shop. This is calculated by taking his total business turnover and subtracting all allowable business expenses (cost of goods sold, rent, salaries to helpers, electricity, etc.) as per Section 11-15 of the Act.

- Total Taxable Income = (Net Business Profit + Total Employment Income) – Deductions (like life insurance premiums, contributions to the Social Security Fund, or retirement fund contributions).

2. Applying the Tax Rate

The combined taxable income is then taxed according to the progressive slab rates for individuals. For the financial year 2080/81 (2023/24), the rates are roughly:

| Annual Taxable Income | Tax Rate |

| First Rs. 5,00,000 | 1% (Social Security Tax*) |

| Next Rs. 2,00,000 | 10% |

| Next Rs. 3,00,000 | 20% |

| Next Rs. 10,00,000 | 30% |

| Next Rs. 30,00,000 | 36% |

| Above Rs. 50,00,000 | 39% |

Note: The 1% social security tax may not apply if he is a proprietor. A crucial point to remember is that the TDS (Tax Deducted at Source) already cut from his monthly salary by his employer will be credited against his total annual tax liability. He only pays the balance while filing the return.

3. The Critical Part: Which Tax Return Form Should He File?

This is where most confusion occurs. Nepal's Inland Revenue Department (IRD) has four main categories for individual filers. Based on your father's situation, here's the clear verdict:

❌ D-01 (Presumptive Taxation): Not applicable.

This is only for very small businesses with an annual turnover of up to Rs. 30 lakhs and net profit up to Rs. 3 lakhs. Given he also has a salary, his combined income almost certainly pushes him out of this bracket.

❌ D-02 (Turnover-Based Taxation): Not applicable.

This is a simplified scheme for businesses with turnover between Rs. 30 lakhs and Rs. 1 crore, but it does not accommodate separate employment income. It's a standalone system.

❌ D-04 (Employment Income Only): Not applicable.

This form is strictly for individuals whose *entire* income comes from salary. Even a tiny side business disqualifies him from using D-04, regardless of the salary amount.

✅ D-03 (Standard Return Filing): This is the correct form.

Your father has income from two distinct heads: Business and Employment. The D-03 form is the comprehensive return designed precisely for this situation. He will fill out:

- Schedule 5 for his Business Income.

- Schedule 6 for his Employment Income.

The totals from these schedules automatically flow into Schedule 1 to calculate his final tax liability.

4. How to File

1.  Log in to the IRD's Taxpayer Portal (www.ird.gov.np) using your father's Permanent Account Number (PAN).

2.  Select the D-03 form for the relevant income year.

3.  Fill in the required schedules.

4.  The system will calculate the total tax. Subtract any TDS already paid (as shown on his salary certificate) and advance tax, if any.

5.  Pay any remaining tax online or at a designated bank and submit the return.

A Final Word of Caution

Consolidating business and employment income with TDS adjustments can be tricky. A small error could lead to a notice from the tax office. I strongly recommend consulting a Chartered Accountant or a Tax Consultant to prepare and file the D-03 return accurately for the first time. This will ensure compliance and peace of mind

Disclaimer: This blog post is for informational purposes only and is based on the tax rates and rules for the fiscal year 2082/83. Tax laws are subject to change. Please consult a professional for advice specific to your situation.