Arthabichar Nepal - Guide to Entrepreneurs, Startups, and Business Enthusiast

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...

Introduction Nepal's transformation into a federal state with seven provinces has brought about a distinct shift in governance. Each province now wields the power to establish its own laws, creating a unique administrative setup. Unique Tax Systems in Each Province Since the shift to federalism, an intriguing trend has emerged. Each province has independently set its own tax rates and devised specific procedures for blue book renewals in the transport sector. It's like having a mosaic of rules that don't always align seamlessly. While transport ministers from all provinces initially discussed the possibility of standardizing vehicle tax rates, progress has been slow. Despite an agreement allowing vehicle owners to pay taxes in a province of their choice, regardless of where their vehicle is registered, little has changed. This initiative was handed over to the Federal Ministry of Physical Infrastructure and Transport to oversee ( source ). The Need for Progress Unfortunatel...

In my reflections as a blogger, I often wonder why, despite my best efforts, I consistently end up paying fines during vehicle tax payment and blue book renewal. My understanding was rooted in the belief that taxes should be settled within a specified period during the Fiscal Year. Perhaps, my immersion in Income Tax matters led me to assume that we had a generous 90-day window at the close of the Fiscal Year to fulfill our obligations. As many of you know, the Fiscal Year in Nepal commences on Shrawan 1 and concludes at the end of Ashad. Accordingly, the standard due date would be at the end of Ashoj. However, my recent visit to the Transport Management Office proved otherwise. I was confident that I wouldn't have to dig too deep into my pockets to cover fines. To my surprise, I was slapped with a hefty 20% fine for tax and a whopping 100% fine for Blue Book renewal. It felt exorbitant and left me with an additional Rs. 6,400 less in my hard-earned money, all due to my confusion a...

The Permanent Account Number (PAN) is a unique identification provided to every taxpayer in accordance with Section 78 of the Nepalese Income Tax Act 2058 and Rule 23 of the Nepalese Income Tax Rules 2059. This number is assigned to individuals and entities registered with the Inland Revenue Department, enabling them to file returns, submit statements, and process documents. As outlined in Rule 24 of the Nepalese Income Tax Act 2059, any alterations in the details associated with the Permanent Account, such as changes in address, must be reported within 15 days of the modification. Following the receipt of the application, a new PAN Certificate reflecting the updated information will be issued to the taxpayer. While individuals refer to it as Personal PAN, for entities, it is simply known as PAN, as per the categorization established by the Tax Act. In our upcoming articles, we'll discuss the process of acquiring a PAN for both individuals and entities, including foreign nationals ...

Introduction: Determining whether a business can claim VAT against food expenses depends on the nature and purpose of the expenditure. Let's walk through a checklist to find the answer: 1) Was it a Business Expense?      If yes, proceed to question 2. Otherwise, VAT cannot be claimed. 2) Was it for Entertainment Purposes?      If yes (e.g., staff retreat, gatherings, farewells), VAT cannot be claimed. Otherwise, it may be eligible. VAT Act and Regulations: Rule 41 of VAT Regulation specifies that certain services or goods are not eligible for input tax credit under Sec 17 of the Nepalese Income Tax Act. These include: 1) Beverages (excluding mineral water, as clarified in the directive) 2) Alcohol or alcohol-based beverages like whiskey and beer 3) Petrol for vehicles 4) Entertainment expenses In the case of food expenses, it's crucial to determine whether they fall under the category of entertainment expenses. This encompasses activities that provide perso...

Introduction: Ensuring you have a valid tax clearance certificate is crucial for both individuals and entities. Previously, obtaining it online was convenient, but now a visit to the tax office is required. In this article, we'll guide you through the process, focusing on individuals with salary income. Step-by-Step Guide: Obtain a Certified Salary Certificate: Your employer should provide a certificate detailing your annual salary, along with deductions like CIT, PF, Social Security Fund, and Insurance. Ensure the income and ETDS match the certification letter. Visit the Correct Tax Office: If your employer's location differs from your PAN registration, visit the tax office where your employer is registered. Complete the Application Form: Pick up the Tax Clearance certificate application form from the tax office's reception. It must be signed by the concerned person. If they're unavailable, provide an authorization letter matching the authorized person's identif...

Nepal's Income Tax Act defines Windfall gain as a gain obtained by means of lottery, gift, prize, tips, share of earning in a game (जितौरी)  or any other gain acquired incidentally.  Let us explain by example what can potentially be Windfall Gain.  1) Let's say apple recently launched a iPhone 14 in Nepal. Part of such launch, company offered its customer who buys iPhone, an iPad for free. The market value of the iPhone is Rs. 214,000 and that of iPad is Rs. 189,000. In such case, customer who received Rs. 189,000 worth of iPad without any additional cost will be considered a prize hence, a windfall gain. 2) Recently DRS gaming won US$ 292,000 (approx. Rs 4 crore) for being runner's up in the grand finals of the PUBG Mobile Global Championship. Let's assume here that DRS gaming has not been registered as a company but simply represented by individuals. If I am not mistaken, there are 4 members in the team. So, each individual will have won Rs. 1 crore as share of earni...

Profit is a financial gain from the difference between Selling Price and Purchase Price. Higher the gap between selling price and purchase price, higher the profit. Thus, there is an infinite potential for profit. However, business cannot sell their goods if the price is too high and the customers targeted can't afford to pay the set price. At the same time, if the price is set too low, business might not recover all the costs incurred in importing or manufacturing goods or providing services; ultimately, have to close the shop. I must at this point, tell you that neither Income Tax nor Value Added Tax law determine how much profit a business can make. It is general understanding that necessary tax invoice shall be issued on the price the good or services is sold. Similarly, necessary taxes must be paid as defined by the Income Tax law. At this time, I think its important for us to understand how is purchase price and selling price determined. Let's start our discussion with pu...

Question: Where to submit the TDS of house rent if there is an agreement between entity and entity. a) Inland Revenue Office or b) Local Ward Office? Answer: TDS of house rent where agreement is between one entity and another shall be submitted to Inland Revenue office. Only those where landlord/house owner is an individual, shall be deposited to Local Ward Office. Plz leave your comment or reach us out on Instagram, Facebook and TikTok page for your queries. You can search for "Arthabichar Nepal". Our team of experts will try to resolve and get back to you as soon as possible. Thank you and have a nice day.

Nepal government has announced significant tax waivers for the industry which have been hard hit by Covid such as hotels, travels, trekking, film industry, party palace, transportation industry, etc. Besides it has also provided relief to businesses having turnover up to Rs. 1 crore, additional loss set off and allowed a deduction for contribution to Corona Fund set up by Nepal Government and assistance in the construction of hospitals or purchase of medical equipment. Here's the detail that is applicable for Income Year 2077/78: Tax Waiver 90% tax waiver for business having a turnover up to Rs. 20 Lakh and profit of Rs. 2 Lakh that have opted for Presumptive tax. 75% tax waiver for business having a turnover above Rs. 20 lakh up to Rs. 50 lakh that have opted for turnover basis taxation. 50% tax waiver for business having turnover up to Rs. 1 crore. 1% tax on taxable income for hotels, travel, trekking, film development (development, distribution, and movie halls), party palace, m...

There are numerous reforms made by the Finance Ordinance 2078 in the Income Tax Act 2058. The biggest winner seems to be Small businesses having turnover up to NRs. 1 crore as they are now covered under the presumptive tax/turnover basis taxation. Unlike earlier, the condition of not having registered in VAT has also been removed. It has somewhat the lessened tax burden but doesn't mean one should refrain from keeping from books of accounts. Earlier such presumptive tax was available only for a resident person having income from business up to NRs. 20 lakh and profit of NRs. 2 lakh. Now, it has been increased to NRs. 30 lakh and taxable income of NRs. 3 lakh.  Similarly, turnover tax has been increased from earlier NRs. 50 Lakh to NRs. 1 crore in case of a business. Now, the new slab applicable is as follows: Turnover above NRs. 30 lakh up to NRs. 50 Lakh conducting Gas & Cigratte business with 3% commission or value addition: 0.25% of turnover other business:  0.3% of tur...

Presumptive taxation involves the use of indirect means to ascertain tax liability, which differs from the usual rules based on the taxpayer's accounts. The term "presumptive" is used to indicate that there is a legal presumption that the taxpayer's income is no less than the amount resulting from the application of the indirect method. Presumptive techniques may be employed for a variety of reasons. Simplication in relation to the compliance burden on taxpayers with very low turnover (from the tax office perspective administrative burden of auditing such taxpayers) Providing relief from the detailed calculation of tax liability thereby reducing the requirement to go through tedious paperwork reducing the cost to hire a professional. Combat tax avoidance or evasion by widening the tax bracket while making it user friendly Presumptive taxpayers have fixed tax amounts. In Nepal, there are two kinds of presumptive tax in existence: For business For vehicle owners In this...

Every year one has to go through thousands and thousands of documents before coming up with the final tax return that gets submitted to Inland Revenue Department. All these piles of documents need to be properly archived for future reference. Depending on the number of years and the volume of transactions, the documents that require storage might a just few index files to buildings full of archived documents. The cost is really huge to taxpayers, be it a natural person or an entity. Hence, the question always pops up. What can we do to minimize the burden while remaining compliant with the statutory requirements? Can we dispose of some of these documents and make room for new ones? When it is safe to throw old tax documents into the dustbin. Nepalese Income Tax has defined the period under Section 81 . It reads as follows: "Every person, who is required to keep accounts and records, is also required to keep these records and accounts safely for five years starting from the follo...

We see lots of posts on Facebook, Instagram, and TikTok around how to become a millionaire or billionaire. Most of them repeat the same thing; start your business, begin investment early, get into the real estate flipping business, be a stock trader, etc. I don't think there is anything new there. We have heard these since we were young. At least, me. Let us talk about something new today. And, believe me, everything we will be unrevealing here is 100% legal. Yes, it is possible to become a millionaire. You must be wondering how? All you have to do is catch some bad dudes trying to evade or have evaded taxes and report to the Inland Revenue Department. Yes, stop wondering about jobs, start your own hustle, work as an informant to the tax office. It will help you get substantial rewards. However, you should be careful, do remember that sharing false information can also get you in trouble. Who can inform and how?  An informant can be an individual or group of people who give particu...

We all are aware that taxes needs to be paid on any income earned from the income generating activities. There is no way we can remain untouched. There is a famous quote that only two things are certain in this life 1) Death 2) Taxes There is huge compliance cost when it comes to taxation. Keeping a proper books of accounts, making sure that it is auditable and filing of periodic tax return. It notly only takes a lot of your time, money but also gives us a fear whether we haave done everything rightly or not? Whether there will be finess and penalities?  I have seen people who are actually afraid to face tax officers and right letters to tax department. Most common reason is fear. We fear that anything we do or say will be held against us. We fear that we will not be given an opportunity to explain. But, that is not so true. Nepalese Income Tax Act, 2058 has assured certain rights for every taxpayer. These are fundamentals rights which we can exercise: 1) Right to respectful behavi...

Applicability of tax depends on the residential status as defined by Income Tax Act.  It has nothing to do with citizenship status. A natural person might be a citizen of Nepal but a non-resident for the purpose of taxation. Similarly, foreign nationals might be residents of Nepal. We have three yardsticks to test whether a natural person is a resident or non-resident of Nepal. 1) Natural Person stays in Nepal for 183 days or more in a consecutive period of 365 days. 2) Natural Person is an employee of Nepal Government 3) Natural Person normal place of abode is Nepal. The question above doesn't specify whether a natural person is working for a foreign company out of Nepal or outside of Nepal.  Opinion A: Let us assume that a natural person stays abroad & has not been in Nepal for more than a year or so, in such a case, there will not be any tax liability in Nepal. Why? Because the person doesn't full any of the criteria listed above and thus, is non-resident and for non-r...

The income tax liability of a person depends on the residential status in Nepal. What we need to understand is that it has nothing to do with the actual citizenship of an individual. A person who is a citizen of Australia or a green card holder of the USA might be resident in Nepal for taxation purposes for a particular Income Year. Similarly, a citizen of Nepal might end up as a non-resident. It all depends on the criteria specified by the Nepalese Income Tax Act. So, the question important question,  How to determine residential status? Nepalese Income Tax has defined resident person under Sec. 2(kanga). In other words, persons meeting the criteria listed below will be taxed in Nepal as a resident person and all the rest will be treated as a non-resident person. Residential Status for Natural Person First Criteria: Whose Normal Place of Abode is in Nepal Income Tax Act has not defined what is a normal place of abode means so we are taking a reference from the double taxatio...

Who gets taxed in Nepal? Isn’t that straight forward question? The simple answer would be whoever earns an income. But, believe me.. it isn’t that simple. Income Tax Act, 2058 uses the term “ person ” for those who will be taxed in Nepal . It, actually, bifurcates the person into two categories: 1) Natural Persons 2) Entity (Artificial Person) 1) Natural persons are further classifie d into four border categories. a) Single natural person b) Couple who opted to be taxed as a single person Clarification: For the purpose of taxation, each of the spouses is treated as a single natural person unless they opt to file tax jointly as a couple. Figure 1: Answer to who gets taxed in Nepal? c) A widow or widower with dependent, and Clarification: For the purpose of taxation, a widow or widower with dependents is treated as a couple. d) Sole proprietorship firm. 2) Entity , on the other hand, have many categories: a) Partnership firm Clarification: The partnership form sh...

The concerned Individual has to physically visit the nearest Tax Payer's Service Office or Inland Revenue Department with a copy of the citizenship and passport size photo to obtain PAN No. (Permanent Account Number). But, with Covid-19 disrupting daily life and restricting the movements, the Inland Revenue Department has finally decided to have it automated through its Online System. If you haven't yet registered for Permanent Account Number, you can do so by following the steps below: 1) Visit www.ird.gov.np and click on Taxpayer Portal 2) Click on Registration then, Application for Registration 3) Fill out the necessary detail & click Ok. Once that is done, it will be now going to the concerned IRD office for verification. Tax Officer will go through the detail submitted and verify it 4) Once verified, the concerned individual can log into tho the Tax Payer Portal system with the credentials provided earlier and obtain the PAN no. 5) If an individual needs a hard copy of...

Last Fiscal Year Nepal Government declared that every expense must have either a PAN/VAT invoice or paid to those registered in PAN/VAT. This was a surprise and was throwing most of the malpractices out of the bus. The fraudulent activities such as ghost employees, procurement through unregistered mom & pop stores, and most importantly, all the informal/casual/daily workers who were paid out in cash and had no legal records to demonstrate those exist.  It was indeed a good initiative but at the same time government didn't take into account the ground reality. It was and still is hard to find someone registered in tax in rural areas of the country including those working in daily wages or as casual workers. I, personally, think that all the business entities need to get registered and the government shouldn't give them an option. But, even, if we wanted to have all those individuals having the income to file a self-assessment, it might not be feasible for daily workers. Unle...