What is income tax?
Income tax is the money that individuals or companies must pay to the government based on their earnings. These earnings can come from jobs, pensions, investments, or other sources.
The Income Tax Act, 2058 (2002) provides rules and tax tables to help individuals and businesses understand how much tax they need to pay. These tables show different income levels (slabs) and the corresponding tax rates. Knowing these slabs and rates is important for planning taxes and following Nepal’s tax laws. The tax amount can vary depending on the type of business or income structure.
In Nepal, there are several tax laws like the Excise Act, the Finance Act, and the Income Tax Act. The Inland Revenue Department (IRD), which is part of the Ministry of Finance, is responsible for collecting taxes. The IRD also creates tax policies and laws for different taxes such as income tax, value-added tax, and excise tax.
Personal Income Tax Rates in Nepal (2024/25)
Nepal uses a progressive tax system, meaning the more you earn, the higher your tax rate. Taxpayers are categorized as individuals or married couples. Here’s a breakdown:
Tax Rates for Individuals
Income Range (NPR) | Tax Rate |
---|---|
Up to 500,000 | 1%* |
Next 200,000 (500,001 – 700,000) | 10% |
Next 300,000 (700,001 – 1,000,000) | 20% |
Next 1,000,000 (1,000,001 – 2,000,000) | 30% |
Next 3,000,000 (2,000,001 – 5,000,000) | 36%** |
Above 5,000,000 | 39%*** |
Tax Rates for Married Couples
Income Range (NPR) | Tax Rate |
---|---|
Up to 600,000 | 1%* |
Next 200,000 (600,001 – 800,000) | 10% |
Next 300,000 (800,001 – 1,100,000) | 20% |
Next 900,000 (1,100,001 – 2,000,000) | 30% |
Next 3,000,000 (2,000,001 – 5,000,000) | 36%** |
Above 5,000,000 | 39%*** |
Notes:
- 1%* is a Social Security Tax, waived if you contribute to the Social Security Fund (SSF).
- 36%** includes a 20% surcharge on incomes between NPR 2,000,000 and NPR 5,000,000.
- 39%*** includes a 30% surcharge on incomes above NPR 5,000,000.
You can contribute to SSF by yourself if your employer did not comply with SSF.
Deductions
Sum of SSF, EPF and CIT (SSF+EPF+CIT): NPR 500,000 /- Combined (actual deposited amount or 500000 whichever is lower) and NPR 40,000 for Insurance.
Social Security Fund (SSF) contributions:
- Employer’s Contribution: 20% of the employee’s basic salary
- 10% for Provident Fund
- 8.33% for Gratuity
- 1.67% for Other Benefits
- Employee’s Contribution: 11% of their basic salary
How to Calculate Taxes in Nepal?
Here’s a step-by-step example for an individual earning NPR 1,000,000 annually: Identify Taxable Income: Subtract deductions (e.g., retirement, insurance) from gross income.
Individual Tax Calculations
Step 1: Identify Taxable Income
Assume there are no deductions (e.g., retirement, insurance) for simplicity.
Taxable Income = NPR 1,000,000
Step 2: Apply Tax Rates
The tax rates for individuals in Nepal are progressive. Here’s how the tax is calculated for NPR 1,000,000:
- First NPR 500,000: 0%
Tax = NPR 0 - Next NPR 200,000: 10%
Tax = 200,000 × 10% = NPR 20,000 - Next NPR 300,000: 20%
Tax = 300,000 × 20% = NPR 60,000 - Remaining NPR 0: Since the total income is NPR 1,000,000, and the first NPR 1,000,000 is already covered, there is no remaining amount to tax at higher rates.
Step 3: Total Tax Liability
Add up the taxes from each bracket:
Total Tax = NPR 0 + NPR 20,000 + NPR 60,000 = NPR 80,000
For Married Couple
Step 1: Identify Taxable Income
Assume there are no deductions (e.g., retirement, insurance) for simplicity.
Taxable Income = NPR 1,000,000
Step 2: Apply Tax Rates
The tax rates for individuals in Nepal are progressive. Here’s how the tax is calculated for NPR 1,000,000:
- First NPR 600,000: 0%
Tax = NPR 0 - Next NPR 200,000: 10%
Tax = 200,000 × 10% = NPR 20,000 - Next NPR 200,000: 20%
Tax = 200,000 × 20% = NPR 40,000 - Remaining NPR 0: Since the total income is NPR 1,000,000, and the first NPR 1,000,000 is already covered, there is no remaining amount to tax at higher rates.
Step 3: Total Tax Liability
Add up the taxes from each bracket
Total Tax = NPR 0 + NPR 20,000 + NPR 40,000 = NPR 60,000
What will be tax on 1 crore income for an individual in Nepal as a salaried person?
To calculate the tax for an individual earning NPR 10,000,000 annually in Nepal, follow these steps:
Step 1: Identify Taxable Income
Assume there are no deductions (e.g., retirement, insurance) for simplicity.
Taxable Income = NPR 10,000,000
Step 2: Apply Tax Rates
The tax rates for individuals in Nepal are progressive. Here’s how the tax is calculated for NPR 10,000,000:
- First NPR 500,000: 0%
Tax = NPR 0 - Next NPR 200,000: 10%
Tax = 200,000 × 10% = NPR 20,000 - Next NPR 300,000: 20%
Tax = 300,000 × 20% = NPR 60,000 - Next NPR 1,000,000: 30%
Tax = 1,000,000 × 30% = NPR 300,000 - Next NPR 3,000,000: 36%
Tax = 3,000,000 × 36% = NPR 1,080,000 - Remaining NPR 5,000,000: 39%
Tax = 5,000,000 × 39% = NPR 1,950,000
Step 3: Total Tax Liability
Add up the taxes from each bracket:
Total Tax = NPR 0 + NPR 20,000 + NPR 60,000 + NPR 300,000 + NPR 1,080,000 + NPR 1,950,000 = NPR 3,410,000
Additional Taxation Insights
- Non-Residents: Flat 25% tax on income sourced in Nepal.
- Withholding Taxes (TDS):
- Dividends: 5%
- Rent payments: 10%
- Contractual payments: 1.5%-15% (depending on VAT registration).
FAQs About Nepal’s Tax System
1. What are the latest tax rates for individuals?
Tax starts at 0% for incomes up to NPR 500,000 (NPR 600,000 for couples) and goes up to 39% for incomes above NPR 5,000,000.
2. Do startups get tax exemptions?
Yes, innovative startups with turnover below NPR 10 million are exempt for the first 5 years.
3. What is the tax rate for exporting IT services?
Export-oriented IT services enjoy a 50% tax exemption on their income.
4. What is the Social Security Tax?
It’s a 1% tax on the first NPR 500,000 (or NPR 600,000 for couples), waived if you contribute to the Social Security Fund (SSF).
5. Are there special tax rates for married couples?
Yes, married couples get a higher tax-free threshold (NPR 600,000) compared to individuals (NPR 500,000).
6. Can I deduct insurance premiums?
Yes, you can deduct up to NPR 40,000 for life insurance and NPR 20,000 for health insurance.