Income Tax Act (Alongwith each year Financial Acts Amendment), 2058 (2002)


Published: 2002

Subscribe to a Global-Regulation Premium Membership Today!

Key Benefits:

Subscribe Now for only USD$20 per month, or Get a Day Pass for only USD$4.99.
Income Tax Act, 2058 Eng

1
Income Tax Act, 2058 (2002)
Date of Authentication and the Publication
2058-12-29-2 (18 April, 2002)
An Act Made to Amend and Consolidate the Law relating
to Income Tax
Preamble: Whereas, it is expedient to make timely the law relating to income
tax by amending and consolidating it in order to enha ce revenue mobilization
by making the process of collecting revenue effectiv for the economic
development of the country;
Now, therefore, be it enacted by Parliament in the first year of reign of
His Majesty the King Gyanendra Bir Bikram Shah Dev.
Chapter-1
Preliminary
1. Short title and commencement: (1) This Act may be called as the
Income tax Act, 2058 (2002).
(2) This Act shall come into force throughout Nepal and also
apply to the resident person in any place outside the Nepal.
(3) This Act shall come into force immediately.
2. Definitions: Unless the subject or the context otherwise requirs in this
Act,-
Each year Amended version of the Financial Act is put at the end.


2
(a) "Person withholding advance tax" means a person with a duty
to withhold advance tax pursuant to Chapter-17 in making
payments for employment, investment return, service charge
and contract or contraction, as well.
(b) "Officer" means the Director General, Deputy Director General,
Chief Tax Administrator, Director, Chief Tax Officer, Tax Officer
and other Officers in the Department, as referred to in Section
72.
(c) "Payment from which tax is withheld finally" means any
dividend, rent, profit, interest and payment from which tax has to
be withheld made to the non-resident person, as referred to in
Section 92.
(d) "Retirement fund" means an entity established with a sole
objective to accept retirement contribution funds for the
purpose of making retirement payments from the fund to the
entity's beneficiary natural persons or their dependents, and
invest such funds.
(e) "Retirement payment" means any payment made to the
following person:
(1) Payment made to a natural person where such person has
got retirement, or
(2) Payment to the dependent of a natural person where such
person has died.
(f) "Retirement contribution fund" means any payment made to a
retirement fund for provisions of retirement payment or for
future provisions thereof.


3
(g) "Incapacitated person" means a person who is not capable of
making his dealings because of physical or mental illness.
(h) "Income" means the income earned by any person fr m
employment, profession or investment and the total amount of
that income calculated under this Act.
(i) "Income year" means a period from the first day of Shrawan
(tentatively 15 July) of any year to the last day of Ashad
(tentatively 14 July) of the next year.
(j) "Gift" means any payment made without any consideration or in
the case of any payment with consideration, where the market
value of payment exceeds the market value of consideration,
payment to the extent of such excess.
(k) "Debt liability" means the liability equivalent to the debt claim.
(l) "Debt claim" means the right of any person to receive payment
from another person, and this term also includes th right of any
person to have repaid a loan lent by such person to another
person, the right to receive deposits made in a bank and
financial institution, to receive sums to which such person is
entitled and to receive moneys from the sale of debentures, bills
of exchange, bonds, rights under annuities, financial lease and
installments.
(m) "Company" means any company incorporated under the
companies' law in force, and for the purpose of tax the following
institutions shall also be treated as if they were companies:
(1) Any corporate body established under the law in force,


4
(2) Any unincorporated union, board, association or society
or sole proprietorship whether incorporated or not and
any group of persons or trust except a partnership,
(3) Any partnership firm consisting of Twenty or more
partners whether registered or not under the law in force,
any retirement fund, cooperative institution, unit trust,
joint venture,
(4) Any foreign company;
(5) Any other foreign institution as specified by the Director
General.
(n) "Tax" means the tax chargeable under this Act, and this term
also includes the following payments:
(1) The expenditures referred to in clause (a) of Sub-section
(8) of Section 104 as incurred by the department for any
claim in respect of, and auction sale of, the propety in
which the tax is due and outstanding,
(2) The amount payable by the person withholding advance
tax or the person subject to tax withholding under S ction
90 or the amount payable by the person making payment
in installment under section 94 or the amount payable
after the assessment of tax under Sections 99, 100 and
101,
(3) The amount payable to the Department in respect of tax
liability of the third party under Sub-section (2) of Section
107, Sub-section (3) or (4) of Section 108, Sub-section (1)
of Section 109, Sub-section (1) of Section 110,


5
(4) The amount as referred to in Chapter -22 payable for a fee
and interest, and
(5) The amount of fine referred to in section 129 required to
be paid as per the order of the department.
(o) "Person subject to tax withholding" means any person who
receives payment or has the right to receive payment by
withholding tax under Chapter-17 in making payment for
employment, investment return, service fee or contract or
contraction.
(p) "Tax assessment" means the assessment of tax to be made
under this Act and this term includes the assessment of a fee
and interest under Section 122.
Provided that, this term does not mean the previous tax
assessment substituted by the amended tax assessment under
section 101.
(q) "Non-resident person" means any person save the resident
person.
(r) "Non-occupational taxable assets" means any land, building
and interest or security in any entity except the following
properties:
(1) Occupational assets, depreciable assets or stocks-in-
trade,
(2) A private building owned by a natural person in the
following situation,-


6
(a) Being under ownership for a continuous period of
three years or more, and
(b) Where that person has resided for a total period of
Three years or more continuously or at several
times.
(3) A private building belonging to and disposed of by any
natural person for a value less than ten million rupees, or
(4) An asset disposed of by way of transfer in anymanner
other than the purchase and sale within three
generations.
(s) "Organization entitled to enjoy exemption" means the following
entity:
(1) A social, religious, educational or benevolent
organization of public nature established with non-profit
motive,
(2) An amateur sports organization so formed with a view to
promoting social or sports related facilities that the
organization or its members does not derive profits,
(3) A political party registered in the Election Commission,
(4) Village Development Committee, Municipality or District
Development Committee,
(5) Nepal Rastra Bank,
(6) Government of Nepal,


7
(7) An entity as prescribed and entitled to use tax exemption
by an advance ruling issued under Section 76,
Provided that, in cases where any person has
derived any benefit from the property of that organiz tion
and the monies obtained from that organization except in
making payment for the property or the service provided
by any person to that organization or in discharging
functions in consonance with the objective of the
organization entitled to exemption, tax exemption shall not
be granted.
(t) "Trust" means an arrangement whereby a trustee holds any
property.
Provided that, this term does not include a partnership,
corporate body or organization referred to in sub-clause (3) of
clause (m).
(u) "Trustee" means a natural person, trust (Guthi) or other body
corporate who, individually or jointly with other natural person,
trust (Guthi) or corporate body, holds a property in trust, and
this term includes the following person:
(1) The operator or administrator of the assets of a deceased,
(2) A liquidator, recipient or trustee,
(3) Any person who protects, directs, controls or manages
the assets of an incapacitated person in individual or
official capacity,
(4) Any person who manages the assets under a private
enterprise or similar other enterprise, and


8
(5) Any other person in a position similar to that of the
person as referred to in clauses (1), (2), (3) and (4).
(v) "Long-term contract" means a contract referred to in Section 26
of which validity period is more than twelve months.
(w) " Relative" means a natural person's husband, wife, son,
daughter (adopted son, daughter as well), father, mother, grand-
father, grand-mother, elder brother, younger brother, sister-in-
law, daughter-in-law, elder sister, younger sister, father-in-law,
mother-in-law, brother-in-law, elder brother-in-law, ife's sister,
uncle, aunt, nephew, niece, grand-son and grand-daughter.
(x) "Entity" means the following organization or body:
(1) A partnership, trust or company,
(2) Village Development Committee, Municipality or District
Development Committee,
(3) Government of Nepal,
(4) Any foreign government or provincial or local government
under that government or a public international organization
established by any treaty, or
(5) A permanent establishment of the organization or body
referred to in clauses (1), (2) and (3), which is not situated
in a country of which it is a resident.
(y) "Interest in entity" means and includes the contingent right to
receive income or capital of any entity.
(z) "Disposal" means a disposal inclusive of the sal or transfer of any
property or liability as mentioned in Section 40.


9
(aa) "Vested ownership" means the following ownership:
(1) In the case of any entity, ownership created on the basis
of the interest which any natural person or any entity in
which a natural person has no interest has in that enti y
directly or indirectly through one or more interposed
entities, or
(2) In the case of the assets owned by any entity, ownership
of the assets as determined in proportion to the
ownership of the persons who have vested ownership in
that entity.
(ab) "Lease" means the provisional right of any person to enjoy or
use any property except movable property belonging to another
person, and this term also includes a license, rent agreement,
trenches, royalty agreement or right of a lessee/ tenant.
(ac) "Natural person" means an individual, and, for the purposes of
this Act this term includes a sole proprietorship owned by an
individual, whether registered or not, and a spouse so selected
under Section 50 as to be considered as the single individual.
(ad) "Payment for natural resources" means an amount f any of the
following payments:
(1) Amounts received for having extracted water, minerals or
other living and non-living resources from the earth, or
(2) Amounts calculated in full or in part on the basis of the
quantity or value of living or non-living resources of the
natural resources and minerals extracted from the earth.


10
(ae) "Market value" means ordinary transaction value of any
property or service in the ordinary course of trade between
unrelated persons in respect of such property or service.
(af) "Rent" means a premium received for the house rent as well as
for the lease of a tangible property and payment for the
provision of that lease. Provided that, this term does not include
any payment made for natural resources.
(ag) "Payment" means the following activities:
(1) If the money or property owned by any one person is
transferred to another person and the liability of any
other person is transferred to that person,
(2) If the ownership over any property created by any
person devolves on another person after the creation of
that property or if any person bears the onus of liability
of another person,
(3) If any person delivers service to another person,
(4) If any person uses any property owned by another
person or such property is available for such use.
(ah) "Distribution of profit" means the distribution of profits of any
entity made pursuant to Section 53, including the capitalization
of profits.
(ai) "Unit trust" means a trust to be divided on the basis fixed with
the number of the units holding the right of the persons entitled
to participate in income or capital, with a provision that the
trustee holds property for the benefits of at least twenty
persons.


11
(aj) "Employment" means any kind of past, present or future
employment.
(ak) "Royalty" means any payment made under the lease of any
intangible property, and this term includes any payment made
for the following purpose:
(1) To use or have the right to use a copy right, patent,
design, model, plan, secret formula or process or
trademark,
(2) To render technical know-how,
(3) To provide the right to use any motion picture film, video
tape, sound recording or similar other means and to
render industrial, occupational or scientific experience,
(4) To render any assistance in a manner to be ancillary to
the matters referred to in clauses (1), (2), or (3), or
(5) To have full or partial restrictions on the matters referred
to in (1), (2), or (3) or (4).
Provided that, this term does not mean any
payment made for natural resources.
(al) "Investment" means the act of holding one or m e properties of
similar nature used in an integrated manner or investing such
properties, except with the followings:
(1) Holding any property other than a non-occupational taxable
property used by the owner thereof in personal use or investing
money in such property, or
(2) Employment or occupation.


12
(am) "Investment insurance" means any of the following insurance:
(1) An insurance against the death of the insured or of the
associated person of the insured,
(2) An insurance against personal injuries of the insured or
his associated person or against any event leading to
incapacity in any particular manner,
Provided that, the validity period of the insurance
contract shall be at least five years or the contract shall
be without any validity period and the contract is so
made that it cannot be terminated by the insurer prio to
expiration of a period of five years except in exceptional
circumstances.
(3) An insurance so made that any money or series of
moneys are paid to the insured in the future,
(4) Reinsurance of the insurance referred to in clauses (1), (2)
or (3), or
(5) Reinsurance of the reinsurance referred to in clause (4).
(an) "Dividend" means the distribution to be made by an entity.
(ao) "Resident person" means the following person in respect of any
income year:
(1) In respect of a natural person,
(a) Whose normal abode is in Nepal,


13
(b) Who has resided in Nepal for 183 days or more
during a continuous period of 365 days of any
income year, or
(c) Who is deputed by Government of Nepal to a
foreign country in any time of the income year.
(2) A partnership firm,
(3) In respect of a trust, such trust
(a) Which is established in Nepal,
(b) The trustee of which is a resident person in an
income year,
(c) Which is controlled by a resident person or by a
group of persons comprising such a person,
directly or through one or more interposed entities,
(4) In respect of a company, such company,
(a) Which is incorporated under the law of Nepal,
(b) Management of which has been effective in Nepal
in any income year.
(5) Village Development Committee, Municipality, orDistrict
Development Committee,
(6) In respect of an entity of any foreign governmet or
provincial and local government under that governmet,
such entity,
(a) Which is established under the laws of Nepal, or


14
(b) Management of which is effective in Nepal in any
income year.
(7) An organization or entity established under anytreaty or
agreement, and
(8) A foreign permanent establishment of a non-resid nt
person situated in Nepal.
(ap) "Person" means a natural person or entity.
(aq) "Manager" means any person involved in making managerial
decisions of any entity, and this term includes a trustee of any
trust and a person having ownership in a foreign permanent
establishment.
(ar) "Occupation" means any kind of industry, busine s, profession
or business transactions of similar other nature, and this term
includes past, present or future occupations of similar type.
Provided that, this term does not include employment.
(as) "Interest" means the following payment or profit:
(1) Payment under debt liability except the principal,
(2) Profit made from concession, premium, alteration
payment or from similar payment, and
(3) The amounts referred to in Section 32 receivable as an
interest out of the payment to be made by a person who
acquires any property under annuities or installment sale
or of the payment made to any person for the use of any
property under a financial lease.


15
(at) "Stock-in-trade" means the property owned by an person and
sold or to be sold in the course of regular business carried on by
such person, the property in work-in-progress and the inventory
of materials to be incorporated in the property. Provided that,
this term does not include a property held in foreign currency.
(au) "Occupational asset" means any property used in any
occupation.
Provided that, this term does not mean stock-in-trade or
depreciable assets of the occupation.
(av) "Distribution" means a distribution to be made by any entity as
referred to in Section 53.
(aw) "Income sent abroad" means an income required to be sent
abroad by a foreign permanent establishment of a non-resident
person situated in Nepal as referred to in Section 68, which has
been sent abroad through a bank or paid in any other manner.
(ax) "Foreign income tax" means a foreign income tax referred to in
Sub-section (8) of Section 69 levied by any foreign country.
(ay) "Foreign permanent establishment" means an entity referred to
in paragraph (4) of clause (x).
(az) "Department' means the Department of Inland Revenue.
(aaa) "Property held in foreign currency" means any property held in
a foreign currency other than Nepalese rupees.
(aab) "Permanent establishment" means a place where any person
carries on a business fully or partly, and this term includes the
following place:


16
(1) A place where any person carries on a business fully or
partly, through any agent except a general agent who
acts independently in the ordinary course of carrying on
business,
(2) A place where any person's main equipment or main
machinery is situated or used or installed,
(3) One or more than one place in any country where any
person has delivered technical, professional or
consultancy service through an employee or in any other
manner for more than ninety days at one or several times
in a period of any twelve months, or
(4) A place where any person is involved in a construction,
installation or establishment project and has carried out
supervisory works of that project for a period of ninety
days or more.
(aac) "Property" means a tangible or intangible prope ty of any kind,
and this term includes currency, good-will, technological
knowledge, assets, any person's ownership or interest in a
foreign branch, a right to make income or acquire income in the
future and any part of such property.
(aad) "Associated person" means any one or more than one person or
group of persons who act as per the intention of each other, and
this term includes the following persons:
(1) A natural person and relative of that person or any
person or a partner of that person,


17
(2) A foreign permanent establishment and a person having
ownership in that establishment, and
(3) Any entity which by itself or jointly with any other
person related with it or with an assisting entity or any
other person or entity related with such assisting e tity
controls Fifty percent or more of the income, capit l or
voting right of any entity or derives benefits therefrom.
Provided that, the following person shall not be an
associated person:
(1) An employee,
(2) A person specified by the Department as a non-
associated person.
(aae) "Partnership" means a firm consisting of less than twenty
partners, whether registered under the law in force not.
Provided that, this term does not include a sole
proprietorship or joint venture, whether registered or not.
(aaf) "General insurance" means insurance other than investment
insurance.
(aag) "General interest rate" means the rate of interest by Fifteen
percent per annum.
(aah) "Approved retirement fund" means a retirement fu d having
obtained approval from the Department pursuant to Sub-section
(1) of Section 63.
(aai) "Service charge" means any charge paid to anyperson,
according to the market value, for the service rendere by such


18
a person, and this term includes any commission, meeting
allowance, management fee or technical service charge.
(aaj) "Shareholder" means a beneficiary of any company.
(aak) "Depreciable property" means a property, which is used in any
business or investment for earning income, and declines in
value because of wear and tear, being old or passage of time.
Provided that, this term does not mean stock-in-trade.
(aal) "Beneficiary" means a person who has an interest in any entity
related with the work.
(aam) "Prescribed" or "as prescribed" means prescribed or as
prescribed in the Rules framed under this Act.


Chapter-2
Tax Bases
3. Tax to be levied: Tax shall be levied on each of the following person in
each income year and be collected/ realized pursuant to this Act:
(a) A person who has taxable income in any income year,
(b) A non-resident person's foreign permanent establi hment
situated in Nepal, which sends income of any income year
pursuant to Sub-sections (3) and (4) of Section 68, and
(c) A person who receives payment final tax withholding in any
income year.


19
4. Computation and rate of tax: (1) The amount of tax required to be paid
by any person referred to in Section 3 for any income year shall be
equal to the total amount of tax required to be paid by such person.
(2) In computing the tax required to be paid by any person
referred to in clause (a) of Section 3, it shall be computed by applying
the related rates mentioned in Schedule-1 to the taxable income of that
person. In so computing the tax, it shall be computed by deducting the
amount that is adjustable in tax, and claimed by that person pursuant
to Section 51 or 71.
(3) Notwithstanding anything contained in Sub-section (2), the
tax payable by a resident natural person referred to in clause (a) of
Section 3, who has fulfilled all of the following requirements, shall be
equal to the total amount of tax deducted pursuant to Section 87 from
the payments made by the employer to such a natural pe son in that
income year:
(a) Only the income of any employment having source
in Nepal is included in the income of that income
year,
(b) All employers have become non-resident persons
in that income year and there is only one employer
at one time, and
(c) The employer has not made a claim for the
adjustment of tax pursuant to Section 51 in taxable
income, except for the medical expenses and
retirement contribution paid by him and for
subtraction of the expenses referred to in Sub-


20
sections (2) and (3) of Section 63 and of the
expenses referred to in Section 12.
(4) Notwithstanding anything contained in Sub-section (2), the
tax payable in any income year by a resident natural person referred in
clause (a) of Section 3, who has fulfilled all of the following
requirements, shall be equal to the amount mentioned i Sub-section
(7) of Section (1) of Schedule –1:
(a) That person has only income earned from his
business having source in Nepal in that income
year,
(b) The income earned from the business and turnover
of the business do not exceed the ceiling
mentioned in Sub-section (6) of Section (1) of
Schedule –1, and
(c) That person has so opted that this provision is
applicable in that income year.
(5) In computing the tax required to be paid by any foreign
permanent establishment referred to in clause (b) of Section 3, it shall
be computed by applying the related rates mentioned i Sub-section
(6) of Section 2 of Schedule-1 to the income sent abro d by such
establishment in that income year.
(6) The amount of tax required to be paid by the person referred
to in clause (c) of Section 3 shall be equal to theotal amount
computed by applying the rates mentioned in section to the amount of
each payment liable to final tax deduction received by that person in
that income year.


21
5. Taxable income and classification of income headings: The taxable
income of any person in any income year shall be equal to the amount
computed by subtracting the amount, if any, claimed pursuant to
Section 12 or 63 from the grand total amount of asses able income of
each of the following income headings in that income year:
(a) Business,
(b) Employment, and
(c) Investment.
6. Assessable income: Subject to this Act, the following incomes earned
by any person for any business, employment or investm nt in any
income year shall be considered assessable income:
(a) Income earned by any resident person from his employment,
business or investment in that income year irrespective of the
place of his source of income, and
(b) Income earned in that income year by any non-resident person
from employment, business or investment having income source
in Nepal.
Provided that, the assessable income shall not include
any income exempted from tax pursuant to section 11 or 64.
Chapter-3
Computation of Tax
7. Computation of income from business: (1) The profits and benefits
made by any person in any year from any business shall be computed
in the income of that business of that person in that income year.


22
(2) In computing the profits and benefits earned by any person
from the business in any income year, it shall be computed so as to
include the following amounts received by that person within that year:
(a) Service charge,
(b) Amount obtained from the disposal of stock-in-
trade,
(c) Net profit derived from the business property or
business liability of any person computed
pursuant to Chapter-8,
(d) Amount considered to have been derived
pursuant to clause (a) of Sub-section (2) of Section
4 of Schedule-2 from the disposal of depreciable
property of the business,
(e) Gift received from any person in respect of the
business,
(f) Amount received for having accepted any
restriction in respect of the operation of the
business,
(g) Notwithstanding that the amount received by any
person is of such nature that it is included in
income from investment, the amount received by
such a person being directly related with his
business, and
(h) Other amounts liable to be included pursuant to
Chapter-6 or 7 or Section 56 or 60.


23
(3) Notwithstanding anything contained in Sub-section (2), the
amounts deductible under sections 10, 54 and 69 and p yments from
which tax is withheld finally may not be included in computing the
profits and benefits derived from the operation of business.
8. Computation of income earned from employment: (1) The remuneration
derived by any natural person from employment in any income year
shall be computed as the income earned by that person in that year.
(2) The following payments made by an employer to a natural
person in any income year shall be included in computing the
remuneration earned by such natural person from employ ent in that
income year:
(a) Amount for wages, salary, leave, amount for
overtime work, fee, commission, prize, gift, bonus,
and payment for other facilities,
(b) Payment for any personal allowance including
amount for dear allowance, subsistence allowance,
entertainment and transport allowance,
(c) Payment received for settlement of or
reimbursement of expenses incurred by him/her or
his/her associated person for personal purpose,
(d) Payment made for having given consent to any
terms of employment,
(e) Payment made for termination, loss of employment,
or for compulsory retirement,


24
(f) Retirement payment and retirement contribution
including the amount deposited by the employer
for that employee in the retirement fund,
(g) Other payments made in respect of employment,
and
(h) Other amounts required to be included pursuant to
Chapter-6 or 7.
(3) Notwithstanding anything contained in Sub-section (2), the
following matters need not be included in computing the remuneration
earned by any natural person from employment:
(a) The amounts deductible under Sections 10 and
payment from which tax is withheld finally,
(b) Food and Tiffin provided by the employer to the
employee at the work site in a manner that it is
available to all employees on the same terms,
(c) The settlement or reimbursement of the following
expenditure incurred by any employee:
1. The expenditure fulfils the business
purpose of the employer, or
2. The expenditure exempted or to be
exempted in the computation of the income
earned from investment.
(d) Payment of such petty amounts of which accounts
are impracticable to be maintained or difficult to be
maintained administratively as prescribed.


25
Explanation: For purposes of this section,
"payment" means the payment:-
(a) made by the employer,
(b) made by the associated person of the
employer, and
(c) made by any third person as referred to in
the agreement made with the employer or
his associated person.
9. Computation of income earned from investment: (1) the profits and
benefits derived by any person from investment in any income year
shall be computed as the income earned by that person from
investment in that year.
(2) The following amounts received by any person in any
income year shall be included in computing the profits and benefits
derived by that person from investment in that income year:
(a) Dividend, interest derived from that investment,
payment for natural resources, rent, royalty, profit
from investment insurance, profit from interest in a
retirement fund which has not got approval
pursuant to Sub-section (1) of Section 63 or
retirement payment made from the approved
retirement fund,
(b) Net profits derived from the disposal of non-
business taxable property of the investment of that
person, computed pursuant to Chapter-8,


26
(c) If, in disposing the depreciable property of the
investment made by that person, the incomings to
be received exceed the remaining value comprising
the outgoings made for the property of the group
of depreciable property pursuant to clause (a) of
Sub-section (2) of section 4 of Schedule-2, the
excess amount,
(d) Gift received by that person in respect of
investment,
(e) Retirement payment made in respect of that
investment and retirement contribution including
the amount deposited in the retirement fund for
that person,
(f) Amounts received for having accepted any
restriction in respect of investment, and
(g) Other amounts required to be included pursuant to
Chapter-6 or 7 or Section 56.
(3) Notwithstanding anything contained in Sub-section (2), the
following matters shall not be included in computing profits and
benefits derived by any person from investment:
(a) The amounts deductible under Sections 10, 54 and
69 and payment from which tax is withheld finally,
and
(b) The amounts to be included in computing income
by that person from employment or business.
Chapter-4


27
Exemptible Amounts and Other Exemptions
10. Exemptible amounts: The following amounts shall be exempted from
tax:
(a) Amount exempted from tax granted to any person entitled to tax
exemption facility as provided for in a bilateral or multilateral
treaty concluded between Government of Nepal and any foreign
country or international organization,
(b) Amount received by any natural person for doing employment
in the governmental service of a foreign country,
Provided that, -
(1) The person has to be a resident or non-resident
person only because of doing employment, and
(2) Such amounts have to be paid from the
governmental fund of that country.
(c) Amount received by a natural person referred to in clause (b)
who is not a citizen of Nepal or by his/her nearest family member
from the governmental fund of a foreign country,
(d) Amount received by a non-Nepalese citizen appointed in the
service of Government of Nepal under a the term and condition
of tax exemption,
(e) Allowances provided by Government of Nepal to the widow,
aged (senior citizen) or disabled,


28
(f) Amounts received as gift, inheritance or scholarship except the
amounts required to be included in computing income pursuant
to Sections 7, 8 or 9,
(g) Amounts received by an organization entitled to exemption for
the following:
(1) Donation, gift,
(2) Other contributions directly related with an organization
entitled to exemption as referred to in Clause (d) of
Section 2 without having consideration or without
hoping for such contribution, or
(3) Amount earned by Nepal Rastra Bank in consonance
with its objectives, or
(h) Amount received for pension by a Nepalese citizen having
retired from the military or police service of a foreign country
from the governmental fund of that country.
11. Professional exemptions and facilities: (1) No tax shall be levied on an
income earned by carrying on an agricultural business by getting one
registered as a firm, company, partnership and corporate body and on
agricultural income other than that earned from an agricultural business
in the land as referred to in clauses (d) and (e) of Section 12 of the Act
relating to Land, 2021(1964).
(2) No tax shall be levied on the income of a cooperative
organization and saving and credit cooperative organization or
institution, which has been registered and operated un er the
Cooperatives Act, 2048 (1991) and which carries on agricultural and
forest based industries such as professional forest related enterprises


29
inclusive of sericulture and silk production, horticulture and fruits
processing, animal husbandry, dairy industry, poultry farming, fishery,
tea gardening and processing, coffee farming and processing,
herbiculture and herb processing, vegetable seeds farming, bee
keeping, honey production, rubber farming, floriculture and
production, leasehold forestry, agro-forestry etc., old storage
established for the storage of fruits, agro-seeds, pe ticides, fertilizers
and agricultural inputs (except those operated withmechanical power).
No tax shall also be levied on the dividends distributed by such
organization or institution.
(3) Tax shall be levied as follows on the income earned by any
person from a special industry in an income year:
(a) If the person give direct employment to Six
Hundred or more Nepalese citizens through out
the year, Ninety percent of the rate of tax leviable
on the income of that year,
(b) If a special industry has been operated in remot ,
undeveloped and underdeveloped areas,
respectively Seventy, Seventy-Five and Eighty
percent of the tax leviable on income of the years
for ten income years including the income year in
which such an industry started operating.
(4) In computing the income by the person entitled o exemption
pursuant to Sub-sections (1), (2) or (3), such person has to compute
the income as mentioned in the Sub-sections as if that only income
were derived by other separate persons.


30
(5) A person who is in a position to have more than one
exemption in respect of the same income pursuant to clauses (a) and
(b) of Sub-section (3) shall enjoy only one exemption chosen by him.
(6) Notwithstanding anything contained in Sub-section (3), in
cases where any other person has used the properties used to operate
the industry referred to in clause (b) for the operation of the industry of
the same type previously, the period during which they have been so
used shall also be reckoned, while reckoning the tim -limit referred to in
that Sub-section.
Explanation: For purposes of this Section:-
(a) "Agricultural business" means a business of prducing
crops from a public or private land or acquiring rent or
crops from a tenant using the land.
(b) "Remote", "undeveloped" and "underdeveloped area"
means the areas as referred to in Schedule-3 of the
Industrial Enterprises Act, 2049(1992).
(c) "Special industry" means a production-oriented industry
as classified in Section 3 of the industrial Enterprises Act,
2049 (1992) except an industry producing cigarette, Bidi,
Sigar, tobacco, Khaini, other productions of the same
nature involving tobacco as the principal raw materi ls,
liquors, beer and products of similar kind.
12. Donation, gift given to organizations entitled to tax exemption: (1) In
computing his taxable income in any income year, any person may
make claim to subtract the amount of donation, giftven to an
organization entitled to tax exemption approved by the Department for
the purpose of this section.


31
(2) Notwithstanding anything contained in Sub-section (1), the
expenditure deductible in any income year under that Sub-section shall
not exceed One Hundred Thousand Rupees or five percent of the
taxable income assessed without making deduction for the gift of that
person in that year as referred to in Sub-section (1) and without
including in the computation the limits referred to in Sub-section (2) of
Section 17 and Sub-section (2) of Section 18, whichever is lesser.
(3) Notwithstanding anything contained in Sub-sections (1) and
(2), in any special situation, Government of Nepal may, by a
notification in the Nepal Gazette, so specify that any amount spent or
donated by any person for any specified work may be deducted fully
or partly for expenditure, in determining the income of that person.
Chapter-5
Deductible Amounts
13. General deduction: Any person may, for the purpose of computing his
income from any business or investment in any income year, deduct
the following expenditures related with the transactions, subject to this
Act:-
(a) Made in that income year,
(b) Made by that year, and
(c) Made in earning income from the business or investment.
14. Interest deduction: (1) Any person may, for the purpose of computing
his income from any business or investment in any icome year,
deduct all interests chargeable in that year under th following debt
liabilities of that person:-


32
(a) If the debt liability has created for having
borrowed any amount, and that amount has been
used in that year or used to buy any property used
in that year, or
(b) That debt liability has been created in any other
circumstance.
Provided that, such a debt liability has to be
created for the act in which income is earned from
a business or investment.
(2) Notwithstanding anything contained in Sub-section (1), the
total interest amount which a resident entity contrlled by an
organization entitled to tax exemption can deduct under that Sub-
section in any income year shall not exceed the total of the following
amounts:
(a) All interest amounts obtained in that year to be
included in the computation of the taxable income
of that entity, and
(b) Fifty percent amount of the taxable income of that
entity in that year, which has been computed
excluding any interest derived by that entity or
without deducting any interest paid by that entity.
(3) Any interest not allowed to be deducted or not deducted
pursuant to Sub-section (2) may be carried forward or credited in the
forthcoming income year.
Explanation: For purposes of this section, " a resident entity controlled
by an organization entitled to tax exemption" means entity which,


33
being a resident entity in that year, is subject to a vested ownership or
control of twenty five percent or more of the following persons or
organizations in any time of that year:-
(a) An organization entitled to tax exemption and a
person associated with that organization,
(b) A person entitled to tax exemption pursuant to
section 11 in that year or a person associated with
that person,
(c) A non-resident person or a person associated with
the non-resident person, or
(d) Any combination of the persons referred to in
clauses (a), (b) and (c).
15. Allowances for cost of stock-in-trade: (1) For the purpose of
computing the income earned by any person from any business in any
year, any other allowances shall be allowed except the allowances for
the cost computed pursuant to Sub-section (2) in respect of the
disposal of the stocks-in-trade of the business of that person in that
year.
(2) The allowance for the cost referred to in Sub-section (1) shall
be computed as follows by deducting the amount referred to in clause
(b) from the amount referred to in clause (a):-
(a) The amount to be set by adding the cost of the
stock-in-trade derived from any business in any
income year to the initial value of the stock-in-
trade of that business in that year,


34
(b) The amount of final value of the stock-in-trade of
any business in an income year referred to in
clause (a).
(3) The initial value of the stock-in-trade of any business in any
income year shall be the final value of the stock-in-trade of that
business at the end of last income year.
(4) Whichever is lesser out of the following amounts shall be
considered the final value of the stock-in-trade of that business of that
income year:-
(a) The cost of the stock-in-trade of that business at
the end of that income year, or
(b) The market value of the stock-in-trade of that
business at the end of that income year.
(5) In computing the cost of the stock-in-trade of a business, a
person has to do as follows subject to Section 45 and Sub-section (6):-
(a) In computing the income of a business, in the case
of a person maintaining the accounts on the cash
basis, by using the method of cost price or
consumption cost, and
(b) In computing the income of a business, in the case
of a person maintaining the accounts on the
accrual basis, by using the method of
consumption cost.
(6) If the stock-in-trade of business of any person cannot be
determined, that person may choose to the first in first out method or
average cost method to compute the cost of stock-in-trade.


35
Provided that, once such a method is selected, that method
cannot be altered without written permission of the Department.
(7) In computing the cost of stock-in-trade pursuant to Sub-
section (5), it has to be computed by the following method:-
(a) In computing as per the consumption cost method,
to so compute the cost of the stock-in-trade under
the widely recognized accounting principle that it
is equal to the sum total of direct material cost,
direct labor cost and overhead cost of factory.
(b) In computing as per the cost price method, to so
compute the cost of the stock-in-trade under the
widely recognized accounting principle that it is
equal to the total sum of direct material cost, direct
labor cost and alterable overhead cost of factory.
(8) In computing the cost of stock-in-trade pursuant to Sub-
section (6), it has to be computed by the following method:-
(a) In computing as per the average cost method, to
compute on the basis of all weightage average
costs of the stock-in-trade of the same type in the
business under the widely recognized accounting
principle.
(b) In computing as per the first in first out method, to
compute on the basis that the stock-in-trade
received first is also disposed first, under the
widely recognized accounting principle.
Explanation: For purposes of this Section,-


36
(a) "Direct labour cost" means the labor cost directly
related with the production of the stock- in-trade.
(b) "Direct material cost" means the cost of materils
which are or will be an integral part of the stock-in-
trade.
(c) "Overhead cost of factory" means the total cost
incurred in producing stock-in-trade except the
direct labor cost and direct material cost.
(d) "Alterable overhead cost of factory" means the
overhead cost of factory that alters directly with a
change in the produced quantity of stocks in-
trade.
16. Repair and maintenance expenses: (1) In computing the income of any
business or investment in any income year, a person may deduct all
expenses incurred in the repair and maintenance of the depreciable
property owned and used in that year to earn income from that
business or investment.
(2) Notwithstanding anything contained in Sub-section (1), in
deducting the expenses allowable under that Sub-section, it shall not
exceed five percent of the depreciation base amount f the group of
property remaining at the end of that income year, and in cases where
expenses are incurred in excess thereof, such deduction can be made
only as per the order of such expenses incurred.
(3) Any excess expense or part thereof which is not deductible
pursuant to Sub-section (1) because of the limit refer d to in Sub-
section (2) may be added to the depreciation base amount of the group


37
of the concerned property pursuant to Sub-section (5) of Section 2 of
Schedule 2.
17. Pollution control expenses: (1) For purposes of computing the income
earned by any person from any business in any income year, such
person may deduct the pollution control expenses to the extent
incurred in the operation of that business in that year.
(2) Notwithstanding anything contained in Sub-section (1), in
computing the limit of expenses deductible under that Sub-section in
any income year, it shall not exceed Fifty percent of the taxable income
computed without deducting pollution control expenss of all
businesses operated by that person and without including in
computation the limits referred to in Sub-section (2) of Section 12 and
Sub-section (2) of Section 18.
(3) Any excess expense or part thereof which is not deductible
in excess of the limit referred to in Sub-section (2) may be capitalized
and depreciated pursuant toSchedule-2.
Explanation: For purposes of this Section, "pollution control exp nses"
means the expenses incurred by any person related wi h any process
for the purpose of controlling pollution or protecting or conserving the
environment in other manner.
18. Research and development expenses: (1) For purposes of computing
the income earned by any person from any business in any income
year, such person may deduct the research and developm nt expenses
to the extent incurred in the operation of that busine s in that year.
(2) Notwithstanding anything contained in Sub-section (1), in
computing the limit of expenses deductible under that Sub-section in
any income year, it shall not exceed Fifty percent of the taxable income


38
of that person computed without deducting research nd development
expenses of all businesses operated by that person and without
including in computation the limits referred to in Sub-section (2) of
Section 12 and Sub-section (2) of Section 17.
(3) Any excess expense or part thereof which is not deductible
in excess of the limit referred to in Sub-section (2) may be capitalized
and depreciated pursuant to Schedule-2.
Explanation: For purposes of this Section, "research and development
expenses" means the expenses incurred by any person for the purpose
of controlling developing his business and improving commercial
production and process.
Provided that, such expenses shall not include the cost at the
time of acquiring any property referred to in Sub-section (3) of Section
1of Schedule-2.
19. Depreciation deduction expenses: (1) For purposes of computing the
income earned by any person from any business or investment in any
income year, such person may deduct depreciation pursuant to
Schedule-2 in lieu of depreciation of the depreciable properties owned
and used by that person in that year in making income from that
business or investment.
(2) Notwithstanding anything contained in Sub-section (1), the
following provisions shall be applicable in respect of he deduction for
depreciation of the devices, equipment and other machineries installed
by any entity in the projects which involve construction and operation
of public infrastructures and are transferred to Government of Nepal
and in the projects on construction of powerhouses and generation
and transmission of electricity:-


39
(a) If the devices, equipment and other machineries
installed previously become obsolete because of
being old or worn and torn and new devices,
equipment and other machineries have to be
installed in lieu thereof, the value which remains
by subtracting depreciation deduction until the
income year from the cost of the property, which
has become obsolete property because of being
old or worn and torn, installed previously in that
income year in which they were so installed may
be deducted as expenses.
(b) In respect of properties other than the old
properties replaced pursuant to clause (a), if any
value remains by subtracting depreciation
deduction until the income year when transfer
takes place from the cost of those properties at the
time when the entity transfers such a project to
Government of Nepal, the entity may deduct such
a remaining value as expenses.
20. Loss from business or investment: (1) For purposes of computing the
income earned by any person from any business or investment in any
income year, such person may deduct the loss as mention d below:-
(a) Loss suffered by that person from any other
business and not deducted in that year, and
(b) Loss suffered by that person from any business
and not deducted in the last four income years.


40
Provided that, in the case of the projects which involve
construction and operation of public infrastructures and are transferred
to Government of Nepal and the projects on construction of
powerhouses and generation and transmission of electricity, loss not
deducted in the last seven income years.
(2) For purposes of computing the income earned by any person
from any investment in any income year, such person may deduct the
loss suffered by that person from any other investmnt and not
deducted in that year.
(3) Subject to Sub-sections (1) and (2) and for purposes of these
Sub-sections, any loss suffered by any person in respect of the foreign
source and not deducted may be deducted only in computing the
income earned by that person from his foreign source, and the loss
suffered in earning any non-taxable income and not deducted may be
deducted only in computing non-taxable income of that person.
(4) Subject to Sub-sections (1) and (2), if any person suffers a
loss in an income year when a long-term contract obtained by any
person by making competition of the business at the international level
was completed or when a disposal was made in any other manner or a
loss which was not deducted and the liability whereof is allowed to be
carried forward in the coming year pursuant to clause (b) of Sub-
section (1) is related with a long-term contract, the Department may, by
a notice in writing, give permission to deal with tha loss as follows:-
(a) The loss may be carried backward in last income
year or years, and
(b) The loss may be treated as not deducted only to
the extent of the excess where, in computing the


41
income of the business related with that long-term
contract, the amounts to be included in the
incomings exceed the amounts to be included in
the outgoings.
(5) The following loss suffered by any person in a y income
year has to be allocated as if it were related witha long-term contract or
contracts of that person:-
(a) The loss resulted from a long-term contract or
contracts related with the business, and
(b) The loss on excess of the expenses to be
deductible in computing the income earned from
that business in the year related with the contract
for each such contract.
(6) If, in computing the income earned by any person in any
income from more than one business or investment, that person is
allowed to deduct the loss not deducted from more than one business
or investment, that person may on his own determine the priority of the
business or investment from which the portion of loss is deducted.
(7) If, in computing the loss suffered by any person from any
business or investment in any income year, this section is not used
and the deductible amounts exceed the amounts includab e in
computing the income from the business or investmen of that person,
such excess amounts have to be computed.
Explanation: For purposes of this Section, "the loss not deducted"
means the loss to the extent not deducted in computing the income of
any person pursuant to Sub-sections (1), (2) or (4).


42
21. Expenses that may not be deducted: (1) Notwithstanding anything
contained elsewhere in this Act, for the purpose of c mputing the
income earned by any person from any business, employ ent or
investment in any income year, the following expenses or amounts
shall not be deducted:-
(a) Expenses of domestic or personal nature,
(b) Tax payable under this Act and a fine or similar
other fee paid to the government of any country or
any local body thereof for a violation of any law or
regulation, byelaw framed thereunder,
(c) Expenses to the extent of those spent by any
person to obtain the amounts enjoying exemption
pursuant to section 10 or expenses made to obtain
the amounts from which tax has been deducted
finally,
(d) Expenses for the payments referred to in Sub-
section (2),
(e) Distribution of profits by any entity, or
(f) Similar other amounts despite that they are not so
mentioned in clauses (a), (b), (c), (d) and (e) as not
to be deductible, except those allowable under this
Chapter or Chapters-6, 7, 10, 12 or 13.
(2) If a person, whose annual turnover is more than two million
rupees in any income year, makes a cash payment of more than Fifty
Thousand Rupees at a time in that income year except in the following
circumstances, he shall not be allowed to make that deduction:-


43
(a) Payment made to Government of Nepal,
constitutional body, corporation or bank or
financial institution owned by Government of
Nepal,
(b) Payment made to a farmers or producer producing
a primary agro-product and payment to a farmer
who has processed such product on his own,
notwithstanding that primary processing of such
product has already been carried out,
(c) Payment for retirement contribution or retirement
payment,
(d) Payment made in a place where banking services
are not available,
(e) Payment made on the day when banking services
are closed or payment involving a mandatory
provision of payment in cash, or
(f) Amount deposited in a bank account of the
recipient of payment.
(3) Subject to the provisions of Sections 14, 15, 16, 17, 18, 19, 20
and 71, no amount shall be deductible for capital expenses or foreign
income tax.
Explanation: For purposes of this section,-
(a) "Expenses of domestic or personal nature" means the following
expenses:-


44
(1) Expenses made for any natural person, and inclusive of
the following expenses made for the interest of a loan to
the extent that the loan has been used for personal
purpose:
(a) Expenses made for a natural person for the
provision of lodging, fooding, tiffin, and other
activities of entertainment or amusement,
(b) Expenses for the movement by a natural person
from his house to the place where the business or
investment is operated except for the movement in
the course of business or investment,
(c) Expenses made to purchase clothes for a natural
person except those clothes which are not proper
to put on at other times than working times, and
(d) Expenses made for education or training.
Provided that, the expenses made only for
the education directly related with the business or
investment, where no degree or diploma is
achieved.
(2) Except in the following conditions and to that extent,
expenses incurred in respect of a payment made by any
person to any natural person and expenses made for a
third person:-
(a) If that payment has been included in computing
the income of a natural person,


45
(b) If the natural person has made, as a consideraton,
a return payment to that person in a sum equal to
the market value of the payment received by him,
(c) If payment is made for such prescribed petty
amounts of which accounts are difficult or
administratively impracticable to be maintained.
(b) " Place where banking service is available" means
any place within ten kilometers area whereof
banking service is available.
(c) " Cash payment" means a payment except a
payment by a letter of credit, cheque, draft, money
order, telegraphic transfer, money transfer (hundi)
through a bank or financial institution and a
transfer made by any other means between banks
or financial institutions.
(d) "Capital expenses" means the following expenses:-
(1) Expenses incurred in feasibility study,
exploration and development of natural
resources,
(2) Expenses incurred in acquiring any property
with useful life for more than twelve months, or
(3) Expenses in disposing a liability.
Chapter-6
Tax Accounting and Time


46
22. Method of tax accounting: (1) The matter when any person gets any
income or makes any expense shall be determined in accordance with
the widely recognized accounting principle, subject to this Act.
(2) A natural person shall, while computing the income to be
earned from his employment and investment, maintain accounts on the
cash basis, for purposes of tax.
(3) A company shall maintain accounts on the accrual basis, for
purposes of tax.
(4) Except in cases where the Department has otherwise
specified by issuing a notice in writing, any person may, for purposes
of income tax, maintain accounts on the cash or accu l basis, subject
to Sub-sections (1), (2) and (3).
(5) Any person may make an application to change the method
of accounting for tax purposes, subject to Sub-sections (2) and (3). If
the Department thinks that it is necessary to change the method of
accounting to clearly show the income of such person, the Department
may give permission to change the method of accounting.
(6) If the method of accounting of any person for pu poses of
tax is changed pursuant to Sub-section (5), in computing the income of
that person in the income year when such change is made, adjustment
has to be so made that no amounts out of those included, deducted or
to be included or deducted are omitted or duplicated.
23. Cash basis accounting: Any person shall, in maintaining accounts on
cash basis of his income earned from employment, business or
investment for tax purposes, subject to this Act, do as follows:-


47
(a) To treat as income only that which is received at the time when
payment is received by him or made available to him and include
it in his income.
(b) To deduct for expense only after he pays out.
24. Accrual basis accounting: (1) Any person shall, in maintaining
accounts on the accrual basis of his income earned from business or
investment subject to this Act, for purposes of tax, any income shall be
included in computation of his income, considering that any payment
has been received immediately when the right to receiv such payment
is created.
(2) For purposes of making deduction from computation of
income earned by any person as mentioned in Sub-section (1), the
following expenses shall be deemed to have been bore:-
(a) If any payment involving such expenses has been
made in lieu of a payment made by any other
person, the expenses shall be deemed to have
been borne in the following conditions:-
(1) The person has the liability to make that
person,
(2) The value of such liability can be
ascertained in a proper and real manner, and
(3) Payment has been received from another
person.
(b) In all other circumstances except those mentioned
in clause (a), an expense shall be deemed to have
been borne at the time when payment is made.


48
(3) If the tax is reduced, the Department may, in the following
circumstances, and by a written notice to a person who maintains
accounts on the accrual basis to compute the income earned from any
investment or business, adjust the time of making payment in order to
stop carrying forward or reducing income for purposes of tax:-
(a) If the following circumstance occurs,-
(b) If any expense could be deducted in computing
the income for any income year but that person
had to maintain accounts on the cash basis for tax
purposes, that expense could have been deducted
in any forthcoming income year,
(c) Any person received any payment that has to be
included only in computing the income of the
coming income year but if he had to maintain
accounts on cash basis for tax purposes, the
amount of payment would have been included in
the income year of receipt of that payment, and
(d) If the receiving and making of payment by any
person in any income year reduced the total
amount of tax payable.
(4) In computing, on the accrual basis, the income earned by any
person from a business or investment, the differences that could occur
in the following circumstances have to be adjusted properly in
receiving or making payment:-
(a) If that person includes any payment in quantity
which he could receive or deducts any payment in
quantity which he has to bear, and


49
(b) If there occurs difference in the amount received or
borne by receiving or making payment by that
person in different quantity, because of, inter alia,
difference in valuation of the currency after the
performance of the act referred to in clause (a).
25. Reverse of the amounts including bad debts: (1) In maintaining
accounts of the amounts received and expenses borne in the
computation of the income earned by any person from any
employment, business or investment, the person has to make proper
adjustments at the time of reimbursement, recovery, r linquishment of
claim, writing off, or remission in any of the follwing circumstances:-
(a) Where the person subsequently gets the amount
reimbursed, or recovers the expense, as the case
may be,
(b) Where the accounts of the amount received have
been maintained on the accrual basis and the
person subsequently relinquishes his right to
receive that amount or where that amount is a debt
claim of that person and he writes off the debt as a
bad debt, or
(c) Where the accounts of the expense incurred have
been maintained on the accrual basis and the
person subsequently relinquishes his liability to
incur such expense or where that expense is a debt
claim, the person whom the debt is to be repaid
remits the debt.


50
(2) Any person may relinquish the right to receive any amount
or to write off the debt liability of that person as bad debt only in the
following circumstances:-
(a) In the case of a debt claim of any financial
institution or bank, the debt claim is converted into
a bad debt as per the specified criteria, and
(b) If, after having followed all proper measures to
receive payment in circumstances other than
those referred to in clause (a), that person is
reasonably satisfied that the right or debt claim
cannot be realized or recovered.
26. Method of deriving the average of the amounts includible and
deductible under a long-term contract: (1) For purposes of computing
the income earned by any person from any employment, business or
investment in any income year, the estimated amounts includible and
deductible according to the sum of sequential increase as per the
percentage of completion of the contract under the long-term contract
of that person, shall be deemed to have been received or spent.
Explanation: For purposes of this section, "long-term contract"
means a contract in the following circumstance":-
(a) A contract with a validity period of more than
twelve months, and
(b) A contract with a deferred consideration except a
contract which is concluded for production,
installation or construction or for the discharge for
relevant services for each of such works or which
does not contain such elements.


51
(2) A contract with a deferred consideration, a contract to be
included according to the sum of sequential increase, contract to be
deducted according to the sum of sequential increase, n excluded
contract and a contract of completion percentage shall be as
prescribed.


Chapter-7
Quantification, Allocation and Characterization of Amounts
27. Quantification of amounts: (1) Any payment has to be quantified equal
to the following amount:
(a) In the case of a payment made by way of
transferring money or property by any person to
another person, amount equal to the market value
of the transferred money or property,
(b) The amount to be determined as prescribed for the
payment made for the provision of the following
matters or the amounts to be determined pursuant
to clause (e) where there is no provision for
determining the amount:-
(1) A motor vehicle used or made available for
use for personal purposes of the recipient
of payment in full or in part, or
(2) A building made available for the recipient
of payment.


52
(c) The amount which remains by deducting the
contributions of the recipient of payment from the
expenditure made by the person making payment
for the provision of the following things:-
(1) The services of a caretaker of the house,
cook, driver, gardener or other domestic
assistant,
(2) Any food, drinking or entertainment, or
(3) Services like water tap, electricity, telephone
installed in the residence of the recipient,
(d) If the interest paid by any person who has to
receive payment in any income year for a loan is
less than the amount of interest to be paid as per
the prevailing interest rate, the amount to the
extent of such a less,
(e) In respect of a payment except the payment
referred to in clauses (a), (b), (c) and (d), if a third
person receives payment instead of the recipient
of payment, the amount equal to the value of
benefit derivable generally.
(2) The time when a payment is earned, received, ma e, borne or
otherwise worked out for tax purposes in respect of lauses (a) and (e)
of Sub-section (1) shall be the time when the quantification of amounts
has been made.
28. Conversion in money: (1) If the income of a person and the amounts to
be included and deducted in assessing the income has been quoted in


53
other currency except Nepalese rupees, such amounts have to be
converted into Nepalese rupees.
(2) If the amounts to be included or deducted in computing the
income of any person in any income year have been quoted in other
currency except Nepalese rupees, such currency has to be converted
into Nepalese rupees as per the exchange rate prevailing at the time
when the amount was received, expended, paid, or otherwise worked
out for tax purposes.
(3) Notwithstanding anything contained in Sub-section (2), in
cases where the department has, by issuing a notice in writing, given
permission for purposes of that Sub-section, any person may apply the
average exchange rate prescribed by the Department.
29. Indirect payments: In cases where any person intends to render
benefits to other person through payments made by the payer or a
person associated with him as follows, the Departmen ay, by issuing
a notice in writing, treat such other person or the sp cified person as
the recipient of payment:-
(a) Where benefit is derived from any payment indirectly, or
(b) Where the recipient of any payment is specified.
30. Investment under joint ownership: Any person has to allocate the
amounts to be included or deducted in computing the income for
purposes of computing the income earned from the inv stment under
joint ownership with other persons on the basis of pr portion of the
respective interests of the joint owners in that investment.
31. Characterization of payment for compensation: In cases where any
person or his associated person has received any compensation


54
amount for the following matters including payments for insurance, at
the time of receipt of the amount for the compensation, such amount
has to be included, as the case may be, in computing the income
earned from employment, business or investment:-
(a) Compensation for any income earned or likely to be earned by
that person from any business or investment or for any amount
to be included in the computation of that income, or
(b) Compensation for any loss suffered or likely to be suffered by
that person from any business or investment or for any
expenses to be deducted in the computation of that income.
32. Characterization of payment under annuities, installment sale and
financial lease: (1) Any payment made by the person who acquires a
property under annuities or installment sale or payment made to any
person for the use of any property under a financial lease has to be
treated as the interest and return of capital under th debt claim under
this Section.
(2) All payments referred to in Sub-section (1) have to be
calculated in gross and the total sum thereof has to be divided into two
portions as follows:-
(a) Capital portion comprising all payments for
annuities as per necessity or equivalent to the
market value of any property at the time of selling
that property by installment or leasing it, and
(b) Interest portion to be set by subtracting the capital
portion from the total sum of all payments referred
to in Sub-section (1).


55
(1) In determining installments at the very time
when annuities, installment sale or financial
lease is carried out pursuant to Sub-section
(2), the seller has to provide a total payment
schedule clearly setting out the capital and
interest portions. One who cannot provide
such schedule has to treat the interest and
principal portion, annuities, installment sale
or financial lease as if they were mixed loans
with interest to be kept on adding in every
six months and allocate them in payments
as referred to in Sub-section (1).
(2) The borrower has to pay the principal in
part and the interest in part by working out
the portion of interest in the due and
payable principal at the time of each
payment in a manner that the rate of interest
is the same during the period of loan of
payment to be made pursuant to Sub-
section (1) as if it were a mixed loan.
(3) The following terms have to be fulfilled in
making a lease under a financial lease
pursuant to this section:-
(a) Where the lease agreement contains
an option that ownership is
transferred after expire of the validity
period of the lease or the lessee can
purchase that property at a certain


56
price or a foreseen price after expire
of the validity period of the lease,
(b) Where the period of lease exceeds
Seventy-Five percent of the useful
life of that property,
(c) Where the estimated market value of
that property after expire of the
period of the lease is less than
twenty percent of the market value of
that property prevailing at the
beginning of the lease,
(d) In the case of a lease that
commences prior to the ultimate
twenty-five percent life of the useful
life of the property, where the current
value of the minimum lease payment
is equal to ninety percent of the
market value of that property at the
time of commencement of the period
of the lease or more than that, or
(e) Where a property has been prepared
in a special manner for the lessee
and, after expire of the period of
lease, that property is not of practical
use for any other person except the
lessee.


57
(6) Each payment referred to in Sub-section (1) shall be divided
into two portions pursuant to Sub-section (3), and the interest portion
under the debt claim has to be treated as paid or to be paid interest and
the capital portion as repayment of capital.
(7) A lessee under a financial lease shall be treated as the person
having ownership of the property leased, and the lesser shall be
treated as having debt claim over the lessee.
(8) The current value of the lease payment has to be computed
by applying discount rate equal to the normal interest rate.
Explanation: "Period of lease" means and includes an additional period
for which the lessee is entitled to have the lease ren wed.
33. Price transferring and other arrangements between associated
persons: (1) In cases where any provision is made between the
associated persons and the provision is operated as per arms length,
the Department may, by issuing a notice in writing, distribute,
appropriate or allocate the amounts to be included or deducted in
computing the income between those persons in such a manner as to
reflect the taxable income or the payable tax that could be set for them.
(2) In carrying anything mentioned in Sub-section (1), the
Department may do as follows:-
(a) To re-characterize any income, loss, amount or
source and type of payment, or
(b) Where various expenses including main office
expenses which any person had to incur to operate
any business have yielded benefits to the
associated person or persons, to allocate such


58
expenses between the associated persons on the
comparative basis of the turnover of the business.
34. Division of income: (1) If any person attempts to divide his income with
another person and it appears that it will anyhow lessen the payable
tax, the Department may, in order not to allow such less in liability,
have the amounts to be included or deducted in computing the income
of each person adjusted by giving a notice in writing.
(2) The transfer of the following amounts by one or more
interposed entities directly or indirectly between persons and
associated persons as mentioned in Sub-section (1) a d circumstances
where attempts are made to divide income to lessen th tax required to
be paid by the persons or associated persons by virtue of that transfer
shall also be included:-
(a) The amounts to be received and expenses to be
incurred, or
(b) The amounts to be received or used from any
property by the transferee of that property or
expenses incurred or payment made by that person
for the acquisition of ownership of that property.
(3) In determining as to whether or not any person has
attempted to divide any income pursuant to Sub-section (2), the
Department shall take the market value of any payment ade for the
transfer as the basis.
35. General rule against tax avoidance: For purposes of ascertaining the
tax liability pursuant to this Act, the Department may carry out the
followings:


59
(a) To re-characterize any arrangement or any part of such
arrangement made or attempted to be made as a part of ax
avoidance scheme,
(b) To disregard any arrangement or any part of such arrangement
that does not show any substantial effect, or
(c) To re-characterize any arrangement or any part of such
arrangement that does not show any substantial element.
Explanation: For purposes of this Section, "tax avoidance
scheme' means any arrangement with a main objective to have
avoidance of tax liability or to lessen the tax liability.



Chapter-8
Assessment of Net Profit from Property and Liability
36. Net profits from property and liability : (1) The net profits derived from
the disposal of business property or liability of a business of any
person for any income year shall be computed by deducting the
following losses from the sum of all profits derived from the disposal of
business property or liability of that business in that income year:-
(a) The sum of all losses suffered in that year from the
disposal of business property or liability,


60
(b) The loss that could not be deducted elsewhere out
of the net loss suffered from any other business of
that person in that year, and
(c) The loss that could not be deducted out of the net
loss suffered from that business in any income
year or from any other business of that person in
the past.
(2) The net profits derived from the disposal of taxable non-
business property of investment of any person for any income year
shall be computed by deducting the following losses from the sum of
all profits derived from the disposal of taxable non-business of that
investment in that income year:-
(a) The sum of all losses suffered in that year from the
disposal of taxable non-business property of that
investment,
(b) The loss that could not be deducted elsewhere out
of the net loss suffered from any other business or
investment of that person in that year, and
(c) The loss that could not be deducted out of the net
loss suffered from that investment, any business
or any other investment of that person in any past
income year.
(3) Any person can make a claim for deduction pursuant to sun-
section (1) or (2) in respect of a loss suffered from the disposal of the
property or liability of foreign source only to the extent of the benefit
derived from the disposal of any property or liability of foreign source.


61
(4) If any person is entitled, under Sub-section (1) or (2) to
deduct the net loss suffered from a business or investment in more
than one computation pursuant to Sub-section (1) or (2), he may select
computations for the purpose of deducting that lossr portion thereof.
Explanation: For purposes of this Act,-
(1) "Net loss" means,-
(a) In respect of any business, the amount to the extent that
the loss suffered from the disposal of the business
property or liability of that business in any income year
exceeds the profit derived from the disposal of busine s
property or liability of that business in that year, nd
(b) In respect of any investment, the amount to the ext nt
that the loss suffered from the disposal of the taxable
non-business property of that investment in any income
year exceeds the profit derived from the disposal of
taxable non-business property of that investment in that
year.
(2) "Net loss that could not be deducted" means of any business or
investment,-
(a) The loss that could not be deducted pursuant to clause
(b) or (c) of Sub-section (1) or clause (b) or (c) of Sub-
section (2) out of the net loss suffered in that year, and
(b) Any loss of that business or investment that could not
be deducted referred to in Sub-section (7) of Section 20,
which could not be remitted by virtue of the time limit
referred to in Sub-section (1) or (2) of Section 20.


62
37. Profit and loss made from property and liability: (1) The profit derived
by any person from the disposal of any property or liability has to be
computed, considering it to be the extent that the sum of the income
derived from that property or liability exceeds thesum of the outgoings
for that property or liability at the time of disposal.
(2) The loss suffered by any person from the disposal of any
property or liability has to be computed, considering it to be the extent
that the sum of the outgoings for that property or liability exceeds the
sum of the income earned from that property or liability at the time of
disposal.
38. Expenses and net expenses for property and liability: (1) The following
expenses shall be included in the expenses for the property or liability
of any person, subject to this Act:-
(a) In respect of any property, the expenses made by
that person in acquiring that property, inclusive of
the following amounts:-
(1) The related expenses made in the
construction and production of that
property, and
(2) Any amount required to be included in the
assessment of the income of that person as
a result of acquisition.
(b) The expenses made by that person in obtaining
the ownership of that property or liability,
inclusive of the expenses incurred in the alteration,
improvement and repair and maintenance of the


63
property or liability, and the expenses in the repair
and maintenance of the property,
(c) The expenses made by him in the disposal of the
property or liability, and
(d) Casual expenses made by him in acquiring the
property or bearing liability and disposing such
property or liability.
Provided that, the expenses referred to in
clauses (a), (b), (c), (d), and (e) of Sub-section (1)
of Section 21 and the expenses that are allowed to
be deducted in the assessment of income are not
required to be included in such expenses.
(2) The net expenses for any property or liability at any
particular time shall be so computed as to consider the amounts to the
extent of excess of the sum of all expenses for that property or liability
than the sum of all incomes for that property or liabi ty at that time.
(3) The amount of expenses to be deducted in computing the
income as referred to in Chapter-6 and 7 shall be deemed as if they were
made in respect of the expenses for any property or liability, and shall
be applicable in respect of the expenses referred to in Sub-section (1).
Provided that, Section 26 shall no apply in respect of the above-
mentioned provision.
39. Income and net income for property and liability: (1) The following
amounts shall be included in the incomes for the prope ty or liability of
any person, subject to this Act:-


64
(a) The amounts received, in respect of the liability,
by that person in bearing the liability,
(b) The amounts to be received by that person in
acquiring the property or in respect of bearing the
liability, including the amounts acquired by
altering or lessening the value of the property or
increasing the liability, and
(c) The amounts received or to be received by that
person in respect of the disposal of that property
or liability.
Provided that, the amount exempted from
tax, taxable amount subject to tax deduction finally
or the amounts to be included in the income in
assessing the income of that person shall not be
included in such income.
(2) The net incomes for any property or liability at any time shall
include the amounts to the extent of excess of the incomes for that
property or liability than the sum of all expenses for that property or
liability at that time.
(3) The amount to be included in the income in computing the
income as referred to in Chapter-6 and 7 shall be deemed as if they were
made in respect of the incomes for any property or liability, and shall
be dealt with pursuant to Sub-section (1).
Provided that, Section 26 shall not apply in respect of the
above-mentioned provision.


65
40. Disposal of property or liability: (1) If the ownership of any person
over any property ceases, he shall be deemed to have disposed that
property. The disposal of property has to include acts such as
distribution of the property by the owner of the pro erty,
amalgamation of the property in other property or liability, sale of the
property in installments or lease out to any other p son under a
financial lease, cancellation, destroy, loss, expiration or surrender of
the same.
(2) If the burden of liability of any person ceass, he shall be
deemed to have disposed that liability. The disposal f liability has to
include acts such as settlement, cancellation, releas and completion of
the liability or amalgamation of liability in other liability or property.
(3) Notwithstanding anything contained in Sub-sections (1) and
(2), any person shall be deemed to have disposed any property or
liability in the following circumstances:-
(a) In respect of a natural person, immediately before
the death of that person,
(b) In respect of any property, if the sum of the
incomings for that property exceeds the sum of the
outgoings for that property,
(c) In respect of any property subject to debt claim,-
(1) If it has become a bad debt as per the
standards as prescribed in respect of a debt
claim of a bank or financial institution, and


66
(2) If, in any other circumstance, that person
has reasonably believed the debt claim as
non-recoverable.
Provided that, the person has to
have already pursued all proper measures to
recover that debt claim.
(d) If any person has started using a business
property, non-business taxable property,
depreciable property or stock-in-trade in a manner
to alter the type thereof, immediately before the
use of the altered form of that property,
(e) In the circumstances referred to in section 57 in
respect of any entity, and
(f) Immediately before that person has become a non-
resident person, except the land or building
situated in Nepal.
(4) If any person disposes any property by leasing it under a
financial lease pursuant to Sub-section (1), the lesse of that property
shall be deemed to have acquired the ownership of that property at the
time of disposal.
(5) The following provisions shall apply for purposes of
computing the profits derived by any person from the disposal of the
property or liability:-
(a) The amounts of net expenses for any property
under ownership of any person at the time of
commencement of this Act shall be deemed to be


67
equal to the market value of the property
prevailing at that time,
(b) The amounts of net incomes for liability of any
person at the time of commencement of this Act
shall be deemed to be equal to the amount as per
the market value of the liability prevailing at tha
time.
41. Disposal along with retention of property or liability: If any person
disposes any property or liability in any manner referr d to in clauses
(c), (d), (e) and (f) of Sub-section (3) of Section 40, the following
provisions shall apply:-
(a) In respect of property,-
(1) That person shall be deemed to have received th amount
equal to the market value of that property at the tim of
disposal for the disposal, and
(2) The net outgoings made for that property until that time
shall be deemed to be equal to the amount receivabl.
(b) In respect of liability,-
(1) That person shall be deemed to have spent the amount
equal to the market value of that liability at the time of
disposal for the disposal, and
(2) The incomings derived for that liability pursuant to
clause (1) until that time shall be deemed to be equal to
the amount of expenses.


68
42. Disposal through installment sale or financial lease: If any person
disposes any property by way of installment sale or lease under a
financial lease to any other person, the following provisions shall
apply:-
(a) The person who has disposed the property shall be deemed to
have received the amount equal to the market value of that
property at the time of disposal for the disposal, and
(b) The person who has acquired the property through disposal
shall be deemed to have incurred cost in a sum equal to clause
(a).
Provided that, this provision shall not be applicable
where the provision of Section 45 applies.
43. Transfer of property to husband, wife or former husband, wife: If any
natural person who is a divorcee or lives apart upon having partition
share disposes a property by transferring it to her husband, his wife or
former husband, wife, and that husband, wife or former husband, wife
makes a choice in writing to have this Section enforced, the following
provisions shall apply:
(a) That person shall be deemed to have obtained, for isposal, the
amount equal to the net expenses incurred immediately before
the disposal, and
(b) The person who has acquired the property through transfer
shall be deemed to have incurred cost in a sum equal to clause
(a).


69
44. Transfer of property after death: If the ownership of any property is
disposed through transfer to any other person because of death of any
natural person, the following provisions shall apply:
(a) That person shall be deemed to have obtained, for isposal, the
amount equal to the market value of that property pevailing at
the time of disposal, and
(b) The person who has acquired the property through transfer
shall be deemed to have incurred cost in a sum equal to clause
(a).
45. Transfer between associated persons and other non-market transfers:
(1) If any person disposes any property by transferring it to an
associated person or any other person for no considerat on, the
following provisions shall apply:-
(a) The person who has disposed the property shall
be deemed to have received the amount equal to
the market value of that property at the time of
disposal for the disposal, and
(b) The person who has acquired the property
through disposal shall be deemed to have incurred
cost in a sum equal to clause (a).
Provided that, this provision shall not be
applicable where the provision of Section 43 and
44 applies.
(2) Notwithstanding anything contained in Sub-section (1), if
any person disposes any business property, non-busines taxable
property or property remaining as stock-in-trade bytransferring


70
ownership over such property to any associated person and the
matters contained in Sub-section (6) are fulfilled, the following
provisions shall apply:-
(a) That person shall be deemed to have received the
amount equal to the net loss suffered for that
property immediately before the disposal, for the
disposal, and
(b) The person who has acquired the property
through transfer shall be deemed to have incurred
cost in a sum equal to that mentioned in clause (a).
(3) Notwithstanding anything contained in Sub-section (1), if
any person disposes any depreciable property by transferring
ownership over such property to any associated person by fulfilling
the matters contained in Sub-section (6), the following provisions shall
apply:-
(a) That person shall be deemed to have received, for
the disposal, the amount equal to the remaining
value of the group of the descending system
pursuant to Section 4 of Schedule-2 at the time of
disposal, and
(b) The person who has acquired the property
through transfer shall be deemed to have incurred
cost in a sum equal to that mentioned in clause (a).
(4) If any person disposes any liability by transferring it to an
associated person pursuant to this Section or by transferring it to any
other person without taking any value, the following provisions shall
apply:-


71
(a) The person shall be deemed to have incurred cost
for the disposal in a sum equal to the market value
or the net income earned for the liability
immediately before the disposal, whichever is
lower, and
(b) The transferee of the liability shall be deemed to
have received an amount equal to that liability in
respect of assumption of the liability.
Provided that, this provision shall not be
applicable where the provisions of Sections 43 and
44 apply.
(5) If any person disposes any liability assumed in earning
income from any of his business by transferring it to an associated
person, by fulfilling the matters mentioned in Sub-section (6), the
following provisions shall apply:-
(a) The person shall be deemed to have incurred cost
for the disposal in a sum equal to the net income
earned for the liability immediately before the
disposal, and
(b) The associated person shall be deemed to have
received an amount equal to that amount in
respect of assumption of the liability.
(6) For purposes of Sub-sections (2), (3) and (5), the following
matters have to be fulfilled:-
(a) The disposed business property, stock-in-trade or
depreciable property of business shall be the


72
business property, stock-in-trade or depreciable
property of business of the associated person
immediately after the transfer by the person
making such disposal.
(b) The disposed non-business taxable property,
stock-in-trade or depreciable property of any
investment shall be the business property, non-
business taxable property stock-in-trade or
depreciable property of the associated person
immediately after the transfer by the person
making such disposal.
(c) In the case of any liability, the liability has to be
transferred to the associated person for the
earning of income from any business or
investment of the associated person.
(d) The transferor and the associated person shall
have to be residents at the time of transfer, and the
associated person has not to be a person enjoying
tax exemption.
(e) The ownership vested in that property or burden
vested in that liability shall continue to exist Fifty
percent as the case may be.
(f) Both of that person and the associated person
have to make request in writing in order to enforce
an option under Sub-sections (2), (3) or (5), as the
case may be.


73
46. Involuntary disposal of property or liability with substitution: (1) If any
person, no later than one year of the involuntary disposal of any
property in any mode out of the modes mentioned in Sub-section (1) of
Section 40, acquires ownership over other property of similar type in
lieu of that property and makes request in writing to have this Section
applied, it shall be as follows:-
(a) That person shall be deemed to have received, for
the disposal, an amount equal to the sum of the
following amounts:-
(1) Net expenses for that property immediately
before the disposal, and
(2) If the amount derived from the disposal
exceeds the expenses incurred in acquiring
the substituted property, the amount of
such excess, and
(b) The person shall be deemed to have incurred
expenses in a sum equal to the sum of the
following amounts, in acquiring the substituted
property.
(1) Net expenses for the disposed property
immediately before the disposal, and
(2) If the expenses incurred in acquiring the
substituted property exceed the amount
derived from the disposal, the amount of
such excess.


74
(2) If any person, no later than one year of the involuntary
disposal of any liability in any mode out of the modes mentioned in
Sub-section (2) of Section 40, bears other liability of similar type in lieu
of that liability and makes request in writing to have this Section
applied, it shall be as follows:-
(a) That person shall be deemed to have incurred
expenses, for the disposal, in a sum to be set by
subtracting the amount mentioned in clause (2)
from the amount mentioned in clause (1):
(1) Amount for net incomes for that liability
immediately before the disposal, and
(2) If the expenses incurred in making that
disposal exceed the amount in assuming the
substituted liability, the amount of such
excess expenses, and
(c) The person shall be deemed to have received a
sum equal to the sum of the following amounts, in
acquiring the substituted liability:
(1) Net incomes for the disposed liability
immediately before the disposal, and
(2) If the amount derived in assuming the
substituted liability exceeds the expenses
incurred in making the disposal, the amount
of such excess.
(3) The circumstances where involuntary
disposal is created after substitution of one


75
security of any entity for another security
as a result of a change in the security of the
interest in the entity or restructuring of the
entity shall be as prescribed.
47. Disposal upon amalgamation of property and liability: (1) If, as a result
of acquisition of any property or bearing of any liability by any person,
any other property under ownership of, or any other liability borne by,
that person ceases or is amalgamated and thus disposal takes places,
then the following provisions shall apply:-
(a) Where net expenses were incurred for the
amalgamated property or liability immediately
before disposal, that person:
(1) shall be deemed to have received an amount
equal to the net expenses in respect of the
disposal of the amalgamated property or
liability,
Provided that, such amount shall not
exceed the amount received by that person
for the amalgamated liability.
(2) Shall be deemed to have incurred expenses
in a sum equal to that amount in holding
ownership or bearing liability of the
amalgamated property.
(b) Where net incomes were earned for the
amalgamated liability in respect of the
amalgamated liability, immediately before the
disposal of the liability, that person:


76
(1) shall be deemed to have incurred expenses
in a sum equal to net incomes for the
disposal of the amalgamated liability,
Provided that, in the case of the
amalgamated property, that amount shall
not exceed the amount spent by that person
in acquiring that property.
(2) shall be deemed to have received an amount
equal to that amount in holding ownership
of or bearing liability of the amalgamated
property.
(2) Without prejudice to the matters contained in Sub-section
(1), that Sub-section shall also apply to the following circumstances:-
(a) If that person carries out an act of acquisition or
sale of any property,
(b) If that person acquires the property leased, an
(c) If the guaranteed liability is transferred by the
transferee.
48. Disposal of property and liability through division: If the rights related
with any property owned by or the burdens related with any liability
borne by any person devolve on any other person also by way of lease
of any property or any part thereof, the following provisions shall
apply:-
(a) Where the rights or burdens are permanent, that first person
shall be deemed to have disposed any part of that property or


77
liability but not to have acquired any new property or liability,
and
(b) Where the rights or burdens are temporary or contingent, that
first person shall be deemed not to have disposed any p rt of
that property or liability.
Provided that, such person shall be deemed to have
acquired a new property or assumed a new liability, as the case
may be.
49. Disposal through allocation of incomes and expenses: (1) Any person
shall, in the following circumstances, allocate theexpenses or incomes
made in acquiring, bearing or disposing any property or liability
between properties and liabilities, on the basis of the market value at
the time of acquisition, bearing or disposal, as the case may be:-
(a) Where one or more properties are acquired or one
or more liabilities assumed at the same time,
(b) Where one or more properties or liabilities are
disposed at the same time.
(2) If any person who holds ownership of any property or bears
any liability disposes any part of that property or liability, the net
expenses or net incomes of that property or liability immediately before
the disposal have to be allocated in the portion of the disposed
property or liability and in the remaining portion, as the case may be,
on the basis of the market value thereof immediately after the disposal.
Chapter –9
Special Provisions on Natural Person


78
50. Spouse: (1) Both a resident natural person and his/her resident
husband or wife may, by giving a notice in writing, choose to be
treated as one natural person in any specific income year for tax
purposes.
(2) The husband or wife out of the spouses who chose the
provision contained in Sub-section (1) in respect of any income year
shall be jointly and severally responsible between ach other for the
tax payable by them in that year.
51. Tax adjustment for medical treatment: (1) Any resident natural person
may make a claim for adjustment of tax for medical treatment in any
income year for the approved medical expenditure incurred by
him/herself or through any other person for him/herself.
(2) The tax adjustment amount for medical treatment of a natural
person in any income year shall be computed also by adding any
amount, if any, referred to in Sub-section (4) to the amount to be set by
Fifteen per cent of the approved medical treatment expenditure referred
to in Sub-section (1).
(3) Notwithstanding anything contained in Sub-section (2), the
amount of tax adjustment for medical treatment claimed by a natural
person in any income year shall not exceed the prescribed limit.
(4) In the case of any natural person in any income year, the
excess amounts as mentioned in clauses (a) and (b), up to the following
limit, may be carried forward and be included in the amount referred to
in Sub-section (2) in the forthcoming years:-
(a) Where the amount referred to in Sub-section (2)
exceeds the limit referred to in Sub-section (3), the
amount of such excess, and


79
(b) The amount to the extent that the person referred
to in clause (a) of Section 3 is not allowed to use
tax adjustment for medical treatment because of
being less the amount of tax payable by that
person in that year.
Explanation: For purposes of this Section,
"approved medical treatment expenditure" means
the approved medical treatment expenditure as
prescribed.
Chapter-10
Special Provisions For Entity
52. Principles of taxation applicable in respect of enti ies: (1) For
purposes of payment of tax, any entity shall be responsible distinctly
from its beneficiaries.
(2) Distributions to be made by an entity shall be as mentioned
in Section 53, and in distribution to be so made, tax shall be imposed on
its beneficiaries pursuant to Section 54.
(3) The amounts derived by and expenses borne by an entity
shall be deemed to have been received or borne by the entity
irrespective of whether or not the entity has derived the same or borne
expenses for other person.
(4) A property under ownership of an entity and the liability
borne by it shall be deemed to be under ownership or burden of the
entity. Such property under ownership and liability borne shall not be
deemed to be under the ownership or burden of any other person.


80
(5) Foreign income tax paid by the manager, beneficiary of an
entity or the entity, whosoever, for the income of the entity shall be
deemed to have been paid by the entity.
(6) Transactions between any entity and its managers and
beneficiaries shall be recognized subject to Chapter-7 and Section 45.
53. Distribution by entity : (1) The following matters have to be included in
the distribution to be made by an entity:-
(a) Payment made by the entity to any of its
beneficiaries in any capacity, or
(b) Capitalization of profits.
(2) Notwithstanding anything contained in Sub-section (1), any
payment referred to in clause (a) of that Sub-section shall be deemed to
have been distributed only in the following circumstances:-
(a) Where the payment exceed the amount paid by a
beneficiary to the entity in exchange for a
consideration likely to be obtained from the entity,
and
(b) Where the following amounts are not included in
the payment:-
(1) The amounts included in computing the
income of the beneficiary,
(2) The payments from which tax has been
deducted finally except for reason of
distribution.


81
(3) Only if the distribution of any entity reduces the value of
property or liability of that entity, such distribution shall be deemed to
be a distribution of profits or return of capital.
(4) In any of the following circumstances, a distribution of any entity
shall be deemed to be a distribution of profits, subject to Section 55:-
(a) Where the distribution is of a type referred to in
Sub-section (3) and the amount as per the market
value of the property exceeds the total amount of
capital contribution consisting of the market value
of the liability of the entity at the time of
distribution and of capitalized profits, as well,
(b) Where profits are capitalized.
(5) The distribution referred to in Sub-section (3) shall be
deemed to be a return of capital to the extent of non-distribution of
profits.
(6) The distribution of any entity shall be deemed to be a
dividend of that entity to the extent of non-return of capital.
Explanation: For purposes of this Section, "capitalization of profits"
means and includes any capitalization made by issuing bonus share or
similar other interest or increasing the paid up sum of the interest of
that entity or crediting the profits to the premium and capital account
of that entity.
54. Tax in dividend: (1) On the dividend distributed by a resident body, it
shall be as follows:-


82
(a) Tax shall be imposed on a shareholder of any
company as per the mode of final tax deduction,
and
(b) No tax shall be imposed on other entities.
(2) The dividend distributed by any non-resident person to any
resident beneficiary shall be included in the income of the beneficiary
and tax imposed accordingly.
(3) Notwithstanding anything contained in Sub-section (1), in
cases where in distributing a dividend by a resident company to
another resident company, except for a dividend distributed by a
resident company to an organization enjoying tax exemption, the
resident company receiving the dividend controls twenty-five per cent
or more voting right of the resident company distribut ng the dividend,
directly or indirectly through itself or one or more associated entities,
no tax shall be charged on the dividend distributed to such a resident
entity.
(4) Notwithstanding anything contained in Sub-section (3), that
Sub-section shall not be applicable in the following circumstances:-
(a) Dividend distributed to any company because of
ownership of redeemable shares of the company
distributing dividend.
(b) Dividend referred to in Section 58.
(5) The incomes referred to in Chapter-8 receivable for the
interest of a beneficiary of an entity have to include the amount for
capital return made by any entity for that interest.


83
Provided that, the dividend distributed by the entity need not to
be included.
55. Dissolution of entity: (1) A distribution made in proportion to the
portion of profit earned by and that of capital contributed by any
beneficiary in disposing the interests in the course of dissolution of
any entity shall be deemed to be the payment of partial dividend and
partial capital of that entity, if all of the following conditions are
fulfilled:-
(a) Where any distribution has been made by such
entity in respect of cancellation, release or
acceptance of the interest in that entity because
of, inter alia, purchase by the entity of its interest
or dissolution of the entity by following the
process of law in force,
(b) Where, except in cases of full dissolution, the
rights of the beneficiaries in the portion of profits
of that entity have not been computed in proper
portion or could not be computed reasonably, and
(c) Where the beneficiary who gets that distribution is
not an associated person with the entity after the
disposal.
(2) Notwithstanding anything contained in Sub-section (1), that
the provisions contained in that Sub-section and Section 53 shall not
be applicable in cases where any entity purchases th in erest of any
beneficiary in the entity through the securities market recognized under
the law in force and make distribution to that beneficiary.


84
56. Transaction between entity and beneficiary: (1) If a property is
disposed through transfer of ownership over the prope ty in any
manner of distribution between an entity and its beneficiary or in any
other manner subject to Section 45, it shall be as follows:-
(a) The transferor of the property shall be deemed to
have received, from the disposal, an amount equal
to the market value of the property immediately
before the disposal, and
(b) The transferee of the property shall be deemed to
have incurred cost in a sum equal to that
mentioned in clause (a) in acquiring the property.
(2) If any liability is disposed through transfer of the liability
between any entity and its beneficiary subject to Section 45, it shall be
as follows:-
(a) The transferor of the liability shall be deemed to
have incurred cost, in disposing the liability, in a
sum equal to the market value of the liability
immediately before the disposal, and
(c) The transferee of the liability shall be deemed to
have received an amount equal to that mentioned
in clause (a) in assuming the liability.
(3) If any entity distributes dividends except profits as
dividends to any beneficiary, the amount of such dividends shall be
included in computing the income of the entity.
Provided that, provisions may be made to exclude the matters
contained in this Sub-section in any circumstance as prescribed.


85
57. Change in control: (1) If the ownership of any entity changes by Fifty
per cent or more as compared to its ownership until before the last
three years, the entity shall be deemed to have disposed the property
under its ownership or the liability borne by it.
(2) If the ownership of an entity is changed as mentioned in
Sub-section (1), the entity shall not be allowed to carry out the
following acts after such change:-
(a) To deduct interest incurred by that entity prior to
the change in ownership and carried forward
pursuant to Sub-section (3) of Section 14,
(b) To deduct the loss suffered by that entity prior to
the change in ownership, pursuant to Section 20,
(c) To carry back a loss suffered after the change i
ownership in any income year before such change,
pursuant to Sub-section (4) of Section 20, Section
59 or 60,
(d) To make adjustment pursuant to Sub-section (4) of
Section 24, in cases where it has been calculated
for any amount or expenses pursuant to clause (a)
of Sub-section (4) of Section 24 prior to the change
in ownership, and correction has been made on
that amount or expenses pursuant to clause (b) of
Sub-section (4) of Section 24 after the change in
ownership,
(e) To make adjustment pursuant to Sub-section (1) of
Section 25, in cases where any amount has been
calculated pursuant to clause (b) of Sub-section


86
(1) of Section 25 prior to the change in ownership
and the right to receive that amount has been
relinquished or in the event of that being a debt
claim, such person has written off such amount as
a bad debt, after the change in ownership,
(f) To subtract, pursuant to Section 36, the loss
suffered in disposing any property or liability prior
to the change in ownership from the income
earned from the disposal of the property or liability
after the change in ownership,
(g) In cases where premium has been calculated
pursuant to sub-clause (1) of clause (b) of Sub-
section (4) of Section 60, prior to the change in
ownership and such premium has been returned to
the insured after the change in ownership, to claim
for credit accordingly, or
(h) To carry forward in the forthcoming year the tax
paid in respect of a foreign income prior to the
change in ownership, pursuant to Section 71.
(3) In cases where the ownership of any entity changes in any
manner mentioned in Sub-section (1) in any income year, the parts
before and after the change in ownership in that income year shall be
treated as separate income years.
58. Provision restricting reduction of dividend tax: (1) If any entity
distributes dividends as follows, it shall be deemed to have made an
arrangement for reducing dividend tax:-
(a) Where current or expected profits are reserved,


87
(b) Where any person who acquires an interest of the
entity and the recipient of the interest or his
associated person makes any payment to the
present or previous beneficiary of the entity or his
associated person irrespective of whether or not it
is related to the acquisition of interest and whether
or not it is made at the time of acquisition of
interest,
(c) Where the payment is fully or partly reflected in
the profits of the entity, or
(d) Where the entity distributes dividends to the
recipient of interest after the recipient of interest
has acquired interest from the entity and the
profits covers the dividends fully or partly.
(2) In cases where dividends are distributed by any entity under
an arrangement reducing dividend tax made pursuant to Sub-section
(1), the arrangement shall be deemed to be as follows:-
(a) The payment made by the recipient of interest or
his/her associated person shall not be deemed as
payment made by that person but as distribution
by that entity of dividends to the previous or
present beneficiary as referred to in clause (b).
(b) The dividends distributed by that entity to the
recipient of interest shall be deemed as equal to a
sum to be set by subtracting the amount of
payment said to have been made from the
dividends as referred to in clause (a).


88
Chapter-11
Special Provisions on Banking and Insurance Business
59. Banking business: (1) In computing the income or loss made by any
person carrying on a banking business from that busines in any
income year, it shall be separately computed as if the banking business
were a business distinct from any other business carried on by that
person.
(2) If any person suffers a loss from the banking business in any
income year, that person may subtract, as prescribed, such loss from
the incomes of the past five income years from thatbusiness.
(3) In subtracting the loss pursuant to Sub-section (2), the
following provisions shall apply:-
(a) It shall not exceed any income earned from that
business in the past income year,
(b) It shall not exceed the total sum of loss,
(c) The amount of loss that could not be deducted for
purposes of Section 20 shall be lessened.
Explanation: For purposes of this Section,
"banking business" means banking transactions
carried out by banks and financial institutions
permitted to carry out banking transactions under
the laws in force.
60. General insurance business: (1) In computing the income or loss made
by any person carrying on a general insurance busines from that
business in any income year, it shall be separately computed as if the


89
insurance business were a business distinct from any other business
carried on by that person.
(2) While computing the income of any person carrying on the
insurance business in any income year, it shall be done as follows:-
(a) In income, in addition to any other amounts
required to be included, the following amounts, as
well, have to be included:-
(1) Amounts for premium of insurance
including premium for reinsurance received
by that person from that business in that
year, and
(2) Amounts received in that year from
payments referred to in sub-clause (1) of
clause (b) for any contract of reinsurance,
security, guarantee or compensation.
(b) In expenses, in addition to the amounts that can be
deducted, the following amounts, as well, may be
deducted:-
(1) The payments made by that person as an
insurer in operating that business in that
year, and
(2) The premiums included pursuant to sub-
clause (1) of clause (a) in computing the
income earned from that business in that
year or last year and returned to the insured
in that year.


90
(3) If any person suffers loss from the registered general
insurance business in any income year, that person may subtract such
loss, as prescribed, from the incomes of that business earned in last
five income years.
(4) In subtracting the loss pursuant to Sub-section (3), the
following provisions shall apply:-
(a) It shall not exceed any income earned from that
business in the past income year,
(b) It shall not exceed the total sum of loss,
(c) The amount of loss that could not be deducted for
purposes of Section 20 shall be lessened.
Explanation: For purposes of this Section,
"registered general insurance business" means an
insurance business registered in Nepal pursuant to
the law in force and carrying on general business
transactions.
61. Investment insurance business: (1) In computing the income or loss
made by any person carrying on an investment insurance business
from that business in any income year, it shall be separately computed
as if the investment insurance business were a busines distinct from
any other business carried on by that person.
(2) It shall be as follows In computing the income of any person
carrying on the investment insurance business in any income year, it
shall be as follows:-


91
(a) Except the following amounts, other amounts that
can be included pursuant to this Act have to be
included:
(1) Amounts reinsurance for premium of
insurance including premium received by
that person in operating that business in
that income year, and
(2) Amounts received in that year from
payments referred to in sub-clause (1) of
clause (b) for any contract of reinsurance,
security, guarantee or compensation.
(b) Except the following amounts, other amounts that
can be deducted pursuant to this Act have to be
deducted:
(1) The payments made by any person as an
insurer in operating that business, and
(2) The premiums returned to the insured
referred to in sub-clause (1) of clause (a).
(3) The amounts referred to in sub-clauses (1) and (2) of clause
(a) of Sub-section (2) and sub-clauses (1) and (2) of clause (b) have to
be included in the incomes and expenses for the property or liability of
that person.
(4) The investment insurance agreement of investm n
insurance business of any person shall not be deemed as the property
and liability of that person.


92
62. Amount received from insurance: (1) For purposes of computing the
income of any person, the provisions contained in section shall apply
in respect of the amount received by that person frm insurance.
(2) Notwithstanding anything contained in Sub-section (1), the
following provisions shall apply in respect of the profits made from
investment insurance:-
(a) In cases where a resident person makes payment
of such amount, tax shall be imposed on the
insured through final tax deduction, and
(b) In cases where a non-resident person makes
payment of such amount, it shall be computed by
including that amount in the income of the insured.
Explanation: For purposes of this Section,
"profits made from investment insurance" means
the excess sums of payment received by any
person for investment insurance in respect of that
insurance over the premiums paid by that person.
Chapter-12
Special Provisions on Retirement Saving
63. Approval of retirement fund: (1) If a resident person who desires to
hold a retirement fund make an application to the Department for
having the retirement fund, the Department shall give approval as
prescribed.


93
(2) A natural person who is a beneficiary of the retirement fund
may make a claim to have the retirement contribution made to the fund
in any income year deducted from his taxable income.
(3) Notwithstanding anything contained in Sub-section (2), the
amount claimed by any person for deduction in any income year
pursuant to that Sub-section shall not exceed the prescribed limit of
retirement contribution.
64. Tax in retirement fund: (1) For purposes of assessing the income of
the retirement fund, the amounts to be included or educted pursuant
to this Act shall be included or deducted in computing he income.
Provided that, ,-
(a) Contributions made to the fund shall not be the
income of the fund and such contributions shall
not be included in computation.
(b) Retirement payments shall not be the expenses of
the fund and such payments shall not be deducted
in computing the income.
(c) Interest of any beneficiary in the retirement fund
shall not be a liability of the fund.
(2) No tax shall be levied in the income of the retirement fund.
(3) If any retirement fund ceases to remain in a form of such
fund, such fund has to pay tax in a sum to be set, by he rate of tax
applicable to companies, by subtracting the amount referred to in
clause (b) from the amount referred to in clause (a).


94
(a) All retirement contributions paid to the fund
between the period from the date when the fund
got approval as a retirement fund and the date
when the recognition ceased to exist and all
income amounts treated as taxable incomes in
cases where Sub-section (2) is not applicable,
(b) All retirement payments made by the fund between
the period from the date when the fund got
approval as a retirement fund and the date when
the recognition ceased to exist.
65. Retirement payments: (1) For purposes of computing the income
earned by any natural person from the interest in any pproved
retirement fund, the following provisions shall apply:-
(a) Retirement payments made by the fund for the
interest in the fund have to be included in the
income, and
(b) Notwithstanding anything contained in clause (a),
in cases where such payment is made in lump sum,
the payment to be set by subtracting Fifty percent
of the paid amount or five hundred Thousand
Rupees, whichever is higher, from the amount so
paid shall be deemed as the profit made by the
person from the disposal of his non-business
taxable property.
(2) For purposes of computing the profit made by an natural
person from the interest in any retirement fund that has not obtained
approval, the following provisions shall apply:-


95
(a) Where a resident person has made payment, tax
shall be imposed on the beneficiary in that amount
as withholding of tax finally, and
(b) Where a non-resident person has made payment,
that amount has to be included in computing the
income of the beneficiary.
Explanation: For purposes of this Section, "profit
made from the interest in any retirement fund that
has not obtained approval' means, in cases where
retirement payments made from a retirement fund
which has not obtained approval to a beneficiary
natural person for his interest in the fund exceed
the amounts of retirement contributions paid by
that person to that fund for his interest in the fund,
the amount to the extent of such excess.
66. Expenses and incomes for interest in retirement fund: (1) The
expenses incurred for any property remaining as the interest of any
natural person in any retirement fund have to include the followings
amounts:-
(a) All retirement contributions made by the natural
person in respect of the interest, and
(b) Where tax has been paid from the fund pursuant to
Sub-section (3) of Section 64, the amounts
included in the incomes for that property pursuant
to Sub-section (2) during the period from the date
when the fund got approval as a retirement fund to
the date when the recognition ceased to exist.


96
Provided that, the above-mentioned
amounts shall not be included in the expenses
referred to in Section 38.
(2) The incomes for any property remaining as an interest of any
person in any approved retirement fund have to include the exemptions
claimed by that person pursuant to Sub-section (2) of Section 63 for
the retirement contributions made in respect of that interest.
Chapter-13
International Tax
67. Source of income, loss, profit and payment: (1) In cases where, in the
source of income earned from any employment, busines or investment
of any person, the amounts mentioned in clause in (a) exceed the
amounts mentioned in clause (b), the amounts to the ext nt of such
excess shall be deemed to have source in Nepal.
(a) The amounts with source in Nepal included in
computing the income,
(b) The amounts with source in Nepal deducted in
computing the income.
(2) In cases where in the loss suffered from any employment,
business or investment of any person, the amounts mentioned in
clause (a) exceed the amounts mentioned in clause (b), the amounts to
the extent of such excess shall be deemed to have source in Nepal.
(a) The amounts with source in Nepal to be deducted
in computing the income of the business or
investment,


97
(b) The amounts with source in Nepal included in
computing the income.
(3) The amounts to be included in computing the income shall
be deemed to have source in Nepal in the following c rcumstances:-
(a) The net profits referred to in clause (c) of Sub-
section (2) of Section 7 or clause (b) of Sub-
section (2) of Section 9 to be set by subtracting
the loss suffered from the disposal of the property
or liability with source in Nepal from the profit
made from the disposal of the property or liability
with source in Nepal,
(b) In cases where a property situated in Nepal or a
liability to be borne in Nepal is included, the
profits and amounts to be included in computing
the income as mentioned in clause (d) of Sub-
section (2) of Section 7 or clause (c) of Sub-section
(2) of Section 9,
(c) Received payments with source in Nepal, subject
to clauses (a) and (b).
(4) In cases where a property situated in Nepal or liability to be
borne in Nepal is included, the source of profit or loss made or suffered
from the disposal of the property or liability shall be deemed to have
source in Nepal.
(5) In cases where the following amounts are included in the
amounts deducted in assessing the income, the source of such
amounts shall be deemed to be in Nepal:-


98
(a) The amount that can be deducted as cost
expenditure mentioned in Sub-section (1) of
Section 15 in respect of the properties situated in
Nepal,
(b) The expenses referred to in Sub-section (1) of
Section 16 in respect of the properties situated in
Nepal, and the expenses to the extent allowed to
be deducted pursuant to Section 19, and
(c) The payments with source in Nepal, subject to
clauses (a) and (b).
(6) The following payments shall be deemed to have source in
Nepal:-
(a) Dividends paid by a resident entity,
(b) Interest paid by a resident person,
(c) Payment for natural resources made in respect of
the natural resource derived from the land situated
in Nepal or calculated with reference to such
source,
(d) Rent paid for the use of any property situated in
Nepal,
(e) Royalty received by any person for having
allowed any one to use any property situated in
Nepal or accepting the right to use the property or
the restriction on the use of such property,


99
(f) Amount for the general insurance paid by any
person in respect of insurance against risks in
Nepal and premium paid to that person for general
insurance,
(g) Payments received by any person as follows by
operating inland, sea or air transport or charter
service business in Nepal except as a result of
transshipment:
(1) The carriage of departing passengers, or
(2) The shipment of mail, livestock or other
direct movable property.
(h) Payments received by a person who carries a
business of dispatching information or news
through means of communication such as wire,
radio, optical fiber or satellite in respect of
dispatch of news or information through networks
established in Nepal, irrespective of whether or not
such news or information is originated in Nepal,
(i) Payments in the following circumstances inclusive
of service charges of the kinds not mentioned in
clauses (g) or (h) for doing employment or
rendering service or accepting restriction in those
acts:
(1) Where the acts are carried out in Nepal
irrespective of the place of payment, or


100
(2) Where Government of Nepal is to make
payment irrespective of the place of such
acts.
(j) Annuities, amount for investment insurance and
retirement pension paid by a resident person,
which does not fall under clause (i), and any
premium or other payment paid to the resident
person in order to ensure such amounts,
(k) Gifts received in respect of a business or
investment operated from the property situated in
Nepal, and
(l) The following payments except those mentioned in
clauses (a), (b), (c), (d), (e), (f), (g), (h), (i)j and
(k), above:-
(1) Payments made in respect of disposal of the
property situated in Nepal or in respect of
acquiring liability to be borne in Nepal, or
(2) Payments made in respect of activities
carried out in Nepal.
(7) Any income, loss, amount, profit or payment except the one
which is deemed to have source in Nepal as mentioned in the above-
mentioned Sub-sections, and the references to Nepal given in this Act
shall be applicable as if they were used in the case of any particular
foreign country for purposes of ascertaining as to which country such
income, loss, amount, profit or payment has source in.
Explanation: For purposes of this Section,-


101
(a) "Property situated in Nepal" means the land or buildings
situated in Nepal and the property other than land or
building of a resident person situated in any foreign
country or if the person is associated with a contrlled
foreign entity pursuant to Section 69, inclusive his
interest in that entity.
(b) "Liability to be borne in Nepal" means the liability of a
resident person.
68. Foreign permanent establishments: (1) Notwithstanding anything
contained in Section 3, any foreign permanent establi hment of a non-
resident person situated in Nepal shall be liable to pay tax payable on
the income of such establishment, subject to other provisions of this
Act.
(2) The income of a person having ownership of a foreign
permanent establishment shall be separated from the income of that
establishment, pursuant to Section 69.
(3) Tax shall be imposed on the permanent establihment
referred to in clause (b) of Section 3 in the income sent abroad by the
foreign permanent establishment of a non-resident prson situated in
Nepal.
(4) The income sent abroad in any income year by the foreign
permanent establishment of a non-resident person situated in Nepal
shall be equal to the amount of dividends distributed by that foreign
permanent establishment in that year.
69. Controlled foreign entities: (1) If any entity distributes dividends of
the associated income earned in any income year as a controlled


102
foreign entity at the end of the income year, it shall be deemed to have
distributed dividends on proportion to its beneficiaries, as follows:-
(a) As per the rights of the beneficiaries to the income
in distributing dividends, or
(b) If the rights are not certain in a reasonable manner,
as per the method which the Department thinks
appropriate according to the circumstance.
(2) Tax shall not be levied on the dividends distributed by an
entity as a controlled foreign entity at the end of any income year
except those distributed pursuant to Sub-section (1).
(3) The following shall be deemed to have occurred in respect of
the dividends distributed by a controlled foreign etity pursuant to
Sub-section (1) to the beneficiaries associated with that entity at the
time of distribution of dividends:-
(a) Having the characteristic equivalent to the type
and source of the associate income of that entity,
and
(b) Having distributed proportionately out of each
type and source the associate income of that
entity.
(4) Any tax paid by any controlled foreign entity ncluding that
deemed to be paid pursuant to Sub-section (5) or Sub-section (5) of
Section 52 in respect of the amounts deemed to be distributed pursuant
to Sub-section (3) has to be set aside for the beneficiary associated
with that entity.


103
(5) The tax set aside pursuant to Sub-section (4) at the time of
allocation shall be deemed to have been paid by the beneficiary, and
the beneficiary may get facility of tax adjustment for such tax, as
provided for in Section 71.
(6) The amount to be deemed as distributed to the beneficiary
pursuant to Sub-section (1) at the time of distribuion has to be
included in the expenses for any property or liability of the recipient
beneficiary in the entity making such distribution.
(7) The dividends distributed to the beneficiary enjoying tax
exemption pursuant to Sub-section (2) at the time of distribution has to
be included in the income for any property or liabity of the recipient
beneficiary as an interest in the entity making such distribution.
(8) For purposes of this Act, the foreign income tax paid or
foreign income tax deemed as paid by any controlled foreign entity
pursuant to Sub-section (5) or Sub-section (5) of Section 52 shall be
deemed as tax amount paid by that entity or deemed to be paid by that
entity pursuant to this Act.
Explanation: For purposes of this Section,-
(a) "Associated income" means, in computing taxable
income of any controlled foreign entity in any income
year, a taxable income computed as if that entity were a
resident entity.
(b) "Controlled foreign entity" means any non-resident
entity in which any resident person has interest directly
or indirectly through one or more interposed non-resid nt
entities in any income year; and where that person i
associated with that entity or where any person deemed


104
to be associated with and any other resident persons n t
exceeding four persons are associated with that entity, it
includes such entity, as well.
70. Tax chargeable on non-resident person providing water
traveling/rafting, air transport or telecommunicati ons service in
Nepal: (1) The taxable income of any non-resident person who operates
water traveling, charter service or air transport in any income year shall
consist of the amounts derived from the following acts except the
amounts derived from transshipment in that year:-
(a) Carriage of passengers departing from Nepal, or
(b) Carriage of the mail, animals or goods dispatched
from Nepal.
(2) The taxable income of any non-resident person who carries
on a business of cable, radio, optical fiber or satellite communication in
any income year shall consist of the amounts derived from the dispatch
of news or information through any device established in Nepal,
whether originated in Nepal or not.
(3) Tax shall be levied on the amounts to be included in the
taxable income of any non-resident person pursuant to Sub-section (1)
or (2), at the rate specified in Sub-section (7) of Section 2 of Schedule-
1.
Provided that, -
(a) Those amounts need not to be computed in
computing the tax payable in respect of any due
taxable income of that person,


105
(b) The expenses related with computation of those
amounts shall not be allowed to be deducted in
computing that due taxable income, and
(c) That person shall not be entitled to any facility of
tax adjustment from the amount of tax payable by
that person.
Explanation: For purposes of this Section, "non-
resident person" means a resident entity within the
group of associated entities with head offices
outside Nepal.
71. Foreign tax adjustment: (1) Any resident person may claim for
adjustment of tax for the foreign income tax paid by that person in any
income year to the extent of the tax paid for assesable foreign income
of that person in that year.
(2) In computing the foreign tax adjustment claimed pursuant to
Sub-section (1), it shall be done as follows:-
(a) Separate computation has to be done for
assessable foreign income having source in each
country, and
(b) Foreign tax adjustment claim shall not be made, in
respect of the assessable foreign income, at the
rate of tax higher than the average rate of tax of
Nepal payable by that person in that year in
respect of each computation.
(3) Any foreign income tax paid in respect of the assessable
foreign income of any year who is not entitled to foreign tax adjustment


106
facility pursuant to Sub-section (1) by virtue of the limit provided for in
clause (b) of Sub-section (2) may be dealt with as follows:-
(a) It may be carried forward in the coming year, and
(b) It shall be deemed to be paid in respect of the
assessable foreign income in the future income
year of the person having source in the country
where such foreign income has been earned.
(4) Notwithstanding anything contained in Sub-section (1), any
person may give up a claim for foreign tax adjustment to which he is
entitled in any income year and also claim for credit for foreign income
tax for which such adjustment facility is available in that year.
Explanation: For purposes of this Section,-
(a) "Assessable foreign income" means the following
income to be included in the assessable income
earned by any resident person in any income year
from any employment, business or investment:-
(1) Income earned from a foreign source, or
(2) Income of a non-resident person deemed as
distributed to that resident person under
Section 69 irrespective of the source.
(b) "Average rate of tax of Nepal" means the rate of
tax of Nepal payable by the person referred to in
clause (a) of Section 3 in any income year of the
taxable income of that person in that year prior to
adjustment of any foreign tax of that person in that
year.


107


108
Chapter –14
Tax Administration and Authentic Documents
72. Department: (1) The Department shall be responsible for the
implementation and administration of this Act.
(2) Government of Nepal may, by a notification in the Nepal
Gazette, establish Inland Revenue Offices under the Department and
prescribe their working areas, in order to render assistance to the
Department in fulfilling the responsibility of the Department mentioned
in Sub-section (1). The offices of which working are s have been so
specified shall be deemed as organs of the Department.
(3) The Department may have the officers and other employees
as follows:-
(a) Director General,
(b) Deputy Director General, Chief Tax Administrator,
Director, Chief Tax Officer, Tax Officer and other
officer in the required number, and
(c) Other employees.
(4) The Director General may carry out the following functions,
subject to the direction given by Government of Nepal:-
(a) To exercise any of the powers conferred on the
Department pursuant to this Act,
(b) To so delegate the powers referred to in clause (a)
as to be exercisable by any other officer subject to
Sub-section (5) and (6),


109
(c) To so specify that all or any of the powers refe red
to in clause (a), except the power to issue public
circular pursuant to Section 75, to specify the
document referred to in Section 77, to hold
pending any reviewable decision or otherwise
affect it pursuant to Sub-section (5) of Section 115,
to accept or reject, fully or partly, the matters
contained in an application made by any person
pursuant to Sub-section (7) of Section 115, to make
addition by adding offence pursuant to Section
129 or to grant authority to any officer pursuant to
Section 82, to be exercisable by any officer
employee of the civil Service.
(5) Deputy Director General, Chief Tax Administrator, Director,
Chief Tax Officer and Tax Officer who acts as the Chief of Office may
carry out the following functions, subject to the direction given by
Government of Nepal or the Director General:-
(a) To exercise the powers conferred on the
Department pursuant to this Act, other than the
power to issue public circular pursuant to Section
75, to specify the document referred to in Section
77, to hold pending any reviewable decision or
otherwise affect it pursuant to Sub-section (5) of
Section 115, to accept or reject, fully or partly, he
matters contained in an application made by any
person pursuant to Sub-section (7) of Section 115,
to make addition by adding offence pursuant to
Section 129, and


110
(b) To so delegate such powers as to be exercisable
by any other officer of the Department subject to
Sub-section (6).
(6) Any other officer of the department except the Director
General, Deputy Director General, Chief Tax Administrator, Director,
Chief Tax Officer or Tax Officer who acts as the Chief of Office may
carry out the following functions:-
(a) To exercise any powers delegated to that officer
out of the powers conferred on the department,
except the following powers:
(1) To issue public circular pursuant to Section
75, to specify the document referred to in
Section 77, to hold pending any reviewable
decision or otherwise affect it pursuant to
Sub-section (5) of Section 115, to accept or
reject, fully or partly, the matters contained
in an application made by any person
pursuant to Sub-section (7) of Section 115,
to make addition by adding offence
pursuant to Section 129, or
(2) To grant authorization to any officer
pursuant to Section 82 or issue a notice
pursuant to Section 109.
(b) He/she shall not be entitled to re-delegate any
power delegated to him/her.
73. International agreements: (1) In cases where any income of any
person is taxable pursuant to this Act or the laws in force and the same


111
income is also taxable in a foreign country, Governme t of Nepal may
conclude an international agreement with the foreign country for the
avoidance of double taxation.
(2) This Sub-section shall be applicable in cases where,
pursuant to any international agreement concluded with Nepal, the
competent authority of the other country requests the Department to
collect in Nepal the amount payable by any person who is in arrears of
that amount, pursuant to the taxation law of that other country.
(3) In cases where Sub-section (2) is applicable, the Department
may, for the purpose of sending that amount to that competent
authority, send a notice in writing to the person who is in arrears of tax
and require him to pay such amount to the Department within the date
mentioned in that notice.
(4) This Sub-section shall be applicable in cases where any
international agreement contains a provision under which Nepal has to
exempt income or payment or has to apply the reduce tax rate to
income or payment.
(5) In cases where Sub-section (4) is applicable, any of the
following entity shall not be entitled to enjoy tax e emption or tax
deduction facility:-
(a) An entity who is considered as a resident of the
other party of the agreement for purposes of the
agreement, and
(b) Where Fifty percent or more portion of the vested
ownership of that entity is owned by natural
persons or by the entities in which any natural
person has no interest and, for purposes of the


112
agreement, the persons or entities are residents of
both Nepal and of the other country party to the
agreement.
Explanation: For purposes of this Section,
"international agreement' means any treaty or
agreement containing the following provisions,
concluded with any foreign government and
applicable to Nepal:
(a) To avoid double taxation and prevent fiscal
evasion, or
(b) To render reciprocal administrative
assistance in the implementation of tax
liability.
74. Taxpayer's rights: (1) Any taxpayer shall not be entitled to exercise
any of the rights mentioned in Sub-section (2) without fulfilling the
duties required to be fulfilled pursuant to this Act.
(2) In the context of paying tax pursuant to this Act, a taxpayer
shall have the following rights:-
(a) The right to be treated with honour,
(b) The right to receive information on tax related
matters pursuant to the laws in force,
(c) The right to have an opportunity to furnish proofs
in defense on tax related matters,
(d) The right to appoint a legal practitioner or auditor
for defense, and


113
(e) The right to have tax related secret matters
inviolable except as otherwise mentioned in this
Act.
Explanation: For purposes of this Section,
"taxpayer" means a person on whom tax is
imposed and collected as mentioned in Section 3.
75. Public circular : (1) In order to bring about uniformity in the
implementation of this Act and simplify tax administration and give
guidelines to the officers of the Department as well as the persons
affected by this Act, the Department may issue written public circulars,
accompanied by explanations, on the provisions made in this Act.
(2) The Department shall make available the circular issued
pursuant to Sub-section (1) in the Department or in any other places as
per necessity or through any other means.
(3) The Department shall be compelled to take action according
to the circular issued pursuant to Sub-section (1) unless and until such
circular is revoked.
76. Advance ruling: (1) If any person makes an application in writing to the
Department for the removal of any confusion as to the application of
this Act to any arrangement proposed or accepted by such person, the
Department may issue its version by an advance ruling as prescribed,
by notifying the person in writing.
(2) Notwithstanding anything contained in Sub-section (1), the
Department shall not be entitled to issue an advance ruling referred to
in Sub-section (1) on any matter of confusion occurred in the
implementation of this Act in cases where such matter is sub judice in
the court or has already been decided by the court.


114
(3) In cases where any person acts as follows prior to the
issuance of an advance ruling pursuant to Sub-section (1), the
Department shall be compelled to implement this Act as per that ruling
until the ruling issued to that person remains valid:-
(a) If the full and actual statements of the matter
related to that ruling are presented to the
Department, and
(b) If the arrangement corresponds to the point
mentioned in the application made by that person
for the ruling.
(4) In cases where the public circular issued pursuant to Section
75 and the advance ruling issued pursuant to Sub-section (1) are
mutually contradictory, priority shall be given to the matters mentioned
in the advance ruling in the case of the person to wh m such ruling
has been issued.
(5) Prior to the issuance of the advance ruling pursuant to Sub-
section (1), the Department may give an opportunity to the applicant to
furnish further statements, if any, in person or through his
representative.
77. Format of documents: (1) The Department may, from time to time, so
specify the mode of submission and formats of necessary documents,
statements including income returns, tax deduction statements and
formats of records that are required under this Act and the rules framed
under this Act, the notices, information and details required for the
effective implementation of this Act are incorporated.


115
(2) The Department shall make available the formats referred to
in Sub-section (1) in the Department and in any other places specified
by the Department and through any other means.
78. Permanent account number: (1) The Department shall issue an identity
number called as permanent account number to any person for
purposes of identifying that person, subject to this Act.
(2) The Department may order any person to mention his/her
permanent account number in any income return, statement, version or
other document to be used for purposes of this Act.
(3) Government of Nepal may specify the circumstances where
any person has to show or mention his/her permanent account number.
79. Service of documents: (1) Any document required to be given or
delivered to any person pursuant to this Act shall be deemed to have
been given or delivered to that person in the following circumstances:-
(a) Where it is sent to the fax number or email address
of that person,
(b) Where it is delivered by hand to whom it has to be
delivered or to the manager of an entity, in the
case of the entity, or
(c) Where it is sent by a registered post to his
resident, office, business or other address to the
extent known.
(2) Any document so signed, encrypted or encoded through
computer technology or written in it as indicating the name and
designation of the competent authority of the Department and issued,


116
served or given pursuant to this Act shall be deemed to have met
requirements.
80. Defective documents: (1) Any document issued under this Act shall
not be deemed defective in the following circumstances:
(a) Where it is consistent with this Act substantially,
and
(b) Where the person who is addressed in a document
is normally indicated in the document.
(2) In cases where any documents issued by the Department
pursuant to this Act contains any error and the error does not give rise
to any dispute as to the interpretation of this Act or the fact of any
specific person, the Department may make amendment in the document
for purposes of rectifying such error.
Chapter-15
Records and Information collection
81. To maintain records or documents: (1) Each person who is liable to
pay tax pursuant to this Act has to maintain in Nepal the following
necessary documents, in addition to the documents required to be
maintained in the format or type as prescribed by the Department or to
be certified or authenticated by audit or in other manner:
(a) Necessary information and documents supporting
the income returns or any other documents
required to be submitted to the Department
pursuant to this Act,


117
(b) Documents assisting to assess the tax payable by
him,
(c) Documents supporting the deduction of expenses.
(2) Except as otherwise specified by the Departmen by issuing a
notice in writing, the documents referred to in this Section have to be
safely retained for at least Five years from the date of expiration of the
concerned income year.
(3) In cases where any document referred to in Sub-section (1) is
not in the Nepali or English language, the Department may, by issuing
a notice in writing, require the concerned person t submit the
translated version of such document in the Nepali language done, at
such person's own cost, by a recognized translator under the law in
force.
82. Powers of Department to obtain information: (1) The officer of the
Department may do the followings in order to implement this Act:
(a) To have full or unhindered access to any premiss,
places, documents or properties situated in Nepal,
subject to the laws in force,
(b) To obtain any portion of or duplicate copy of the
document including an electronic copy of the
documents to which there is an access pursuant to
clause (a),
(c) In cases where the concerned officer thinks that
the document to which there is an access pursuant
to clause (a) is an evidence that could be
necessary to assess tax liability of any person


118
pursuant to this Act, to take such document in his
custody, and
(d) In cases where any person having access to any
document who is requested to provide a duplicate
copy of such document does not provide it, and
the officer thinks that such document is kept in
any property in any form, to take such property in
own custody in order to have access to such
document.
(2) No officer shall be entitled to exercise the powers referred to
in Sub-section (1) without having authority in writing from the
Department. In cases where, in entering to any premises or places in
exercise by any officer of the powers referred to in Sub-section (1), the
possessor of such premises or places or the person havi g access to
any concerned document or property requests to show t e authority of
the Department, such officer has to show such authority t them.
(3) In cases where any officer of the Department who enters to
any premises or places in exercise of the powers referred to in Sub-
section (1) so requests, the possessor of such premises or places or
the person having access to any concerned document or property has
to provide all proper facilities and assistance for the effective use of
the powers.
(4) The Department may hold in its custody the document or
property taken in its custody pursuant to clause (c) or (d) of Sub-
section (1) until the following time:
(a) In the case of any document taken in custody
pursuant to clause (c) of Sub-section (1) until the


119
time the document is required to assess tax liability
of any person or for any other action pursuant to
this Act, and
(b) In the case of any property taken in custody
pursuant to clause (d) of Sub-section (1), until the
time when access to the document in question is
gained and it is taken in custody.
(5) The person whose document is taken in custody pursuant to
Sub-section (4) may inspect such document and may obtain a copy of
or copy down a portion of such document at his/her own cost within
office hours and under supervision as prescribed by the Department.
(6) Notwithstanding any provision made on privilege or public
interest in respect of having access to the documents required for the
implementation of this Act, the provisions contained in this Section
shall apply in that respect.
Explanation: For purposes of this Section, "possessor" means, in
respect of any premise or place, a person having ownership of,
manager of the premise or place or any other person remaining there.
83. Power to obtain information by notice: (1) The Department may, by
giving a notice in writing, order any person with or without liability to
pay tax pursuant to this Act to do as follows:-
(a) To submit any information specified in the notice
within the time specified in the notice, also by
preparing any document,
(b) To be present at the Department in the place and
time specified in the notice before the officer of the


120
Department for inspection on the tax related
matters of that person or any other person,
(c) To submit, for purposes of inspection, any
document mentioned in the notice that is under his
control at the time when that person is examined
pursuant to clause (b).
(2) Any person who is to be examined pursuant to clause (b) of
Sub-section (1) shall have the right to have legal or other
representation during such examination.
(3) Notwithstanding any provision made on any privilege or on
public interest in respect of having access to the documents required
for the implementation of this Act, the provisions contained in this
Section shall apply in that respect.
84. Governmental secrecy: (1) Any officer and other employee of the
Department shall maintain secrecy of all documents and information
that come to his custody or knowledge in the course of carrying out
his duty pursuant to this Act.
(2) Notwithstanding anything contained in Sub-section (1), any
officer of the Department may disclose, as follows, the document or
information referred to in Sub-section (1) to the following persons:-
(a) To the extent that it is necessary to carry out the
duty of that officer pursuant to this Act,
(b) In cases where is so ordered by any court or
tribunal in respect of administrative review or
action pursuant to this Act,
(c) Before the Minister for Finance,


121
(d) In cases where it is necessary to disclose for
purposes of any other financial law,
(e) In cases where it is necessary for any person in
the service of Government of Nepal for any acts
relating to revenue or statistics, before such a
person,
(f) In cases where it is necessary in the course of
carrying out the duty, before the Auditor General
or any person authorized by the Auditor General,
or
(g) Before the competent authority of the government
of any country with which Government of Nepal
has concluded an international agreement, to the
extent as provided for in such agreement in that
respect.
(3) Any person, court, tribunal, body or official who obtains any
document or information pursuant to Sub-section (2) shall keep secret
such document or information except to the minimum extent required.
Chapter-16
Payment of Tax
85. Time, place and mode of payment of tax: (1) Tax required to be paid
under this Act has to be paid in the place and mode as prescribed.
(2) Tax required to be paid under this Act has to be paid in the
following time, subject to Sub-section (1):-


122
(a) In the case of one who has to pay by withholding
advance tax, in the time mentioned Sub-section (4)
of Section 90,
(b) In the case of one who has to pay tax in
installments, in the time mentioned in Sub-section
(1) of Section 94,
(c) In the case of one who has to pay the assessed
tax-
(1) On the date when the income return is to be
submitted in respect of assessment of tax
referred to in Section 99,
(2) Within the time limit as specified in the tax
assessment notice delivered pursuant to
Section 102 in respect of tax assessed
pursuant to Sub-section (2) of Section 99,
(3) Within the time limit as specified in the tax
assessment notice delivered pursuant to
Section 102 in respect of amended tax
assessment made pursuant to Sub-section
(2) of Section 99,
(d) In respect of the amounts required to be paid to
the Department as per any notice issued pursuant
to Sub-section (8) of Section 104, Sub-section (1)
of Section 109, or Sub-section (1) of Section 110,
on the date mentioned in the notice,


123
(e) In respect of a liability fixed upon failure ofany
entity to pay tax pursuant to Sub-section (2) of
Section 107, at the same time when the entity has
to pay tax,
(f) In respect of the amounts required pursuant to
Sub-section (3) or (4) of Section 108, within seven
days of the date on which the amounts are
adjusted by auction sale gradually or on which the
amounts cannot be so adjusted, and
(g) In respect of the fees and interest assessed
pursuant to Section 122, on the date as mentioned
in the assessment notice.
(3) The date on which tax has to be paid shall not be affected in
the following circumstances:-
(a) An action taken by the Department pursuant to
Chapter-20 to recover tax, or
(b) Other action has commenced, pursuant to this Act.
86. Evidence of payable tax: The certificate signed by the officer of the
Department, indicating the name, address of any person and the
amount of tax required to be paid by that person shall be an ample
evidence for the amount of tax required to be paid by that person, in
the following actions:-
(a) Any action taken by the Department pursuant to Chapter-20 to
recover tax, or
(b) Any action on any offense pursuant to Chapter-23.


124
Chapter-17
Withholding on Payment
87. Withholding of tax by employer: (1) In making payment which has
source in Nepal and is to be included in computing he income derived
by any employee or worker, each resident employer shall deduct
(withhold) tax at the rate referred to in Schedule-1.
(2) The liability of an employer required to withhold tax pursuant
to Sub-section (1) shall not decrease or end by virtue of the
followings:-
(a) In cases where the employer has the right or duty
to deduct or hold up or subtract any other amount
from the said payment, or
(b) In cases where the income earned by the employee
or worker from employment cannot be subtracted
pursuant to other laws in force.
88. Withholding of tax in making payment for investment return and
service charge: (1) In making payment by a resident person for
interest, natural resource, rent, royalty, service charge having source in
Nepal, and if the person is an approved retirement fu d, in making
payment of amount of any retirement payment, the person shall
withhold tax at the rate of Fifteen percent of the total amount of
payment.
Provided that, tax shall be withheld from provident fund and
gratuity paid by the approved retirement fund, only at the rate of six
percent.


125
(2) In making payment by a resident person for dividend, profit
made from investment insurance having source in Nepal or profit made
from unapproved retirement fund, the person shall withhold tax at the
rate of ten percent of the total amount of payment.
(3) Notwithstanding anything contained in Sub-section (1), in
making payment of interest or of an amount in the form of interest as
follows to any natural person for the deposit, a bank or financial
institution shall withhold tax at the rate of Six percent of the total
amount of payment:-
(a) Which has source in Nepal, and
(b) Which is not related with the operation of
business.
(4) Notwithstanding anything contained in Sub-sections (1), (2)
and (3), this Section shall not apply to the following payment:-
(a) Payment related to the operation of a business
carried on by a natural person or any other
payment except for the house rent,
(b) Interest paid to a resident bank or other residnt
financial institution, or
(c) Payment enjoying tax exemption or payment liable
to tax withholding pursuant to Section 87.
89. Tax withholding in making payment of contraction or contract: (1) In
making payment of a sum exceeding Fifty Thousand Rupees for
payment of general insurance premium or contraction or contract, a
resident person shall withhold tax at the rate of One and half percent of
the total amount of payment.


126
(2) The amount referred to in Sub-section (1) shall be fixed also
by adding any other payments, if any, made by such person or his/her
associated person under the same contract to the person or his/her
associated person entitled to payment under that contract in the past
Ten days.
(3) Notwithstanding anything contained in Sub-section (1), tax
shall be withheld as follows from payment made by any resident
person to any non-resident person under any contraction or contract:-
(a) Where the Department has given that resident
person a notice in writing, at the rate specified in
the notice, or
(b) As referred to in Sub-section (1) in any other
circumstances.
(4) Notwithstanding anything contained in Sub-section (1), this
Section shall not apply to the following payments:-
(a) Payment made by natural persons excepts the
payments made in the course of operation of any
business, or
(b) Payments enjoying tax exemption or payments
liable to tax withholding pursuant to Section 87 or
88.
90. Statement and payment of tax withheld: (1) Each person who has to
withhold tax has to submit to the Department a statement setting out
the following matters in such mode and format as specified by the
Department within Fifteen days of expiration of each month:


127
(a) Payment subject to tax withholding made by the
person withholding tax to the person subject to tax
withholding pursuant to Sections 87, 88 or 89 in
that month,
(b) Name, address of the person subject to tax
withholding and the permanent account number in
the case of one who has permanent account
number,
(c) Amount of tax withheld in making each payment
except that mentioned in Sub-section (3), and
(d) Any other information as specified by the
Department.
(2) The person withholding tax shall pay to the Dpartment the
amount of tax withheld or deemed to be withheld pursuant to Sub-
section (3), along with the statement referred to in Sub-section (1),
within the time-limit referred to in Sub-section (1).
(3) Even though the person liable to withhold taxhas not
withheld tax pursuant to Section 87, 88 or 89, the tax shall be deemed to
withheld at the time when it has to be withheld.
(4) The person withholding tax shall pay the amount of tax
withheld pursuant to Section 87, 88 or 89 or deemed to be withheld
pursuant to Sub-section (3); and in cases where Sub-section (5) is
applicable, the person subject to tax withholding shall pay the tax
within Fifteen days after the period referred to in Sub-section (1).
(5) In cases where the person withholding tax does not withhold
or pay tax as follows, both the person subject to tax withholding and


128
the person withholding tax shall be jointly and severally liable to pay
the amount of tax to the Department:
(a) In cases where the person withholding tax does
not withhold tax from any payment pursuant to
Sections 87, 88 or 89, and
(b) In cases where the person withholding tax does
not pay to the Department the amount of tax
deemed to be withheld pursuant to Sub-section (3)
within the date on which tax has to be paid
pursuant to Sub-section (4).
(6) In cases where the person withholding tax withholds tax and
pays it to the Department pursuant to Sections 87, 8 or 89 and the
person subject to tax withholding makes any claim as to that payment
subject to tax withholding, that amount shall be tra ed as if it were
paid to the person subject to tax withholding.
(7) In cases where the person withholding tax pays to the
Department the amount of tax not withheld pursuant to Sections 87, 88
or 89, he may recover the amount equal to the amount f tax so paid
from the person subject to tax withholding.
91. Tax withholding certificate: (1) The person withholding tax shall
provide the tax withholding certificate, as follows, to the person
subject to tax withholding at the time as specified in Sub-section (2):
(a) Having been certified in accordance with the
manner, if any, as prescribed by the Department,
(b) Setting out the amount of tax withheld pursuant to
Sections 87, 88 or 89 and the paid amounts.


129
(2) The tax withholding certificate setting out the period of tax
withholding has to be provided within Fifteen days from the date of
expiration of the month in which tax is withheld.
(3) Notwithstanding anything contained in Sub-section (1), in
cases where tax is withheld pursuant to Section 87, the tax withholding
certificate has to be provided as follows:-
(a) The certificate shall be valid only for the period
when the employee continues to serve in that
income year.
(b) The certificate has to be provided within Thirty
days from the expiration of that year or in cases
where the employee leaves employment in the
person withholding the tax in that year, it has to be
provided within thirty days from the date of his
leaving employment.
92. Payment from which tax is withheld finally: (1) The following
payments shall be treated as payments from which tax is withheld
finally:-
(a) Dividend paid by a resident company,
(b) Rent paid for the land or building and fixtures and
equipment appurtenant thereto having source in
Nepal to other natural person except one who is
carrying on business,
(c) Profit paid by a resident person for investment
insurance,


130
(d) Profit paid by a resident person for the interest of
an unapproved retirement fund,
(e) Interest paid by a bank or financial institution as
mentioned in Sub-section (3) of Section 88, and
(f) Payment subject to tax withholding made to a non-
resident person pursuant to Sections 87, 88 or 89.
(2) In cases where the person withholding tax or the person
subject to tax withholding pays to the Department the amount of tax
withheld from the payment from which tax is withheld finally pursuant
to Sections 87, 88 or 89 or the amount of tax deemed to have been
withheld pursuant to Sub-section (3) of Section 90, the person referred
to in clause (c) of Section 3 shall be deemed to have fulfilled the tax
liability.
93. Adjustment facility and inclusion of tax not to be withheld finally : (1)
In cases where any tax is withheld from any payment for purposes of
computing the amount of such payment, such tax-withheld amount
shall be treated as a portion of that payment.
(2) In cases where any tax is withheld from any pa ment except
the payment from which tax is withheld finally, the p rson subject to
tax withholding shall be deemed to have paid the amount of tax as
follows:-
(a) The amount of tax withheld from payment
pursuant to Sections 87, 88 or 89,
(b) In cases where the person withholding tax or the
person subject to tax withholding pays to the
Department the amount of tax referred to in Sub-


131
section (3) of Section 90 or the amount of tax
deemed to have been withheld from payment, such
amount.
(3) The person subject to tax withholding may make claim for
adjustment of the amount referred to in Sub-section (2) only to the
amount of tax payable in the income year in which that payment is
made.
Chapter-18
Installment
94. Payment of tax in installment: (1) A person who has or will have
assessable income in any income year from any busines or investment
has to pay tax in three installments as follows:
Explanation: For purposes of this Sub-section,-
(a) "Estimated tax" means the estimated tax in installment
computed by any person liable to pay tax in installment
Date on which payment has to
be made
Amount to be paid
By the end of Poush (mid
January)
40% of the estimated tax which exceeds
the already paid tax
By the end of Chaitra (mid
April)
70% of the estimated tax which exceeds
the already paid tax
By the end of Ashad (mid
July)
100% of the estimated tax which
exceeds the already paid tax


132
pursuant to Section 95 at the time when the installment
tax is to be paid in any year.
(b) "Already paid tax" means the following total sum:-
(1) The amount of tax paid in that income year by a
prior installment before the date on which the
installment in question is to be paid,
(2) The amount of tax deducted from the payments to
be included in computing the income of any
person in any income year pursuant to Chapter-17
before the date on which the installment in
question is to be paid in that year,
(3) In cases where the agent withholding tax or the
person subject to tax withholding pays to the
Department the amount of tax deemed to be
withheld from the payment referred to in clause (2)
pursuant to Sub-section (3) of Section 90 in that
year before the date on which the installment is to
be paid, such amount of tax, and
(4) The amount of tax adjustment for medical
treatment expenses which that person may claim
pursuant to Section 51 in respect of the accepted
medical treatment expenses incurred by that
person before the date on which the installment is
to be paid.
(2) Notwithstanding anything contained in Sub-section (1), in
cases where the amount of installment to be paid pursuant to that Sub-


133
section is less than Two Thousand Rupees, amount of such
installment need not to be paid.
(3) The person paying installment shall be allowed to deduct the
amount of tax paid by way of installment in any year pursuant to this
Section for the tax chargeable in that year.
95. Return of estimated tax to be paid: (1) Every person who has to pay
installment in any income year has to submit to theDepartment a
return, in such format and manner as may be prescribed, setting out the
estimates of the following amounts of that person fr that year within
the date on which the first installment of tax is to be paid in that year
pursuant to Section 94:-
(a) Assessable income that could be earned by that
person from each source of employment, business
and investment in that year and source of such
income,
(b) Taxable income of that person that could be
earned in that year and the amount of tax to be
paid by the person referred to in clause (a) of
Section 3, which is computed pursuant to Section
4 without subtracting the amount of tax adjustment
for medical treatment expenses,
(c) In respect of a non-resident person's foreign
permanent establishment situated in Nepal, the
amount of income sent abroad by such foreign
establishment in that year and the amount of tax to
be paid by the person referred to in clause (b) of
Section 3, which has been computed in that


134
income pursuant to Sub-section (5) of Section 4,
and
(d) Any other details specified by the Department.
(2) The sum total of the amount of tax mentioned in clauses (b)
and (c) shall be the estimated tax payable by the person referred to in
Sub-section (1) in that income year.
(3) In computing the foreign tax adjustment amount to be
claimed pursuant to Section 71 in order to make an stimation of the tax
to be paid in any income year pursuant to clause (b) of Sub-section (1),
only the foreign tax paid by any person in that year or the foreign
income tax estimated by him as payable in that year has to be
computed.
(4) Unless and until any person paying installment of tax
submits to the department the amended estimate setting out the
necessary information and the reasons for amendment in the format
referred to in Sub-section (1), the estimate made by him pursuant to
that subsection shall remain valid throughout the income year.
(5) Notwithstanding anything contained in subsection (2), the
amended estimate submitted by any person pursuant to Sub-section
(4) shall be applicable only in computing the installment of tax to be
paid pursuant to Section 94 in that income year after the date of its
submission to the Department.
(6) Notwithstanding anything contained in Sub-sections (1) and
(5), the Department may so specify that any person or class who has to
pay installment of tax is not required to submit an estimate pursuant to
Sub-section (1).


135
(7) Notwithstanding anything contained in Sub-section (2), in
cases where any person who has to pay installment of tax does not
submit an estimate in any income year pursuant to Sub-section (1) or
where the Department is not satisfied with the submitted estimate or
amended estimate or where it is so specified pursuant to Sub-section
(6) that any person is not required to submit an estimate to pay
installment of tax, the Department may do as follows:-
(a) The person referred to in clause (a) or (b) of
Section 3 may make an estimate of the estimated
tax to be paid by him/her in that year on the basis
of the tax required to be paid by him/her in the last
income year, and
(b) In cases where the Department is not satisfied w th
the estimate prepared pursuant to clause (a), the
method used to prepare the estimate and the
estimate submitted by the person, the Department
shall give a notice in writing setting out the
reasons therefor to the person who has to pay
installment.
(8) In cases where the Department gives a notice to the person
who has to pay installment pursuant to Sub-section (7), the amount of
estimated tax to be paid by that person in that year sh ll be the amount
estimated by the Department.
Chapter-19
Income Return and Assessment of Tax


136
96. Income return: (1) Each person shall, within three months of expiration
of an income year, and subject to Sections 97, 98 and 100, submit an
income return of that year in the place as specified by the Department.
(2) The income return referred to in Sub-section (1) shall be as
follows:
(a) It has to be prepared in the manner and format as
specified by the Department, setting out the
following matters:
(1) Assessable income earned by that person
from each employment, business or
investment in that year and source of such
income,
(2) Taxable income of that person in that year
and the tax to be imposed on the person
referred to in clause (a) of Section 3 in
respect of that income,
(3) The income sent abroad in that income year
by a non-resident person's foreign
permanent establishment situated in Nepal,
and the tax imposable in that income,
(4) Tax deduction, installment or amount of any
assessed tax paid in that year by any
person in a manner to have tax adjustment
pursuant to Sections 93, 94 or 100,
(5) Amount of tax due and payable to be set by
subtracting the tax paid by that person in


137
that year pursuant to sub-clause (4) from
the amount of tax mentioned in sub-clauses
(2) and (3), and
(6) Any other information and details as
specified by the Department.
(b) The income return has to be signed by that person
or manager, covenanting that it is true and
complete, and
(c) The income return has to be accompanied by the
followings:
(1) The certificate of withholding of tax
pursuant to Section 91 for the payment
received by any person in the year of
submission of the income return,
(2) Any details made available to that person
pursuant to Sub-section (4),
(3) Evidence of choice, if any, made pursuant
to Sub-section (4) of Section 4, and
(4) Any other information and details as
specified by the Department.
(3) In cases where any person, except in capacity of an
employee, prepares or assists in preparing the income return of any
other person or the documents or details to be accompanied with the
income return in lieu of any payment, such a person has to certify the
following matters:-


138
(a) Having examined the documents maintained by
other person pursuant to Section 81, and
(b) Having the circumstances in question been
actually reflected from the details or information.
(4) If the person required to certify the return pursuant to Sub-
section (3) refuses to certify, information, setting out the reasons for
such refusal, has to be given to the person whose income return is to
be certified.
(5) The Department may, in the following circumstances, require
any person to submit the income return of an income year or any part
of the income year within the time-limit mentioned in the written notice
given by it to such person subject to Section 100 prior to the due time-
limit for submission of the income return of the income year pursuant
to Sub-section (1):-
(a) In cases where that person becomes bankrupt,
insolvent or is dissolved,
(b) In cases where that person is to leave Nepal for n
uncertain period of time,
(c) In cases where that person is leaving the act being
carried out by him/her in Nepal, or
(d) In cases where the Department otherwise thinks it
proper.
97. Submission of income return not required: Except where the
Department issues a written order, the following person shall not be
required to submit the income return for any income year pursuant to
Section 96:


139
(a) Out of the persons mentioned in clause (a) of Section 3, any
person who is not required to pay tax in that income year,
(b) The person mentioned in clause (c) of Section 3 in that income
year, or
(c) Any resident natural person in whose respect Sub-section (3) of
Section 4 applies in that income year.
98. Extension of time-limit for submission of income return : (1) In cases
where any person who has to submit an income return p suant to
Section 96 makes an application in writing, within the time limit for
submission of such return, to the Department for the extension of time
limit, the Department may extend the time-limit for submission of the
income return if the reasons are reasonable. Information of the decision
made by the Department on the application so made for the extension
of time limit has to be given in writing to the applicant.
(2) The department may extend, at one time or several times, the
time limit for a period not exceeding three months o submit the income
return pursuant to Sub-section (1).
99. Assessment of tax: (1) In cases where any person has submitted the
income return of any income year, setting out the following amounts,
on the date of submission of the return, the tax of the income return
shall be deemed as if it were assessed:-
(a) The amount of tax mentioned in the income return
and payable by the person mentioned in Clauses
(a) and (b) of Section 3 in that income year, and
(b) The amount of tax mentioned in the income rerun
and due and payable in that year.


140
(2) In cases where any person does not submit the income
return of any income year, tax shall be deemed to have been assessed
as follows on the due date for submission of the tax return until the tax
return is submitted:-
(a) The amount of tax payable by that person in that
year shall be equal to the sum of the amount of tax
deducted from the amount received pursuant to
Chapter-17 and the amount paid in installment for
that year pursuant to Chapter-18, and
(b) Tax shall not be deemed due and payable as per
tax assessment.
100. Self-assessment of tax: (1) Section 99 shall be applicable in cases
where the income return of any income year or any part of any income
year has to be submitted pursuant to Sub-section (5) of Section 96.
(2) Notwithstanding anything contained in Sub-section (1), in
the circumstances mentioned in Sub-section (5) of Section 96, the
Department may, based on the following amounts, asses the tax of
that person in a justifiable manner:-
(a) The amounts mentioned in sub-clauses (1), (2), (3)
and (4) of clause (a) of Sub-section (2) of Section
96, for any income year or any part of that year,
(b) The amounts due and payable under sub-clause
(5) of clause (a) of Sub-section (2) of Section 96,
for any income year or any part of that year.
(3) The following provision shall be applicable in cases where
tax is assessed pursuant to Sub-section (1) or (2):-


141
(a) A person whose tax is assessed for the whole
income year is not required to submit the income
return referred to in Sub-section (1) of Section 96
for that income year, or
(b) A person whose tax is assessed for a portion of
any income year is required to submit the income
return referred to in Sub-section (1) of Section 96
for that income year.
(4) The amount of tax paid as per the assessment of tax for a
portion of any income year may be adjusted to the tax chargeable as
per the assessment of tax for the whole year.
(5) In assessing the tax pursuant to this Section, the Department
has to give a time limit of Seven days for the submission of proof and
evidence for defense.
101. Amended tax assessment: (1) The Department may have amended tax
assessment in order to adjust the tax liability of a person whose tax has
been assessed pursuant to Section 99 or 100 on reasonable grounds.
(2) In cases where the Department thinks it prope to re-amend
the amended tax assessment made pursuant to Sub-section (1), it may
amend it, for as many times as it deems appropriate on reasonable
grounds.
(3) The Department shall, in assessing the tax pursuant to Sub-
section (1) or (2), complete assessment within Four months from the
following date:-


142
(a) In cases where tax is assessed pursuant to Secti n
99, the due date for the submission of income
returns,
(b) In cases where tax is assessed pursuant to Sub-
section (2) of Section 100, the date on which the
tax assessment notice is given to the person
whose tax is assessed,
(c) In cases where tax is assessed pursuant to Sub-
section (1) or (2), the date mentioned in clause (a)
or (b) related with the previous tax assessment that
has been amended pursuant to Sub-section (1).
(4) Notwithstanding anything contained in Sub-section (3), in
cases where the tax of any person has been assessed in a wrong
manner due to fraud, the Department may amend such tax assessment
at any time. Such amendment has to be made no later than one year of
receipt of information that details have been given or tax assessed
fraudulently.
(5) Notwithstanding anything contained in Sub-section (3), in
cases where the tax assessment is amended or the assessed tax is
lessened by the Revenue Tribunal or other competent courts, the
Department shall not be able to amend such tax assessment to that
extent.
Provided that, in cases where an order has been issued to
reexamine it, it shall not be deemed to bar the making of amendment.
(6) In making amendment to tax assessment pursuant to this
Section, the Department has to give that person a notice in writing
clearly setting out the grounds for such amendment and a time limit of


143
Seven days for the submission of proof and evidence for defense on
such assessment of tax.
102. Tax assessment notice: The Department has to give the person, whose
tax is assessed, a written notice of tax assessment ade pursuant to
Sub-section (2) of Section 100 or Section 101 setting out the following
matters:-
(a) The assessed tax to be paid and due and payable by th person
mentioned in clauses (a) and (b) of Section 3 for the income year
or period related with assessment of tax,
(b) The method of computation of tax in the tax assessment as
mentioned in clause (a),
(c) The reasons why the Department has to assess th tax,
(d) The time for payment of the assessed tax due and p yable, and
(e) The time, place and mode for making a petition in cases where
one is not satisfied with the assessment of tax.
Chapter-20
Collection, Remission and Refund of Tax
103. Security for tax payable by withholding: (1) The tax required to be
withheld by a person who has to withhold tax pursuant to Chapter-17
has to be given preference to any payment to be mad by the order of a
court or as per any other law or in any other manner.
(2) The following provisions shall apply in respect of the tax
withheld by a person who has to withhold tax pursuant to Chapter-17:-


144
(a) The tax withheld by such a person as well as the
property, if any, received for such tax shall be
deemed to have been withheld for Government of
Nepal,
(b) The amount of tax so withheld cannot be attached
to the loan or liability of such a person, and
(c) In cases where the person withholding such tax
becomes bankrupt or is dissolved, the amount of
tax so withheld shall not be treated as a part of the
assets so become bankrupt or dissolved; and in
making division upon such dissolution or
bankruptcy, the Department shall have the first
lien over the tax withheld or over the property.
104. Lien over property: (1) Notwithstanding anything contained in the
laws in force, in cases where any person does pay tax on the due date
for payment of tax, the lien of Government of Nepal shall be deemed to
have been created over the property of the person who is in arrear of
tax.
(2) In claiming the property over which the lien is created
pursuant to Sub-section (1), the Department has to give that person a
written notice setting out the following matters:-
(a) Description of the property claimed,
(b) Limit of the claim referred to in Sub-section (3),
(c) Tax related to the claim, and
(d) Other matters, if any.


145
(3) In making claim over the property pursuant to Sub-section
(2), the claim shall be created only to the extent of he tax due and
payable by such a person, interest and claim to be paid in respect of
such tax pursuant to Section 119 and the expenses icurred in auction
sale.
(4) The claim made pursuant to Sub-section (2) shall not lie
unless and until the following matter takes place:-
(a) Until the Department gives information to have th
claim registered pursuant to Sub-section (6) in
respect of the building and land,
(b) Until the Department possesses such property
pursuant to Sub-section (3) of Section 105 in
respect of other direct/tangible property, and
(c) Until the notice referred to in Sub-section (2)is
given to the person who is in arrear of tax, in any
other circumstances whatsoever.
(5) In cases where the person who is in arrear of tax pays to the
Department all the amounts referred to in Sub-section (3) and covered
by the claim made pursuant to Sub-section (2), which are due and
payable by such a person.
(6) In cases where the Department makes a claim over any land
or building pursuant to Sub-section (2), information has to be given to
the concerned Land Revenue Office; and that Office has to so withhold
such land or property that it cannot be sold and disposed of to or
ownership to it cannot be transferred to any person.


146
(7) In cases where the claim over the land and buil ing has to be
released pursuant to Sub-section (5), the Department has to give
information thereof to the Land Revenue Office. Upon receipt of such
information, the Land Revenue Office has to release the land and
building so withheld.
(8) The Department has to promptly give the person in arrear of
tax a notice setting out the following matters, in respect of the
expenses to be incurred pursuant to Sub-section (3):
(a) The expenses incurred by the Department for the
claim on the property of the person in arrear of tax
and for the auction sale thereof, prior to giving
such a notice, and
(b) The date on which the person in arrear of tax has to
pay such expenses to the Department.
Explanation: For purposes of this Section,
"expenses incurred for claim and auction sale"
means the following expenses incurred or to be
incurred by the Department:
(a) The expenses incurred or to be incurred by
the Department in creating or releasing the
claim over the property, or
(b) The expenses incurred or to be incurred by
the Department pursuant to Section 105 in
possessing, holding and auctioning the
claimed property.


147
105. Auction sale of the claimed property: (1) The department has to give
the person in arrear of tax a notice on auctioning the claimed property
held by the person in arrear of tax.
(2) The notice given pursuant to Sub-section (1) may be
included in the notice given pursuant to Sub-section (2) of Section 104
or attached with such a notice. Such a notice has to clearly set out the
following matters and be given to the person in arre r of tax:-
(a) The property claimed and the mode and time of
auction or sale of the property, and
(b) In respect of a tangible property, mode and place
of possessing the property by the Department.
(3) After the Department has given the notice refr d to in Sub-
section (1) or (2) to the person in arrear of tax, i may do as follows:-
(a) To have possession of the tangible property
mentioned in the notice at any time,
(b) To enter into any premises mentioned in the notice
referred to in Sub-section (1) for the purpose of
having possession of the tangible property at any
time,
(c) In respect of the tangible property except the land
or building, to keep such properties in such place
as thought proper by the Department at the
expense of the person in arrear of tax.
(4) In cases where the Department has given the notice referred
to in Sub-section (1) to the person in arrear of tax, it may, in the


148
following time, publicly auction such claimed property or sell and
dispose of or use such property in such manner as thought proper:
(a) If the claimed property is the land or building, after
thirty days of the date of possession of such
property pursuant to Sub-section (3),
(b) If the claimed property is a perishable tangible
property, after one day of the date of possession
pursuant to Sub-section (3),
(c) If the claimed property is a tangible property
except those properties mentioned in clause (a) or
(b), after ten days of possession pursuant to Sub-
section (3), and
(d) If the claimed property is any other kind of
property, after ten days of possession of such
property pursuant to Sub-section (3).
(5) The expenses incurred in having claim and auctioning the
property auctioned shall first be deducted from the proceeds derived
from the auction sale pursuant to Sub-section (4). After the expenses
are so deducted, the payable tax and the interest payable on the tax
pursuant to Section 119 shall be deducted; and then, if a y amount
remains balance, such amount shall be refunded to the person in arrear
of tax.
(6) After the proceeds derived from the auction sale have been
adjusted pursuant to Sub-section (5), the Department has to give a
written notice setting out the process of the adjustment to the person
in arrear of tax.


149
(7) In cases where, in adjusting the proceeds derived from the
auction sale by following the process referred to in Sub-section (5), the
proceeds are not sufficient to fully pay the amounts for the expenses
mentioned in that Sub-section, tax and interest, the Department has to
re-institute the action to recover the shortfall amount pursuant to
Section 104, 111 or this Section.
Explanation: For purposes of this Section,
(a) "Claimed property" means the property of the
person withholding tax, who is in arrears of tax,
mentioned in Sub-section (2) of Section 103 or
Sub-section (2) of Section 104.
(b) "Expenses incurred in making claim and auction
sale" means the expenses incurred in making claim
and auction sale pursuant to Section 104.
(c) "Person in arrear of tax" includes the person
withholding tax mentioned in Sections 103 and 104.
106. To prevent departing from the Nepal: (1) In cases where any person
does not pay the tax within the time limit due for the payment of tax, the
Tax Department may, by giving a written notice to the concerned office
of Government of Nepal, issue an order to prevent such person from
leaving the country for a period not exceeding 72 hours from the date
of expiration of the time of issue of the notice to such person to pay
tax.
(2) In cases where any additional act has to be done during the
period of time mentioned in Sub-section (1), the Department has to
obtain prior leave of the Court of Appeal.


150
(3) In cases where the person referred to in Sub-section (1) pays
tax or the department thinks that such person has mde satisfactory
arrangement on payment of tax, it may withdraw such order by giving a
notice to the concerned office pursuant to Sub-section (1).
107. Officer employee of entity to be made responsible: (1) In cases where
any entity does not observe anything required to be o served under
this Act, each person who acts as the officer of that entity at that time
shall be responsible for that.
(2) In cases where any entity does not pay tax on the date due
for payment of tax, all officers who are incumbent in hat entity for the
time being or incumbent until before six months shall be jointly and
severally liable to pay that tax.
(3) Notwithstanding anything contained in Sub-sections (1) and
(2), these Sub-sections shall not be applicable in the following
circumstances:-
(a) Where the entity has committed such offense
without knowledge and consent of such person,
and
(b) Where that person has, in order to avoid such
offense, observed or exercised care, effort and skill
which a reasonable man would observe or exercise
in similar circumstances.
(4) In cases where any person pays the tax required to be paid
pursuant to Sub-section (2), that person may do as f llows:-
(a) To recover the amount which he has so paid from
that entity,


151
(b) For purposes of clause (a), to so hold under own
control the property including the moneys of that
entity which is under his possession or which may
come under his possession that it is not in excess
of the amount so paid.
(5) In cases where any person holds any property under his
control pursuant to clause (b) of Sub-section (4), the entity or any
other person shall not be entitled to make any claim gainst such
person.
Explanation: For purposes of this Section, "officer of any entity"
means the manager of that entity or any person who acts in that
capacity.
108. Recovery of tax from recipient: (1) Each recipient has to give a notice
of the matter to the Department no later than Fifteen days of the date of
appointment to the post of recipient or the date of having possession
of the property situated in Nepal, whichever is earli r.
(2) The Department has to give a written notice to the person in
arrear of tax on the amount to be paid.
(3) On receipt of the notice referred to in Sub-section (1), the
recipient has to do as follows:-
(a) To set aside the amount notified by the
Department under Sub-section (2) after making
payment of the loan, if any, which is preferential to
the tax payable pursuant to Sub-section (2),
subject to clause (c) of Sub-section (2) of Section
103, from the proceeds of the sale of the required


152
portion of the property which have come under
possession of the recipient, and
(b) To pay to the Department the amount so set aside
for his tax liability on behalf of the person in arrear
of tax.
(4) It shall be the personal liability of the recipient to pay to the
Department the amount equal to the tax liability payable by such
person in arrear of tax to the extent that no amount has been set aside
by the recipient pursuant to Sub-section (3).
(5) Provided that, the recipient may recover from the person in
arrear of tax the amount of tax paid.
Explanation: For purposes of this Section,-
(a) "Recipient" means any of the following persons:
(1) A liquidator,
(2) A person appointed from outside or by a
court as a recipient in respect of any
property or entity,
(3) A person possessing a property by
mortgage,
(4) Heir apparent, administrator or manager of
the property belonging to a deceased
natural person, or
(5) A person looking after the affairs of an
incapacitated natural person.


153
(b) "Person in arrear of tax" means the person whose
property has come under possession of the
recipient.
109. Recovery of tax from the person liable to pay tax: (1) In cases where the
person in arrear of tax does not pay tax within the du date for payment
of tax, the Department may, by giving a notice in writing, order any of
the following payers to pay to it the amount to theextent of the amount
of tax payable on behalf of the person in arrear of tax, within the date
mentioned in that notice:-
(a) The person who has to pay amount to the person
in arrear of tax,
(b) The person who holds money for or on behalf of
the person in arrear of tax,
(c) The person who holds money on behalf of any
third person in a manner to pay it to the person in
arrear of tax, or
(d) The person who has got authority from the third
party to pay the amount to the person in arrear of
tax.
(2) The Department has to give a copy of the notice given to the
payer pursuant to Sub-section (1) to the person in arrear of tax.
(3) Notwithstanding anything contained in Sub-section (1), the
date mentioned in the notice referred to in that Sub-section shall not be
earlier than the date mentioned in clauses (a) and (b):-


154
(a) The date on which the amount has to be paid to
the person in arrear of tax or the date on which
such amount has been held on his behalf, and
(b) The date on which the notice has been given
pursuant to Sub-section (2).
(4) The amount paid by the payer pursuant to Sub-section (1)
shall be deemed as paid to the person in arrear of tax. The person in
arrear of tax or any other person shall not be allowed to claim such
amount against the payer.
110. Recovery of tax from the agent of a non-resident person: (1) In cases
where a non-resident person in arrear of tax does nt pay tax within the
due date for payment of tax, the Department may, by giving a notice in
writing, order any person who is in possession of any property owned
by the person who is in arrear of tax to pay tax from the amount
equivalent to the market value of that property, on behalf of the person
in arrear of tax, in respect of the tax liability of the third person, in the
sum not exceeding the amount of tax payable by such person in arrear
of tax, within the date mentioned in the notice.
(2) In cases where any person pays the amount of tax as per the
order referred to in Sub-section (1), he may do as follows:-
(a) To recover the amount of such payment from the
person in arrear of tax,
(b) For purposes of clause (a), to take under his
control any property whatsoever, including the
money belonging to the person in arrear of tax,
which is or would come in his possession, in such


155
a manner that it is not in excess of the amount so
paid.
(3) In cases where any person takes possession of any property
pursuant to clause (b) of Sub-section (2), the person in arrear of tax or
any other person shall not be allowed to make any claim against such a
person.
111. Institution of case on failure to pay tax: The Department may file a case
in the concerned District Court for the recovery of tax from the person
who does not pay tax on the due time-limit for payment of tax.
112. Remission: (1) In cases where the tax payable by any person can ot be
recovered, Government of Nepal may remit such tax in full or in part.
(2) Notwithstanding anything contained in Sub-section (1),
Government of Nepal may remit, in full or in part, the fee or interest
imposed pursuant to Chapter-22.
113. Tax refund and adjustment of amount: (1) In cases where any person
has paid tax exceeding the tax liability payable by him/her, the
Department may give direction to subtract the excess amount of tax
paid by him/her from the amount of tax payable by him pursuant to this
Act. The Department has to refund the excess amount to be set by
such subtraction to the concerned person.
(2) In cases where the tax in question is not to be paid along
with the interest paid by any person pursuant to Section 119, the
Department has to refund such interest to that person.
(3) Any person has to make an application to the Department, as
prescribed, for the refund of the amount pursuant to Sub-section (1).


156
(4) The person who makes an application pursuant to Sub-
section (3) has to make such application within two years from the
latest date out of the following dates. In cases where an application is
not made within that time-limit, the amount referred to in Sub-section
(1) shall not be refunded:-
(a) The date of expiration of the income year existd
by virtue of payment of the excess amount,
(b) The date on which the excess amount is paid, or
(c) The date on which is the case is decided.
(5) The Department has to give a notice in writing of the
decision made by it on the application made pursuant to Sub-section
(3).
(6) In refunding any amount of tax by the Department to any
person by virtue of the order of a court or any other reason, the
Department has to pay to such a person the interest as per the normal
rate for the following period:-
(a) In cases where such tax refund is related to the
excess tax adjustment available to any person in
any income year pursuant to Sections 93, 94 or
100, the period between the due date for
submission of the tax return pursuant to Section 96
and the date of tax refund, and
(b) In any other cases, the period between the date of
payment by such person of the refundable tax and
the date of tax refund.


157
(7) Tax deduction that can be claimed pursuant to Section 51 or
71 shall not be adjusted in any year, and such tax deduction shall not
be adjusted in amounts or refunded pursuant to this Sub-section.
Provided that, in that year the tax deduction adjustment may be
made in accordance with the provisions contained in Sub-section (2) of
Section 4, Sub-section (4) of Section 51 and Sub-section (3) of Section
71.


158
Chapter-21
Review and Appeal
114. Decisions subject to administrative review, and procedures: (1) For
purposes of this Act, the following decisions may be subject to
administrative review:-
(a) Advance ruling issued by the Department
pursuant to Section 76,
(b) Estimate made by the Department on, or decision
made by it to estimate, the estimated tax payable
by any person, pursuant to Sub-section (7) of
Section 95,
(c) Decision made by the Department to order any
person to submit the income return pursuant to
Sub-section (5) of Section 96 or Section 97,
(d) Decision made by the Department on any
application made by any person for the extension
of the time-limit for submission of the income
return pursuant to Section 98,
(e) Assessment of tax payable by any person for any
income year pursuant to Section 100 or 101 or
assessment of the fees and interest payable by
any person pursuant to Section 122,
(f) Notice given by the Department requiring to set
aside the amounts as receivable by any person as


159
a recipient, pursuant to Sub-section (2) of Section
108,
(g) Decision made by the Department to order any
person who holds moneys payable to the person
in arrear of tax to pay the same to the Department
pursuant to Sub-section (1) of Section 109,
(h) Decision made by the Department to order any
person to pay tax of any person due and payable
on behalf of a non-resident person pursuant to
Sub-section (1) of Section 110,
(i) Decision made by the Department on any
application made by any person for the refund of
tax pursuant to Sub-section (5) of Section 113, and
(j) Decision made by the Department on any
application made by any person for the extension
of the time-limit for filing a complaint pursuant to
Sub-section (3) of Section 115.
(2) Notwithstanding that the Department makes any decision on
the matters mentioned in clauses (d), (i) and (j) of Sub-section (1), in
cases where the Department does not give a notice of the decision to
the applicant within thirty days after the making of the application
pursuant to Section 98, Sub-section (3) of Section 113 or Sub-section
(3) of Section 115, the decision may be subject to administrative review
as if it were a decision to reject the application.
(3) In cases where the applicant does receive a notice of
decision within the time-limit referred to in Sub-section (2) and registers
information thereof with the Department, the decision made by the


160
Department to reject the application mentioned in that Sub-section and
notice thereof shall be deemed to have been served on that person on
that date.
115. Application for administrative review: (1) A person who is not
satisfied with any decision subject to administrative review as referred
to in Section 114 may make an application to the Department against
the decision within Thirty days of the date of receipt of a notice of that
decision.
(2) The application as referred to in Sub-section (1) has to
clearly set out the reasons and grounds for such review.
(3) In cases where the time limit for making application pursuant
to Sub-section (1) expires and any person makes an application for the
extension of time limit within Seven days from the date of expiration of
the time limit, the Department may do as follows:-
(a) To extend the time limit for a period not exceeding
Thirty days from the date of expiration of the time
limit for making application pursuant to Sub-
section (1), where there are reasonable reasons,
and
(b) To give the applicant a written notice of the
decision made by the Department on the
application.
(4) The implementation of the decision mentioned in Sub-section
(1) of Section 114 shall not be deemed to be affected from the making of
application pursuant to Sub-section (1).


161
(5) Notwithstanding anything contained in Sub-section (4), the
Department may hold in pending or otherwise affect the decision made
pursuant to Sub-section (1) of Section 114 pending the settlement of
the application made by any person pursuant to Sub-section (1).
(6) Notwithstanding anything contained in Sub-section (5), the
provision contained in that Sub-section shall not apply until Fifty
percent of the amount of tax payable is paid.
(7) The Department may do as follows on the application made
by any person pursuant to Sub-section (1):-
(a) To accept or reject, fully or partly, the matters
mentioned in the application, and
(b) To give a written notice of the decision on the
application.
(8) In cases where the Department does not give the applicant a
notice of the application within Ninety days from the date on which the
application was made pursuant to Sub-section (1), the applicant may
register information thereof with the Department and consider the
application rejected by the Department.
(9) The concerned applicant has to give written information to
the Department that he has considered the application as rejected
pursuant to Sub-section (8). The decision made by the Department to
reject such application and notice thereof shall be de med to have
been served on that person on the date on which suc information was
registered.
116. Appeal in the Revenue Tribunal: (1) A person who is not satisfied with
any decision made to the Department pursuant to Section 115 may file


162
an appeal to the Revenue Tribunal under the Revenue Tribunal Act,
2031(1974).
(2) The person who files an appeal pursuant to Sub-section (1)
has to register a copy of the appeal with the Department within Fifteen
days of the date of filing appeal.
(3) The implementation of the decision mentioned in Sub-section
(1) of Section 114 shall not be deemed to be affected from the filing of
an appeal pursuant to Sub-section (1).
(4) Notwithstanding anything contained in Sub-section (1) of
Section 114, in cases where the Director General has made a decision
subject to administrative review as mentioned in that Sub-section, an
appeal may be filed to the Revenue Tribunal.
Chapter-22
Fees and Interest
117. Fees to be charged in cases where documents are notmaintained or
return or income return is not submitted: (1) If any person does not
do the followings, a fee in a sum to be set by One a d a half percent
per year of the assessable income drawn out without deducting any
amount, if any, that can be deducted and by including any amount, if
any, that has to be included in computing the income f any income
year for each month and portion of the month or a sum set by One
Thousand Rupees per month, whichever is higher, shall be imposed on
such a person:-
(a) In cases where the income return of any income
year has not been submitted pursuant to Sub-
section (1) of Section 95, or


163
(b) In cases where the income return of any income
year is not submitted pursuant to Sub-section (1)
of Section 96.
(2) If any person does not maintain the documents required to
be maintained in any income year pursuant to Section 81, a fee in a sum
to be set by one and a half percent per year of the assessable income
drawn out without deducting any amount, if any, that can be deducted
and by including any amount, if any, that has to be included in
computing the income of any income year for each month and portion
of the month or a sum set by one Thousand Rupees per month,
whichever is higher, shall be imposed on such a person.
(3) If any person withholding tax does not submit the return
referred to in Sub-section (1) of Section 90, a fee in a sum to be set by
one and a half percent per year of the amount of tax to be withheld for
each month and portion of the month from the due dat for submission
of the return until the date on which such return is submitted shall be
imposed on such a person.
118. Fees to be charged in cases where the person making payment in
installments makes lesser payment of estimated tax: (1) In cases
where the amount of installment tax paid by any person pursuant to
clause (a) of this Sub-section is less than the amount f tax to be paid
in installment pursuant to clause (b), interest shall be charged on such
less amount pursuant to Sub-section (2):-
(a) The estimated or amended amount of tax computed
by the person required to pay tax in installment
pursuant to Section 95 in respect of the installment
tax to be paid in any year pursuant to section 94,


164
(b) The amount of tax to be set by ninety percent of
the amount of tax to be paid by the person referred
to in clauses (a) and (b) of Section 3 in that year.
(2) A fee in a sum to be set by the normal rate of interest, for
each month and portion of the month, from the due dat for payment of
the first installment in that year until the date on which the tax is
assessed and becomes due and payable pursuant to Section 99 shall
be imposed on the person referred to in Sub-section (1).
(3) In cases where the amount referred to in clause (a) is higher
than the amount referred to in clause (b), interest shall be charged,
pursuant to Sub-section (2), on such higher amount by the normal rate
on the amount of each period.
(a) In cases where the estimate or revised estimate of
the total amount to be paid by any person in
installment for each installment period in any
income year is accurate, Ninety percent of the
amount,
(b) The amount of installments paid in that income
year.
119. Interest to be charged in cases where tax is not paid: (1) In cases
where any person does not pay tax on the prescribed du date for
payment of tax, an interest by the normal rate of interest, for each
month and portion of the month, in the amount due and payable shall
be imposed on the person for the period during which tax is so due and
payable.


165
(2) For purposes of computing the interest to be paid pursuant
to Sub-section (1), interest shall not be exempted in the extended time-
limit given pursuant to Section 98.
(3) The person withholding tax shall not be allowed to recover
the interest payable by him because of his failure to observe Sub-
section (4) of Section 90 from the person subject to tax withholding.
120. Fee to be charged on the person who submits false or misleading
statement: In cases where any person submits to the Department a
false or misleading statement on any matter or the information
mentioned in the statement becomes misleading as result of concealing
information of any matter or thing required to be submitted or removing
such information from the statement, the following fee shall be imposed
on such a person:-
(a) In cases where it has become false or misleading
not by knowingly or recklessly but by mistake,
Fifty percent of the less amount resulted
therefrom.
(b) In cases where it has become false or misleading
knowingly or recklessly, One Hundred percent of
the less amount resulted therefrom.
Explanation: For purposes of this Section, "statement submitted o
the Department" means any statement submitted in writing to the
Department or to the officer authorized by the Department in the
course of performing the duty pursuant to this Act and includes the
statement submitted as follows:-


166
(a) Application, notice, description, complaint,
deposition, or other document submitted,
prepared, given or furnished pursuant to this Act,
(b) Document submitted to the Department or any
officer of the department except under this Act,
(c) Reply to any question asked by the Department or
any officer to any person, or
(d) Information given by any person who has
reasonable knowledge of the matter to be informed
to the Department or any officer through any other
person.
121. Fee to be imposed on accomplice: A fee of cent percent amount of the
tax less paid by an accomplice who knowingly or recklessly aids or
abets or advises any offender referred to in Chapter-23 shall be
charged on such accomplice.
122. Assessment of fee and interest: (1) The Department shall assess the
fee and interest required to be paid by any person pursuant to this
Chapter.
(2) In computing the liability for the fee and interest chargeable
where any particular act has not been performed or chargeable in
respect of any statement pursuant to this Chapter, it shall be computed
separately in the case of each section of this Chapter.
(3) The fee and interest chargeable pursuant to this Section shall
be added to any other tax, if any, payable pursuant to this Act; and
mere payment of such fee and interest shall not be deemed as the


167
release of any person from the liability related to criminal proceedings
mentioned in Chapter-23.
(4) In cases where the fee and interest have been assessed
pursuant to this Section, the Department shall give a written notice of
the assessment, setting out the following matters, o that person. Such
notice may be attached to and sent along with the notice to be issued
pursuant to Section 102:
(a) The reasons why the Department has to assess
the fee and interest,
(b) The amount for the fee and interest payable,
(c) The method how the amount has been computed,
(d) The time, place and mode for making a compliant
against
the assessment.
(5) It shall be as follows in assessing the fee and interest
pursuant to this Section:-
(a) The matters contained in Sub-section (1), Sub-
section (2), clause (b) of Sub-section (3), Sub-
section (4) and (5) of Section 101 shall also be
applicable in assessing the fee and interest
pursuant to this Section, and
(b) The matters contained in clauses (b) and (c) of
Sub-section (3), Sub-sections (4) and (5) of Section
101 and Section 102 shall also be applicable in the
case of Sub-section (4) of this Section.


168
Chapter-23
Offense and Punishment
123. Penalty to one who does not pay tax: A person who does not pay tax,
without any reasonable ground, by the due date for payment of tax
shall be punished with a fine of a sum from Five Thousand Rupees to
Thirty Thousand Rupees or with imprisonment for a term from One
month to Three months or with both penalties.
124. Penalty to one who submits false or misleading statement: In cases
where any information or statement submitted by anyperson to the
Department is false or misleading because of submission with intention
or recklessness or that information becomes misleading since such
person has not mentioned information of any particular matter or thing
in the statement in respect of such subject, such person shall be
punished with a fine of a sum from Forty Thousand Rupees to One
Hundred Sixty Thousand Rupees or with imprisonment for a term from
Six months to Two years or with both penalties.
Explanation: For purposes of this Section, "any information or
statement submitted to the Department" means the statement/details
mentioned in the explanation referred to in Section 120.
125. Penalty to one who obstructs or unduly influences tax administration:
(1) A person who commits the following act shall be punished with a
fine of a sum from Five Thousand Rupees to Twenty Thousand
Rupees or with imprisonment for a term from one month to Three
months or with both penalties:-


169
(a) To obstruct the officer of the Department in the
course of carrying out his duty pursuant to this
Act,
(b) Not to act as per the notice referred to in Section
83, or
(c) To obstruct in any other manner in the
implementation of this Act.
(2) Any person who attempts to commit an act refer d to in
Sub-section (1) shall be punished with half a punishment mentioned in
that Sub-section.
126. Penalty in the event of commission of offence by the person with or
without authority : (1) Any authorized person who violates Section 84
shall be punished with a fine of a sum not exceeding e ghty Thousand
Rupees or with imprisonment for a term not exceeding o e year or with
both penalties.
(2) In cases where any person who is not authorized under this
Act collects tax or any other amount in the name of tax or attempts to
collect the same, such a person shall be punished with a fine of a sum
from eighty Thousand Rupees to two hundred Thousand Rupees or
with imprisonment for a term from one year to three y ars or with both
penalties .
127. Penalty to accomplice: Any person who intentionally aids or abets or
advises any other person to commit any offense under this Act shall
be punished with half a punishment imposed on the offender.


170
Provided that, if such an accomplice is a governmtal
employee, he shall be liable to punishment equal to the punishment
imposed on the offender.
128. Penalty to one who does not observe the Act: Except as otherwise
provided for in this Act, any person who does not observe any
provisions of this Act or the rules framed under this Act shall be
punished with a fine of a sum from Five Thousand Rupees to Thirty
Thousand Rupees.
129. Power of Department to pay amount of fine: (1) Notwithstanding
anything contained elsewhere in this Chapter, in cases where any
person admits in writing that he has committed any one or more
offenses mentioned in this Chapter, except the offense mentioned in
Section 126, before the commencement of the court proceedings, the
Department may order such a person to pay the amount f fine not
exceeding the amount of fine imposable for the commission of such
one or more than one offense.
(2) In making the order referred to in Sub-section (1), the
Department has to set out in such an order such offense, the amount of
fine to be paid and the date for payment of the amount f fine.
(3) The order made by the Department pursuant to this Section
shall be final and no appeal may be made against it.
130. To be state cases: The Government of Nepal shall be the plaintiff in the
cases under this chapter.
131. Investigation and filing of cases: (1) The prescribed officer shall
investigate the case on the offense punishable under this Chapter, and
case shall be filed in the concerned District Court within thirty five
days of the completion of such investigation.


171
(2) In conducting investigation pursuant to Sub-section (1), the
investigating officer shall seek advice and opinion of the government
attorney.
Chapter-24
Miscellaneous
132. Power to have expert's service: Government of Nepal may obtain the
service of the concerned expert for the act related to tax auditing; and
the provision on governmental secrecy mentioned in Section 84 shall
also apply to such expert.
133. Departmental action to be taken: In cases where the liability of a
taxpayer increases or decreases because of the assessment of tax made
with recklessness, the Director General may institute departmental
action to punish the concerned officer who has asses ed such tax or
has not assessed the revised tax within the time limit referred to in Sub-
section (3) of Section 101.
134. Identity card of officer : Each officer has to hold the identity card as
prescribed and show such identity card where any one requests him to
show it.
135. Powers of court of law to be vested: For purposes of this Act, the
Department shall have the powers vested in a court under the law in
force in the matters of summoning the presence of the concerned
person, recording of statements, examining evidence, and compelling
production of documents.
136. Not to be responsible for an act done in good faith: Notwithstanding
anything contained elsewhere in this Act, no officer shall be personally


172
responsible for any act which he has done in good faith in carrying out
his duties.
137. Power of Government of Nepal to give order or direction: Government
of Nepal may give necessary order or direction to the Department in
order to make tax administration effective.
138. Power to frame Rules: Government of Nepal may frame necessary rules
in order to carry out the objects of this Act.
139. Power to make and enforce manuals: The Department may make and
enforce necessary manuals, subject to this Act and the rules framed
under this Act.
140. Alteration in Schedules: Government of Nepal may, by a Notification
in the Nepal Gazette, may make necessary alterations in the Schedules
other than Schedule-1.
141. Police to render assistance: It shall be the duty of the Police to render
the assistance sought by the Department on the implmentation of this
Act and the rules framed under this Act.
142. This Act to prevail on tax provision: Notwithstanding anything
contained in the law in force, except in cases where the Financial Act to
be enforced in every year amends this Act and provides for the
imposition, assessment, increase, decrease, exemption, or remission of
tax, no other Act shall make other provisions on amendments to,
alteration in, the tax provisions referred to in this Act or other tax
related provisions.
143. Repeal, amendment and saving: (1) The Income Tax Act, 2031 (1974)
and the House and Land Rent Tax Act, 2023 (1966) are he eby repealed.
(2) The following Acts are hereby amended as follows:-


173
(a) Section 15 of the National Loans Act, 2017 (1960)
is hereby repealed.
(b) Amendment to the Employee Provident Fund Act,
2019 (1962): The words "no tax of any kind except
income tax shall be levied" shall be substituted for
the words "no tax of any kind shall be levied"
contained at the end of clause (b) of Section 18 of
the Employee Provident Fund Act 2019 (1962).
(c) Amendment to the Nepal Petroleum Act, 2040
(1984): Clause (c) of Section 13 of the Nepal
Petroleum Act, 2040 (1984) is hereby deleted.
(d) Amendment to Section 29 of the Retirement Fund
Act, 2042 (1986): The words "no tax of any kind
except income tax shall be levied" shall be
substituted for the words "no tax of similar other
kind shall be levied" contained in Section 29 of the
Retirement Fund Act, 2042 (1986).
(e) Amendment to Section 51 of the Citizen
Investment Fund Act, 2047 (1991): Section 51 of
the Citizen Investment Fund Act, 2047 (1991) is
hereby repealed.
(f) Amendment to Section 30 of the Nepal Academy
for Science and Technology Act, 2048 (1991):
Section 30 of the Royal Nepal Academy for
Science and Technology Act, 2048 (1991) is
hereby repealed.


174
(g) Amendment to Section 15 of the Industrial
Enterprises Act, 2049 (1992):
(1) Clauses (c), (d), (e), (j), (l), (p), (q), (r), (s), (t)
of Section 15 of the Industrial Enterprises
Act, 2049 (1992) are hereby deleted.
(2) The words " respectively Thirty, Twenty-
Five and Twenty percent on the income tax
until ten years of the date of operation and"
are hereby deleted.
(h) Amendment to the Foreign Investment and
Technology Transfer Act, 2049 (1992): Sub-section
(1a.) of Section 5 of the Foreign Investment and
Technology Transfer Act, 2049 (1992) is hereby
deleted.
(i) Amendment to the B. P. Koirala Health Science
Institute Act, 2049 (1992): The word "income-tax"
contained in the second line of Section 21 of the B.
P. Koirala Health Science Institute Act, 2049 (1992)
is hereby deleted.
(j) Amendment to the Tribhuvan University Act, 2049
(1992): Sub-section (2) of Section 33 of the
Tribhuvan University Act, 2049 (1992) is hereby
deleted.
(k) Amendment to the Electricity Act, 2049 (1992):


175
(1) The word "income-tax" contained in the
heading of Section 12 of the Electricity Act,
2049 (1992) is hereby deleted.
(2) Sub-sections (1), (2), (3), (4), (5) and (6) are
hereby deleted.
(l) Amendment to the Pokhara University Act, 2053
(1996): Sub-section (2) of Section 36 of the Pokhara
University Act, 2053(1996) is hereby deleted.
(m) Amendment to Section 18 of the B. P. Koirala
Memorial Cancer Hospital Act, 2053 (1996): The
word "income-tax" contained in Sub-section (1) of
Section 18 of the B. P. Koirala Memorial Cancer
Hospital Act, 2053 (1996) is hereby deleted.
(n) Amendment to the Town Development Fund Act,
2053 (1996): Section 24 of the Town Development
Fund Act, 2053 (1996) is hereby repealed.
(o) Sub-section (1) of Section 34 of the
Telecommunications Act, 2053(1996) is hereby
repealed.
(3) All acts and actions done or taken under the Acts or
Sections of the Acts repealed or amended pursuant to Sub-section (1)
or (2) shall be deemed to have been done or taken under this Act.
(4) The provisions of the Income Tax Act, 2031(1974) shall apply
to the provisions relating to the assessment and collecti n of income
tax for the income year prior to the commencement of this Act.


176
Schedule-1
(Relating to Section 4)
Rates of Tax
1. In the case of natural person: (1) Tax shall be levied by the following
rate on the taxable income of any resident natural person in any income
year, subject to Sub-sections (2) and (4) of this Schedule:-
(a) No tax shall be levied on the taxable income not
exceeding Fifty -five Thousand Rupees,
(b) Where the taxable income is more than Fifty-five
Thousand Rupees but less than One Hundred
thirty Thousand Rupees, Fifteen percent on the
taxable income of more than Fifty-five Thousand
Rupees, and
(c) Where the taxable income is more than One
Hundred thirty Thousand Rupees, Rs.11, 250.00 on
the taxable income up to One Hundred Thirty
Thousand Rupees and Twenty-Five percent on
the taxable income exceeding One Hundred Thirty
Thousand Rupees.
(2) Tax shall be levied by the following rates onthe taxable
income of any spouse making a choice pursuant to Section 50 in any
income year, subject to Sub-sections (4) of this Schedule:-
(a) No tax shall be levied on the taxable income not
exceeding Seventy-Five Thousand Rupees,


177
(b) Where the taxable income is more than Seventy-
Five Thousand Rupees but less than One Hundred
Fifty Thousand Rupees, Fifteen percent on the
taxable income exceeding Seventy-Five Thousand
Rupees, and
(c) Where the taxable income is more than One
Hundred Fifty Thousand Rupees, Rs.11,250.00 on
the taxable income up to One Hundred Fifty
Thousand Rupees and twenty-five percent on the
taxable income exceeding One Hundred Fifty
Thousand Rupees.
(3) The provision contained in Sub-section (4) of this Schedule
shall apply in the following circumstances:-
(a) In the case of a resident natural person, where the
income is more than Fifty-five Thousand Rupees
in any income year or in the case of a resident
spouse who has not made a choice referred to in
Section 50, , where the income is more than
Seventy-Five Thousand Rupees in any income
year, and
(b) Where the net profit derived from the disposal of
non-business taxable property is included in the
computation of the income and corresponding
taxable income of that natural person or spouse.
(4) Tax shall be levied by the following rate on the following
person, subject to Sub-section (3) of this Schedule:-


178
(a) Tax shall be levied by the rate referred to in Sub-
section (1) or (2) of this Schedule on the amount
whichever is higher out of the following amounts,
as if only it were the taxable income of that naturl
person or spouse:
(1) The amount remaining balance after
subtracting the amount of profit from the
total taxable income of that natural person
or spouse, or
(2) Fifty-five Thousand Rupees, in the case of
a natural person, or Seventy-Five Thousand
Rupees, in the case of a spouse.
(b) Tax shall be levied by ten percent on the remaining
amount of the taxable income.
Provided that, tax shall be deducted only by
six percent on the provident fund or gratuity paid
from an approved retirement fund.
(5) For the natural persons residing in the remot areas specified
by Government of Nepal, a maximum sum of thirty Thousand Rupees
may, for the remote allowance, be added, as prescribed, to the
threshold of non-taxable amount of Fifty -five Thousand Rupees and
Seventy-Five Thousand Rupees mentioned in Sub-sections (1), (2), (3)
and (4) of this Schedule.
(6) The threshold as referred to in Sub-section (4) of Section 4 of
this Act shall be an income of One Hundred Thousand Rupees and a
turnover equivalent to one million rupees.


179
(7) The amount of tax pursuant to Sub-section (4) of Section 4 of
this Act shall be as follows:-
(a) In the case of a natural person carrying on a
business in the municipal corporation or sub-
municipal corporation area, two Thousand Rupees,
(b) In the case of a natural person carrying on a
business in the municipal area, one thousand five
hundred rupees,
(c) In the case of a natural person carrying on a
business in any other place, one Thousand
Rupees.
(8) Tax shall be levied by twenty-five percent onthe taxable
income of a non-resident natural person in any income year.
(9) Notwithstanding anything contained elsewhere in this
Section, in cases where any resident natural person has a pension
income, tax shall be computed pursuant to this Section only on the
amount remaining balance after subtracting an additional twenty-five
percent of the amount mentioned in clause (a) of Sub-section (1) for the
natural person or in clause (a) of Sub-section (2) for the spouse from
the taxable income.
2. In the case of entity: (1) Tax shall be levied by twenty-five percent on
the taxable income of any entity in any income year, subject to Sub-
sections (2), (3), (4), (5) and (7) of this Section.
(2) Tax shall be levied by thirty percent on the axable income of
any bank, financial institution, an entity carrying on general insurance


180
business or petroleum works pursuant to the Nepal Petroleum Act,
2040(1983), in any income year.
Explanation: "Taxable income", in the case of petroleum works, means
the taxable income assessed in accordance with the procedures
mentioned in the petroleum agreement and this Act and the Rules
framed under this Act.
(3) Tax shall be levied by twenty percent on the axable income
of any entity earned in any income year as follows from the source in
Nepal:
(a) In cases where the entity is fully involved
throughout any year in the operation of a special
industry mentioned in Section 11 of this Act,
(b) In cases where the entity,-
(1) Builds and operates any road, bridge,
tunnel, ropeway or sky-bridge, or
(2) Operates any trolley bus or tram.
(4) In cases where, in any income year, any entity carries on
projects such as to build, operate any public infrastructure project and
transfer it to Government of Nepal and building power-house,
generation and transmission of electricity, tax shall be levied by twenty
percent on the taxable income of that entity.
(5) In the case of the money of any deceased resient person or
the taxable income of the trust of a disabled residnt person, tax shall
be levied on such money or taxable income pursuant to Sub-sections
(1) and (4) of Section 1 of this Schedule as if themoney or trust
resident were a natural person.


181
(6) Tax shall be levied by ten percent on the income sent abroad
by any non-resident person's foreign permanent establi hment situated
in Nepal in any income year.
(7) Tax shall be levied by five percent on the taxable income of
any non-resident person in respect of the income mentioned in Section
70 in any income year.


182
Schedule-2
(Relating to Section 19)
Assessment of Depreciation Deduction
1. Categorization and classification of depreciable property: (1) The
depreciable property shall be categorized as follows:-
Category Description of property
"A" Building, structure and similar other structures of
permanent nature.
"B" Computer, data processing equipment, furniture, fixture
and office equipment.
"C" Automobiles, buses and mini-buses.
"D" Construction and excavation equipment, and the
depreciable properties not included in elsewhere
including Sub-section (3) of Section 17, Sub-section (3)
of Section 18, and Sub-section (3) of this Schedule.
"E" Intangible properties except the depreciable prope ties
mentioned in category "D".
(2) Any depreciable property owned and used by any person in
any income year in making income from a business or investment shall
be placed in the category as follows at the time when it came under
ownership or came in use for the first time, and the categories shall be
deemed as the category of the depreciable property of that person in
that year:


183
(a) In respect of the similar properties under
ownership or in use of that person, the depreciable
properties referred to in categories "A", "B", "C"
or "D" in the same category of other properties of
that category.
(b) In respect of the depreciable property referred to in
category "E", they have to be placed under
different classes notwithstanding that the
properties are of the same category.
(3) The cost incurred in the excavation of natural resources,
extraction of minerals and its development in the course of earning
income from a business shall be deemed as the cost incurred in
purchasing the property for the business related with that income.
2. Depreciation cost: (1) Any person may, in any income year, deduct
cost equivalent to the depreciation in that year of the property of each
class computed pursuant to Sub-sections (2) and (6) of this Section, for
the classes of the depreciable properties belonging to that person.
(2) A person has to compute the depreciation deduction of the
properties of the class in his income year by using the following
formula:
A x B
"A" means the depreciation base amount in the class of the property at
the end of that income year.
"B" means the rate of depreciation deduction mentioned in Section 3 of
this Schedule, applicable to that class.


184
(3) The depreciation base amount of the depreciable properties
in categories "A", "B", "C" or "D" at the end of any income year has to
be set by subtracting the amount referred to in the following clause (c)
from the total of the following clauses (a) and (b).
Provided that, the amount so subtracted shall not be less than
zero.
(a) The remaining amount after deducting
depreciation cost of that class computed pursuant
to Sub-section (2) and (6) from the depreciation
deduction base amount of that class at the end of
last year.
(b) The expenses referred to in Section 5 of this
Schedule or added to the class within that income
year and incurred for the properties added to that
class, on the depreciation deduction base amount
of that class in that year.
(c) Any amount derived from the disposal of any
property of that class in that year.
(4) The depreciation deduction base amount of each depreciable
property in category "D" at the end of any income year shall be a total
sum of the following amounts:-
(a) The depreciation deduction base amount of the
depreciable properties remaining in the class at the
end of last income year, and


185
(b) The amount added pursuant to Sub-section (5) for
the property within that class to the depreciation
deduction base amount in that fiscal year.
(5) The cost incurred for any depreciable property included in
any class of the depreciable property belonging to any person has to
be added as follows to the depreciation base amount f the class
concerned:-
(a) That property has to be computed as per the
following formula and added by considering the
first value in the time whichever is later out of the
time in which that property is included in the class
pursuant to Section 1 and the time in which
expenses are made to acquire that property:
A/3xB
For purposes of this Clause, "A' shall have the
following value for the following period:-
i. The end time of the period from the beginning of the
income year to the last day of Poush (mid January)
shall be three,
ii. The period from Magha (January/February) to the last
day of Chaitra (13 April) shall be two, and
iii. The period from Baisakh (April/May) to the last day
of the income year shall be one.
(b) The remaining part of cost shall be added in the
income year following the income year in which
the first part was added. Provided that, the class


186
was not dissolved pursuant to Sub-section (2) of
Section 4 of this Schedule in the meantime of that
period.
(6) In cases where, in deducting the depreciation c st to be
computed pursuant to Sub-section (2) of this Section from the
depreciation deduction base amount of the depreciabl properties of
categories "A", "B", "C" or "D", it be less than two Thousand Rupees,
all the remaining amounts has to be computed for additional
depreciation cost.
3. Rate of depreciation: (1) The rate of depreciation applicable in the case
of each class mentioned in Sub-section (2) of Section 2 of this
Schedule shall, subject to Sub-section (2), be as follows:-
Category Rate
"A" 5 percent
"B" 25 percent
"C" 20 percent
"D" 15 percent
"E" The rate, in percentage, to be set by adjusting in the
nearest half year after dividing the cost of that
property at the time of its purchase by the period of
use of that property.
(2) The projects mentioned in Sub-section (2) of Section 19 of
this Act and the entities mentioned in Sub-sections (3) and (4) of
Section 2 of Schedule-1 shall get an addition of one thirds to the rate of
depreciation applicable to the depreciable properties mentioned in


187
categories "A", "B", "C" and "D" mentioned in Sub-section (1) of this
Schedule.
4. Disposal of depreciable property: (1) In cases where clause (a) is more
than clause (b) in computing he disposal of the depreciable property or
properties used in the business or investment of any person, such
excess amount has to be included in the income.
(a) The incomings derived from the disposal of his
depreciable property in any income year falling in
categories "A", "B", "C" or "D" of the class of any
person,
(b) The depreciation deduction base amount
remaining at the end of that year of the class
pursuant to Sub-section (3) of Section 2 of this
Schedule, without including the income derived
from the disposal.
(2) In cases where any person disposes all the properties in the
class of depreciable property of that person prior to the expiration of
any income year, the class shall be deemed to be dissolved, and it shall
be as follows:-
(a) Where the depreciation deduction amount to be
set in computing depreciation as per the following
formula of the property in the class of depreciable
property is more than the depreciation deduction
base amount, that person shall be deemed to have
received such excess amount for that year.
A-B
or


188
(b) Where the depreciation deduction amount to be
set in computing depreciation as per the following
formula of the property in the class of depreciable
property is more than the depreciation deduction
base amount, that person shall get remission of
such excess amount of expenses in that year.
B–A
Explanation: For purposes of this Section,-
(1) "A" means the incomings derived or to be derived by any
person from the disposal of that property in that year,
(2) "B' means the total amount of clauses (i), (ii and (iii) as
follows:-
(i) The remaining value of the descending system of
the class in that year,
(ii) The outgoings of that year added to the
depreciation base amount of the class, and
(iii) The outgoings to be added to the depreciation
base amount of the class in the forthcoming year
pursuant to Sub-section (5) of Section 2.
(3) For purposes of this Schedule, the remaining value of the
descending system of the class of depreciable property in any income
year means the following amount:-
(a) In the case of categories "A", "B", "C" or "D" of
the class, of any person, the amount to be set by
subtracting depreciation, if any, of the class
computed pursuant to Sub-sections (2) and (6) of
Section 2 of this Schedule for that year from the


189
depreciation base amount remaining at the end of
the preceding income year of that class,
(b) In the case of category "D" of the class, the
amount to be set by subtracting all the expenses of
the preceding income years which the person is
allowed to deduct pursuant to Sub-section (1) of
Section 2 of this Schedule 2 from the depreciation
base amount remaining at the end of preceding
income year.

Financial Ordinance, 2059 (2002)
Date of Authentication and the Publication
2059.3.24 (8 July 2002)
Ordinance Number 2 of the Year 2059
An Act Made to Implement Proposals Relating to Finance of the
Government of Nepal
Preamble: Whereas, it is expedient to levy some charges, taxes, duties,
cesses and fees, continue or alter the existing ones a d also to amend the
laws in force relating to revenue administration in order to implement the
proposals relating to finance of the Government of Nepal;
Now, therefore, be it enacted by His Majesty the King Gyanendra Bir
Bikram Shah Dev. has, in accordance with Article 72 of Constitution kingdom of
Nepal, 2047(1990).


190
1. Short title and commencement: (1) This Ordinance may be called as
the “Financial Ordinance, 2059 (2002)."
(2) This ordinance comes into force immediately.
22. Amendment to the Income Tax Act, 2058 (2002): Of the Income Tax
Act, 2058(2002):-
(1) Of Section 2:
(a) The words "land and" shall be inserted before the words
"private building" contained in Sub-clause (3).
(b) The words "achieve" shall be inserted after the "provide
for lease" of clause (ab) of Section (2) :
(c) The words "under loan liability" shall be inserted
beginning of Sub-clause (2) of Clause (ai) :
(d) The words "related with the work" contained in clause
(aab) shall be deleted.
(2) The phrase "the total interest amount which a resident entity
controlled by an organization entitled to tax exemption can
deduct under Sub-section (1) in any income year shall not
exceed the total of the following amounts if the interest is paid
to the controlling person or associated person" shall be
Substituted for the phrase "the total interest amount which a
resident entity controlled by an organization entitled to tax
exemption can deduct under that Sub-section in any income
year shall not exceed the total of the following amounts"
contained Sub-section (2) of Section 14 .


191
(3) The following Sub-section (3a) shall be Substituted for Sub-
section (3) of Section 24:
"(3a) Notwithstanding anything contained in Sub-section (1),
the Department may recognize the accounting specified by the
Nepal Rastra Bank, Subject to the Nepal Rastra Bank Act,
2058(2002) and the banking laws in force, in respect of banking
business."
(4) Of section 59 :
(a) The following Sub-section (1a) shall be inserted after
Sub- section (1):
"(1a) An amount that is up to five percent of a due and
recoverable loan held in the risk bearing fund by a
person carrying on banking business Subject to
the standards prescribed by the Nepal Rstara Bank
shall be deducted as an expense. Where the risk
bearing fund is so maintained, and the expenses
debited to the profits as a bad debt, the same shall
not be written off; and where the amount in that
fund is capitalized or profits or dividends are
distributed, the same shall be included in the
income of the year in which such distribution is
made."
(b) The following proviso shall be inserted after Sub-
section (2):
Provided that, if the amount as referred to in Sub-
section (1a) is deducted as expenditures, such loss shall
not be deductible.”


192
(5) The following proviso shall be inserted in Sub-section (1) of
Section 63:
"Provided that the Citizen Investment Fund established
under the Citizen Investment Fund Act, if it intends to maintain
a retirement fund, and the Employee Provident Fund established
under the Employee Provident Fund Act, 2019(--), if it operates a
retirement fund, shall not be required to obtain permission for
such fund."
(6) The words "or the retirement payments made by Government of
Nepal" shall be inserted after the words "from the interest"
contained in the second line of Sub-section (1) of Section 65.
(7) The following Sub-section (1) shall be Substituted for Sub-
section (1) of Section 74:
"(1) The taxpayer shall perform the duties as mentioned
in this Act."
(8) of Section 88:
(a) The word "and" shall be Substituted for the words "in
making payment and if that person is an approved
retirement fund, any" contained in Sub-section (1), and
the following proviso shall be Substituted for the proviso to
that Sub-section:
"Provided that, In the case of the retirement
payment made by the Government of Nepal or by the
approved retirement fund, at the Rate of six percent from
the benefits calculated pursuant to clause (b) of Sub-
section (1) of Section 65,


193
(b) The following Sub-section (2) shall be substituted for
Sub-section (2):
"(2) A resident person shall, in making the
payments of dividends, having source in Nepal,
withhold tax at rate of five percent of the amount paid
and In making payment of investment insurance
benefits, payment of benefits from an unapproved
retirement fund, withhold tax at rate of ten percent of the
amount of total paid of benefits".
(c) The following word "financial institution or any other
entity issuing bonds or a company listed under the laws "
shall be Substituted for "financial institution" contained
in Sub-section (3):
(9) Of Sub-section (1) of Section 92:
(a) The following clause (e) shall be Substituted for
Clause (e):
"(e) Interest as follows paid by a bank, financial
institution or any other entity issuing bonds or a
company enlisted pursuant to the laws in force, as
mentioned in Sub-section (3) of Section 88:
(b) The following clauses (g) and (h) shall be inserted after
clause (f):
"(g) Retirement payments made by the Government
of Nepal or an approved retirement fund,
and
(h) Payment for meeting allowance :


194
(10) Of Section 97:
(a) The word "or" contained at the end of clause (b) shall be
deleted.
(b) The words “,”shall be Substituted for the words“.”
contained at the end of clause (c) and shall be ins rted
"or".
(d) The following clause (d) shall be inserted after clause (c):
"(d) If the motor vehicle owner making payment of tax
pursuant to Sub-section (11) of Section 1 of Schedule-1 is
an individual, such individual."
(11) The word "Department" shall be Substituted for the words "Tax
Department" contained in Section 106.
(12) Of Section 117:
(a) The words "0.1 percent" shall be Substituted for the
words "one and half percent" contained in Sub-section
(1), and the words "per year" shall be Substituted for the
words "per month" contained in that Sub-section.
(b) The words "0.1 percent" shall be Substituted for the
words "one and half percent" contained in Sub-section
(2), and the words "per year" shall be Substituted for the
words "per month" contained in that Sub-section.
(13) Amendment to Schedule-1: Section 1 of Schedule 1 :
(a) The words "Sixty Five Thousand Rupees", "Eighty five
Thousand Rupees", "One Hundred Forty Thousand Rupees",
and " One Hundred Sixty Thousand Rupees", respectively shall
be Substituted for the words "fifty five Thousand Rupees",
"seventy five Thousand Rupees", "one Hundred thirty


195
Thousand Rupees" and "one Hundred fifty Thousand Rupees"
contained in various places of Sub-sections (1), (2), (3) and (4).
(b) The proviso to clause (b) of Sub-section (4) shall be deleted.
(b) The following Sub-sections (10) shall be inserted after
Sub-section (9):
"(10) Notwithstanding anything contained elsewhere in
this Section, the owners of vehicles on hire shall
pay annual tax at the following rates. If the owner
of vehicle is an individual, the tax so paid shall be
final and binding.
Category of vehicles Annual tax payable
per vehicle
(a) Mini-bus, mini-truck, truck and bus Rs. 1,500/-
(b) Car, jeep, van and microbus Rs.1,200/-
(c) Three wheeler, auto-rickshaw, tempo Rs. 850/-
(d) Tractor and power tiller Rs. 750/-


Financial Ordinance, 2059 (2003)
Date of Authentication and the Publication
2059.9.22 (6 June 2003)
Ordinance number 8 of the year 2059
An Act Made to Implement Proposals Relating to Finance of the Government
of Nepal


196
Preamble:
Whereas, it is expedient to levy some charges, taxes, duties, cesses and fees,
continue or alter the existing ones and also to amend the laws in force relating
to revenue administration in order to implement theproposals relating to
finance of the Government of Nepal;
Now, therefore, be it enacted by His Majesty the King Gyanendra Bir
Bikram Shah Dev. has, in accordance with Article 72 of Constitution kingdom of
Nepal, 2047(1990).
1. Short title and commencement: (1) This Ordinance may be called as
the “Financial Ordinance, 2059 (2003)."
(2) This ordinance come into force immediately.
22. Amendment to the Income Tax Act, 2058 (2002): Of the Income Tax
Act, 2058(2002):-
(1) Of Section 2:
(a) The words "land and" shall be inserted before the words
"private building" contained in Sub-clause (3).
(b) The words "under loan liability" shall be inserted
beginning of Sub-clause (2) of Clause (ai) :
(c) The words "related with the work" contained in clause
(aab) shall be deleted.
(2) The words "or both Sections" shall be inserted after th words
"Section 12 and 63" contained in Section 5.


197
(3) The words "or both Sections" shall be inserted after the words
"Section 11 or 64" contained in the proviso to clause (b) of
Section 6.
(4) The phrase "the total interest amount which a resident entity
controlled by an organization entitled to tax exemption can
deduct under Sub-section (1) in any income year shall not
exceed the total of the following amounts if the interest is paid
to the controlling person or associated person" shall be
Substituted for the phrase "the total interest amount which a
resident entity controlled by an organization entitled to tax
exemption can deduct under that Sub-section in any income
year shall not exceed the total of the following amounts"
contained Sub-section (2) of Section 14 .
(5) The following Sub-section (3a) shall be substituted for Sub-
section (3) of Section 24:
"(3a) Notwithstanding anything contained in Sub-section (1),
the Department may recognize the accounting specified by the
Nepal Rastra Bank, Subject to the Nepal Rastra Bank Act,
2058(2002) and the banking laws in force, in respect of banking
business."
(6) Of section 59 :
(a) The following Sub-section (1a) shall be inserted after
Sub- section (1):
"(1a) An amount that is up to five percent of a due and
recoverable loan held in the risk bearing fund by a
person carrying on banking business Subject to
the standards prescribed by the Nepal Rstara Bank


198
shall be deducted as an expense. Where the risk
bearing fund is so maintained, and the expenses
debited to the profits as a bad debt, the same shall
not be written off; and where the amount in that
fund is capitalized or profits or dividends are
distributed, the same shall be included in the
income of the year in which such distribution is
made."
(b) The following proviso shall be inserted after Sub-section (2)
Provided that, if the amount as referred to in Sub-
section (1a) is deducted as expenditures, such loss shall
not be deductible.”
(7) The following proviso shall be inserted in Sub-section (1) of
Section 63:
"Provided that the Citizen Investment Fund
established under the Citizen Investment Fund Act, if it
intends to maintain a retirement fund, and the Employee
Provident Fund established under the Employee
Provident Fund Act, 2019, if it operates a retirement fund,
shall not be required to obtain permission for such fund."
(8) The words "or the retirement payments made by Government of
Nepal" shall be inserted after the words "from the interest"
contained in the second line of Sub-section (1) of Section 65.
(9) The following Sub-section (1) shall be substituted for Sub-
section (1) of Section 74:
"(1) The taxpayer shall perform the duties as mentioned
in this Act."


199
(10) The words “at least” contained in Sub-section (2) of Section 81
shall be deleted.
(11) of Section 88:
(a) The word "and" shall be Substituted for the words "in
making payment and if that person is an approved
retirement fund, any" contained in Sub-section (1), and
the following proviso shall be Substituted for the proviso
to that Sub-section:
"Provided that, In the case of the retirement
payment made by the Government of Nepal or by the
approved retirement fund, at the Rate of six percent from
the benefits calculated pursuant to clause (b) of Sub-
section (1) of Section 65,
(b) The following Sub-section (2) shall be Substituted for
Sub-section (2):
"(2) A resident person shall, in making the
payments of dividends, having source in Nepal, withhold
tax at rate of five percent of the amount paid and In
making payment of investment insurance benefits,
payment of benefits from an unapproved retirement fu d,
withhold tax at rate of ten percent of the amount of total
paid of benefits".
(c) The following Sub-section (3) shall be Substituted for
Sub-section (3):
"(3) Notwithstanding anything contained in
Sub-section (1), in making payment of interest or of an
amount in the form of interest as follows by a resid nt
bank, financial institution or any other entity issuing


200
bonds or a company registered under the laws in force to
any individual for deposits, bonds, debentures and
governmental bonds, tax shall be withheld from the total
amount of payment at the rate of six percent:
(a) Which has source in Nepal, and
(b) Which is not related with the operation of
business"
(12) Of Sub-section (1) of Section 92:
(a) The following clause (e) shall be Substituted for clause
(e):
"(e) Interest as follows paid by a bank, financial
institution or any other entity issuing bonds or a
company enlisted pursuant to the laws in force, as
mentioned in Sub-section (3) of Section 88:
(b) The following clauses (g) and (h) shall be inserted after
clause (f):
"(g) Retirement payments made by the Government
of Nepal or an approved retirement fund,
and
(h) Payment for meeting allowance :
(13) Of Section 95:
(a) The words "by the Department" shall be inserted after
the words "may be prescribed" contained in Sub-section (1).


201
(b) The words "or where it is so specified pursuant to Sub-
section (6) that any person is not required to Submit an
estimate to pay installment of tax" contained in Sub-
section (7) shall be deleted.
(14) Of Section 97:
(a) The word "or" contained at the end of clause (b) shall be
deleted.
(b) The words “,” shall be Substituted for the words“.”
Contained at the end of clause (c) and shall be ins rted
"or".
(d) The following clause (d) shall be inserted after clause (c):
"(d) If the motor vehicle owner making payment of tax
pursuant to Sub-section (11) of Section 1 of Schedule-1 is
an individual, such individual."
(15) The word "Department" shall be Substituted for the words "Tax
Department" contained in Section 106.
(16) The words "assessment of expenses incurred in an auction sale
as referred to in Sub-section (5) of Section 105" shall be inserted
after the words "assessment of tax" contained in clause (e) of
Sub-section (1) of Section 114.
(17) Of Section 117:
(a) The words "0.1 percent" shall be Substituted for the
words "one and half percent" contained in Sub-section
(1), and the words "per year" shall be Substituted for the
words "per month" contained in that Sub-section.
(b) The words "0.1 percent" shall be Substituted for the
words "one and half percent" contained in Sub-section


202
(2), and the words "per year" shall be Substituted for the
words "per month" contained in that Sub-section.
(18) Amendment to Schedule-1: Section 1 of Schedule 1 :
(a) The words "Sixty Five Thousand Rupees", " Eighty five
Thousand Rupees", "One Hundred Forty Thousand
Rupees", and " One Hundred Sixty Thousand Rupees",
respectively shall be Substituted for the words "fifty ive
Thousand Rupees", "seventy five Thousand Rupees",
"one Hundred thirty Thousand Rupees" and "one
Hundred fifty Thousand Rupees" contained in various
places of Sub-sections (1), (2), (3) and (4).
(b) The proviso to clause (b) of Sub-section (4) shall be
deleted.
(f) The following Sub-sections (10) shall be inserted after
Sub-section (9):
"(10) Notwithstanding anything contained elsewhere in
this Section, the owners of vehicles on hire shall
pay annual tax at the following rates. If the owner
of vehicle is an individual, the tax so paid shall be
final and binding.
Category of vehicles Annual tax payable
per vehicle
(a) Mini-bus, mini-truck, truck and bus Rs. 1,500/-
(b) Car, jeep, van and microbus Rs.1,200/-
(c) Three wheeler, auto-rickshaw, tempo Rs. 850/-
(d) Tractor and power tiller Rs. 750/-


203
Financial Ordinance, 2060 (2004)
Date of Authentication and the Publication
2060.4.1(17 Jan. 2004)
Ordinance Number 7 of the year 2060
An Act Made to Implement Proposals Relating to Finance of the Government
of Nepal
Preamble: Whereas, it is expedient to levy some charges, taxes, duties,
cesses and fees, continue or alter the existing ones a d also to amend the
laws in force relating to revenue administration in order to implement the
proposals relating to finance of the Government of Nepal;
Now, therefore, be it enacted by His Majesty the King Gyanendra Bir
Bikram Shah Dev. has, in accordance with Article 72 of Constitution kingdom of
Nepal, 2047(1990).
1. Short title and commencement:
(1) This Ordinance may be called as the “Financial Ordinance, 2060
(2004)."
(2) This ordinance come into force immediately.
24. Amendment to the Income Tax Act, 2058 (2002): Of the Income Tax
Act, 2058(2002):-
(1) Of Section 2:
(a) The following clause (p1) shall be inserted after clause
(p):


204
(p1) "turn-over" means a turn-over equivalent to the
total amount to be included under Section 7, 8 or 9
for purposes of computing the income of a
business or investment in any income year."
(b) Of clause (r):
(1) The following Sub-clause (2a) shall be inserted
after Sub-clause (2):
(2a) A benefit of any beneficiary held in the
retirement fund,"
(2) The words "land and" shall be inserted before the
words "private building" contained in Sub-clause
(3).
(c) The following clause (s) shall be Substituted for clause
(s):
“(s) "organization entitled to enjoy exemption" means
the following entity:
(1) Any of the following entities registered in the
Department as an entity enjoying tax exemption:
(a) A social, religious, educational or
benevolent organization of public nature
established with non-profit motive,
(b) An amateur sports organization so formed
with a view to promoting social or sports
related facilities that the organization or its
member does not derive profits,


205
(2) A political party registered in the Election
Commission,
(3) Village Development Committee, Municipality or
District Development Committee,
(4) Nepal Rastra Bank,
(5) Government of Nepal,
Provided that in cases where any person has derived any
benefit from the property of that organization and the
monies obtained from that organization except in making
payment for the property or the service provided by an
person to that organization or in discharging functions in
consonance with the objective of the organization
entitled to exemption, tax exemption shall not be granted
to such organization."
(d) The figures "(1), (2), (3) and (4)" shall be sub tituted for the
figures "(1), (2) and (3)” contained in Sub-clause (5) of clause
(x).
(e) The following Sub-clauses (1) and (2) shall be Substituted for
Sub-clauses (1) and (2) of clause (ad):
“(1) Payment for having acquired the right to extrac water,
minerals or other living and non-living resources from the
earth, or
(2) Amounts calculated based on the quantity or value of
living or non-living resources of the natural resources
and minerals extracted fully or partly from the earth".


206
(f) The following clause (af) shall be Substituted for clause (af):
"(af) "Rent" means all payments including a premium received
for the house rent as well as for the lease of a tangible
property.
Provided that this term does not include any
payment made for natural resources".
(g) The following clause (ab) shall be substituted for clause (ab):
"(ab) "Investment" means the act of holding one or more
properties or investing such properties, except with the
followings:
(1) Holding any property used by the owner thereof in
personal use, or
(2) Employment or occupation.
Provided that holding non-business taxable property
shall be deemed as investment."
(h) Of clause (ae):
(a) The words " in respect of any income year" contained in
the first sentence of paragraph (b) of Sub-clause (1) shall
be deleted.
(b) The word "or" shall be inserted at the end of paragraph
(b) of Sub-clause (3).
(c) The word "or" shall be inserted at the end of para (a) of
Sub-clause (4).


207
(d) The word "or" shall be substituted for the word "and"
contained in the second sentence of Sub-clause (6).
(i) The words "exemption, premium under loan liability" shall be
substituted for the word "premium" contained in the first
sentence of paragraph (2) of Sub-clause (ai).
(j) The words "sold or" contained in clause (aj) shall be deleted.
(k) The figure "(5)" shall be substituted for the figure "(4)"
contained in the second sentence of clause (ao).
(l) The following clause (at1) shall be inserted after clause (aad):
"(at1) "adjusted taxable income" means taxable income
calculated without deducting any amounts as referred to in
Section 12 and without deducting any amount under Sub-
section (2) of Section 14, Section 17 or 18, while calculating the
taxable income of any person in any income year."
(m) The words "related with the work" contained in clause (aab)
shall be deleted, and the words "as referred to in clause (y)"
shall be inserted the words "any entity" contained in that
clause.
(2) Of section 4:
(a) The following Sub-section (l) shall be substituted for Sub-
section (1):
"(1) The amount of tax required to be paid by any person
referred to in Section 3 for any income year shall be equal
to the total amount of tax required to be paid by such


208
person in capacity of any one or more than one person
mentioned in clauses (a), (b) and (c) of the Section."
(b) The words "or both Sections" shall be inserted after the figure
"71" as contained in Sub-section (2).
(c) The following clause (c) shall be Substituted for clause (c) of
Sub-section (3):
"(c) The employer has made a claim only for the adjustment of
tax on medical expenses paid by him and for Subtraction
of retirement contribution paid by the employer himself
and not claimed for Subtraction of expenses for donati
as referred to in Section 12."
(d) The following clause (b) shall be substituted for clause (b) Of
Sub-section (4):
"(b) The income earned from the business and the
turnovers of the business do not exceed one
Hundred Twenty Thousand Rupees and Twelve
Hundred Thousand Rupees, respectively."
(e) The figures "87, 88 and 89" shall be substituted for the
figure "88" contained in the fourth line of Sub-section (6).
(3) The words "or either Sections" shall be inserted after the words
"Section 12 or 63" contained in Section 5.
(4) The words "or both Sections" shall be inserted after the words
"Section 11 or 64" contained in the proviso to clause (b) of
Section 6.


209
(5) The words "shall be income" shall be Substituted for the words
"shall be computed in the income" contained in Sub-section (1)
of Section 7.
(6) The words "shall be" shall be Substituted for the words
"computed as the income" contained in Sub-section (1) of
Section 9.
(7) The words "Sub-section (1), (2), (3) or Section 11A" shall be
substituted the words for "Sub-section (1), (2), or (3) "
contained in first line of Sub-Section (4).
(8) The following Section 11A. shall be inserted after Section 11:
"11A. Tax chargeable on the build and operate of
infrastructures:
If any agreement is concluded between the Government
of Nepal and any person for building and operating
infrastructures, the person building and operating such
infrastructures shall be entitled to enjoy tax facilities
provided by this Act pertaining to tax prevailing at the
time of conclusion of that agreement during the period of
such agreement."
(9) The following Sub-section (2) shall be Substituted for Sub-
section (2) of Section 12:
"(2) Notwithstanding anything contained in Sub-section (1),
the expenditure deductible in any income year under that
Sub-section shall not exceed one Hundred Thousand
Rupees or five percent of the adjusted taxable income
that person in that year, whichever is lesser."


210
(10) The phrase "the total interest amount which a resident entity
controlled by an organization entitled to tax exemption can
deduct under Sub-section (1) in any income year shall not
exceed the total of the following amounts if the interest is paid
to the controlling person or associated person" shall be
Substituted for the phrase "the total interest amount which a
resident entity controlled by an organization entitled to tax
exemption can deduct under that Sub-section in any income
year shall not exceed the total of the following amounts"
contained in Sub-section (2) of Section 14:
(11) Of Section 15:
"(a) The following proviso shall be inserted in explanation (c):
"Provided that, no amount in respect of repair and
maintenance and depreciation shall be included in the
overhead costs of a factory."
(b) The following proviso shall be inserted in explanation (d):
"Provided that, no amount in respect of repair and
maintenance and depreciation shall be included in the
variable overhead costs of a factory."
(12) Of Section 16:
(a) Of Sub-section (2):
(1) The word "seven" shall be substituted for the
word "five" contained in the fourth line.
(2) The phrase "and where expenses are incurred in
excess thereof, such deduction can be made only


211
as per the order of such expenses incurred"
contained at the end shall be deleted.
(b) The following Sub-section (3) shall be substituted for
Sub-section (3):
"(3) Any excess expense or part thereof which is not
deductible by virtue of the limit referred to in Sub-
section (2) may be added to the depreciation base
amount of the group of the concerned property at
the beginning of the forthcoming income year".
(13) Of Section 17:
(a) The following Sub-section (2) shall be substituted for
Sub-section (2):
"(2) Notwithstanding anything contained in Sub-
section (1), in computing the limit of expenses
deductible under that Sub-section in any income
year, it shall not exceed fifty percent of the
adjusted taxable income earned from all businesses
operated by that person".
(b) The words "at the beginning of the coming income year"
shall be inserted after the word "capitalization" contained
in the second line of Sub-section (3).
(14) Of Section 18:
(a) The following Sub-section (2) shall be substituted for
Sub-section (2):


212
"(2) Notwithstanding anything contained in Sub-
section (1), in computing the limit of expenses
deductible under that Sub-section in any income
year, it shall not exceed fifty percent of the
adjusted taxable income earned from all businesses
operated by that person".
(b) The words "at the beginning of the coming income year"
shall be inserted after the word "capitalization" contained
in the second line of Sub-section (3).
(15) The words "shall" shall be substituted for the word "may"
contained in Sub-section (1) of Section 19.
(16) The word "private" shall be Substituted for the words "made
for" contained in the second line of paragraph clause (1) of
explanation of Section 21.
(17) Of Section 24
(a) of Sub-clause (2):
(1) The words "in calculating the income earned by a
person" shall be Substituted for the words "in the
calculation of the income earned by the person"
contained in Sub-section (2),
(2) The following Sub-clause (2) shall be substituted
for Sub-clause (2):
"(2) the value of such liability can be
ascertained actually, and"
(b) Sub-section (3) shall be deleted.


213
(c) The following Sub-section (3a) shall be inserted after
Sub-section (3):
"(3a) Notwithstanding anything contained in Sub-
section (1), the Department may recognize the accounting
specified by the Nepal Rastra Bank, Subject to the Nepal
Rastra Bank Act, 2058(2002) and the banking laws in
force, in respect of banking business."
(d) The following Sub-section (4) shall be substituted for
Sub-section (4):
"(4) In calculating a person's income earned from a
business or investment on the accrual basis, where
the person includes any payment to which the
person is entitled or deducts any payment that the
person is obliged to make and a difference in the
payment received or made by the person occurs as
a result, inter alia, of a change in exchange rate,
the amount of difference shall be adjusted at the
time when payment is received or made."
(18) The words "refund of amount" shall be substituted for the
words "reimbursement of amount" contained in the second line
of clause (a) of Sub-section (1) of Section 25.
(19) The words "money or" contained in the second line of clause (a)
of Sub-section (1) of Section 27 and the words "money and"
contained in the same clause shall be deleted.
(20) The following Section 29 shall be Substituted for Section 29:


214
"29. Indirect payments: In cases where any person derives
benefits indirectly from payments made by the payer or a
person associated with him or specifies another person to
receive payment, the Department may, by issuing a notice
in writing, treat the person himself deriving such benefit
or specifying such other person as the recipient of
payment.”
(21) The word "seller" contained in Sub-section (3) of Section 32
shall be deleted.
(22) The following Sub-clause (2) shall be substituted for Sub-clause
(2) of clause (a) of Sub-section (1) of Section 38:
"(2) Any amount required to be included in the assessment of
the income of that person as a result of acquisition of that
property."
(23) The word "payment" shall be substituted for the words "amount
Subject to tax" contained in the proviso to clause (c) of Sub-
section (1) of Section 39.
(24) Of Section 41:
(a) The following Sub-clause (2) shall be substituted for Sub-
clause (2) of clause (a):
"(2) In re-disposing that property, the net outgoings
made for that property until the disposal pursuant
to this Section shall be deemed to be equal to the
amount receivable."
(b) The following Sub-clause (2) shall be substituted for Sub-
clause (2) of clause (b):


215
"(2) In re-disposing that liability, the net incomings
made for that liability pursuant to Sub-clause (1)
until the disposal under this Section shall be
deemed to be equal to the outgoings".
(25) The word "taxable" shall be substituted for the words "Subject
to tax" contained in Sub-section (2) of Section 45.
(26) Of Section 54:
(a) Of Sub-section (1):
(1) The words "if distributed" shall be inserted befor
the words "final" contained in clause (a).
(2) The following clause (b) shall be substituted for
clause (b):
"(b) No tax shall be imposed if other entities
make distribution."
(b) The following Sub-section (3) shall be substituted for
Sub-section (3):
"(3) Notwithstanding anything contained in Sub-
section (1), no tax shall be charged if dividend
received upon deduction of tax under that Sub-
section is distributed".
(c) Sub-section (4) shall be deleted.
(27) The following Sub-section (1a) shall be inserted after Sub-
section (1) of Section 57:


216
"(1a) For the purposes of computing the change of fifty
percent or more than fifty percent ownership of any
entity as referred to in Sub-section (1), only the following
ownership of that entity shall be included:
(a) The ownership held by a shareholder holding one
percent or more of the total ownership of that
entity, and
(b) The ownership held by an associated person of
the shareholder who holds more than one percent
of the total ownership of that entity, out of the
shareholders who hold less than one percent of
the total ownership of that entity."
(28) The following Sub-section (1) shall be Substituted for Sub-
section (1) of Section 58:
"(1) An arrangement made by any entity by maintaining all of
the following conditions shall be treated as an
arrangement made for reducing dividend tax:
(a) Where that entity has reserved, current or
expected profits,
(b) Where any person who acquires an interest of the
entity and the recipient of the interest or his
associated person makes any payment to the
present or previous beneficiary of the entity or his
associated person irrespective of whether or not it
is related to the acquisition of interest and whether
or not payment is made at the time of acquisition
of interest,


217
(c) Where the payment is fully or partly reflected in
the profits of that entity,
(d) Where that entity distributes dividends to the
recipient of interest and the dividends fully or
partly cover the profits."
(29) Of section 59:
(a) The following Sub-section (1a) shall be inserted after
Sub-section (1):
"(1a) An amount that is up to five percent of a due and
recoverable loan held in the risk bearing fund by a
person carrying on banking business Subject to
the standards prescribed by the Nepal Rstara Bank
shall be deducted as an expense. Where the risk
bearing fund is so maintained, and the expenses
debited to the profits as a bad debt, the same shall
not be written off; and where the amount in that
fund is capitalized or profits or dividends are
distributed, the same shall be included in the
income of the year in which such distribution is
made."
(b) The following proviso shall be inserted in Sub-section (2)
of Section 59:
Provided that, if the amount as referred to in Sub-
section (1a) is deducted as expenditures, such loss shall
not be deductible.”
(30) Of Section 61:


218
(a) The following Sub-clause (2) shall be Substituted for
Sub-clause (2) of clause (b) of Sub-section (2):
"(2) The premiums as referred to in Sub-clause (1) of
clause (a) returned to the insured".
(b) The words "shall not be considered as expenses" hall be
Substituted for the words "shall be included in the
expenses" contained in Sub-section (3).
(31) Of Section 63:
(a) The following proviso shall be inserted in Sub-section (1):
"Provided that the Citizen Investment Fund established under
the Citizen Investment Fund Act, if it intends to maintain a
retirement fund, and the Employee Provident Fund establi hed
under the Employee Provident Fund Act, 2019, if it operates a
retirement fund, shall not be required to obtain permission for
such fund."
(b) The phrase " may make a claim for deduction in calculating his
income" shall be substituted for the phrase "may make a claim to
deduct from the income" contained in Sub-section (2).
(32) The words "mentioned in Sub-section (1) of Section 2 of Schedule-1"
shall be substituted for the words "applicable to companies" contained
in Sub-section (3) of Section 64.
(33) The words "or the retirement payments made by Government of Nepal"
shall be inserted after the words "from the interest" contained in the
second line of Sub-section (1) of Section 65.


219
(34) The word "employment" shall be Substituted for the words "such
acts" contained in the first line of Sub-clause (2) of clause (i) of Sub-
section (6) of Section 67.
(35) The following clause (b) shall be substituted for clause (b) of the
explanation contained in Section 71:
"(b) Average rate of tax of Nepal" means the rate to be set by
multiplying with one Hundred the amount to be set by
dividing the amount of tax payable by a person as referred to
in clause (a) of Section 3 in any income year by the taxable
income of that person in that year prior to the adjustment of
any foreign tax in that year."
(36) The following Sub-section (1) shall be Substituted for Sub-section (1)
of Section 74:
"(1) The taxpayer shall perform the duties as mentioned in this Act."
(37) The words “at least” contained in Sub-section (2) of Section 81 shall be
deleted.
(38) Of Section 88:
“(a) The word "and" shall be Substituted for the words "in making
payment and if that person is an approved retirement fund, any"
contained in Sub-section (1), and the following provis shall be
Substituted for the proviso to that Sub-section:
"Provided that, In the case of the retirement payment
made by the Government of Nepal or by the approved retirement
fund, at the Rate of six percent from the benefits calculated
pursuant to clause (b) of Sub-section (1) of Section 65,


220
(b) The following Sub-section (2) shall be Substituted for Sub-
section (2):
"(2) A resident person shall, in making the following
payments having source in Nepal, withhold tax at the
following rate:
(a) In making payment of dividends, five percent of
the amount paid,
(b) In making payment of investment insurance
benefits, five percent of the amount of benefits,
(c) In making payment of benefits from an
unapproved retirement fund, ten percent of the
amount of benefits".
(c) The following Sub-section (3) shall be Substituted for Sub-
section (3):
"(3) Notwithstanding anything contained in Sub-
section (1), in making payment of interest or of an
amount in the form of interest as follows by a resid nt
bank, financial institution or any other entity issuing
bonds or a company registered under the laws in
force to any individual for deposits, bonds,
debentures and governmental bonds, tax shall be
withheld from the total amount of payment at the rat
of six percent:
(a) Which has source in Nepal, and
(b) Which is not related with the operation of business"


221
(39) The phrase "in the following conditions, the p rson Subject to tax
withholding" shall be Substituted for the phrase "In cases where the
person withholding tax does not withhold or pay tax as follows, both
the person Subject to tax withholding" contained in Sub-section (5) of
Section 90.
(40) Of Sub-section (1) of Section 92:
(a) The following clause (e) shall be Substituted for clause (e):
"(e) Interest as follows paid by a bank, financial institution or
any other entity issuing bonds or a company enlisted
pursuant to the laws in force, as mentioned in Sub-
section (3) of Section 88:
(1) Which has source in Nepal and which is not
related with the operation of business and paid to
an individual,
(2) Which is paid to an institution entitled to tax
exemption pursuant to clause (d) of Section 2.”
(b) The following clauses (g) and (h) shall be inserted after clause
(f):
"(g) Retirement payments made by the Government of Nepal
or an approved retirement fund, and
(h) Payment for meeting allowance, payment for teaching
based on the count of teaching, payment for setting
question papers and examination of answer paper."
(41) Of Section 94:


222
(a) The following Sub-section (1) shall be Substituted for Sub-
section (1):
"(1) A person who has or will have assessable income in any
income year from any business or investment has to pay
tax in three installments as follows:
Date on which payment has to be made Amount to be paid
By the end of Poush (mid January) Amount of due and payable tax
out of 40% of the estimated tax
By the end of Chaitra (mid April) Amount of due and payable tax
out of 70% of the estimated tax
By the end of Ashad (mid July) Amount of due and payable tax
out of 100% of the estimated tax

Explanation: For the purposes of this Sub-section,-
(a) "Estimated tax" means the estimated tax in installment
computed by any person liable to pay tax in installment
pursuant to Section 95 at the time when the installment
tax is to be paid in any year.
(b) "Due and payable tax" means the amount that remains
shortfall after Subtracting the following total sum from
the amount to be set by the percentage prescribed for
payment of estimated tax in installments under thisSub-
section:


223
(1) The amount of tax paid in that income year by a
prior installment pursuant to this Section before
the date on which the installment in question is to
be paid,
(2) The amount of tax deducted from the payments to
be included in computing the income of any
person in any income year pursuant to Chapter-17
before the date on which the installment in
question is to be paid in that year,
(3) In cases where the agent withholding tax or the
person Subject to tax withholding pays to the
Department the amount of tax deemed to be
withheld from the payment referred to in clause (2)
pursuant to Sub-section (3) of Section 90 in that
year before the date on which the installment is to
be paid, such amount of tax, and
(4) The amount of tax adjustment for medical
treatment expenses which that person may claim
pursuant to Section 51 in respect of the accepted
medical treatment expenses incurred by that
person before the date on which the installment is
to be paid."
(b) The words "total of all installments" shall be Substituted
for the words “of installments" contained in Sub-section
(2)."
(42) Of Section 95:


224
(a) The words "by the Department" shall be inserted after the
words "may be prescribed" contained in Sub-section (1).
(b) The words "or where it is so specified pursuant to Sub-section
(6) that any person is not required to Submit an estimate to pay
installment of tax" contained in Sub-section (7) shall be deleted.
(43) Of Sub-section (2) of Section 96:
(a) Sub-clauses (4) and (5) of clause (a) shall be del ted.
(b) Sub-clause (1) of clause (c) shall be deleted.
(44) Of Section 97:
(a) The words "except where the Department issues a written order
or issues order by publishing a public notice" shall be
Substituted for the words "except where the Departmen issues
a written order" contained at the beginning.
(b) The word "or" contained at the end of clause (b) shall be
deleted.
(c) The words “natural person or” shall be Substituted for the
words “natural person” contained at the end of clause (c).
(d) The following clause (d) shall be inserted after clause (c):
"(d) If the motor vehicle owner making payment of tax
pursuant to Sub-section (11) of Section 1 of Schedule-1 is
an individual, such individual."
(45) The word "fifteen" shall be Substituted for the word "seven"
contained in the fourth line of Sub-section (6) of Section 101.


225
(46) The word "Department" shall be Substituted for the words "Tax
Department" contained in Section 106.
(47) The words "assessment of expenses incurred in an auction sale as
referred to in Sub-section (5) of Section 105" shall be inserted after the
words" assessment of tax" contained in clause (e) of Sub-section (1) of
Section 114.
(48) The following Sub-section (6) shall be substituted for Sub-section (6)
of Section 115:
(6) Fifty percent of the amount of payable tax to be paid as deposit
while filing an applicant against a decision made by pursuant
to clause (e) of sub-section (1) of Section 114.
(49) Of Section 117:
(a) The words "0.1 percent" shall be Substituted for the words "one
and half percent" contained in Sub-section (1), andthe words
"per year" shall be Substituted for the words "per month"
contained in that Sub-section.
(b) The words "0.1 percent" shall be Substituted for the words "one
and half percent" contained in Sub-section (2), andthe words
"per year" shall be Substituted for the words "per month"
contained in that Sub-section.
(50) The following Section 118 shall be substituted for Section 118:
"118. Interest to be charged where the person making payment in
installments makes lesser payment of estimated tax:
(1) In cases where, in the case of the amount of installment
to be paid by any person under Section 94 in any income


226
year, the amount mentioned in clause (b) is more than t e
amount mentioned in clause (a), interest shall be charged
on such excess amount pursuant to Sub-section (2):
(a) Amount of each installment paid by that person in
any income year,
(b) Eighty percent of the estimated or revised estimated
amount of total amount payable by installments for
each installment period in that income year if such
estimate or revised estimate is correct and, if such
estimated or revised estimated amount is not correct,
that of such amount, of the total amount of tax to be
paid by any person referred to in clauses (a) and (b)
of Section 3, as is to be paid in installment for each
installment period in any income year.
(2) A person mentioned in Sub-section (1) shall to pay
interest at standard rate of each month and portion of the
month, from the due date for payment of the installment
in that year to the date excess amount is paid.
(3) Notwithstanding anything mentioned in Subsection (2),
A person mentioned in Sub-section who fails to pay the
excess amount even up to the due date to pay tax after
assessment of tax under Section 99, the person shall be
liable to pay an interest at standard interest rate for ach
month and portion of a month from the due date of
installment payment to the date due to pay tax after
assessment of tax under Section.
(51) Repeal : Section 66 shall be deleted.


227
(52) Amendment to Schedule-1:
(1) Of Section 1:
(a) The words "Eighty Thousand Rupees", "One Hundred
Thousand Rupees", "one Hundred Fifty five Thousand
Rupees", and " One Hundred Seventy-Five Thousand
Rupees", respectively shall be Substituted for the words
"fifty five Thousand Rupees", "seventy five Thousand
Rupees", "one Hundred thirty Thousand Rupees" and
"one Hundred fifty Thousand Rupees" contained in
various places of Sub-sections (1), (2), (3) and (4).
(b) The proviso to clause (b) of Sub-section (4) shall be
deleted.
(c) The following Sub-section (5) shall be Substituted for
Sub-section (5):
"(5) For the individuals working in the remote areas
specified by the Government of Nepal, a maximum
sum of thirty Thousand Rupees shall, for the
remote allowance, be deducted from the taxable
income, as prescribed, and the tax shall then be
calculated on the remaining amount only, in
accordance with this Section".
(d) Sub-section (6) shall be deldetd.
(e) The following Sub-sections (10), (11) and (12), shall be
inserted after Sub-section (9):
"(10) Notwithstanding anything contained elsewhere in
this Section, where any resident individual has


228
procured an insurance business, the amount to be
set by seven percent of the sum of investment
insurance or ten Thousand Rupees, whichever is
lesser, out of the premium paid for the same, shall
be deducted from the taxable income, and the tax
shall then be calculated on the remaining amount
only, in accordance with this Section".
(11) Notwithstanding anything contained elsewhere in
this Section, the owners of vehicles on hire shall p y
annual tax at the following rates. If the owner of
vehicle is an individual, the tax so paid shall be final
and binding.
Category of vehicles Annual tax payable
per vehicle
(a) Mini-bus, mini-truck, truck and bus Rs. 1,500/-
(b) Car, jeep, van and microbus Rs.1,200/-
(c) Three wheeler, auto-rickshaw, tempo Rs. 850/-
(d) Tractor and power tiller Rs. 750/-

(12) Notwithstanding anything contained elsewhere in
this Section, in the following cases where twenty
five percent of tax rate is applicable on taxable
income at the calculation of tax that shall be taxed
only at the rate of twenty percent.


229
(a) a natural person who is fully engaged in the
operation of a special industry mentioned in
Section 11 of this Act.
(b) a natural person who derives income from
export in an income year.
(2) Of Section 2:
(a) The following clause (b) shall be Substituted for clause (b) of
Sub-section (3):
"(b) In cases where the entity,
(1) Builds and operates any road, bridge, tunnel,
ropeway or sky-bridge, or
(2) Operates any trolley bus or tram, or"
(3) Derives income from export in an income year.
(b) The following Sub-section (5) shall be Substituted for Sub-
section (5):
"(5) Tax shall be levied, pursuant to Sub-sections (1) and (4)
of Section 1 of this Schedule, on the taxable income f a
trust acquiring or looking after the property belonging to
any deceased resident person or of a disabled resident
individual in any income year as if the one who acquires
or looks after or that trust money or trust resident were an
individual."


230
Financial Ordinance, 2060 (2004)
Date of Authentication and the Publication
2060.10.1(15 Jan 2004)
Ordinance number 19 of the year 2060
An Act Made to Implement Proposals Relating to Finance of the Government
of Nepal
Preamble:
Whereas, it is expedient to levy some charges, taxes, duties, cesses and fees,
continue or alter the existing ones and also to amend the laws in force relating
to revenue administration in order to implement theproposals relating to
finance of the Government of Nepal;
Now, therefore, be it enacted by His Majesty the King Gyanendra Bir
Bikram Shah Dev. has, in accordance with Article 72 of Constitution kingdom of
Nepal, 2047(1990).
1. Short title and commencement:
(1) This Ordinance may be called as the “Financial Ordinance, 2060
(2004)."
(2) This ordinance come into force immediately.
24. Amendment to the Income Tax Act, 2058 (2002): Of the Income Tax
Act, 2058(2002):-
(1) Of Section 2:
(a) The following clause (p1) shall be inserted after clause
(p):


231
(p1) "turn-over" means a turn-over equivalent to the
total amount to be included under Section 7, 8 or 9
for purposes of computing the income of a
business or investment in any income year."
(b) Of clause (r):
(1) The following Sub-clause (2a) shall be inserted
after Sub-clause (2):
(2a) A benefit of any beneficiary held in the
retirement fund,"
(2) The words "land and" shall be inserted before the
words "private building" contained in Sub-clause
(3).
(c) The following clause (s) shall be Substituted for clause
(s):
“(s) "organization entitled to enjoy exemption" means
the following entity:
(1) Any of the following entities registered in the
Department as an entity enjoying tax exemption:
(a) A social, religious, educational or
benevolent organization of public nature
established with non-profit motive,
(b) An amateur sports organization so formed
with a view to promoting social or sports
related facilities that the organization or its
member does not derive profits,


232
(2) A political party registered in the Election
Commission,
(3) Village Development Committee, Municipality or
District Development Committee,
(4) Nepal Rastra Bank,
(5) Government of Nepal,
Provided that, in cases where any person has
derived any benefit from the property of that organiz tion
and the monies obtained from that organization except in
making payment for the property or the service provided
by any person to that organization or in discharging
functions in consonance with the objective of the
organization entitled to exemption, tax exemption shall not
be granted to such organization."
(d) The figures "(1), (2), (3) and (4)" shall be sub tituted for the
figures "(1), (2) and (3)” contained in Sub-clause (5) of clause
(x).
(e) The following Sub-clauses (1) and (2) shall be Substituted for
Sub-clauses (1) and (2) of clause (ad):
“(1) Payment for having acquired the right to extrac water,
minerals or other living and non-living resources from the
earth, or
(2) Amounts calculated based on the quantity or value of
living or non-living resources of the natural resources
and minerals extracted fully or partly from the earth".


233
(f) The following clause (af) shall be Substituted for clause (af):
"(af) "Rent" means all payments including a premium received
for the house rent as well as for the lease of a tangible
property.
Provided that, this term does not include any
payment made for natural resources".
(g) The following clause (ab) shall be substituted for clause (ab):
"(ab) "Investment" means the act of holding one or more
properties or investing such properties, except with the
followings:
(1) Holding any property used by the owner thereof in
personal use, or
(2) Employment or occupation.
Provided that holding non-business taxable property
shall be deemed as investment."
(h) Of clause (ae):
(a) The words " in respect of any income year" contained in
the first sentence of paragraph (b) of Sub-clause (1) shall
be deleted.
(b) The word "or" shall be inserted at the end of paragraph
(b) of Sub-clause (3).
(c) The word "or" shall be inserted at the end of para (a) of
Sub-clause (4).


234
(d) The word "or" shall be substituted for the word "and"
contained in the second sentence of Sub-clause (6).
(i) The words "exemption, premium under loan liability" shall be
substituted for the word "premium" contained in the first
sentence of paragraph (2) of Sub-clause (ai).
(j) The words "sold or" contained in clause (aj) shall be deleted.
(k) The figure "(5)" shall be substituted for the figure "(4)"
contained in the second sentence of clause (ao).
(l) The following clause (at1) shall be inserted after clause (aad):
"(at1) "adjusted taxable income" means taxable income
calculated without deducting any amounts as referred to in
Section 12 and without deducting any amount under Sub-
section (2) of Section 14, Section 17 or 18, while calculating the
taxable income of any person in any income year."
(m) The words "related with the work" contained in clause (aab)
shall be deleted, and the words "as referred to in clause (y)"
shall be inserted the words "any entity" contained in that
clause.
(2) Of section 4:
(a) The following Sub-section (l) shall be substituted for Sub-
section (1):
"(1) The amount of tax required to be paid by any person
referred to in Section 3 for any income year shall be equal
to the total amount of tax required to be paid by such


235
person in capacity of any one or more than one person
mentioned in clauses (a), (b) and (c) of the Section."
(b) The words "or both Sections" shall be inserted after the figure
"71" as contained in Sub-section (2).
(c) The following clause (c) shall be Substituted for clause (c) of
Sub-section (3):
"(c) The employer has made a claim only for the adjustment of
tax on medical expenses paid by him and for Subtraction
of retirement contribution paid by the employer himself
and not claimed for Subtraction of expenses for donati
as referred to in Section 12."
(d) The following clause (b) shall be substituted for clause (b) Of
Sub-section (4):
"(b) The income earned from the business and the
turnover of the business do not exceed one
hundred Twenty thousand rupees and Twelve
Hundred Thousand rupees, respectively."
(e) The figures "87, 88 and 89" shall be substituted for the
figure "88" contained in the fourth line of Sub-section (6).
(3) The words "or both Sections" shall be inserted after the words
"Section 12 or 63" contained in Section 5.
(4) The words "or both Sections" shall be inserted after the words
"Section 11 or 64" contained in the proviso to clause (b) of
Section 6.


236
(5) The words "shall be income" shall be Substituted for the words
"shall be computed in the income" contained in Sub-section (1)
of Section 7.
(6) The words "shall be" shall be Substituted for the words
"computed as the income" contained in Sub-section (1) of
Section 9.
(7) The words "Sub-section (1), (2), (3) or Section 11A" shall be
substituted the words for "Sub-section (1), (2), or (3) "
contained in first line of Sub-Section (4).
(8) The following Section 11A. shall be inserted after Section 11:
"11A. Tax chargeable on the build and operate of
infrastructures:
If any agreement is concluded between the Government
of Nepal and any person for building and operating
infrastructures, the person building and operating such
infrastructures shall be entitled to enjoy tax facilities
provided by this Act pertaining to tax prevailing at the
time of conclusion of that agreement during the period of
such agreement."
(9) The following Sub-section (2) shall be Substituted for Sub-
section (2) of Section 12:
"(2) Notwithstanding anything contained in Sub-section (1),
the expenditure deductible in any income year under that
Sub-section shall not exceed one hundred thousand
rupees or five percent of the adjusted taxable income that
person in that year, whichever is lesser."


237
(10) The phrase "the total interest amount which a resident entity
controlled by an organization entitled to tax exemption can
deduct under Sub-section (1) in any income year shall not
exceed the total of the following amounts if the interest is paid
to the controlling person or associated person" shall be
Substituted for the phrase "the total interest amount which a
resident entity controlled by an organization entitled to tax
exemption can deduct under that Sub-section in any income
year shall not exceed the total of the following amounts"
contained in Sub-section (2) of Section 14:
(11) Of Section 15:
"(a) The following proviso shall be inserted in explanation (c):
"Provided that no amount in respect of repair and
maintenance and depreciation shall be included in the
overhead costs of a factory."
(b) The following proviso shall be inserted in explanation (d):
"Provided that, no amount in respect of repair and
maintenance and depreciation shall be included in the
variable overhead costs of a factory."
(12) Of Section 16:
(a) Of Sub-section (2):
(1) The word "seven" shall be Substituted for the
word "five" contained in the fourth line.
(2) The phrase "and where expenses are incurred in
excess thereof, such deduction can be made only


238
as per the order of such expenses incurred"
contained at the end shall be deleted.
(b) The following Sub-section (3) shall be Substituted for
Sub-section (3):
"(3) Any excess expense or part thereof which is not
deductible by virtue of the limit referred to in Sub-
section (2) may be added to the depreciation base
amount of the group of the concerned property at
the beginning of the forthcoming income year".
(13) Of Section 17:
(a) The following Sub-section (2) shall be Substituted for
Sub-section (2):
"(2) Notwithstanding anything contained in Sub-
section (1), in computing the limit of expenses
deductible under that Sub-section in any income
year, it shall not exceed fifty percent of the
adjusted taxable income earned from all businesses
operated by that person".
(b) The words "at the beginning of the coming income year"
shall be inserted after the word "capitalization" contained
in the second line of Sub-section (3).
(14) Of Section 18:
(a) The following Sub-section (2) shall be substituted for
Sub-section (2):


239
"(2) Notwithstanding anything contained in Sub-
section (1), in computing the limit of expenses
deductible under that Sub-section in any income
year, it shall not exceed fifty percent of the
adjusted taxable income earned from all businesses
operated by that person".
(b) The words "at the beginning of the coming income year"
shall be inserted after the word "capitalization" contained
in the second line of Sub-section (3).
(15) The words "shall" shall be substituted for the word "may"
contained in Sub-section (1) of Section 19.
(16) The word "private" shall be Substituted for the words "made
for" contained in the second line of paragraph clause (1) of
explanation of Section 21.
(17) Of Section 24
(a) of Sub-clause (2):
(1) The words "in calculating the income earned by a
person" shall be Substituted for the words "in the
calculation of the income earned by the person"
contained in Sub-section (2),
(2) The following Sub-clause (2) shall be Substituted
for Sub-clause (2):
"(2) the value of such liability can be
ascertained actually, and"
(b) Sub-section (3) shall be deleted.


240
(c) The following Sub-section (3a) shall be inserted after
Sub-section (3):
"(3a) Notwithstanding anything contained in Sub-
section (1), the Department may recognize the accounting
specified by the Nepal Rastra Bank, Subject to the Nepal
Rastra Bank Act, 2058(2002) and the banking laws in
force, in respect of banking business."
(d) The following Sub-section (4) shall be Substituted for
Sub-section (4):
"(4) In calculating a person's income earned from a
business or investment on the accrual basis, where
the person includes any payment to which the
person is entitled or deducts any payment that the
person is obliged to make and a difference in the
payment received or made by the person occurs as
a result, inter alia, of a change in exchange rate,
the amount of difference shall be adjusted at the
time when payment is received or made."
(18) The words "refund of amount" shall be substituted for the
words "reimbursement of amount" contained in the second line
of clause (a) of Sub-section (1) of Section 25.
(19) The words "money or" contained in the second line of clause (a)
of Sub-section (1) of Section 27 and the words "money and"
contained in the same clause shall be deleted.
(20) The following Section 29 shall be Substituted for Section 29:


241
"29. Indirect payments: In cases where any person derives
benefits indirectly from payments made by the payer or a
person associated with him or specifies another person to
receive payment, the Department may, by issuing a notice
in writing, treat the person himself deriving such benefit
or specifying such other person as the recipient of
payment.”
(21) The word "seller" contained in Sub-section (3) of Section 32
shall be deleted.
(22) The following Sub-clause (2) shall be Substituted for Sub-clause
(2) of clause (a) of Sub-section (1) of Section 38:
"(2) Any amount required to be included in the assessment of
the income of that person as a result of acquisition of that
property."
(23) The word "payment" shall be Substituted for the words
"amount Subject to tax" contained in the proviso to clause (c) of
Sub-section (1) of Section 39.
(24) Of Section 41:
(a) The following Sub-clause (2) shall be Substituted for
Sub-clause (2) of clause (a):
"(2) In re-disposing that property, the net outgoings
made for that property until the disposal pursuant
to this Section shall be deemed to be equal to the
amount receivable."
(b) The following Sub-clause (2) shall be Substituted for
Sub-clause (2) of clause (b):


242
"(2) In re-disposing that liability, the net incomings
made for that liability pursuant to Sub-clause (1)
until the disposal under this Section shall be
deemed to be equal to the outgoings".
(25) The word "taxable" shall be substituted for the words "Subject
to tax" contained in Sub-section (2) of Section 45.
(26) Of Section 54:
(a) Of Sub-section (1):
(1) The words "if distributed" shall be inserted befor
the words "final" contained in clause (a).
(2) The following clause (b) shall be substituted for
clause (b):
"(b) No tax shall be imposed if other entities
make distribution."
(b) The following Sub-section (3) shall be substituted for
Sub-section (3):
"(3) Notwithstanding anything contained in Sub-
section (1), no tax shall be charged if dividend
received upon deduction of tax under that Sub-
section is distributed".
(c) Sub-section (4) shall be deleted.
(27) The following Sub-section (1a) shall be inserted after Sub-
section (1) of Section 57:


243
"(1a) For the purposes of computing the change of fifty
percent or more than fifty percent ownership of any
entity as referred to in Sub-section (1), only the following
ownership of that entity shall be included:
(a) The ownership held by a shareholder holding one
percent or more of the total ownership of that
entity, and
(b) The ownership held by an associated person of
the shareholder who holds more than one percent
of the total ownership of that entity, out of the
shareholders who hold less than one percent of
the total ownership of that entity."
(28) The following Sub-section (1) shall be Substituted for Sub-
section (1) of Section 58:
"(1) An arrangement made by any entity by maintaining all of
the following conditions shall be treated as an
arrangement made for reducing dividend tax:
(a) Where that entity has reserved, current or
expected profits,
(b) Where any person who acquires an interest of the
entity and the recipient of the interest or his
associated person makes any payment to the
present or previous beneficiary of the entity or his
associated person irrespective of whether or not it
is related to the acquisition of interest and whether
or not payment is made at the time of acquisition
of interest,


244
(c) Where the payment is fully or partly reflected in
the profits of that entity,
(d) Where that entity distributes dividends to the
recipient of interest and the dividends fully or
partly cover the profits."
(29) Of section 59:
(a) The following Sub-section (1a) shall be inserted after
Sub-section (1):
"(1a) An amount that is up to five percent of a due and
recoverable loan held in the risk bearing fund by a
person carrying on banking business Subject to
the standards prescribed by the Nepal Rstara Bank
shall be deducted as an expense. Where the risk
bearing fund is so maintained, and the expenses
debited to the profits as a bad debt, the same shall
not be written off; and where the amount in that
fund is capitalized or profits or dividends are
distributed, the same shall be included in the
income of the year in which such distribution is
made."
(b) The following proviso shall be inserted in Sub-section (2)
of Section 59:
Provided that, if the amount as referred to in Sub-
section (1a) is deducted as expenditures, such loss shall
not be deductible.”
(30) Of Section 61:


245
(a) The following Sub-clause (2) shall be Substituted for
Sub-clause (2) of clause (b) of Sub-section (2):
"(2) The premiums as referred to in Sub-clause (1) of
clause (a) returned to the insured".
(b) The words "shall not be considered as expenses" hall be
Substituted for the words "shall be included in the
expenses" contained in Sub-section (3).
(31) Of Section 63:
(a) The following proviso shall be inserted in Sub-section (1):
"Provided that the Citizen Investment Fund established under
the Citizen Investment Fund Act, if it intends to maintain a
retirement fund, and the Employee Provident Fund establi hed
under the Employee Provident Fund Act, 2019(--), if it operates a
retirement fund, shall not be required to obtain permission for
such fund."
(b) The phrase " may make a claim for deduction in calculating his
income" shall be Substituted for the phrase "may make a claim
to deduct from the income" contained in Sub-section (2).
(32) The words "mentioned in Sub-section (1) of Section 2 of Schedule-1"
shall be Substituted for the words "applicable to companies" contained
in Sub-section (3) of Section 64.
(33) The words "or the retirement payments made by Government of Nepal"
shall be inserted after the words "from the interest" contained in the
second line of Sub-section (1) of Section 65.


246
(34) The word "employment" shall be Substituted for the words "such
acts" contained in the first line of Sub-clause (2) of clause (i) of Sub-
section (6) of Section 67.
(35) The following clause (b) shall be substituted for clause (b) of the
explanation contained in Section 71:
"(b) "Average rate of tax of Nepal" means the rate to be set by
multiplying with one hundred the amount to be set by dividing
the amount of tax payable by a person as referred to in clause (a)
of Section 3 in any income year by the taxable income of that
person in that year prior to the adjustment of any foreign tax in
that year."
(36) The following Sub-section (1) shall be Substituted for Sub-section (1)
of Section 74:
"(1) The taxpayer shall perform the duties as mentioned in this Act."
(37) The words “at least” contained in Sub-section (2) of Section 81 shall be
deleted.
(38) Of Section 88:
“(a) The word "and" shall be Substituted for the words "in making
payment and if that person is an approved retirement fund, any"
contained in Sub-section (1), and the following provis shall be
Substituted for the proviso to that Sub-section:
"Provided that, In the case of the retirement payment
made by the Government of Nepal or by the approved retirement
fund, at the Rate of six percent from the benefits calculated
pursuant to clause (b) of Sub-section (1) of Section 65,


247
(b) The following Sub-section (2) shall be Substituted for Sub-
section (2):
"(2) A resident person shall, in making the following
payments having source in Nepal, withhold tax at the
following rate:
(a) In making payment of dividends, five percent of
the amount paid,
(b) In making payment of investment insurance
benefits, five percent of the amount of benefits,
(c) In making payment of benefits from an
unapproved retirement fund, ten percent of the
amount of benefits".
(c) The following Sub-section (3) shall be Substituted for Sub-
section (3):
"(3) Notwithstanding anything contained in Sub-
section (1), in making payment of interest or of an
amount in the form of interest as follows by a resid nt
bank, financial institution or any other entity issuing
bonds or a company registered under the laws in
force to any individual for deposits, bonds,
debentures and governmental bonds, tax shall be
withheld from the total amount of payment at the rat
of six percent:
(a) Which has source in Nepal, and
(b) Which is not related with the operation of
business"


248
(39) The phrase "in the following conditions, the p rson Subject to tax
withholding" shall be Substituted for the phrase "In cases where the
person withholding tax does not withhold or pay tax as follows, both
the person Subject to tax withholding" contained in Sub-section (5) of
Section 90.
(40) Of Sub-section (1) of Section 92:
(a) The following clause (e) shall be Substituted for clause (e):
"(e) Interest as follows paid by a bank, financial institution or
any other entity issuing bonds or a company enlisted
pursuant to the laws in force, as mentioned in Sub-
section (3) of Section 88:
(1) Which has source in Nepal and which is not
related with the operation of business and paid to
an individual,
(2) Which is paid to an institution entitled to tax
exemption pursuant to clause (d) of Section 2.”
(b) The following clauses (g) and (h) shall be inserted after clause
(f):
"(g) Retirement payments made by the Government of Nepal
or an approved retirement fund, and
(h) Payment for meeting allowance, payment for teaching
based on the count of teaching, payment for setting
question papers and examination of answer paper."
(41) Of Section 94:


249
(a) The following Sub-section (1) shall be Substituted for Sub-
section (1):
"(1) A person who has or will have assessable income in any
income year from any business or investment has to pay
tax in three installments as follows:
Date on which payment has to be made Amount to be paid
By the end of Poush (mid January) Amount of due and payable tax
out of 40% of the estimated tax
By the end of Chaitra (mid April) Amount of due and payable tax
out of 70% of the estimated tax
By the end of Ashad (mid July) Amount of due and payable tax
out of 100% of the estimated tax

Explanation: For the purposes of this Sub-section,-
(a) "Estimated tax" means the estimated tax in installment
computed by any person liable to pay tax in installment
pursuant to Section 95 at the time when the installment
tax is to be paid in any year.
(b) "Due and payable tax" means the amount that remains
shortfall after Subtracting the following total sum from
the amount to be set by the percentage prescribed for
payment of estimated tax in installments under thisSub-
section:


250
(1) The amount of tax paid in that income year by a
prior installment pursuant to this Section before
the date on which the installment in question is to
be paid,
(2) The amount of tax deducted from the payments to
be included in computing the income of any
person in any income year pursuant to Chapter-17
before the date on which the installment in
question is to be paid in that year,
(3) In cases where the agent withholding tax or the
person Subject to tax withholding pays to the
Department the amount of tax deemed to be
withheld from the payment referred to in clause (2)
pursuant to Sub-section (3) of Section 90 in that
year before the date on which the installment is to
be paid, such amount of tax, and
(4) The amount of tax adjustment for medical
treatment expenses which that person may claim
pursuant to Section 51 in respect of the accepted
medical treatment expenses incurred by that
person before the date on which the installment is
to be paid."
(b) The words "total of all installments" shall be Substituted
for the words “of installments" contained in Sub-section
(2)."
(42) Of Section 95:


251
(a) The words "by the Department" shall be inserted after the
words "may be prescribed" contained in Sub-section (1).
(b) The words "or where it is so specified pursuant to Sub-section
(6) that any person is not required to Submit an estimate to pay
installment of tax" contained in Sub-section (7) shall be deleted.
(43) Of Sub-section (2) of Section 96:
(a) Sub-clauses (4) and (5) of clause (a) shall be del ted.
(b) Sub-clause (1) of clause (c) shall be deleted.
(44) Of Section 97:
(a) The words "except where the Department issues a written order
or issues order by publishing a public notice" shall be
Substituted for the words "except where the Departmen issues
a written order" contained at the beginning.
(b) The word "or" contained at the end of clause (b) shall be
deleted.
(c) The words “natural person or” shall be Substituted for the
words “natural person” contained at the end of clause (c).
(d) The following clause (d) shall be inserted after clause (c):
"(d) If the motor vehicle owner making payment of tax
pursuant to Sub-section (11) of Section 1 of Schedule-1 is
an individual, such individual."
(45) The word "fifteen" shall be Substituted for the word "seven"
contained in the fourth line of Sub-section (6) of Section 101.


252
(46) The word "Department" shall be Substituted for the words "Tax
Department" contained in Section 106.
(47) The words "assessment of expenses incurred in an auction sale as
referred to in Sub-section (5) of Section 105" shall be inserted after the
words "assessment of tax" contained in clause (e) of Sub-section (1) of
Section 114.
(48) The following Sub-section (6) shall be substituted for Sub-section (6) of
Section 115:
(6) Fifty percent of the amount of payable tax to be paid as deposit
while filing an applicant against a decision made by pursuant
to clause (e) of sub-section (1) of Section 114.
(49) Of Section 117:
(a) The words "0.1 percent" shall be Substituted for the words "one
and half percent" contained in Sub-section (1), andthe words
"per year" shall be Substituted for the words "per month"
contained in that Sub-section.
(b) The words "0.1 percent" shall be Substituted for the words "one
and half percent" contained in Sub-section (2), andthe words
"per year" shall be Substituted for the words "per month"
contained in that Sub-section.
(50) The following Section 118 shall be substituted for Section 118:
"118. Interest to be charged where the person making payment in
installments makes lesser payment of estimated tax:
(1) In cases where, in the case of the amount of installment to
be paid by any person under Section 94 in any income year,


253
the amount mentioned in clause (b) is more than the amount
mentioned in clause (a), interest shall be charged on such
excess amount pursuant to Sub-section (2):
(c) Amount of each installment paid by that person in any
income year,
(d) Eighty percent of the estimated or revised estimated
amount of total amount payable by installments for
each installment period in that income year if such
estimate or revised estimate is correct and, if such
estimated or revised estimated amount is not correct,
that of such amount, of the total amount of tax to be
paid by any person referred to in clauses (a) and (b) of
Section 3, as is to be paid in installment for each
installment period in any income year.
(2) A person mentioned in Sub-section (1) shall to pay interest
at standard rate of each month and portion of the month,
from the due date for payment of the installment in hat
year to the date excess amount is paid.
(3) Notwithstanding anything mentioned in Subsection (2), A
person mentioned in Sub-section who fails to pay the
excess amount even up to the due date to pay tax after
assessment of tax under Section 99, the person shall be
liable to pay an interest at standard interest rate for ach
month and portion of a month from the due date of
installment payment to the date due to pay tax after
assessment of tax under Section.
(51) Repeal : Section 66 shall be deleted.


254
(52) Amendment to Schedule-1:
(1) Of Section 1:
(a) The words "Eighty Thousand Rupees", "One Hundred
Thousand rupees", "one hundred Fifty five thousand
rupees", and " One Hundred Seventy-Five thousand
rupees", respectively shall be Substituted for the words
"fifty five thousand rupees", "seventy five thousand
rupees", "one hundred thirty thousand rupees" and "one
hundred fifty thousand rupees" contained in various
places of Sub-sections (1), (2), (3) and (4).
(b) The proviso to clause (b) of Sub-section (4) shall be
deleted.
(c) The following Sub-section (5) shall be Substituted for
Sub-section (5):
"(5) For the individuals working in the remote areas
specified by the Government of Nepal, a maximum
sum of thirty thousand rupees shall, for the remote
allowance, be deducted from the taxable income, as
prescribed, and the tax shall then be calculated on
the remaining amount only, in accordance with this
Section".
(d) Sub-section (6) shall be deldetd.
(e) The following Sub-sections (10), (11) and (12), shall be
inserted after Sub-section (9):
"(10) Notwithstanding anything contained elsewhere in
this Section, where any resident individual has


255
procured an insurance business, the amount to be
set by seven percent of the sum of investment
insurance or ten thousand rupees, whichever is
lesser, out of the premium paid for the same, shall
be deducted from the taxable income, and the tax
shall then be calculated on the remaining amount
only, in accordance with this Section".
(12) Notwithstanding anything contained elsewhere in
this Section, the owners of vehicles on hire shall
pay annual tax at the following rates. If the owner
of vehicle is an individual, the tax so paid shall be
final and binding.

Category of vehicles Annual tax payable
per vehicle
(a) Mini-bus, mini-truck, truck and bus Rs. 1,500/-
(b) Car, jeep, van and microbus Rs.1,200/-
(c) Three wheeler, auto-rickshaw, tempo Rs. 850/-
(d) Tractor and power tiller Rs. 750/-

(12) Notwithstanding anything contained elsewhere in
this Section, in the following cases where twenty
five percent of tax rate is applicable on taxable
income at the calculation of tax that shall be taxed
only at the rate of twenty percent.


256
(a) a natural person who is fully engaged in the
operation of a special industry mentioned in
Section 11 of this Act.
(b) a natural person who derives income from
export in an income year.
(2) Of Section 2:
(a) The following clause (b) shall be substituted for clause (b) of
Sub-section (3):
"(b) In cases where the entity,
(1) Builds and operates any road, bridge, tunnel,
ropeway or sky-bridge, or
(2) Operates any trolley bus or tram, or"
(3) Derives income from export in an income year.
(b) The following Sub-section (5) shall be Substituted for Sub-
section (5):
"(5) Tax shall be levied, pursuant to Sub-sections (1) and (4)
of Section 1 of this Schedule, on the taxable income f a
trust acquiring or looking after the property belonging to
any deceased resident person or of a disabled resident
individual in any income year as if the one who acquires
or looks after or that trust money or trust resident were an
individual."




257
Financial Ordinance, 2061 (2004)
Date of Authentication and the Publication
2061.4.1 (16 July 2004)
Ordinance Number 3 of the year 2061
An Act Made to Implement Proposals Relating to Finance of the Government
of Nepal
Preamble: Whereas, it is expedient to levy some charges, taxes, duties,
cesses and fees, continue or alter the existing ones a d also to amend the
laws in force relating to revenue administration in order to implement the
proposals relating to finance of the Government of Nepal;
Now, therefore, be it enacted by His Majesty the King Gyanendra Bir Bikram
Shah Dev. has, in accordance with Article 72 of Constitution kingdom of Nepal,
2047(1990).
1. Short title and commencement:
(1) This Ordinance may be called as the “Financial Ordinance, 2061
(2004)."
(2) This ordinance come into force immediately.
24. Amendment to the Income Tax Act, 2058 (2002): Of the Income Tax
Act, 2058(2002):-
(1) Of Section 2:
(a) The following clause (p1) shall be inserted after clause
(p):


258
(p1) "turn-over" means a turn-over equivalent to the
total amount to be included under Section 7, 8 or 9
for purposes of computing the income of a
business or investment in any income year."
(b) Of clause (r):
(1) The following Sub-clause (2a) shall be inserted
after Sub-clause (2):
(2a) A benefit of any beneficiary held in the
retirement fund,"
(2) The words "land and" shall be inserted before the
words "private building" contained in Sub-clause
(3).
(c) The following clause (s) shall be Substituted for clause
(s):
“(s) "organization entitled to enjoy exemption" means
the following entity:
(1) Any of the following entities registered in the
Department as an entity enjoying tax exemption:
(a) A social, religious, educational or
benevolent organization of public nature
established with non-profit motive,
(b) An amateur sports organization so formed
with a view to promoting social or sports
related facilities that the organization or its
member does not derive profits,


259
(2) A political party registered in the Election
Commission,
(3) Village Development Committee, Municipality or
District Development Committee,
(4) Nepal Rastra Bank,
(5) Government of Nepal,
Provided that, in cases where any person has
derived any benefit from the property of that organiz tion
and the monies obtained from that organization except in
making payment for the property or the service provided
by any person to that organization or in discharging
functions in consonance with the objective of the
organization entitled to exemption, tax exemption shall not
be granted to such organization."
(d) The figures "(1), (2), (3) and (4)" shall be sub tituted for the
figures "(1), (2) and (3)” contained in Sub-clause (5) of clause
(x).
(e) The following Sub-clauses (1) and (2) shall be Substituted for
Sub-clauses (1) and (2) of clause (ad):
“(1) Payment for having acquired the right to extrac water,
minerals or other living and non-living resources from the
earth, or
(2) Amounts calculated based on the quantity or value of
living or non-living resources of the natural resources
and minerals extracted fully or partly from the earth".


260
(f) The following clause (af) shall be Substituted for clause (af):
"(af) "Rent" means all payments including a premium received
for the house rent as well as for the lease of a tangible
property.
Provided that this term does not include any
payment made for natural resources".
(g) The following clause (ab) shall be substituted for clause (ab):
"(ab) "Investment" means the act of holding one or more
properties or investing such properties, except with the
followings:
(1) Holding any property used by the owner thereof in
personal use, or
(2) Employment or occupation.
Provided that holding non-business taxable property
shall be deemed as investment."
(h) Of clause (ae):
(a) The words " in respect of any income year" contained in
the first sentence of paragraph (b) of Sub-clause (1) shall
be deleted.
(b) The word "or" shall be inserted at the end of paragraph
(b) of Sub-clause (3).
(c) The word "or" shall be inserted at the end of para (a) of
Sub-clause (4).


261
(d) The following Sub-clause (4a) shall be inserted after Sub-
clause (4):
"(4a) Government of Nepal,"
(e) The word "or" shall be substituted for the word "and"
contained in the second sentence of Sub-clause (6).
(i) The words "exemption, premium under loan liability" shall be
substituted for the word "premium" contained in the first
sentence of paragraph (2) of Sub-clause (ai).
(j) The words "sold or" contained in clause (aj) shall be deleted.
(k) The figure "(5)" shall be substituted for the figure "(4)"
contained in the second sentence of clause (ao).
(l) The following clause (at1) shall be inserted after clause (aad):
"(at1) "adjusted taxable income" means taxable income
calculated without deducting any amounts as referred to in
Section 12 and without deducting any amount under Sub-
section (2) of Section 14, Section 17 or 18, while calculating the
taxable income of any person in any income year."
(m) The words "related with the work" contained in clause (aab)
shall be deleted, and the words "as referred to in clause (y)"
shall be inserted the words "any entity" contained in that
clause.
(2) Of section 4:
(a) The following Sub-section (l) shall be substituted for Sub-section (1):


262
"(1) The amount of tax required to be paid by any person
referred to in Section 3 for any income year shall be equal
to the total amount of tax required to be paid by such
person in capacity of any one or more than one person
mentioned in clauses (a), (b) and (c) of the Section."
(b) The words "or both Sections" shall be inserted after the figure
"71" as contained in Sub-section (2).
(c) The following clause (c) shall be Substituted for clause (c) of
Sub-section (3):
"(c) The employer has made a claim only for the adjustment of
tax on medical expenses paid by him and for Subtraction
of retirement contribution paid by the employer himself
and not claimed for Subtraction of expenses for donati
as referred to in Section 12."
(d) Of Sub-section (4):
(1) The following clause (a1) shall be inserted after clause
(a):
"(a1) Having not claimed for adjustment of tax for
medical expenses under Section 51 and for
advance tax deduction under Section 93,"
(2) The following clause (b) shall be substituted for clause (b):
"(b) The income earned from the business and the
turnover of the business do not exceed one
hundred Twenty thousand rupees and Twelve
Hundred Thousand rupees, respectively."


263
(e) The figures "87, 88 and 89" shall be substituted for the figure
"88" contained in the fourth line of Sub-section (6).
(3) The words "or both Sections" shall be inserted after the words
"Section 12 or 63" contained in Section 5.
(4) The words "or both Sections" shall be inserted after the words
"Section 11 or 64" contained in the proviso to clause (b) of
Section 6.
(5) The words "shall be income" shall be Substituted for the words
"shall be computed in the income" contained in Sub-section (1)
of Section 7.
(6) The words "shall be" shall be Substituted for the words
"computed as the income" contained in Sub-section (1) of
Section 9.
(7) Of Section 11:
(a) "Rural community based saving and lean co-operativ s
located in the municipality specified by the Department
as not developed with essential infrastructure and" shall
be inserted before the words "community based saving
and loan co-operatives" contained in Sub-section (2) and
at the end of the Sub-section.
(b) The following Sub-section (4) shall be Substituted for
Sub-section (4):
"(4) In computing the income by the person as referd
to in clauses (a) and (b) of Sub-sections (1), (2), and (3),
Sub-sections (1), (2), (3), and Section 11A., Sub-section
(12) of Section 1 of Schedule 1 and Sub-sections (3) and


264
(4) of Section 2 of Schedule 1 and a body doing
petroleum works pursuant to the Nepal Petroleum Act,
2040, such person or body shall compute the income as if
that only income were derived by other separate person."
(8) The following Section 11A. shall be inserted after Section 11:
"11A. Tax chargeable on the build and operate of
infrastructures: If any agreement is concluded between
the Government of Nepal and any person for building a d
operating infrastructures, the person building and
operating such infrastructures shall be entitled to enjoy
tax facilities provided by this Act pertaining to tax
prevailing at the time of conclusion of that agreem nt
during the period of such agreement."
(9) The following Sub-section (2) shall be Substituted for Sub-
section (2) of Section 12:
"(2) Notwithstanding anything contained in Sub-section (1),
the expenditure deductible in any income year under that
Sub-section shall not exceed one hundred thousand
rupees or five percent of the adjusted taxable income that
person in that year, whichever is lesser."
(10) of Section 14:
(1) Of Sub-section (2):
(a) The phrase "the total interest amount which a
resident entity controlled by an organization
entitled to tax exemption can deduct under Sub-
section (1) in any income year shall not exceed the


265
total of the following amounts if the interest is paid
to the controlling person or associated person"
shall be Substituted for the phrase "the total
interest amount which a resident entity controlled
by an organization entitled to tax exemption can
deduct under that Sub-section in any income year
shall not exceed the total of the following
amounts" contained at the end.
(b) The words "income of adjusted taxable income"
shall be Substituted for the words "of taxable
income" contained in clause (b)".
(11) Of Section 15:
"(a) The following proviso shall be inserted in explanation (c):
"Provided that, no amount in respect of repair and
maintenance and depreciation shall be included in the
overhead costs of a factory."
(b) The following proviso shall be inserted in explanation (d):
"Provided that, no amount in respect of repair and
maintenance and depreciation shall be included in the
variable overhead costs of a factory."
(12) Of Section 16:
(a) Of Sub-section (2):
(1) The word "seven" shall be Substituted for the
word "five" contained in the fourth line.


266
(2) The phrase "and where expenses are incurred in
excess thereof, such deduction can be made only
as per the order of such expenses incurred"
contained at the end shall be deleted.
(3) The following proviso shall be inserted at the end:
"Provided that this limitation shall not apply
to the repair and maintenance costs incurred by a
person providing air transport service in
overhauling an aircraft in accordance with the
standards fixed by the Civil Aviation Authority of
Nepal".
(13) Of Section 17:
(a) The following Sub-section (2) shall be Substituted for
Sub-section (2):
"(2) Notwithstanding anything contained in Sub-
section (1), in computing the limit of expenses
deductible under that Sub-section in any income
year, it shall not exceed fifty percent of the
adjusted taxable income earned from all businesses
operated by that person".
(b) The words "at the beginning of the coming income year"
shall be inserted after the word "capitalization" contained
in the second line of Sub-section (3).
(14) Of Section 18:
(a) The following Sub-section (2) shall be substituted for
Sub-section (2):


267
"(2) Notwithstanding anything contained in Sub-
section (1), in computing the limit of expenses
deductible under that Sub-section in any income
year, it shall not exceed fifty percent of the
adjusted taxable income earned from all businesses
operated by that person".
(b) The words "at the beginning of the coming income year"
shall be inserted after the word "capitalization" contained
in the second line of Sub-section (3).
(15) The words "shall" shall be substituted for the word "may"
contained in Sub-section (1) of Section 19.
(16) The following proviso shall be substituted for the proviso
contained in clause (b) of Sub-section (1) of Section 20:
"Provided that in the case of the projects which involve
building and operation of public infrastructures and are
transferred to the Government of Nepal and the projects on
construction of powerhouses and generation and transmission
of electricity, loss not deducted in the last seven income years
and the loss of a body doing petroleum works pursuant to the
Nepal Petroleum Act, 2040(--) not deducted in the last twelve
income years."
(17) The word "private" shall be Substituted for the words "made
for" contained in the second line of paragraph clause (1) of
explanation of Section 21.
(18) Of Section 24
(a) of Sub-clause (2):


268
(1) The words "in calculating the income earned by a
person" shall be Substituted for the words "in the
calculation of the income earned by the person"
contained in Sub-section (2),
(2) The following Sub-clause (2) shall be Substituted
for Sub-clause (2):
"(2) the value of such liability can be ascertained
actually, and"
(b) The following Sub-section (3) shall be Substituted for
Sub-section (3):
"(3) Notwithstanding anything contained in Sub-
section (1), the Department may recognize the accounting
specified by the Nepal Rastra Bank, Subject to the Nepal
Rastra Bank Act, 2058(2002) and the banking laws in
force, in respect of banking business."
(c) The following Sub-section (4) shall be Substituted for
Sub-section (4):
"(4) In calculating a person's income earned from a
business or investment on the accrual basis, where
the person includes any payment to which the
person is entitled or deducts any payment that the
person is obliged to make and a difference in the
payment received or made by the person occurs as
a result, inter alia, of a change in exchange rate,
the amount of difference shall be adjusted at the
time when payment is received or made."


269
(19) The words "refund of amount" shall be substituted for the
words "reimbursement of amount" contained in the second line
of clause (a) of Sub-section (1) of Section 25.
(20) The words "money or" contained in the second line of clause (a)
of Sub-section (1) of Section 27 and the words "money and"
contained in the same clause shall be deleted.
(21) The following Section 29 shall be Substituted for Section 29:
"29. Indirect payments: In cases where any person derives
benefits indirectly from payments made by the payer or a
person associated with him or specifies another person to
receive payment, the Department may, by issuing a notice
in writing, treat the person himself deriving such benefit
or specifying such other person as the recipient of
payment.”
(22) The word "seller" contained in Sub-section (3) of Section 32
shall be deleted.
(23) The following Sub-clause (2) shall be Substituted for Sub-clause
(2) of clause (a) of Sub-section (1) of Section 38:
"(2) Any amount required to be included in the assessment of
the income of that person as a result of acquisition of that
property."
(24) The word "payment" shall be Substituted for the words
"amount Subject to tax" contained in the proviso to clause (c) of
Sub-section (1) of Section 39.
(25) Of Section 41:


270
(a) The following Sub-clause (2) shall be Substituted for
Sub-clause (2) of clause (a):
"(2) In re-disposing that property, the net outgoings
made for that property until the disposal pursuant
to this Section shall be deemed to be equal to the
amount receivable."
(b) The following Sub-clause (2) shall be Substituted for
Sub-clause (2) of clause (b):
"(2) In re-disposing that liability, the net incomings
made for that liability pursuant to Sub-clause (1)
until the disposal under this Section shall be
deemed to be equal to the outgoings".
(26) The word "taxable" shall be substituted for the words "Subject
to tax" contained in Sub-section (2) of Section 45.
(27) Of Section 54:
(a) Of Sub-section (1):
(1) The words "if distributed" shall be inserted befor
the words "final" contained in clause (a).
(2) The following clause (b) shall be substituted for
clause (b):
"(b) No tax shall be imposed if other entities
make distribution."
(b) The following Sub-section (3) shall be substituted for
Sub-section (3):


271
"(3) Notwithstanding anything contained in Sub-
section (1), no tax shall be charged if dividend
received upon deduction of tax under that Sub-
section is distributed".
(c) Sub-section (4) shall be deleted.
(28) The following Sub-section (1a) shall be inserted after Sub-
section (1) of Section 57:
"(1a) For the purposes of computing the change of fifty
percent or more than fifty percent ownership of any
entity as referred to in Sub-section (1), only the following
ownership of that entity shall be included:
(a) The ownership held by a shareholder holding one
percent or more of the total ownership of that
entity, and
(b) The ownership held by an associated person of
the shareholder who holds more than one percent
of the total ownership of that entity, out of the
shareholders who hold less than one percent of
the total ownership of that entity."
(29) The following Sub-section (1) shall be Substituted for Sub-
section (1) of Section 58:
"(1) An arrangement made by any entity by maintaining all of
the following conditions shall be treated as an
arrangement made for reducing dividend tax:
(a) Where that entity has reserved, current or
expected profits,


272
(b) Where any person who acquires an interest of the
entity and the recipient of the interest or his
associated person makes any payment to the
present or previous beneficiary of the entity or his
associated person irrespective of whether or not it
is related to the acquisition of interest and whether
or not payment is made at the time of acquisition
of interest,
(c) Where the payment is fully or partly reflected in
the profits of that entity,
(d) Where that entity distributes dividends to the
recipient of interest and the dividends fully or
partly cover the profits."
(30) Of section 59:
(a) The following Sub-section (1a) shall be inserted after
Sub-section (1):
"(1a) An amount that is up to five percent of a due and
recoverable loan held in the risk bearing fund by a
person carrying on banking business Subject to
the standards prescribed by the Nepal Rstara Bank
shall be deducted as an expense. Where the risk
bearing fund is so maintained, and the expenses
debited to the profits as a bad debt, the same shall
not be written off; and where the amount in that
fund is capitalized or profits or dividends are
distributed, the same shall be included in the


273
income of the year in which such distribution is
made."
Provided that, if the amount as referred to in
Sub-section (1a) is deducted as expenditures, such
loss shall not be deductible.”
(31) Of Section 61:
(a) The following Sub-clause (2) shall be substituted for Sub-
clause (2) of clause (b) of Sub-section (2):
"(2) the premiums as referred to in Sub-clause (1) of
clause (a) returned to the insured".
(b) The words "shall not be considered as expenses" hall be
Substituted for the words "shall be included in the
expenses" contained in Sub-section (3).
(32) Of Section 63:
(a) The following proviso shall be inserted in Sub-section (1):
"Provided that the Citizen Investment Fund established under
the Citizen Investment Fund Act, if it intends to maintain a
retirement fund, and the Employee Provident Fund establi hed
under the Employee Provident Fund Act, 2019(--), if it operates a
retirement fund, shall not be required to obtain permission for
such fund."
(b) The phrase " may make a claim for deduction in calculating his
income" shall be Substituted for the phrase "may make a claim
to deduct from the income" contained in Sub-section (2).


274
(33) The words "mentioned in Sub-section (1) of Section 2 of Schedule-1"
shall be Substituted for the words "applicable to companies" contained
in Sub-section (3) of Section 64.
(34) The words "or the retirement payments made by Government of Nepal"
shall be inserted after the words "from the interest" contained in the
second line of Sub-section (1) of Section 65.
(35) The word "employment" shall be Substituted for the words "such
acts" contained in the first line of Sub-clause (2) of clause (i) of Sub-
section (6) of Section 67.
(36) The following clause (b) shall be substituted for clause (b) of the
explanation contained in Section 71:
"(b) "Average rate of tax of Nepal" means the rate to be set by
multiplying with one hundred the amount to be set by dividing
the amount of tax payable by a person as referred to in clause (a)
of Section 3 in any income year by the taxable income of that
person in that year prior to the adjustment of any foreign tax in
that year."
(37) The words "Big Taxpayer Office or" shall be inserted before the words
"Inland Revenue Office" contained in Sub-section (2) of Section 72.
(38) The following Sub-section (1) shall be Substituted for Sub-section (1)
of Section 74:
"(1) The taxpayer shall perform the duties as mentioned in this Act."
(39) The words “at least” contained in Sub-section (2) of Section 81 shall be
deleted.
(40) Of Section 88:


275
“(a) The word "and" shall be Substituted for the words "in making
payment and if that person is an approved retirement fund, any"
contained in Sub-section (1), and the following provis shall be
Substituted for the proviso to that Sub-section:
"Provided that, In the case of the retirement payment
made by the Government of Nepal or by the approved retirement
fund, at the Rate of six percent from the benefits calculated
pursuant to clause (b) of Sub-section (1) of Section 65,
(b) The following Sub-section (2) shall be Substituted for Sub-
section (2):
"(2) A resident person shall, in making the following
payments having source in Nepal, withhold tax at the
following rate:
(a) In making payment of dividends, five percent of
the amount paid,
(b) In making payment of investment insurance
benefits, five percent of the amount of benefits,
(c) In making payment of benefits from an
unapproved retirement fund, ten percent of the
amount of benefits".
(c) The following Sub-section (3) shall be Substituted for Sub-
section (3):
"(3) Notwithstanding anything contained in Sub-
section (1), in making payment of interest or of an
amount in the form of interest as follows by a resid nt
bank, financial institution or any other entity issuing


276
bonds or a company registered under the laws in
force to any individual for deposits, bonds,
debentures and governmental bonds, tax shall be
withheld from the total amount of payment at the rat
of six percent:
(a) Which has source in Nepal, and
(b) Which is not related with the operation of
business"
(d) The following clauses (a1) and (a2) shall be inserted after clause
(a) of Sub-section (4):
"(a1) Service fee paid to a resident company,
(a2) Payment for an article published in a newspaper nd for
preparing question papers and examining answer books.

(41) Of Section 90:
(a) The following Sub-section (1) shall be Substituted for Sub-
section (1):
"(1) Each person who is obliged to withhold tax has to Submit
to the Department a statement in such mode and format
as specified by the Department within fifteen days fter
the expiration of each month."
(b) The phrase "in the following conditions, the person Subject to
tax withholding" shall be substituted for the phrase "In cases
where the person withholding tax does not withhold or pay tax


277
as follows, both the person Subject to tax withholding"
contained in Sub-section (5).
(42) Of Sub-section (1) of Section 92:
(a) The following clause (e) shall be Substituted for clause (e):
"(e) Interest as follows paid by a bank, financial institution or
any other entity issuing bonds or a company enlisted
pursuant to the laws in force, as mentioned in Sub-
section (3) of Section 88:
(1) Which has source in Nepal and which is not
related with the operation of business and paid to
an individual,
(2) Which is paid to an institution entitled to tax
exemption pursuant to clause (d) of Section 2.”
(b) The following clauses (g) and (h) shall be inserted after clause
(f):
"(g) Retirement payments made by the Government of Nepal
or an approved retirement fund, and
(h) Payment for meeting allowance and part-time teaching."
(43) Of Section 94:
(a) The following Sub-section (1) shall be substituted for Sub-section (1):
"(1) A person who has or will have assessable income in any
income year from any business or investment has to pay
tax in three installments as follows:



278
Date on which payment has to be
made
Amount to be paid
By the end of Poush (mid January) Amount of due and payable tax out of 40%
of the estimated tax
By the end of Chaitra (mid April) Amount of due and payable tax out of 70%
of the estimated tax
By the end of Ashad (mid July) Amount of due and payable tax out of
100% of the estimated tax
Explanation: For the purposes of this Sub-section,-
(a) "Estimated tax" means the estimated tax in installment
computed by any person liable to pay tax in installment
pursuant to Section 95 at the time when the installment
tax is to be paid in any year.
(a) "Due and payable tax" means the amount that remains
shortfall after Subtracting the following total sum from
the amount to be set by the percentage prescribed for
payment of estimated tax in installments under thisSub-
section:
(1) The amount of tax paid in that income year by a
prior installment pursuant to this Section before
the date on which the installment in question is to
be paid,
(2) The amount of tax deducted from the payments to
be included in computing the income of any
person in any income year pursuant to Chapter-17


279
before the date on which the installment in
question is to be paid in that year,
(3) In cases where the agent withholding tax or the
person Subject to tax withholding pays to the
Department the amount of tax deemed to be
withheld from the payment referred to in clause (2)
pursuant to Sub-section (3) of Section 90 in that
year before the date on which the installment is to
be paid, such amount of tax, and
(4) The amount of tax adjustment for medical
treatment expenses which that person may claim
pursuant to Section 51 in respect of the accepted
medical treatment expenses incurred by that
person before the date on which the installment is
to be paid."
(b) The words "total of all installments" shall be
Substituted for the words “of installments" contained
in Sub-section (2)."
(44) Of Section 95:
(a) The words "by the Department" shall be inserted after the
words "may be prescribed" contained in Sub-section (1).
(b) The words "or where it is so specified pursuant to Sub-section
(6) that any person is not required to Submit an estimate to pay
installment of tax" contained in Sub-section (7) shall be deleted.
(45) Of Sub-section (2) of Section 96:
(a) Sub-clauses (4) and (5) of clause (a) shall be del ted.


280
(b) Sub-clause (1) of clause (c) shall be deleted.
(46) Of Section 97:
(a) The words "except where the Department issues a written order
or issues order by publishing a public notice" shall be
Substituted for the words "except where the Departmen issues
a written order" contained at the beginning.
(b) The word "or" contained at the end of clause (b) shall be
deleted.
(c) The words “natural person or” shall be Substituted for the
words “natural person” contained at the end of clause (c).
(d) The following clause (d) shall be inserted after clause (c):
"(d) If the motor vehicle owner making payment of tax
pursuant to Sub-section (11) of Section 1 of Schedule-1 is
an individual, such individual."
(47) The word "fifteen" shall be Substituted for the word "seven"
contained in the fourth line of Sub-section (6) of Section 101.
(48) The word "Department" shall be Substituted for the words "Tax
Department" contained in Section 106.
(49) The words "assessment of expenses incurred in an auction sale as
referred to in Sub-section (5) of Section 105" shall be inserted after the
words " assessment of tax" contained in clause (e) of Sub-section (1)
of Section 114.
(50) Of Section 115:
(a) The word “Sub-section (6) ” shall be deleted.


281
(b) The word "sixty" shall be Substituted for the word "ninety"
contained in Sub-section (8).
(51) Of Section 117:
(a) The words "0.1 percent" shall be Substituted for the words "one
and half percent" contained in Sub-section (1), andthe words
"per year" shall be Substituted for the words "per month"
contained in that Sub-section.
(b) The words "0.1 percent" shall be Substituted for the words "one
and half percent" contained in Sub-section (2), andthe words
"per year" shall be Substituted for the words "per month"
contained in that Sub-section.
(52) The following Section 118 shall be Substituted for Section 118:
"118. Interest to be charged where the person making payment in
installments makes lesser payment of estimated tax:
(1) In cases where, in the case of the amount of installment
to be paid by any person under Section 94 in any income
year, the amount mentioned in clause (b) is more than t e
amount mentioned in clause (a), interest shall be charged
on such excess amount pursuant to Sub-section (2):
(e) Amount of each installment paid by that person in
any income year,
(f) Eighty percent of the estimated or revised estimated
amount of total amount payable by installments for
each installment period in that income year if such
estimate or revised estimate is correct and, if such
estimated or revised estimated amount is not correct,


282
that of such amount, of the total amount of tax to be
paid by any person referred to in clauses (a) and (b)
of Section 3, as is to be paid in installment for each
installment period in any income year.
(2) A person mentioned in Sub-section (1) shall to pay
interest at standard rate of each month and portion of the
month, from the due date for payment of the installment
in that year to the date excess amount is paid.
(3) Notwithstanding anything mentioned in Subsection (2),
A person mentioned in Sub-section who fails to pay the
excess amount even up to the due date to pay tax after
assessment of tax under Section 99, the person shall be
liable to pay an interest at standard interest rate for ach
month and portion of a month from the due date of
installment payment to the date due to pay tax after
assessment of tax under Section.
(53) Repeal : Section 66 shall be deleted.
(54) Amendment to Schedule-1:
(1) Of Section 1:
(a) The words "Eighty thousand rupees", "one hundred
thousand rupees", "one hundred fifty five thousand
rupees", and " One hundred seventy-Five thousand
rupees", respectively shall be Substituted for the words
"fifty five thousand rupees", "seventy five thousand
rupees", "one hundred thirty thousand rupees" and "one
hundred fifty thousand rupees" contained in various
places of Sub-sections (1), (2), (3) and (4).


283
(b) The proviso to clause (b) of Sub-section (4) shall be
deleted.
(c) The following Sub-section (5) shall be Substituted for
Sub-section (5):
"(5) For the individuals working in the remote areas
specified by the Government of Nepal, a maximum
sum of thirty thousand rupees shall, for the remote
allowance, be deducted from the taxable income, as
prescribed, and the tax shall then be calculated on
the remaining amount only, in accordance with this
Section".
(d) The following Sub-section (6) shall be Substituted for
Sub-section (6):
"(6) For the employee working in the abroad based
diplomatic missions of the State of Nepal, seventy
five percent amount of their abroad allowance shall
be deducted from the taxable income, and the tax
shall then be calculated on the remaining amount
only, in accordance with this Section."
(e) The following Sub-sections (10), (11) and (12) shall be
inserted after Sub-section (9a):
"(10) Notwithstanding anything contained elsewhere in
this Section, where any resident individual has
procured an insurance business, the amount to be
set by seven percent of the sum of investment
insurance or ten thousand rupees, whichever is
lesser, out of the premium paid for the same, shall


284
be deducted from the taxable income, and the tax
shall then be calculated on the remaining amount
only, in accordance with this Section".
(13) Notwithstanding anything contained elsewhere in
this Section, the owners of vehicles on hire shall
pay annual tax at the following rates. If the owner
of vehicle is an individual, the tax so paid shall be
final and binding.

Category of vehicles Annual tax payable
per vehicle
(a) Mini-bus, mini-truck, truck and bus Rs. 1,500/-
(b) Car, jeep, van and microbus Rs.1,200/-
(c) Three wheeler, auto-rickshaw, tempo Rs. 850/-
(d) Tractor and power tiller Rs. 750/-

(12) Notwithstanding anything contained elsewhere in
this Section, in the following cases where twenty
five percent of tax rate is applicable on taxable
income at the calculation of tax that shall be taxed
only at the rate of twenty percent.
(a) a natural person who is fully engaged in the
operation of a special industry mentioned in
Section 11 of this Act.


285
(b) a natural person who derives income from
export in an income year.
(2) Of Section 2:
(a) The following clause (b) shall be Substituted for clause
(b) of Sub-section (3):
"(b) In cases where the entity,
(1) Builds and operates any road, bridge, tunnel,
ropeway or sky-bridge, or
(2) Operates any trolley bus or tram, or"
(3) Derives income from export in an income year.
(d) The following Sub-section (5) shall be Substituted for Sub-
section (5):
"(5) Tax shall be levied, pursuant to Sub-sections (1) and (4)
of Section 1 of this Schedule, on the taxable income f a
trust acquiring or looking after the property belonging to
any deceased resident person or of a disabled resident
individual in any income year as if the one who acquires
or looks after or that trust money or trust resident were an
individual."

Financial Ordinance, 2061 (2004)
Date of Authentication and the Publication
2061.10.1(15 Jan 2004)
Ordinance Number 22 of the year 2061


286
An Act Made to Implement Proposals Relating to Finance of the Government
of Nepal
Preamble: Whereas, it is expedient to levy some charges, taxes, duties,
cesses and fees, continue or alter the existing ones a d also to amend the
laws in force relating to revenue administration in order to implement the
proposals relating to finance of the Government of Nepal;
Now, therefore, be it enacted by His Majesty the King Gyanendra Bir
Bikram Shah Dev has, in accordance with Article 72 of Constitution kingdom
of Nepal, 2047(1990).
1. Short title and commencement:
(1) This Ordinance may be called as the “Financial Ordinance, 2061
(2004)."
(2) This ordinance come into force immediately.
24. Amendment to the Income Tax Act, 2058 (2002): Of the Income Tax
Act, 2058(2002):-
(1) Of Section 2:
(a) The following clause (p1) shall be inserted after clause
(p):
(p1) "turn-over" means a turn-over equivalent to the
total amount to be included under Section 7, 8 or 9
for purposes of computing the income of a
business or investment in any income year."
(b) Of clause (r):


287
(1) The following Sub-clause (2a) shall be inserted
after Sub-clause (2):
(2a) A benefit of any beneficiary held in the
retirement fund,"
(2) The words "land and" shall be inserted before the
words "private building" contained in Sub-clause
(3).
(c) The following clause (s) shall be Substituted for clause
(s):
“(s) "organization entitled to enjoy exemption" means
the following entity:
(1) Any of the following entities registered in the
Department as an entity enjoying tax exemption:
(a) A social, religious, educational or
benevolent organization of public nature
established with non-profit motive,
(b) An amateur sports organization so formed
with a view to promoting social or sports
related facilities that the organization or its
member does not derive profits,
(2) A political party registered in the Election
Commission,
(3) Village Development Committee, Municipality or
District Development Committee,
(4) Nepal Rastra Bank,


288
(5) Government of Nepal,
Provided that in cases where any person has derived any
benefit from the property of that organization and the
monies obtained from that organization except in making
payment for the property or the service provided by an
person to that organization or in discharging functions in
consonance with the objective of the organization
entitled to exemption, tax exemption shall not be granted
to such organization."
(d) The figures "(1), (2), (3) and (4)" shall be sub tituted for the
figures "(1), (2) and (3)” contained in Sub-clause (5) of clause
(x).
(e) The following Sub-clauses (1) and (2) shall be Substituted for
Sub-clauses (1) and (2) of clause (ad):
“(1) Payment for having acquired the right to extrac water,
minerals or other living and non-living resources from the
earth, or
(2) Amounts calculated based on the quantity or value of
living or non-living resources of the natural resources
and minerals extracted fully or partly from the earth".
(f) The following clause (af) shall be Substituted for clause (af):
"(af) "Rent" means all payments including a premium received
for the house rent as well as for the lease of a tangible
property.
Provided that this term does not include any
payment made for natural resources".


289
(g) The following clause (ab) shall be substituted for clause (ab):
"(ab) "Investment" means the act of holding one or more
properties or investing such properties, except with the
followings:
(1) Holding any property used by the owner thereof in
personal use, or
(2) Employment or occupation.
Provided that holding non-business taxable property
shall be deemed as investment."
(h) Of clause (ae):
(a) The words " in respect of any income year" contained in
the first sentence of paragraph (b) of Sub-clause (1) shall
be deleted.
(b) The word "or" shall be inserted at the end of paragraph
(b) of Sub-clause (3).
(c) The word "or" shall be inserted at the end of para (a) of
Sub-clause (4).
(d) The following Sub-clause (4a) shall be inserted after Sub-
clause (4):
"(4a) Government of Nepal,"
(e) The word "or" shall be substituted for the word "and"
contained in the second sentence of Sub-clause (6).


290
(i) The words "exemption, premium under loan liability" shall be
substituted for the word "premium" contained in the first
sentence of paragraph (2) of Sub-clause (ai).
(j) The words "sold or" contained in clause (aj) shall be deleted.
(k) The figure "(5)" shall be substituted for the figure "(4)"
contained in the second sentence of clause (ao).
(l) The following clause (at1) shall be inserted after clause (aad):
"(at1) "adjusted taxable income" means taxable income
calculated without deducting any amounts as referred to in
Section 12 and without deducting any amount under Sub-
section (2) of Section 14, Section 17 or 18, while calculating the
taxable income of any person in any income year."
(m) The words "related with the work" contained in clause (aab)
shall be deleted, and the words "as referred to in clause (y)"
shall be inserted the words "any entity" contained in that
clause.
(2) Of section 4:
(a) The following Sub-section (l) shall be substituted for Sub-
section (1):
"(1) The amount of tax required to be paid by any person
referred to in Section 3 for any income year shall be equal
to the total amount of tax required to be paid by such
person in capacity of any one or more than one person
mentioned in clauses (a), (b) and (c) of the Section."


291
(b) The words "or both Sections" shall be inserted after the figure
"71" as contained in Sub-section (2).
(c) The following clause (c) shall be Substituted for clause (c) of
Sub-section (3):
"(c) The employer has made a claim only for the adjustment of
tax on medical expenses paid by him and for Subtraction
of retirement contribution paid by the employer himself
and not claimed for Subtraction of expenses for donati
as referred to in Section 12."
(d) Of Sub-section (4):
(1) The following clause (a1) shall be inserted after clause
(a):
"(a1) Having not claimed for adjustment of tax for
medical expenses under Section 51 and for
advance tax deduction under Section 93,"
(2) The following clause (b) shall be substituted for clause (b):
"(b) The income earned from the business and the
turnover of the business do not exceed one
hundred fifty thousand rupees and one million five
hundred thousand rupees, respectively."
(e) The figures "87, 88 and 89" shall be substituted for the figure
"88" contained in the fourth line of Sub-section (6).
(3) The words "or both Sections" shall be inserted after the words
"Section 12 or 63" contained in Section 5.


292
(4) The words "or both Sections" shall be inserted after the words
"Section 11 or 64" contained in the proviso to clause (b) of
Section 6.
(5) The words "shall be income" shall be Substituted for the words
"shall be computed in the income" contained in Sub-section (1)
of Section 7.
(6) The words "shall be" shall be Substituted for the words
"computed as the income" contained in Sub-section (1) of
Section 9.
(7) Of Section 11:
(a) "Rural community based saving and lean co-operativ s
located in the municipality specified by the Department
as not developed with essential infrastructure and" shall
be inserted before the words "community based saving
and loan co-operatives" contained in Sub-section (2) and
at the end of the Sub-section. Provided that, in the case
of income of a community based saving and loan co-
operatives organization or association located in other
places it shall be levied Fifty percent.
Explanation: For the purpose of this Section income of a
co-operative organization or association shall mean the
income in an income received from the income in a
transaction between/among the members of such
organization or association" shall be inserted.
(b) The following Sub-section (4) shall be Substituted for
Sub-section (4):


293
"(4) In computing the income by the person as referd
to in clauses (a) and (b) of Sub-sections (1), (2), and (3),
Sub-sections (1), (2), (3), and Section 11A., Sub-section
(12) of Section 1 of Schedule 1 and Sub-sections (3) and
(4) of Section 2 of Schedule 1 and a body doing
petroleum works pursuant to the Nepal Petroleum Act,
2040, such person or body shall compute the income as if
that only income were derived by other separate person."
(8) The following Section 11A. shall be inserted after Section 11:
"11A. Tax chargeable on the build and operate of
infrastructures:
If any agreement is concluded between the Government
of Nepal and any person for building and operating
infrastructures, the person building and operating such
infrastructures shall be entitled to enjoy tax facilities
provided by this Act pertaining to tax prevailing at the
time of conclusion of that agreement during the period of
such agreement."
(9) The following Sub-section (2) shall be Substituted for Sub-
section (2) of Section 12:
"(2) Notwithstanding anything contained in Sub-section (1),
the expenditure deductible in any income year under that
Sub-section shall not exceed one hundred thousand
rupees or five percent of the adjusted taxable income that
person in that year, whichever is lesser."
(10) of Section 14:


294
(1) Of Sub-section (2):
(a) The phrase "the total interest amount which a
resident entity controlled by an organization
entitled to tax exemption can deduct under Sub-
section (1) in any income year shall not exceed the
total of the following amounts if the interest is paid
to the controlling person or associated person"
shall be Substituted for the phrase "the total
interest amount which a resident entity controlled
by an organization entitled to tax exemption can
deduct under that Sub-section in any income year
shall not exceed the total of the following
amounts" contained at the end.
(b) The words "income of adjusted taxable income"
shall be Substituted for the words "of taxable
income" contained in clause (b)".
(2) The words “except the Government of Nepal” shall be
inserted after the word “means” contained in explanation
of Sub-section (3).
(11) Of Section 15:
"(a) The following proviso shall be inserted in explanation (c):
"Provided that no amount in respect of repair and
maintenance and depreciation shall be included in the
overhead costs of a factory."
(b) The following proviso shall be inserted in explanation (d):


295
"Provided that no amount in respect of repair and
maintenance and depreciation shall be included in the
variable overhead costs of a factory."
(c) Sub-section (10) shall be deleted.
(12) Of Section 16:
(a) Of Sub-section (2):
(1) The word "seven" shall be Substituted for the
word "Five" contained in the fourth line.
(2) The phrase "and where expenses are incurred in
excess thereof, such deduction can be made only
as per the order of such expenses incurred"
contained at the end shall be deleted.
(3) The following proviso shall be inserted at the end:
"Provided that this limitation shall not apply
to the repair and maintenance costs incurred by a
person providing air transport service in
overhauling an aircraft in accordance with the
standards fixed by the Civil Aviation Authority of
Nepal".
(13) Of Section 17:
(a) The following Sub-section (2) shall be Substituted for
Sub-section (2):
"(2) Notwithstanding anything contained in Sub-
section (1), in computing the limit of expenses
deductible under that Sub-section in any income


296
year, it shall not exceed fifty percent of the
adjusted taxable income earned from all businesses
operated by that person".
(b) The words "at the beginning of the coming income year"
shall be inserted after the word "capitalization" contained
in the second line of Sub-section (3).
(14) Of Section 18:
(a) The following Sub-section (2) shall be substituted for
Sub-section (2):
"(2) Notwithstanding anything contained in Sub-
section (1), in computing the limit of expenses
deductible under that Sub-section in any income
year, it shall not exceed fifty percent of the
adjusted taxable income earned from all businesses
operated by that person".
(b) The words "at the beginning of the coming income year"
shall be inserted after the word "capitalization" contained
in the second line of Sub-section (3).
(15) The words "shall" shall be substituted for the word "may"
contained in Sub-section (1) of Section 19.
(16) The following proviso shall be substituted for the proviso
contained in clause (b) of Sub-section (1) of Section 20:
"Provided that in the case of the projects which involve
building and operation of public infrastructures and are
transferred to the Government of Nepal and the projects on
construction of powerhouses and generation and transmission


297
of electricity, loss not deducted in the last seven income years
and the loss of a body doing petroleum works pursuant to the
Nepal Petroleum Act, 2040(--) not deducted in the last twelve
income years."
(17) The word "private" shall be Substituted for the words "made
for" contained in the second line of paragraph clause (1) of
explanation of Section 21.
(18) Of Section 24
(a) of Sub-clause (2):
(1) The words "in calculating the income earned by a
person" shall be Substituted for the words "in the
calculation of the income earned by the person"
contained in Sub-section (2),
(2) The following Sub-clause (2) shall be Substituted
for Sub-clause (2):
"(2) the value of such liability can be
ascertained actually, and"
(b) The following Sub-section (3) shall be Substituted for
Sub-section (3):
"(3) Notwithstanding anything contained in Sub-
section (1), the Department may recognize the accounting
specified by the Nepal Rastra Bank, Subject to the Nepal
Rastra Bank Act, 2058(2002) and the banking laws in
force, in respect of banking business."
(c) The following Sub-section (4) shall be Substituted for


298
Sub-section (4):
"(4) In calculating a person's income earned from a
business or investment on the accrual basis, where
the person includes any payment to which the
person is entitled or deducts any payment that the
person is obliged to make and a difference in the
payment received or made by the person occurs as
a result, inter alia, of a change in exchange rate,
the amount of difference shall be adjusted at the
time when payment is received or made."
(19) The words "refund of amount" shall be substituted for the
words "reimbursement of amount" contained in the second line
of clause (a) of Sub-section (1) of Section 25.
(20) The words "money or" contained in the second line of clause (a)
of Sub-section (1) of Section 27 and the words "money and"
contained in the same clause shall be deleted.
(21) The following Section 29 shall be Substituted for Section 29:
"29. Indirect payments: In cases where any person derives
benefits indirectly from payments made by the payer or a
person associated with him or specifies another person to
receive payment, the Department may, by issuing a notice
in writing, treat the person himself deriving such benefit
or specifying such other person as the recipient of
payment.”
(22) The word "seller" contained in Sub-section (3) of Section 32
shall be deleted.


299
(23) The following Sub-clause (2) shall be Substituted for Sub-clause
(2) of clause (a) of Sub-section (1) of Section 38:
"(2) Any amount required to be included in the assessment of
the income of that person as a result of acquisition of that
property."
(24) The word "payment" shall be Substituted for the words
"amount Subject to tax" contained in the proviso to clause (c) of
Sub-section (1) of Section 39.
(25) Of Section 41:
(a) The following Sub-clause (2) shall be Substituted for
Sub-clause (2) of clause (a):
"(2) In re-disposing that property, the net outgoings
made for that property until the disposal pursuant
to this Section shall be deemed to be equal to the
amount receivable."
(b) The following Sub-clause (2) shall be Substituted for
Sub-clause (2) of clause (b):
"(2) In re-disposing that liability, the net incomings
made for that liability pursuant to Sub-clause (1)
until the disposal under this Section shall be
deemed to be equal to the outgoings".
(26) The word "taxable" shall be substituted for the words "Subject
to tax" contained in Sub-section (2) of Section 45.
(27) Of Section 54:
(a) Of Sub-section (1):


300
(1) The words "if distributed" shall be inserted befor
the words "final" contained in clause (a).
(2) The following clause (b) shall be substituted for
clause (b):
"(b) No tax shall be imposed if other entities
make distribution."
(b) The following Sub-section (3) shall be substituted for
Sub-section (3):
"(3) Notwithstanding anything contained in Sub-
section (1), no tax shall be charged if dividend
received upon deduction of tax under that Sub-
section is distributed".
(c) Sub-section (4) shall be deleted.
(28) The following Sub-section (1a) shall be inserted after Sub-
section (1) of Section 57:
"(1a) For the purposes of computing the change of fifty
percent or more than fifty percent ownership of any
entity as referred to in Sub-section (1), only the following
ownership of that entity shall be included:
(a) The ownership held by a shareholder holding one
percent or more of the total ownership of that
entity, and
(b) The ownership held by an associated person of
the shareholder who holds more than one percent
of the total ownership of that entity, out of the


301
shareholders who hold less than one percent of
the total ownership of that entity."
(29) The following Sub-section (1) shall be Substituted for Sub-
section (1) of Section 58:
"(1) An arrangement made by any entity by maintaining all of
the following conditions shall be treated as an
arrangement made for reducing dividend tax:
(a) Where that entity has reserved, current or
expected profits,
(b) Where any person who acquires an interest of the
entity and the recipient of the interest or his
associated person makes any payment to the
present or previous beneficiary of the entity or his
associated person irrespective of whether or not it
is related to the acquisition of interest and whether
or not payment is made at the time of acquisition
of interest,
(c) Where the payment is fully or partly reflected in
the profits of that entity,
(d) Where that entity distributes dividends to the
recipient of interest and the dividends fully or
partly cover the profits."
(30) Of section 59:
(a) The following Sub-section (1a) shall be inserted after
Sub-section (1):


302
"(1a) An amount that is up to five percent of a due and
recoverable loan held in the risk bearing fund by a
person carrying on banking business Subject to
the standards prescribed by the Nepal Rstara Bank
shall be deducted as an expense. Where the risk
bearing fund is so maintained, and the expenses
debited to the profits as a bad debt, the same shall
not be written off; and where the amount in that
fund is capitalized or profits or dividends are
distributed, the same shall be included in the
income of the year in which such distribution is
made."
Provided that, if the amount as referred to in
Sub-section (1a) is deducted as expenditures, such
loss shall not be deductible.”
(31) Of Section 61:
(a) The following Sub-clause (2) shall be Substituted for
Sub-clause (2) of clause (b) of Sub-section (2):
"(2) The premiums as referred to in Sub-clause (1) of
clause (a) returned to the insured".
(b) The words "shall not be considered as expenses" hall be
Substituted for the words "shall be included in the
expenses" contained in Sub-section (3).
(32) Of Section 63:
(a) The following proviso shall be inserted in Sub-section (1):


303
"Provided that the Citizen Investment Fund established under
the Citizen Investment Fund Act, if it intends to maintain a
retirement fund, and the Employee Provident Fund establi hed
under the Employee Provident Fund Act, 2019(--), if it operates a
retirement fund, shall not be required to obtain permission for
such fund."
(b) The phrase " may make a claim for deduction in calculating his
income" shall be Substituted for the phrase "may make a claim
to deduct from the income" contained in Sub-section (2).
(33) The words "mentioned in Sub-section (1) of Section 2 of Schedule-1"
shall be Substituted for the words "applicable to companies" contained
in Sub-section (3) of Section 64.
(34) The words "or the retirement payments made by Government of Nepal"
shall be inserted after the words "from the interest" contained in the
second line of Sub-section (1) of Section 65.
(35) The word "employment" shall be Substituted for the words "such
acts" contained in the first line of Sub-clause (2) of clause (i) of Sub-
section (6) of Section 67.
(36) The following clause (b) shall be substituted for clause (b) of the
explanation contained in Section 71:
"(b) "Average rate of tax of Nepal" means the rate to be set by
multiplying with one hundred the amount to be set by dividing
the amount of tax payable by a person as referred to in clause (a)
of Section 3 in any income year by the taxable income of that
person in that year prior to the adjustment of any foreign tax in
that year."


304
(37) The words "Big Taxpayer Office or" shall be inserted before the words
"Inland Revenue Office" contained in Sub-section (2) of Section 72.
(38) The following Sub-section (1) shall be Substituted for Sub-section (1)
of Section 74:
"(1) The taxpayer shall perform the duties as mentioned in this Act."
(39) The words “at least” contained in Sub-section (2) of Section 81 shall be
deleted.
(40) Of Section 88:
“(a) The word "and" shall be Substituted for the words "in making
payment and if that person is an approved retirement fund, any"
contained in Sub-section (1), and the following provis shall be
Substituted for the proviso to that Sub-section:
"Provided that, In the case of the retirement payment
made by the Government of Nepal or by the approved retirement
fund, at the Rate of six percent from the benefits calculated
pursuant to clause (b) of Sub-section (1) of Section 65,"
(b) The following Sub-section (2) shall be substituted for Sub-
section (2):
"(2) A resident person shall, in making the following
payments having source in Nepal, withhold tax at the
following rate:
(a) In making payment of dividends, five percent of
the amount paid,
(b) In making payment of investment insurance
benefits, five percent of the amount of benefits,


305
(c) In making payment of benefits from an
unapproved retirement fund, ten percent of the
amount of benefits".
(c) The following Sub-section (3) shall be substituted for Sub-
section (3):
"(3) Notwithstanding anything contained in Sub-
section (1), in making payment of interest or of an
amount in the form of interest as follows by a resid nt
bank, financial institution or any other entity issuing
bonds or a company registered under the laws in
force to any individual for deposits, bonds,
debentures and governmental bonds, tax shall be
withheld from the total amount of payment at the rat
of six percent:
(a) Which has source in Nepal, and
(b) Which is not related with the operation of
business"
(d) The following clauses (a1) and (a2) shall be inserted after clause
(a) of Sub-section (4):
"(a1) Service fee paid to a resident company,
(a2) Payment for an article published in a newspaper nd for
preparing question papers and examining answer books."
(41) Of Section 90:
(a) The following Sub-section (1) shall be Substituted for Sub-
section (1):


306
"(1) Each person who is obliged to withhold tax has to Submit
to the Department a statement in such mode and format
as specified by the Department within fifteen days fter
the expiration of each month."
(b) The phrase "in the following conditions, the person Subject to
tax withholding" shall be Substituted for the phrase "In cases
where the person withholding tax does not withhold or pay tax
as follows, both the person Subject to tax withholding"
contained in Sub-section (5).
(42) Of Sub-section (1) of Section 92:
(a) The following clause (e) shall be Substituted for clause (e):
"(e) Interest as follows paid by a bank, financial institution or
any other entity issuing bonds or a company enlisted
pursuant to the laws in force, as mentioned in Sub-
section (3) of Section 88:
(1) Which has source in Nepal and which is not
related with the operation of business and paid to
an individual,
(2) Which is paid to an institution entitled to tax
exemption pursuant to clause (d) of Section 2.”
(b) The following clauses (g) and (h) shall be inserted after clause
(f):
"(g) Retirement payments made by the Government of Nepal
or an approved retirement fund, and
(h) Payment for meeting allowance and part-time teaching."


307
(43) Of Section 94:
(a) The following Sub-section (1) shall be Substituted for Sub-
section (1):
"(1) A person who has or will have assessable income in any
income year from any business or investment has to pay
tax in three installments as follows:
Date on which payment has to be made Amount to be paid
By the end of Poush (mid January) Amount of due and payable tax
out of 40% of the estimated tax
By the end of Chaitra (mid April) Amount of due and payable tax
out of 70% of the estimated tax
By the end of Ashad (mid July) Amount of due and payable tax
out of 100% of the estimated tax
Explanation: For the purposes of this Sub-section,-
(a) "Estimated tax" means the estimated tax in installment
computed by any person liable to pay tax in installment
pursuant to Section 95 at the time when the installment
tax is to be paid in any year.
(b) "Due and payable tax" means the amount that remains
shortfall after Subtracting the following total sum from
the amount to be set by the percentage prescribed for
payment of estimated tax in installments under thisSub-
section:


308
(1) The amount of tax paid in that income year by a
prior installment pursuant to this Section before
the date on which the installment in question is to
be paid,
(2) The amount of tax deducted from the payments to
be included in computing the income of any
person in any income year pursuant to Chapter-17
before the date on which the installment in
question is to be paid in that year,
(3) In cases where the agent withholding tax or the
person Subject to tax withholding pays to the
Department the amount of tax deemed to be
withheld from the payment referred to in clause (2)
pursuant to Sub-section (3) of Section 90 in that
year before the date on which the installment is to
be paid, such amount of tax, and
(4) The amount of tax adjustment for medical
treatment expenses which that person may claim
pursuant to Section 51 in respect of the accepted
medical treatment expenses incurred by that
person before the date on which the installment is
to be paid."
(b) The words "total of all installments" shall be Substituted
for the words “of installments" contained in Sub-section
(2)."
(44) Of Section 95:


309
(a) The words "by the Department" shall be inserted after the
words "may be prescribed" contained in Sub-section (1).
(b) The words "or where it is so specified pursuant to Sub-section
(6) that any person is not required to Submit an estimate to pay
installment of tax" contained in Sub-section (7) shall be deleted.
(45) Of Sub-section (2) of Section 96:
(a) Sub-clauses (4) and (5) of clause (a) shall be del ted.
(b) Sub-clause (1) of clause (c) shall be deleted.
(46) Of Section 97:
(a) The words "except where the Department issues a written order
or issues order by publishing a public notice" shall be
Substituted for the words "except where the Departmen issues
a written order" contained at the beginning.
(b) The word "or" contained at the end of clause (b) shall be
deleted.
(c) The words “natural person or” shall be Substituted for the
words “natural person” contained at the end of clause (c).
(d) The following clause (d) shall be inserted after clause (c):
"(d) If the motor vehicle owner making payment of tax
pursuant to Sub-section (11) of Section 1 of Schedule-1 is
an individual, such individual."
(47) The word "fifteen" shall be Substituted for the word "seven"
contained in the fourth line of Sub-section (6) of Section 101.
(48) The word "Department" shall be Substituted for the words "Tax
Department" contained in Section 106.
(49) The words "assessment of expenses incurred in an auction sale as
referred to in Sub-section (5) of Section 105" shall be inserted after the


310
words " assessment of tax" contained in clause (e) of Sub-section (1)
of Section 114.
(50) Of Section 115:
(a) The word “Sub-section (6) ” shall be deleted.
(b) The word "sixty" shall be Substituted for the word "ninety" contained in Sub-section (8).
(51) Of Section 117:
(a) The words "0.1 percent" shall be Substituted for the words "one
and half percent" contained in Sub-section (1), andthe words
"per year" shall be Substituted for the words "per month"
contained in that Sub-section.
(b) The words "0.1 percent" shall be Substituted for the words "one
and half percent" contained in Sub-section (2), andthe words
"per year" shall be Substituted for the words "per month"
contained in that Sub-section.

(52) The following Section 118 shall be Substituted for Section 118:
"118. Interest to be charged where the person making payment in
installments makes lesser payment of estimated tax:
(1) In cases where, in the case of the amount of installment
to be paid by any person under Section 94 in any income
year, the amount mentioned in clause (b) is more than t e
amount mentioned in clause (a), interest shall be charged
on such excess amount pursuant to Sub-section (2):
(g) Amount of each installment paid by that person in
any income year,
(h) Eighty percent of the estimated or revised estimated
amount of total amount payable by installments for


311
each installment period in that income year if such
estimate or revised estimate is correct and, if such
estimated or revised estimated amount is not correct,
that of such amount, of the total amount of tax to be
paid by any person referred to in clauses (a) and (b)
of Section 3, as is to be paid in installment for each
installment period in any income year.
(2) A person mentioned in Sub-section (1) shall to pay
interest at standard rate of each month and portion of the
month, from the due date for payment of the installment
in that year to the date excess amount is paid.
(b) Notwithstanding anything mentioned in Subsection (2),
A person mentioned in Sub-section who fails to pay the
excess amount even up to the due date to pay tax after
assessment of tax under Section 99, the person shall be
liable to pay an interest at standard interest rate for ach
month and portion of a month from the due date of
installment payment to the date due to pay tax after
assessment of tax under Section.
(53) Repeal : Section 66 shall be deleted.
(54) Amendment to Schedule-1:
(1) Of Section 1:
(a) The words "Eighty thousand rupees", "one hundred
thousand rupees", "one hundred fifty five thousand
rupees", and " One hundred seventy-Five thousand
rupees", respectively shall be Substituted for the words
"fifty five thousand rupees", "seventy five thousand
rupees", "one hundred thirty thousand rupees" and "one


312
hundred fifty thousand rupees" contained in various
places of Sub-sections (1), (2), (3) and (4).
(b) The proviso to clause (b) of Sub-section (4) shall be
deleted.
(c) The following Sub-section (5) shall be Substituted for
Sub-section (5):
"(5) For the individuals working in the remote areas
specified by the Government of Nepal, a maximum
sum of thirty thousand rupees shall, for the remote
allowance, be deducted from the taxable income, as
prescribed, and the tax shall then be calculated on
the remaining amount only, in accordance with this
Section".
(d) The following Sub-section (6) shall be Substituted for
Sub-section (6):
"(6) For the employee working in the abroad based
diplomatic missions of the State of Nepal, seventy
five percent amount of their abroad allowance shall
be deducted from the taxable income, and the tax
shall then be calculated on the remaining amount
only, in accordance with this Section."
(e) The following Sub-sections (10), (11) and (12) shall be
inserted after Sub-section (9):
"(10) Notwithstanding anything contained elsewhere in
this Section, where any resident individual has
procured an insurance business, the amount to be
set by seven percent of the sum of investment
insurance or ten thousand rupees, whichever is


313
lesser, out of the premium paid for the same, shall
be deducted from the taxable income, and the tax
shall then be calculated on the remaining amount
only, in accordance with this Section".
(11) Notwithstanding anything contained elsewhere in
this Section, the owners of vehicles on hire shall
pay annual tax at the following rates. If the owner
of vehicle is an individual, the tax so paid shall be
final and binding.
Category of vehicles Annual tax
payable per
vehicle
(a) Mini-bus, mini-truck, truck and bus Rs. 1,500/-
(b) Car, jeep, van and microbus Rs.1,200/-
(c) Three wheeler, auto-rickshaw, tempo Rs. 850/-
(d) Tractor and power tiller Rs. 750/-

(12) Notwithstanding anything contained elsewhere in
this Section, in the following cases where twenty
five percent of tax rate is applicable on taxable
income at the calculation of tax that shall be taxed
only at the rate of twenty percent.
(a) a natural person who is fully engaged in the
operation of a special industry mentioned in
Section 11 of this Act.
(b) a natural person who derives income from
export in an income year.


314
(2) Of Section 2:
(a) The following clause (b) shall be Substituted for clause (b) of
Sub-section (3):
"(b) In cases where the entity,
(1) Builds and operates any road, bridge, tunnel,
ropeway or sky-bridge, or
(2) Operates any trolley bus or tram, or"
(3) Derives income from export in an income year.
(b) The following Sub-section (5) shall be Substituted for Sub-
section (5):
"(5) Tax shall be levied, pursuant to Sub-sections (1) and (4)
of Section 1 of this Schedule, on the taxable income f a
trust acquiring or looking after the property belonging to
any deceased resident person or of a disabled resident
individual in any income year as if the one who acquires
or looks after or that trust money or trust resident were an
individual."
Financial Ordinance, 2062 (2005)
Date of Authentication and the Publication
2062.4.1(16, July 2005)
Ordinance Number 12 of the year 2062
An Act Made to Implement Proposals Relating to Finance of the Government
of Nepal
Preamble:


315
Whereas, it is expedient to levy some charges, taxes, duties, cesses and fees,
continue or alter the existing ones and also to amend the laws in force relating
to revenue administration in order to implement theproposals relating to
finance of the Government of Nepal;
Now, therefore, be it enacted by His Majesty the King Gyanendra Bir Bikram
Shah Dev. has, in accordance with Article 72 of Constitution kingdom of Nepal,
2047(1990).
1. Short title and commencement:
(1) This Ordinance may be called as the “Financial Ordinance, 2062
(2005)."
(2) This ordinance come into force immediately.
26. Amendment to the Income Tax Act, 2058 (2002): Of the Income Tax
Act, 2058(2002):-
(1) Of Section 2:
(a) The following clause (p1) shall be inserted after clause
(p):
(p1) "turn-over" means a turn-over equivalent to the
total amount to be included under Section 7, 8 or 9
for purposes of computing the income of a
business or investment in any income year."
(b) Of clause (r):
(1) The following Sub-clause (2a) shall be inserted
after Sub-clause (2):


316
(2a) A benefit of any beneficiary held in the
retirement fund,"
(2) The words "land and" shall be inserted before the
words "private building" contained in Sub-clause
(3).
(c) The following clause (s) shall be Substituted for clause
(s):
“(s) "organization entitled to enjoy exemption" means
the following entity:
(1) Any of the following entities registered in the
Department as an entity enjoying tax exemption:
(a) A social, religious, educational or
benevolent organization of public nature
established with non-profit motive,
(b) An amateur sports organization so formed
with a view to promoting social or sports
related facilities that the organization or its
member does not derive profits,
(2) A political party registered in the Election
Commission,
(3) Village Development Committee, Municipality or
District Development Committee,
(4) Nepal Rastra Bank,
(5) Government of Nepal,


317
Provided that in cases where any person has derived any
benefit from the property of that organization and the
monies obtained from that organization except in making
payment for the property or the service provided by an
person to that organization or in discharging functions in
consonance with the objective of the organization
entitled to exemption, tax exemption shall not be granted
to such organization."
(d) The figures "(1), (2), (3) and (4)" shall be Substituted for the
figures "(1), (2) and (3)” contained in Sub-clause (5) of clause
(x).
(e) The following Sub-clauses (1) and (2) shall be Substituted for
Sub-clauses (1) and (2) of clause (ad):
“(1) Payment for having acquired the right to extrac water,
minerals or other living and non-living resources from the
earth, or
(2) Amounts calculated based on the quantity or value of
living or non-living resources of the natural resources
and minerals extracted fully or partly from the earth".
(f) The following clause (af) shall be Substituted for clause (af):
"(af) "Rent" means all payments including a premium received
for the house rent as well as for the lease of a tangible
property.
Provided that this term does not include any payment
made for natural resources".
(g) The following clause (ab) shall be Substituted for clause (ab):


318
"(ab) "Investment" means the act of holding one or more
properties or investing such properties, except with the
followings:
(1) Holding any property used by the owner thereof in
personal use, or
(2) Employment or occupation.
Provided that holding non-business taxable property
shall be deemed as investment."
(h) Of clause (ae):
(a) The words " in respect of any income year" contained in
the first sentence of paragraph (b) of Sub-clause (1) shall
be deleted.
(b) The word "or" shall be inserted at the end of paragraph
(b) of Sub-clause (3).
(c) The word "or" shall be inserted at the end of para (a) of
Sub-clause (4).
(d) The following Sub-clause (4a) shall be inserted after Sub-
clause (4):
"(4a) Government of Nepal,"
(e) The word "or" shall be Substituted for the word "and"
contained in the second sentence of Sub-clause (6).
(i) The words "exemption, premium under loan liability" shall be
Substituted for the word "premium" contained in the first
sentence of paragraph (2) of Sub-clause (ai).


319
(j) The words "sold or" contained in clause (aj) shall be deleted.
(k) The figure "(5)" shall be Substituted for the figure "(4)"
contained in the second sentence of clause (ao).
(l) The following clause (at1) shall be inserted after clause (aad):
"(at1) "adjusted taxable income" means taxable income
calculated without deducting any amounts as referred to in
Section 12 and without deducting any amount under Sub-
section (2) of Section 14, Section 17 or 18, while calculating the
taxable income of any person in any income year."
(m) The words "related with the work" contained in clause (aab)
shall be deleted, and the words "as referred to in clause (y)"
shall be inserted the words "any entity" contained in that
clause.
(2) Of section 4:
(a) The following Sub-section (l) shall be Substituted for Sub-
section (1):
"(1) The amount of tax required to be paid by any person
referred to in Section 3 for any income year shall be equal
to the total amount of tax required to be paid by such
person in capacity of any one or more than one person
mentioned in clauses (a), (b) and (c) of the Section."
(b) The words "or both Sections" shall be inserted after the figure
"71" as contained in Sub-section (2).
(c) The following clause (c) shall be substituted for clause (c) of
Sub-section (3):


320
"(c) The employer has made a claim only for the adjustment of
tax on medical expenses paid by him and for Subtraction
of retirement contribution paid by the employer himself
and not claimed for Subtraction of expenses for donati
as referred to in Section 12."
(d) Of Sub-section (4):
(1) The following clause (a1) shall be inserted after clause
(a):
"(a1) having not claimed for adjustment of tax for
medical expenses under Section 51 and for
advance tax deduction under Section 93,"
(2) The following clause (b) shall be substituted for clause (b):
"(b) The income earned from the business and the
turnover of the business do not exceed one
hundred fifty thousand rupees and one million five
hundred thousand rupees, respectively."
(e) The figures "87, 88 and 89" shall be Substituted for the figure
"88" contained in the fourth line of Sub-section (6).
(3) The words "or both Sections" shall be inserted after the words
"Section 12 or 63" contained in Section 5.
(4) The words "or both Sections" shall be inserted after the words
"Section 11 or 64" contained in the proviso to clause (b) of
Section 6.


321
(5) The words "shall be income" shall be Substituted for the words
"shall be computed in the income" contained in Sub-section (1)
of Section 7.
(6) The words "shall be" shall be Substituted for the words
"computed as the income" contained in Sub-section (1) of
Section 9.
(7) Of Section 11:
(a) "Rural community based saving and lean co-operativ s
located in the municipality specified by the Department
as not developed with essential infrastructure and" shall
be inserted before the words "community based saving
and loan co-operatives" contained in Sub-section (2) and
at the end of the Sub-section. Provided that, in the case
of income of a community based saving and loan co-
operatives organization or association located in other
places it shall be levied Fifty percent.
Explanation: For the purpose of this Section income of a
co-operative organization or association shall mean the
income in an income received from the income in a
transaction between/among the members of such
organization or association" shall be inserted.
(b) The following Sub-sections (2a) shall be inserted after
Sub-section (2):
"(2a) No person shall be levied tax in the income
received from the cottage industry in an income year.


322
(2b) No tax shall be levied in an income received
from the interested out of the deposit amount which is
upto Ten Thousand Rupees to a depositor which is a
group or who is a member of such group, in a micro
finance programme operated by the Bank or financial
institution providing micro finance service in the rural
area."
(c) The following Sub-sections (3a) and (3b) shall be inserted
after Sub-section (3):
“(3a) The following tax shall be levied to a person
in the income year on an income received from import:
(a) Fifty percent of the income tax chargeable
on the income of an industry established in
the special economic zone or export
promotion region as specified by the
Government of Nepal by a Notification in
the Nepal Gazette.”
(b) Twenty-five percent of the income tax
chargeable on the income of an information
technology industry established in the
information technology park as specified by
the Government of Nepal by a Notification
in the Nepal Gazette.”
(c) Seventy-five percent of the income tax
chargeable on the income of Sub-section
(12) of Section 1 of Schedule-1 and Sub-
section (3) of Section 2 of Schedule-1,


323
except in an income referred to in Clause
(a) and (b),
(3b) Rate of Two percent taxes shall be less for
the company which has listed its share and securities in
Nepal Security Exchange Market LTD."
(d) The following Sub-section (4) shall be Substituted for
Sub-section (4):
"(4) In computing the income by the person as referd
to in clauses (a) of Sub-section 3, Sub-section (1), (2), 2a,
2b and (3), Clause (b) of Sub-sections 3, (3a), (3b) and
Section 11A., Sub-section (12) of Section 1 of Schedul 1
and Sub-sections (3) and (4) of Section 2 of Schedule 1
and a body doing petroleum works pursuant to the Nepal
Petroleum Act, 2040, such person or body shall compute
the income as if that only income were derived by other
separate person."
(e) The following Sub-section (5) shall be Substituted for
Sub-section (5):
"(5) A person who is in a position to have more than
one exemption in respect of the same income pursuant to
the above mentioned Sub-sections shall enjoy only oe
exemption chosen by him."
(f) The following Clause (d) shall be inserted after Clause (c) of
clarification of Sub-section (6):
(f) The following Clause (d) shall be inserted after Clause (c)
of explanation of Sub-section (6):


324
“(d) "Cottage industry" shall mean a production
oriented industry which is labour intensive, using special
skill related with national tradition, art and culture or local
raw material and resources.
Provided that, the following industries shall not
considered cottage industries:
(a) Dying, carpet, Pasmina, woolen garments.
(b) Such an industry should not use a motor
more than Five Kilo watt upon using
electricity or Diesel crude oil.
(8) The following Section 11A. shall be inserted after Section 11:
"11A. Tax chargeable on the build and operate of
infrastructures:
If any agreement is concluded between the Government
of Nepal and any person for building and operating
infrastructures, the person building and operating such
infrastructures shall be entitled to enjoy tax facilities
provided by this Act pertaining to tax prevailing at the
time of conclusion of that agreement during the period of
such agreement."
(9) The following Sub-section (2) shall be Substituted for Sub-
section (2) of Section 12:
"(2) Notwithstanding anything contained in Sub-section (1),
the expenditure deductible in any income year under that
Sub-section shall not exceed one hundred thousand


325
rupees or five percent of the adjusted taxable income that
person in that year, whichever is lesser."
(10) of Section 14:
(1) Of Sub-section (2):
(a) The phrase "the total interest amount which a
resident entity controlled by an organization
entitled to tax exemption can deduct under Sub-
section (1) in any income year shall not exceed the
total of the following amounts if the interest is paid
to the controlling person or associated person"
shall be Substituted for the phrase "the total
interest amount which a resident entity controlled
by an organization entitled to tax exemption can
deduct under that Sub-section in any income year
shall not exceed the total of the following
amounts" contained at the end.
(b) The words "income of adjusted taxable income"
shall be Substituted for the words "of taxable
income" contained in clause (b)".
(11) Of Section 15:
"(a) The following proviso shall be inserted in explanation (c):
"Provided that, no amount in respect of repair and
maintenance and depreciation shall be included in the
overhead costs of a factory."
(b) The following proviso shall be inserted in explanation (d):


326
"Provided that, no amount in respect of repair and
maintenance and depreciation shall be included in the
variable overhead costs of a factory."
(12) Of Section 16:
(a) Of Sub-section (2):
(1) The word "seven" shall be Substituted for the
word "four" contained in the fourth line.
(2) The phrase "and where expenses are incurred in
excess thereof, such deduction can be made only
as per the order of such expenses incurred"
contained at the end shall be deleted.
(3) The following proviso shall be inserted at the end:
"Provided that this limitation shall not apply to the
repair and maintenance costs incurred by a person
providing air transport service in overhauling an
aircraft in accordance with the standards fixed by
the Civil Aviation Authority of Nepal".
(b) The following Sub-section (3) shall be Substituted for
Sub-section (3):
"(3) Any excess expense or part thereof which is not
deductible by virtue of the limit referred to in Sub-
section (2) may be added to the depreciation base
amount of the group of the concerned property at
the beginning of the forthcoming income year".
(13) Of Section 17:


327
(a) The following Sub-section (2) shall be Substituted for
Sub-section (2):
"(2) Notwithstanding anything contained in Sub-
section (1), in computing the limit of expenses
deductible under that Sub-section in any income
year, it shall not exceed fifty percent of the
adjusted taxable income earned from all businesses
operated by that person".
(b) The words "at the beginning of the coming income year"
shall be inserted after the word "capitalization" contained
in the second line of Sub-section (3).
(14) Of Section 18:
(a) The following Sub-section (2) shall be Substituted for
Sub-section (2):
"(2) Notwithstanding anything contained in Sub-
section (1), in computing the limit of expenses
deductible under that Sub-section in any income
year, it shall not exceed fifty percent of the
adjusted taxable income earned from all businesses
operated by that person".
(b) The words "at the beginning of the coming income year"
shall be inserted after the word "capitalization" contained
in the second line of Sub-section (3).
(15) The words "shall" shall be Substituted for the word "may"
contained in Sub-section (1) of Section 19.


328
(16) The following proviso shall be substituted for the proviso
contained in clause (b) of Sub-section (1):
"Provided that in the case of the projects which involve
building and operation of public infrastructures and are
transferred to the Government of Nepal and the projects on
construction of powerhouses and generation and transmission
of electricity, loss not deducted in the last seven income years
and the loss of a body doing petroleum works pursuant to the
Nepal Petroleum Act, 2040 not deducted in the last twelve
income years."
(17) Of Section 21:
(a) The word "private" shall be Substituted for the words
"made for" contained in the second line of paragraph
clause (1) of explanation of Section 21.
(b) The following Clause (d1) shall be inserted after Clause
(d) of Sub- section (2) :
"(d1) Special fee paid for declaration of stock
regulation."
(18) Of Section 24
(a) of Sub-section (2) :
(1) The words "in calculating the income earned by a
person" shall be substituted for the words "in the
calculation of the income earned by the person"
contained in second line of Sub-section (2).


329
(2) The following Sub-clause (2) shall be Substituted
for Sub-clause (2) Clause (a):
"(2) If the value of such liability could be
forecasted in realistic manner, and"
(b) The following Sub-section (3) shall be Substituted for
Sub-section (3):
"(3) Notwithstanding anything contained in Sub-
section (1), the Department may recognize the accounting
specified by the Nepal Rastra Bank, Subject to the Nepal
Rastra Bank Act, 2058(2002) and the banking laws in
force, in respect of banking business."
(c) The following Sub-section (4) shall be Substituted for
Sub-section (4):
"(4) In calculating a person's income earned from a
business or investment on the accrual basis, where
the person includes any payment to which the
person is entitled or deducts any payment that the
person is obliged to make and a difference in the
payment received or made by the person occurs as
a result, inter alia, of a change in exchange rate,
the amount of difference shall be adjusted at the
time when payment is received or made."
(19) The words "refund of amount" shall be Substituted for the
words "reimbursement of amount" contained in the second line
of clause (a) of Sub-section (1) of Section 25.
(20) The words "money or" contained in the second line of clause (a)


330
of Sub-section (1) of Section 27 and the words "money and"
contained in the same clause shall be deleted.
(21) The following Section 29 shall be Substituted for Section 29:
"29. Indirect payments: In cases where any person derives
benefits indirectly from payments made by the payer or a
person associated with him or specifies another person to
receive payment, the Department may, by issuing a notice
in writing, treat the person himself deriving such benefit
or specifying such other person as the recipient of
payment.”
(22) The word "seller" contained in Sub-section (3) of Section 32
shall be deleted.
(23) The following Sub-clause (2) shall be Substituted for Sub-clause
(2) of clause (a) of Sub-section (1) of Section 38:
"(2) Any amount required to be included in the assessment of
the income of that person as a result of acquisition of that
property."
(24) The word "payment" shall be Substituted for the words
"amount Subject to tax" contained in the proviso to clause (c) of
Sub-section (1) of Section 39.
(25) Of Section 41:
(a) The following Sub-clause (2) shall be Substituted for
Sub-clause (2) of clause (a):
"(2) In re-disposing that property, the net outgoings
made for that property until the disposal pursuant


331
to this Section shall be deemed to be equal to the
amount receivable."
(b) The following Sub-clause (2) shall be Substituted for
Sub-clause (2) of clause (b):
"(2) In re-disposing that liability, the net incomings
made for that liability pursuant to Sub-clause (1)
until the disposal under this Section shall be
deemed to be equal to the outgoings".
(26) The word "taxable" shall be Substituted for the words "Subject
to tax" contained in Sub-section (2) of Section 45.
(27) The following Sub-section (3) shall be inserted after Sub-section
(2) of Section 50:
"(3) Notwithstanding anything contained in Sub-sections (1)
and (2), a resident widow or widower who has to maintain
and Subsist dependents shall be treated as spouse."
(28) Of Section 54:
(a) Of Sub-section (1):
(1) The words "if distributed" shall be inserted befor
the words "final" contained in clause (a).
(2) The following clause (b) shall be Substituted for
clause (b):
"(b) No tax shall be imposed if other entities
make distribution."


332
(b) The following Sub-section (3) shall be substituted for
Sub-section (3):
"(3) Notwithstanding anything contained in Sub-
section (1), no tax shall be charged if dividend
received upon deduction of tax under that Sub-
section is distributed".
(c) Sub-section (4) shall be deleted.
(29) The following Sub-section (1a) shall be inserted after Sub-
section (1) of Section 57:
"(1a) For the purposes of computing the change of fifty
percent or more than fifty percent ownership of any
entity as referred to in Sub-section (1), only the following
ownership of that entity shall be included:
(a) The ownership held by a shareholder holding one
percent or more of the total ownership of that
entity, and
(b) The ownership held by an associated person of
the shareholder who holds more than one percent
of the total ownership of that entity, out of the
shareholders who hold less than one percent of
the total ownership of that entity."
(30) The following Sub-section (1) shall be Substituted for Sub-
section (1) of Section 58:
"(1) An arrangement made by any entity by maintaining all of
the following conditions shall be treated as an
arrangement made for reducing dividend tax:


333
(a) Where that entity has reserved, current or
expected profits,
(b) Where any person who acquires an interest of the
entity and the recipient of the interest or his
associated person makes any payment to the
present or previous beneficiary of the entity or his
associated person irrespective of whether or not it
is related to the acquisition of interest and whether
or not payment is made at the time of acquisition
of interest,
(c) Where the payment is fully or partly reflected in
the profits of that entity,
(d) Where that entity distributes dividends to the
recipient of interest and the dividends fully or
partly cover the profits."
(31) Of section 59:
(a) The following Sub-section (1a) shall be inserted after
Sub-section (1):
"(1a) An amount that is up to five percent of a due and
recoverable loan held in the risk bearing fund by a
person carrying on banking business Subject to
the standards prescribed by the Nepal Rstara Bank
shall be deducted as an expense. Where the risk
bearing fund is so maintained, and the expenses
debited to the profits as a bad debt, the same shall
not be written off; and where the amount in that
fund is capitalized or profits or dividends are


334
distributed, the same shall be included in the
income of the year in which such distribution is
made."
(b) The following proviso shall be inserted in Sub-section
(2):
"Provided that if the amount as referred to in Sub-section
(1a) is deducted as expenditures, such loss shall not be
deductible.”
(32) Of Section 61:
(a) The following Sub-clause (2) shall be Substituted for
Sub-clause (2) of clause (b) of Sub-section (2):
"(2) The premiums as referred to in Sub-clause (1) of
clause (a) returned to the insured".
(b) The words "shall not be considered as expenses" hall be
Substituted for the words "shall be included in the
expenses" contained in Sub-section (3).
(33) Of Section 63:
(a) The following proviso shall be inserted in Sub-section
(1):
"Provided that, the Citizen Investment Fund
established under the Citizen Investment Fund Act, if it
intends to maintain a retirement fund, and the Employee
Provident Fund established under the Employee
Provident Fund Act, 2019(--), if it operates a retirement


335
fund, shall not be required to obtain permission for such
fund."
(b) The phrase " may make a claim for deduction in
calculating his income" shall be Substituted for the
phrase "may make a claim to deduct from the income"
contained in Sub-section (2).
(34) The words "mentioned in Sub-section (1) of Section 2 of Schedule-1"
shall be Substituted for the words "applicable to companies" contained
in Sub-section (3) of Section 64.
(35) The words "or the retirement payments made by Government of Nepal"
shall be inserted after the words "from the interest" contained in the
second line of Sub-section (1) of Section 65.
(36) Section 66 shall be repealed.
(37) The word "employment" shall be Substituted for the words "such
acts" contained in the first line of Sub-clause (2) of clause (i) of Sub-
section (6) of Section 67.
(38) The following clause (b) shall be Substituted for clause (b) of the
explanation contained in Section 71:
"(b) Average rate of tax of Nepal" means the rate to be set
by multiplying with one hundred the amount to be set
by dividing the amount of tax payable by a person as
referred to in clause (a) of Section 3 in any income year
by the taxable income of that person in that year prior to
the adjustment of any foreign tax in that year."
(39) The words "Big Taxpayer Office or" shall be inserted before the words
"Inland Revenue Office" contained in Sub-section (2) of Section 72.


336
(40) The following Sub-section (1) shall be substituted for Sub-section (1)
of Section 74:
"(1) The taxpayer shall perform the duties as mentioned in this Act."
(41) The words “at least” contained in Sub-section (2) of Section 81 shall be
deleted.
(42) Of Section 88:
“(a) The word "and" shall be Substituted for the words "in making
payment and if that person is an approved retirement fund, any"
contained in Sub-section (1), and the following provis shall be
Substituted for the proviso to that Sub-section:
"Provided that, tax shall be withheld, In the case of the
retirement payment made by the Government of Nepal or by the
approved retirement fund, at the Rate of six percent from the
benefits calculated pursuant to clause (b) of Sub-section (1) of
Section 65, and in the case of the commission paid by a resident
employer company to a non-resident person, at the rate of Five
percent,
(b) The following Sub-section (2) shall be Substituted for Sub-
section (2):
"(2) A resident person shall, in making the following
payments having source in Nepal, withhold tax at the
following rate:
(a) In making payment of dividends, five percent of
the amount paid,


337
(b) In making payment of investment insurance
benefits, five percent of the amount of benefits,
(c) In making payment of benefits from an
unapproved retirement fund, ten percent of the
amount of benefits".
(c) The following Sub-section (3) shall be Substituted for Sub-
section (3):
"(3) Notwithstanding anything contained in Sub-
section (1), in making payment of interest or of an
amount in the form of interest as follows by a resid nt
bank, financial institution or any other entity issuing
bonds or a company registered under the laws in
force to any individual for deposits, bonds,
debentures and governmental bonds, tax shall be
withheld from the total amount of payment at the rat
of six percent:
(a) Which has source in Nepal, and
(b) Which is not related with the operation of busine s."
(d) The following clauses (a1) and (a2) shall be inserted after clause
(a) of Sub-section (4):
"(a1) Service fee paid to a resident company,
(a2) Payment for an article published in a newspaper nd for
preparing question papers and examining answer books."
(e) The following clause (d) shall be inserted after clause (c) of Sub-
section (4):


338
"(d) The interregional interchange fee paid to a bank issuing
credit card."
(43) Of Section 90:
(a) The following Sub-section (1) shall be substituted for Sub-
section (1):
"(1) Each person who is obliged to withhold tax has to Submit
to the Department a statement in such mode and format
as specified by the Department within fifteen days fter
the expiration of each month."
(b) The phrase "in the following conditions, the person Subject to
tax withholding" shall be Substituted for the phrase "In cases
where the person withholding tax does not withhold or pay tax
as follows, both the person Subject to tax withholding"
contained in Sub-section (5).
(44) Of Sub-section (1) of Section 92:
(a) The following clause (e) shall be Substituted for clause (e):
"(e) Interest as follows paid by a bank, financial institution or
any other entity issuing bonds or a company enlisted
pursuant to the laws in force, as mentioned in Sub-
section (3) of Section 88:
(1) Which has source in Nepal and which is not
related with the operation of business and paid to
an individual,
(2) Which is paid to an institution entitled to tax
exemption pursuant to clause (d) of Section 2.”


339
(b) The following clauses (g) and (h) shall be inserted after clause
(f):
"(g) Retirement payments made by the Government of Nepal
or an approved retirement fund, and
(h) Payment for meeting allowance and part-time teaching."
(45) Of Section 94:
(a) The following Sub-section (1) shall be substituted for Sub-
section (1):
"(1) A person who has or will have assessable income in any
income year from any business or investment has to pay
tax in three installments as follows:
Date on which payment has to be made Amount to be paid
By the end of Poush (mid January) Amount of due and payable tax
out of 40% of the estimated tax
By the end of Chaitra (mid April) Amount of due and payable tax
out of 70% of the estimated tax
By the end of Ashad (mid July) Amount of due and payable tax
out of 100% of the estimated tax

Explanation: For the purposes of this Sub-section,-
(a) "Estimated tax" means the estimated tax in installment
computed by any person liable to pay tax in installment


340
pursuant to Section 95 at the time when the installment
tax is to be paid in any year.
(c) "Due and payable tax" means the amount that remains
shortfall after Subtracting the following total sum from
the amount to be set by the percentage prescribed for
payment of estimated tax in installments under thisSub-
section:
(1) The amount of tax paid in that income year by a
prior installment pursuant to this Section before
the date on which the installment in question is to
be paid,
(2) The amount of tax deducted from the payments to
be included in computing the income of any
person in any income year pursuant to Chapter-17
before the date on which the installment in
question is to be paid in that year,
(3) In cases where the agent withholding tax or the
person Subject to tax withholding pays to the
Department the amount of tax deemed to be
withheld from the payment referred to in clause (2)
pursuant to Sub-section (3) of Section 90 in that
year before the date on which the installment is to
be paid, such amount of tax, and
(4) The amount of tax adjustment for medical
treatment expenses which that person may claim
pursuant to Section 51 in respect of the accepted
medical treatment expenses incurred by that


341
person before the date on which the installment is
to be paid."
(b) The words "total of all installments" shall be Substituted for the
words “of installments" contained in Sub-section (2)."
(46) Of Section 95:
(a) The words "by the Department" shall be inserted after the
words "may be prescribed" contained in Sub-section (1).
(b) The words "or where it is so specified pursuant to Sub-section
(6) that any person is not required to Submit an estimate to pay
installment of tax" contained in Sub-section (7) shall be deleted.
(47) Of Sub-section (2) of Section 96:
(a) Sub-clauses (4) and (5) of clause (a) shall be del ted.
(b) Sub-clause (1) of clause (c) shall be deleted.
(48) Of Section 97:
(a) The words "except where the Department issues a written order
or issues order by publishing a public notice" shall be
Substituted for the words "except where the Departmen issues
a written order" contained at the beginning.
(b) The word "or" contained at the end of clause (b) shall be
deleted.
(c) A comma sign “,” shall be Substituted for the full stop sign “.”
contained at the end of Clause (c) and shall be insrted "or".
(d) The following clause (d) shall be inserted after clause (c):


342
"(d) If the motor vehicle owner making payment of tax
pursuant to Sub-section (11) of Section 1 of Schedule-1 is
an individual, such individual."
(49) The word "fifteen" shall be Substituted for the word "seven"
contained in the fourth line of Sub-section (6) of Section 101.
(50) The word "Department" shall be Substituted for the words "Tax
Department" contained in Section 106.
(51) The following Sub-section (3) shall be Substituted for Sub-section (3)
of Section 113:
“(3) If any person makes an application to the Department, as
prescribed, for the refund of the amount pursuant to Sub-
section (1), such refund shall be made within sixty da s after
the date on which such application is made."
(52) The words "assessment of expenses incurred in an auction sale as
referred to in Sub-section (5) of Section 105" shall be inserted after the
words " assessment of tax" contained in clause (e) of Sub-section (1)
of Section 114.
(53) Of Section 115:
(a) Sub-section (6) shall be deleted.
(b) The word "sixty" shall be Substituted for the word "ninety"
contained in Sub-section (8).
(54) Of Section 117:
(a) The words "0.1 percent" shall be Substituted for the words "one
and half percent" contained in Sub-section (1), andthe words


343
"per year" shall be Substituted for the words "per month"
contained in that Sub-section.
(b) The words "0.1 percent" shall be Substituted for the words "one
and half percent" contained in Sub-section (2), andthe words
"per year" shall be Substituted for the words "per month"
contained in that Sub-section.
(55) The following Section 118 shall be Substituted for Section 118:
"118. Interest to be charged where the person making payment in
installments makes lesser payment of estimated tax:
(1) In cases where, in the case of the amount of installment
to be paid by any person under Section 94 in any income
year, the amount mentioned in clause (b) is more than t e
amount mentioned in clause (a), interest shall be charged
on such excess amount pursuant to Sub-section (2):
(i) Amount of each installment paid by that person in
any income year,
(j) Eighty percent of the estimated or revised estimated
amount of total amount payable by installments for
each installment period in that income year if such
estimate or revised estimate is correct and, if such
estimated or revised estimated amount is not correct,
that of such amount, of the total amount of tax to be
paid by any person referred to in clauses (a) and (b)
of Section 3, as is to be paid in installment for each
installment period in any income year.


344
(2) An interest to be set by the normal rate of interest, for
each month and portion of the month, from the due date
for payment of the installment in that year to the
following period shall be imposed on the person referr d
to in Sub-section (1):
(a) In the case of a person in respect of whom tax is to
be assessed under Sub-section (1) of Section 99,
until the date for Submission of the income return,
(b) In the case of a person in respect of whom the
Department has made revised tax assessment for
the first time under Section 101 because of failure
to make tax assessment under Sub-section (1) of
Section 99, until the date on which a notice of that
revised tax assessment is delivered pursuant to
Section 102.
Explanation: For the purposes of this Section, "amount
payable by installment" means the amount of installments
calculated pursuant to Sub-section (1) of Section 94 in
the case of a taxpayer who fails to Submit a revised
estimate once an estimate has been Submitted and in
respect of whom the Department has made estimate
pursuant to Sub-section (7) of Section 95 because of his
failure to Submit an estimate and calculated pursuant to
Sub-section (5) of Section 95 in the case of a taxpayer
Submits a revised estimate and in respect of whom the
Department has made estimate pursuant to Sub-section
(7) of Section 95 because of being unsatisfied with the
Submitted estimate or revised estimated."


345
(56) The following clause (g) shall be Substituted for clause (g) of Sub-
section (2) of Section 143:
"(g) Amendment to Section 15 of the Industrial Enterprises Act,
2049 (1992):
(1) Clauses (a), (c), (d), (e), (j), (l), (p), (q), (r and (s) of Section
15 of the Industrial Enterprises Act, 2049 (1992) shall be
deleted.
(2) The words "respectively thirty, twenty-five and twenty
percent on the income tax until ten years of the date of
operation and" contained in clause (f) shall be deleted."
Schedule-1
(57) Amendment to Schedule-1:
(1) Of Section 1:
(a) The words "one hundred thousand rupees", "one
hundred twenty five thousand rupees", "one hundred
seventy five thousand rupees", and " two hundred
thousand rupees", respectively shall be Substituted for
the words "fifty five thousand rupees", "seventy five
thousand rupees", "one hundred thirty thousand rupees"
and "one hundred fifty thousand rupees" contained in
various places of Sub-sections (1), (2), (3) and (4).
(b) The proviso to clause (b) of Sub-section (4) shall be
deleted.
(c) The following Sub-section (5) shall be Substituted for
Sub-section (5):


346
"(5) For the individuals working in the remote areas
specified by the Government of Nepal, a maximum
sum of thirty thousand rupees shall, for the remote
allowance, be deducted from the taxable income, as
prescribed, and the tax shall then be calculated on
the remaining amount only, in accordance with this
Section".
(d) The following Sub-section (6) shall be Substituted for
Sub-section (6):
"(6) For the employee working in the abroad based
diplomatic missions of the State of Nepal, seventy
five percent amount of their abroad allowance shall
be deducted from the taxable income, and the tax
shall then be calculated on the remaining amount
only, in accordance with this Section."
(e) The following Sub-sections (10), (11), (12), (12a) and (13)
shall be inserted after Sub-section (9a):
"(10) Notwithstanding anything contained elsewhere in
this Section, where any resident individual has
procured an insurance business, the amount to be
set by seven percent of the sum of investment
insurance or ten thousand rupees, whichever is
lesser, out of the premium paid for the same, shall
be deducted from the taxable income, and the tax
shall then be calculated on the remaining amount
only, in accordance with this Section".


347
(11) Notwithstanding anything contained elsewhere in
this Section, the owners of vehicles on hire shall
pay annual tax at the following rates. If the owner
of vehicle is an individual, the tax so paid shall be
final and binding.

Category of vehicles Annual tax payable
per vehicle
(a) Mini-bus, mini-truck, truck and bus Rs. 1,500/-
(b) Car, jeep, van and microbus Rs.1,200/-
(c) Three wheeler, auto-rickshaw, tempo Rs. 850/-
(d) Tractor and power tiller Rs. 750/-

(12) Notwithstanding anything contained elsewhere in
this Section, if an individual is fully engaged in the
operation of a special industry mentioned in
Section 11 of this Act throughout any year, in
calculating tax pursuant to this Section, tax shall
be charged by twenty percent of the taxable
income, instead of twenty five percent thereof.
(12a) Tax shall be charged by twenty percent of the
taxable income earned by any individual from
exports in any income year."


348
(13) Notwithstanding anything contained elsewhere in
this Section, an additional tax to be set by 1.5
percent of the taxable income that is beyond the
taxable income mentioned in clause (c) of Sub-
section (1) or clause (c) of Sub-section (2) shall be
levied on an individual or spouse referred to in
Section 50."
(2) Of Section 2:
(a) The following clause (b) shall be Substituted for clause
(b) of Sub-section (3):
"(b) In cases where the entity,
(1) Builds and operates any road, bridge, tunnel,
ropeway or sky-bridge, or
(2) Operates any trolley bus or tram, or"
(b) The following Sub-section (3a) shall be inserted after Sub-
section (3):
"(3a) Tax shall be levied by twenty percent on the axable
income earned by any entity, through its source in Nepal,
from exports in any income year."
(c) The following Sub-section (5) shall be substituted for Sub-
section (5):
"(5) Tax shall be levied, pursuant to Sub-sections (1)
and (4) of Section 1 of this Schedule, on the taxable income of a
trust acquiring or looking after the property belonging to any
deceased resident person or of a disabled resident individual in


349
any income year as if the one who acquires or looks after or that
trust money or trust resident were an individual."
(d) The following Sub-section (8) shall be inserted after Sub-section
(7):
"(8) Notwithstanding anything contained elsewhere in
this Section, there shall be levied an additional tax to be
set by 1.5 percent of the taxable income to be set for any
entity other than that mentioned in Sub-sections (6) and
(7) of Section 2."


350
Financial Ordinance, 2062 (2005)
Date of Authentication and the Publication
2062.10.1(14 Jan.2005)
Ordinance Number 49 of the year 2062
An Act Made to Implement Proposals Relating to Finance of the
Government of Nepal
Preamble: Whereas, it is expedient to levy some charges, taxes, duties,
cesses and fees, continue or alter the existing ones a d also to amend the
laws in force relating to revenue administration in order to implement the
proposals relating to finance of the Government of Nepal;
Now, therefore, be it enacted by His Majesty the King Gyanendra Bi
Bikram Shah Dev has, in accordance with Article 72 of Constitution kingdom
of Nepal, 2047(1990).
1. Short title and commencement: (1) This Ordinance may be called
as the “Financial Ordinance, 2062 (2005)."
(2) This ordinance come into force immediately.
26. Amendment to the Income Tax Act, 2058 (2002): Of the Income Tax
Act, 2058(2002):-
(1) Of Section 2:
(a) The following Clause (p1) shall be inserted after Clause (p):
"(p1) "turn-over" means a turn-over equivalent to the otal
amount to be included under Section 7, 8 or 9 for


351
purposes of computing the income of a business or
investment in any income year."
(b) Of Clause (r):
(1) The following Sub-clause (2a) shall be inserted
after Sub-clause (2):
"(2a) A benefit of any beneficiary held in the
retirement fund,"
(2) The words "land and" shall be inserted before the
words "private building" contained in Sub-clause
(3).
(c) The following Clause (s) shall be substituted for Clause
(s):
“(s) "organization entitled to enjoy exemption" means
the following entity:
(1) Any of the following entities registered in
the Department as an entity enjoying tax
exemption:
(a) A social, religious, educational or
benevolent organization of public
nature established with non-profit
motive,
(b) An amateur sports organization so
formed with a view to promoting
social or sports related facilities that


352
the organization or its member does
not derive profits,
(2) A political party registered in the Election
Commission,
(3) Village Development Committee, Municipality
or District Development Committee,
(4) Nepal Rastra Bank,
(5) Government of Nepal,
Provided that, in cases where any
person has derived any benefit from the
property of that organization and the
monies obtained from that organization
except in making payment for the property
or the service provided by any person to
that organization or in discharging
functions in consonance with the objective
of the organization entitled to exemption, tax
exemption shall not be granted to such
organization."
(d) The figures "(1), (2), (3) and (4)" shall be substituted for the
figures "(1), (2) and (3)” contained in Sub-clause (5) of Clause (x).
(e) The following Sub-clauses (1) and (2) shall be Substituted for
Sub-clauses (1) and (2) of Clause (ad):
“(1) Payment for having acquired the right to extrac water,
minerals or other living and non-living resources from the
earth, or


353
(2) Amounts calculated based on the quantity or value of
living or non-living resources of the natural resources
and minerals extracted fully or partly from the earth.”
(f) The following Clause (af) shall be Substituted for Clause (af):
"(af) "Rent" means all payments including a premium received
for the house rent as well as for the lease of a tangible
property.
Provided that, this term does not include any
payment made for natural resources."
(g) The following Clause (ab) shall be Substituted for Clause (ab):
"(ab) "Investment" means the act of holding one or more
properties or investing such properties, except with the
followings:
(1) Holding any property used by the owner thereof in
personal use, or
(2) Employment or occupation.
Provided that holding non-business taxable
property shall be deemed as investment."
(h) Of Clause (ae):
(a) The words " in respect of any income year" contained in
the first sentence of paragraph (b) of Sub-clause (1) shall
be deleted.
(b) The word "or" shall be inserted at the end of paragraph
(b) of Sub-clause (3).


354
(c) The word "or" shall be inserted at the end of para (a) of
Sub-clause (4).
(d) The following Sub-clause (4a) shall be inserted after Sub-
clause (4):
"(4a) Government of Nepal,"
(e) The word "or" shall be Substituted for the word "and"
contained in the second sentence of Sub-clause (6).
(i) The words "exemption, premium under loan liability" shall be
Substituted for the word "premium" contained in the first
sentence of paragraph (2) of Sub-clause (ai).
(j) The words "sold or" contained in Clause (aj) shall be deleted.
(k) The figure "(5)" shall be Substituted for the figure "(4)"
contained in the second sentence of Clause (ao).
(l) The following Clause (at1) shall be inserted after Clause (aad):
"(at1) "adjusted taxable income" means taxable income
calculated without deducting any amounts as referred to in
Section 12 and without deducting any amount under Sub-
section (2) of Section 14, Section 17 or 18, while calculating the
taxable income of any person in any income year."
(m) The words "related with the work" contained in Clause (aab)
shall be deleted, and the words "as referred to in Clause (y)"
shall be inserted the words "any entity" contained in that
Clause.
(2) Of section 4:


355
(a) The following Sub-section (l) shall be Substituted for Sub-
section (1):
"(1) The amount of tax required to be paid by any person
referred to in Section 3 for any income year shall be equal
to the total amount of tax required to be paid by such
person in capacity of any one or more than one person
mentioned in Clauses (a), (b) and (c) of the Section."
(b) The words "or both Sections" shall be inserted after the figure
"71" as contained in Sub-section (2).
(c) The following Clause (c) shall be substituted for Clause (c) of
Sub-section (3):
"(c) The employer has made a claim only for the adjustment of
tax on medical expenses paid by him and for Subtraction
of retirement contribution paid by the employer himself
and not claimed for Subtraction of expenses for donati
as referred to in Section 12."
(d) Of Sub-section (4):
(1) The following Clause (a1) shall be inserted after Clause
(a):
"(a1) having not claimed for adjustment of tax for
medical expenses under Section 51 and for
advance tax deduction under Section 93,"
(2) The following Clause (b) shall be substituted for Clause
(b):


356
"(b) The income earned from the business and the
turnover of the business do not exceed one
hundred fifty thousand rupees and one million five
hundred thousand rupees, respectively."
(e) The figures "87, 88 and 89" shall be Substituted for the figure
"88" contained in the fourth line of Sub-section (6).
(3) The words "or both Sections" shall be inserted after the words
"Section 12 or 63" contained in Section 5.
(4) The words "or both Sections" shall be inserted after the words
"Section 11 or 64" contained in the proviso to Clause (b) of
Section 6.
(5) The words "shall be income" shall be Substituted for the words
"shall be computed in the income" contained in Sub-section (1)
of Section 7.
(6) The words "shall be" shall be substituted for the words
"computed as the income" contained in Sub-section (1) of
Section 9.
(7) Of Section 11:
(a) "Rural community based saving and lean co-operativ s
located in the municipality specified by the Department
as not developed with essential infrastructure and" shall
be inserted before the words "community based saving
and loan co-operatives" contained in Sub-section (2) and
at the end of the Sub-section. Provided that, in the case
of income of a community based saving and loan co-


357
operatives organization or association located in other
places it shall be levied Fifty percent.
Explanation: For the purpose of this Section income of a
co-operative organization or association shall mean the
income in an income received from the income in a
transaction between/among the members of such
organization or association" shall be inserted.
(b) The following Sub-sections (2a) shall be inserted after
Sub-section (2):
"(2a) No person shall be levied tax in the income
received from the cottage industry in an income year.
(2b) No tax shall be levied in an income received
from the interested out of the deposit amount which is
upto Ten Thousand Rupees to a depositor which is a
group or who is a member of such group, in a micro
finance programme operated by the Bank or financial
institution providing micro finance service in the rural
area."
(c) The following Sub-sections (3a) and (3b) shall be inserted
after Sub-section (3):
“(3a) The following tax shall be levied to a person
in the income year on an income received from import:
(a) Fifty percent of the income tax chargeable
on the income of an industry established in
the special economic zone or export
promotion region as specified by the


358
Government of Nepal by a Notification in
the Nepal Gazette.”
(b) Twenty-five percent of the income tax
chargeable on the income of an information
technology industry established in the
information technology park as specified by
the Government of Nepal by a Notification
in the Nepal Gazette.”
(c) Seventy-five percent of the income tax
chargeable on the income of Sub-section
(12) of Section 1 of Schedule-1 and Sub-
section (3) of Section 2 of Schedule-1,
except in an income referred to in Clause
(a) and (b),
(3b) Rate of Two percent taxes shall be less for
the company which has listed its share and securities in
Nepal Security Exchange Market LTD."
(d) The following Sub-section (4) shall be Substituted for
Sub-section (4):
"(4) In computing the income by the person as
referred to in Clauses (a) of Sub-section 3, Sub-section
(1), (2), 2a, 2b and (3), Clause (b) of Sub-sections 3, (3a),
(3b) and Section 11A., Sub-section (12) of Section 1 of
Schedule-1 and Sub-sections (3) and (4) of Section 2 f
Schedule-1 and a body doing petroleum works pursuant
to the Nepal Petroleum Act, 2040, such person or body


359
shall compute the income as if that only income were
derived by other separate person."
(e) The following Sub-section (5) shall be Substituted for
Sub-section (5):
"(5) A person who is in a position to have more
than one exemption in respect of the same income
pursuant to the above mentioned Sub-sections shall
enjoy only one exemption chosen by him."
(f) The following Clause (d) shall be inserted after Clause (c)
of explanation of Sub-section (6):
“(d) "Cottage industry" shall mean a production
oriented industry which is labour intensive, using special
skill related with national tradition, art and culture or local
raw material and resources.
Provided that, the following industries shall not
considered cottage industries:
(c) Dying, carpet, Pasmina, woolen garments.
(d) Such an industry should not use a motor
more than Five Kilo watt upon using
electricity or Diesel crude oil.
(8) The following Section 11A. shall be inserted after Section 11:
"11A. Tax chargeable on the build and operate of
infrastructures : If any agreement is concluded between
the Government of Nepal and any person for building a d
operating infrastructures, the person building and


360
operating such infrastructures shall be entitled to enjoy
tax facilities provided by this Act pertaining to tax
prevailing at the time of conclusion of that agreem nt
during the period of such agreement."
(9) The following Sub-section (2) shall be Substituted for Sub-
section (2) of Section 12:
"(2) Notwithstanding anything contained in Sub-section
(1), the expenditure deductible in any income year under that
Sub-section shall not exceed one hundred thousand rupees or
five percent of the adjusted taxable income that person in that
year, whichever is lesser."
(10) of Section 14:
(1) Of Sub-section (2):
(a) The phrase "the total interest amount which a
resident entity controlled by an organization
entitled to tax exemption can deduct under Sub-
section (1) in any income year shall not exceed the
total of the following amounts if the interest is paid
to the controlling person or associated person"
shall be Substituted for the phrase "the total
interest amount which a resident entity controlled
by an organization entitled to tax exemption can
deduct under that Sub-section in any income year
shall not exceed the total of the following
amounts" contained at the end.


361
(b) The words "income of adjusted taxable income"
shall be Substituted for the words "of taxable
income" contained in Clause (b)".
(11) Of Section 15:
"(a) The following proviso shall be inserted in explanation (c):
"Provided that, no amount in respect of repair and
maintenance and depreciation shall be included in the
overhead costs of a factory."
(b) The following proviso shall be inserted in explanation (d):
"Provided that, no amount in respect of repair and
maintenance and depreciation shall be included in the
variable overhead costs of a factory."
(12) Of Section 16:
(a) Of Sub-section (2):
(1) The word "seven" shall be substituted for the
word "Five" contained in the fourth line.
(2) The phrase "and where expenses are incurred in
excess thereof, such deduction can be made only
as per the order of such expenses incurred"
contained at the end shall be deleted.
(3) The following proviso shall be inserted at the end:
"Provided that this limitation shall not apply
to the repair and maintenance costs incurred by a
person providing air transport service in


362
overhauling an aircraft in accordance with the
standards fixed by the Civil Aviation Authority of
Nepal".
(b) The following Sub-section (3) shall be substituted for
Sub-section (3):
"(3) Any excess expense or part thereof which is not
deductible by virtue of the limit referred to in Sub-
section (2) may be added to the depreciation base
amount of the group of the concerned property at
the beginning of the forthcoming income year".
(13) Of Section 17:
(a) The following Sub-section (2) shall be Substituted for
Sub-section (2):
"(2) Notwithstanding anything contained in Sub-
section (1), in computing the limit of expenses
deductible under that Sub-section in any income
year, it shall not exceed fifty percent of the
adjusted taxable income earned from all businesses
operated by that person".
(b) The words "at the beginning of the coming income year"
shall be inserted after the word "capitalization" contained
in the second line of Sub-section (3).
(14) Of Section 18:
(a) The following Sub-section (2) shall be substituted for
Sub-section (2):


363
"(2) Notwithstanding anything contained in Sub-
section (1), in computing the limit of expenses
deductible under that Sub-section in any income
year, it shall not exceed fifty percent of the
adjusted taxable income earned from all businesses
operated by that person".
(b) The words "at the beginning of the coming income year"
shall be inserted after the word "capitalization" contained
in the second line of Sub-section (3).
(15) The words "shall" shall be substituted for the word "may"
contained in Sub-section (1) of Section 19.
(16) The following Sub-section Section 19A shall be inserted after
Section (19):
"19A. Exemption Special expense for providing employment:
(1) A person, for the purpose of computation of income received
from a business, except the Government of Nepal or a body
corporate fully or partially owned by Government of Nepal, if
any other organization provides employment to the Nepali
citizen within Nepal within it, such an organization may deduct
Five Hundred Rupees as expenses for each employee or worker
and in the case of temporary employee worker who does not
work to the full income year, he/she may deduct expenses as
proportionally.
(2) The details of the employees or workers pursuant to
Sub-section (1) shall be submitted at the time of submitting the
tax in installment pursuant to Section 94."


364
(17) The following proviso shall be substituted for the proviso
contained in Clause (b) of Sub-section (1) of Section 20:
"Provided that, in the case of the projects which involve
building and operation of public infrastructures and are
transferred to the Government of Nepal and the projects on
construction of powerhouses and generation and transmission
of electricity, loss not deducted in the last Seven income years
and the loss of a body doing petroleum works pursuant to the
Nepal Petroleum Act, 2040 not deducted in the last Twelve
income years."
(18) Of Section 21:
(a) The word "private" shall be Substituted for the words
"made for" contained in the second line of paragraph
Clause (1) of explanation of Section 21.
(b) The following Clause (d1) shall be inserted after Clause
(d) of Sub- section (2):
"(d1) Special fee paid for declaration of stock
regulation."
(19) Of Section 24
(a) of Sub-section (2) :
(1) The words "in calculating the income earned by a
person" shall be substituted for the words "in the
calculation of the income earned by the person"
contained in second line of Sub-section (2).


365
(2) The following Sub-clause (2) shall be Substituted
for Sub-clause (2) Clause (a):
"(2) If the value of such liability could be
forecasted in realistic manner, and"
(b) The following Sub-section (3) shall be substituted for
Sub-section (3):
"(3) Notwithstanding anything contained in Sub-
section (1), the Department may recognize the accounting
specified by the Nepal Rastra Bank, Subject to the Nepal
Rastra Bank Act, 2058(2002) and the banking laws in
force, in respect of banking business."
(c) The following Sub-section (4) shall be Substituted for
Sub-section (4):
"(4) In calculating a person's income earned from a
business or investment on the accrual basis, where the
person includes any payment to which the person is
entitled or deducts any payment that the person is
obliged to make and a difference in the payment receiv d
or made by the person occurs as a result, inter alia, of a
change in exchange rate, the amount of difference shall
be adjusted at the time when payment is received or
made."
(20) The words "refund of amount" shall be Substituted for the
words "reimbursement of amount" contained in the second line
of Clause (a) of Sub-section (1) of Section 25.
(21) The words "money or" contained in the second li e of Clause


366
(a) of Sub-section (1) of Section 27 and the words "money and"
contained in the same Clause shall be deleted.
(22) The following Section 29 shall be Substituted for Section 29:
"29. Indirect payments: In cases where any person derives
benefits indirectly from payments made by the payer or a
person associated with him or specifies another person to
receive payment, the Department may, by issuing a notice
in writing, treat the person himself deriving such benefit
or specifying such other person as the recipient of
payment.”
(23) The word "seller" contained in Sub-section (3) of Section 32
shall be deleted.
(24) The following Sub-clause (2) shall be Substituted for Sub-clause
(2) of Clause (a) of Sub-section (1) of Section 38:
"(2) Any amount required to be included in the
assessment of the income of that person as a result of
acquisition of that property."
(25) The word "payment" shall be Substituted for the words
"amount Subject to tax" contained in the proviso to Clause (c)
of Sub-section (1) of Section 39.
(26) Of Section 41:
(a) The following Sub-clause (2) shall be Substituted for
Sub-clause (2) of Clause (a):
"(2) In re-disposing that property, the net
outgoings made for that property until the disposal


367
pursuant to this Section shall be deemed to be equal to
the amount receivable."
(b) The following Sub-clause (2) shall be Substituted for
Sub-clause (2) of Clause (b):
"(2) In re-disposing that liability, the net incomings
made for that liability pursuant to Sub-clause (1) until the
disposal under this Section shall be deemed to be equal
to the outgoings".
(27) The word "taxable" shall be Substituted for the words "Subject
to tax" contained in Sub-section (2) of Section 45.
(28) The following Sub-section (3) shall be inserted after Sub-section
(2) of Section 50:
"(3) Notwithstanding anything contained in Sub-sections
(1) and (2), a resident widow or widower who has to maintain
and Subsist dependents shall be treated as spouse."
(29) Of Section 54:
(a) Of Sub-section (1):
(1) The words "if distributed" shall be inserted befor
the words "final" contained in Clause (a).
(2) The following Clause (b) shall be Substituted for
Clause (b):
"(b) No tax shall be imposed if other entities
make distribution."


368
(b) The following Sub-section (3) shall be Substituted for
Sub-section (3):
"(3) Notwithstanding anything contained in Sub-
section (1), no tax shall be charged if dividend received
upon deduction of tax under that Sub-section is
distributed".
(c) Sub-section (4) shall be deleted.
(30) The following Sub-section (1a) shall be inserted after Sub-
section (1) of Section 57:
"(1a) For the purposes of computing the change of fifty
percent or more than fifty percent ownership of any entity as
referred to in Sub-section (1), only the following ownership of
that entity shall be included:
(a) The ownership held by a shareholder holding one
percent or more of the total ownership of that
entity, and
(b) The ownership held by an associated person of
the shareholder who holds more than one percent
of the total ownership of that entity, out of the
shareholders who hold less than one percent of
the total ownership of that entity."
(31) The following Sub-section (1) shall be Substituted for Sub-
section (1) of Section 58:
"(1) An arrangement made by any entity by maintaining
all of the following conditions shall be treated as an arrangement
made for reducing dividend tax:


369
(a) Where that entity has reserved, current or
expected profits,
(b) Where any person who acquires an interest of the
entity and the recipient of the interest or his
associated person makes any payment to the
present or previous beneficiary of the entity or his
associated person irrespective of whether or not it
is related to the acquisition of interest and whether
or not payment is made at the time of acquisition
of interest,
(c) Where the payment is fully or partly reflected in
the profits of that entity,
(d) Where that entity distributes dividends to the
recipient of interest and the dividends fully or
partly cover the profits."
(32) Of section 59:
(a) The following Sub-section (1a) shall be inserted after
Sub-section (1):
"(1a) An amount that is up to five percent of a
due and recoverable loan held in the risk bearing fund by
a person carrying on banking business Subject to the
standards prescribed by the Nepal Rstara Bank shall be
deducted as an expense. Where the risk bearing fund is
so maintained, and the expenses debited to the profits as
a bad debt, the same shall not be written off; and where
the amount in that fund is capitalized or profits or
dividends are distributed, the same shall be included in


370
the income of the year in which such distribution is
made."
(b) The following proviso shall be inserted in Sub-section
(2):
"Provided that, if the amount as referred to in Sub-
section (1a) is deducted as expenditures, such loss shall
not be deductible.”

(33) Of Section 61:
(a) The following Sub-clause (2) shall be Substituted for
Sub-clause (2) of Clause (b) of Sub-section (2):
"(2) The premiums as referred to in Sub-clause (1)
of Clause (a) returned to the insured".
(b) The words "shall not be considered as expenses" hall be
Substituted for the words "shall be included in the
expenses" contained in Sub-section (3).
(34) Of Section 63:
(a) The following proviso shall be inserted in Sub-section (1):
"Provided that, the Citizen Investment Fund established
under the Citizen Investment Fund Act, if it intends to maintain
a retirement fund, and the Employee Provident Fund established
under the Employee Provident Fund Act, 2019 , if it operates a
retirement fund, shall not be required to obtain permission for
such fund."


371
(b) The phrase " may make a claim for deduction in calculating his
income" shall be Substituted for the phrase "may make a claim
to deduct from the income" contained in Sub-section (2).
(35) The words "mentioned in Sub-section (1) of Section 2 of Schedule-1"
shall be Substituted for the words "applicable to companies" contained
in Sub-section (3) of Section 64.
(36) The words "or the retirement payments made by Government of Nepal"
shall be inserted after the words "from the interest" contained in the
second line of Sub-section (1) of Section 65.
(37) Section 66 shall be repealed.
(38) The word "employment" shall be Substituted for the words "such
acts" contained in the first line of Sub-clause (2) of Clause (i) of Sub-
section (6) of Section 67.
(39) The following Clause (b) shall be Substituted for Clause (b) of the
explanation contained in Section 71:
"(b) "Average rate of tax of Nepal" means the rate to be set by
multiplying with one hundred the amount to be set by dividing
the amount of tax payable by a person as referred to in Clause
(a) of Section 3 in any income year by the taxable income of that
person in that year prior to the adjustment of any foreign tax in
that year."
(40) The words "Big Taxpayer Office or" shall be inserted before the words
"Inland Revenue Office" contained in Sub-section (2) of Section 72.
(41) The following Sub-section (1) shall be Substituted for Sub-section (1)
of Section 74:


372
"(1) The taxpayer shall perform the duties as mentioned in this
Act."
(42) The following Sub-sections (4) and (5) shall be inserted after Sub-
section (3) of Section78:
“(4) Notwithstanding anything contained in Sub-section (1), any
person specified pursuant to Sub-section (3) shall obtain the
permanent accounts number prior to doing transactions.
(5) Notwithstanding anything contained in Sub-section (1), (2),
(3) or 4, no one shall be released from the liability of tax by the reason
that he has not obtained the permanent accounts number.”
(43) The words “at least” contained in Sub-section (2) of Section 81 shall be
deleted.
(44) Of Section 88:
“(a) The word "and" shall be Substituted for the words "in making
payment and if that person is an approved retirement fund, any"
contained in Sub-section (1), and the following provis shall be
Substituted for the proviso to that Sub-section:
"Provided that, tax shall be withheld, In the case of the
retirement payment made by the Government of Nepal or by the
approved retirement fund, at the Rate of six percent from the
benefits calculated pursuant to Clause (b) of Sub-section (1) of
Section 65, and in the case of the commission paid by a resident
employer company to a non-resident person, at the rate of Ten
percent,
(b) The following Sub-section (2) shall be Substituted for Sub-
section (2):


373
"(2) A resident person shall, in making the following
payments having source in Nepal, withhold tax at the following
rate:
(a) In making payment of dividends, Five percent of
the amount paid,
(b) In making payment of investment insurance
benefits, Five percent of the amount of benefits,
(c) In making payment of benefits from an
unapproved retirement fund, Ten percent of the
amount of benefits".
(c) The following Sub-section (3) shall be Substituted for Sub-
section (3):
"(3) Notwithstanding anything contained in Sub-section
(1), in making payment of interest or of an amount in the form of
interest as follows by a resident bank, financial institution or
any other entity issuing bonds or a company registered under
the laws in force to any individual for deposits, bonds,
debentures and governmental bonds, tax shall be withheld from
the total amount of payment at the rate of Six percent:
(a) Which has source in Nepal, and
(b) Which is not related with the operation of business."
(d) The following Clauses (a1) and (a2) shall be inserted after
Clause (a) of Sub-section (4):
"(a1) Service fee paid to a resident company,


374
(a2) Payment for an article published in a newspaper nd for
preparing question papers and examining answer books."
(e) The following Clause (d) shall be inserted after Clause (c) of
Sub-section (4):
"(d) The interregional interchange fee paid to a bank issuing
credit card."
(45) The following Section 89A. shall be inserted after Section 89:
“89A. Tax withholding in making payment of value added tax invoice:
Notwithstanding anything contained in Sections 87 and 88, in
making payment of a value added tax invoice, tax shall be
withheld at the rate of One and half percent.”
(46) Of Section 90:
(a) The following Sub-section (1) shall be substituted for Sub-
section (1):
"(1) Each person who is obliged to withhold tax has to
Submit to the Department a statement in such mode an format
as specified by the Department within Fifteen days fter the
expiration of each month."
(b) The phrase "in the following conditions, the person Subject to
tax withholding" shall be Substituted for the phrase "In cases
where the person withholding tax does not withhold or pay tax
as follows, both the person Subject to tax withholding"
contained in Sub-section (5).
(47) Of Sub-section (1) of Section 92:
(a) The following Clause (e) shall be Substituted for Clause (e):


375
"(e) Interest as follows paid by a bank, financial institution or
any other entity issuing bonds or a company enlisted
pursuant to the laws in force, as mentioned in Sub-
section (3) of Section 88:
(1) Which has source in Nepal and which is not
related with the operation of business and paid to
an individual,
(2) Which is paid to an institution entitled to tax
exemption pursuant to Clause (d) of Section 2.”
(b) The following Clauses (g) and (h) shall be inserted after Clause
(f):
"(g) Retirement payments made by the Government of Nepal
or an approved retirement fund, and
(h) Payment for meeting allowance and part-time teaching."
(48) Of Section 94:
(a) The following Sub-section (1) shall be Substituted for Sub-
section (1):
"(1) A person who has or will have assessable income in any
income year from any business or investment has to pay
tax in three installments as follows:
Date on which payment has to
be made
Amount to be paid
By the end of Poush (mid
January)
Amount of due and payable
tax out of 40% of the


376
estimated tax
By the end of Chaitra (mid
April)
Amount of due and payable
tax out of 70% of the
estimated tax
By the end of Ashad (mid July) Amount of due and payable
tax out of 100% of the
estimated tax
Explanation: For the purposes of this Sub-section,-
(a) "Estimated tax" means the estimated tax in
installment computed by any person liable
to pay tax in installment pursuant to Section
95 at the time when the installment tax is to
be paid in any year.
(b) "Due and payable tax" means the amount
that remains shortfall after Subtracting the
following total sum from the amount to be
set by the percentage prescribed for
payment of estimated tax in installments
under this Sub-section:
(1) The amount of tax paid in that
income year by a prior installment
pursuant to this Section before the
date on which the installment in
question is to be paid,
(2) The amount of tax deducted from the
payments to be included in


377
computing the income of any person
in any income year pursuant to
Chapter-17 before the date on which
the installment in question is to be
paid in that year,
(3) In cases where the agent withholding
tax or the person Subject to tax
withholding pays to the Department
the amount of tax deemed to be
withheld from the payment referred
to in Clause (2) pursuant to Sub-
section (3) of Section 90 in that year
before the date on which the
installment is to be paid, such
amount of tax, and
(4) The amount of tax adjustment for
medical treatment expenses which
that person may claim pursuant to
Section 51 in respect of the accepted
medical treatment expenses incurred
by that person before the date on
which the installment is to be paid."
(b) The words "total of all installments" shall be Substituted for the
words “of installments" contained in Sub-section (2)."
(49) Of Section 95:
(a) The words "by the Department" shall be inserted after the
words "may be prescribed" contained in Sub-section (1).


378
(b) The words "or where it is so specified pursuant to Sub-section
(6) that any person is not required to Submit an estimate to pay
installment of tax" contained in Sub-section (7) shall be deleted.
(50) Of Sub-section (2) of Section 96:
(a) Sub-clauses (4) and (5) of Clause (a) shall be del ted.
(b) Sub-clause (1) of Clause (c) shall be deleted.
(51) Of Section 97:
(a) The words "except where the Department issues a written order
or issues order by publishing a public notice" shall be
Substituted for the words "except where the Departmen issues
a written order" contained at the beginning.
(b) The word "or" contained at the end of Clause (b) shall be
deleted.
(c) A comma sign “,” shall be Substituted for the full stop sign “.”
contained at the end of Clause (c) and shall be insrted "or".
(d) The following Clause (d) shall be inserted after Clause (c):
"(d) If the motor vehicle owner making payment of tax
pursuant to Sub-section (11) of Section 1 of Schedule-1 is
an individual, such individual."
(52) The word "Fifteen" shall be Substituted for the word "Seven"
contained in the fourth line of Sub-section (6) of Section 101.
(53) The word "Department" shall be Substituted for the words "Tax
Department" contained in Section 106.


379
(54) The following Sub-section (3) shall be Substituted for Sub-section (3)
of Section 113:
“(3) If any person makes an application to the Department, as
prescribed, for the refund of the amount pursuant to Sub-section (1),
such refund shall be made within sixty days after the date on which
such application is made."
(55) The words "assessment of expenses incurred in an auction sale as
referred to in Sub-section (5) of Section 105" shall be inserted after the
words "assessment of tax" contained in Clause (e) of Sub-section (1) of
Section 114.
(56) Of Section 115:
(a) Sub-section (6) shall be deleted.
(b) The word "Sixty" shall be Substituted for the word "Ninety"
contained in Sub-section (8).
(57) Of Section 117:
(a) Clause (a) of Sub-section (1) shall be deleted.
(b) The words "0.1 percent" shall be Substituted for the words "one
and half percent" contained in Sub-section (2), andthe words
"per year" shall be Substituted for the words "per month"
contained in that Sub-section.
(58) The following Section 118 shall be Substituted for Section 118:
"118. Interest to be charged where the person making payment in
installments makes lesser payment of estimated tax: (1) In
cases where, in the case of the amount of installment to be paid
by any person under Section 94 in any income year, the amount


380
mentioned in Clause (b) is more than the amount mentioned in
Clause (a), interest shall be charged on such excess amount
pursuant to Sub-section (2):
(k) Amount of each installment paid by that person in
any income year,
(l) Eighty percent of the estimated or revised
estimated amount of total amount payable by
installments for each installment period in that
income year if such estimate or revised estimate is
correct and, if such estimated or revised estimated
amount is not correct, that of such amount, of the
total amount of tax to be paid by any person
referred to in Clauses (a) and (b) of Section 3, as is
to be paid in installment for each installment period
in any income year.
(2) An interest to be set by the normal rate of interest, for
each month and portion of the month, from the due date for
payment of the installment in that year to the following period
shall be imposed on the person referred to in Sub-section (1):
(a) In the case of a person in respect of whom tax is to
be assessed under Sub-section (1) of Section 99,
until the date for Submission of the income return,
(b) In the case of a person in respect of whom the
Department has made revised tax assessment for
the first time under Section 101 because of failure
to make tax assessment under Sub-section (1) of
Section 99, until the date on which a notice of that


381
revised tax assessment is delivered pursuant to
Section 102.
Explanation: For the purposes of this Section,
"amount payable by installment" means the
amount of installments calculated pursuant to Sub-
section (1) of Section 94 in the case of a taxpayer
who fails to Submit a revised estimate once an
estimate has been Submitted and in respect of
whom the Department has made estimate pursuant
to Sub-section (7) of Section 95 because of his
failure to Submit an estimate and calculated
pursuant to Sub-section (5) of Section 95 in the
case of a taxpayer Submits a revised estimate and
in respect of whom the Department has made
estimate pursuant to Sub-section (7) of Section 95
because of being unsatisfied with the Submitted
estimate or revised estimated."
(59) The following Section 119A. shall be Substituted for Section 119A.:
“119A. Fees to be charged: Except as otherwise provided in this Act, a
person who fails to observe any provision of this Act or the Rules
framed hereunder shall be liable to pay fees equivalent to the fine
specified pursuant to Section 118.”
(60) The following Section 136A. shall be inserted after Section 136:
“136A. Fine, fees not to be charged: Notwithstanding anything
contained elsewhere in this Act, where any interpretation or decision
done or made under this Act or the Regulation framed h reunder
results in a change to tax burden but not to the tax recovery amount,


382
the fine, fees chargeable prior to doing or making such interpretation or
decision shall not be charged.”
(61) The following Clause (g) shall be Substituted for Clause (g) of Sub-
section (2) of Section 143:
"(g) Amendment to Section 15 of the Industrial Enterprises Act, 2049
(1992):
(1) Clauses (a), (c), (d), (e), (j), (l), (p), (q), (r and (s) of Section
15 of the Industrial Enterprises Act, 2049 (1992) shall be
deleted.
(2) The words "respectively Thirty, Twenty-Five and Twenty
percent on the income tax until Ten years of the date of
operation and" contained in Clause (f) shall be deleted."
Schedule-1
(62) Amendment to Schedule-1:
(1) Of Section 1:
(a) The words "One Hundred Thousand Rupees", "One
Hundred Twenty Five Thousand Rupees", "One
Hundred Seventy Five Thousand Rupees", and " Two
Hundred Thousand Rupees", respectively shall be
Substituted for the words "Fifty Five Thousand Rupees",
"Seventy Five Thousand Rupees", "One Hundred Thirty
Thousand Rupees" and "One Hundred Fifty Thousand
Rupees" contained in various places of Sub-sections (1),
(2), (3) and (4).
(b) The proviso to Clause (b) of Sub-section (4) shall be
deleted.


383
(c) The following Sub-section (5) shall be Substituted for
Sub-section (5):
"(5) For the individuals working in the remote
areas specified by the Government of Nepal, a maximum
sum of Thirty Thousand Rupees shall, for the remote
allowance, be deducted from the taxable income, as
prescribed, and the tax shall then be calculated on the
remaining amount only, in accordance with this Section".
(d) The following Sub-section (6) shall be Substituted for
Sub-section (6):
"(6) For the employee working in the abroad
based diplomatic missions of the State of Nepal, Seventy
Five percent amount of their abroad allowance shall be
deducted from the taxable income, and the tax shall t en
be calculated on the remaining amount only, in
accordance with this Section."
(e) The following Sub-sections (10), (11), (12), (12a) and (13)
shall be inserted after Sub-section (9a):
“(10) Notwithstanding anything contained
elsewhere in this Section, where any resident indivdual
has procured an insurance business, the amount to be set
by Seven percent of the sum of investment insurance or
Ten Thousand Rupees, whichever is lesser, out of the
premium paid for the same, shall be deducted from the
taxable income, and the tax shall then be calculated on the
remaining amount only, in accordance with this Section".


384
(11) Notwithstanding anything contained
elsewhere in this Section, the owners of vehicles on hire
shall pay annual tax at the following rates. If theowner of
vehicle is an individual, the tax so paid shall be final and
binding.
Category of vehicles Annual tax
payable per
vehicle
(a) Mini-bus, mini-truck, truck and bus Rs. 1,500/-
(b) Car, jeep, van and microbus Rs.1,200/-
(c) Three wheeler, auto-rickshaw, tempo Rs. 850/-
(d) Tractor and power tiller Rs. 750/-
(12) Notwithstanding anything contained elsewhere in
this Section, if an individual is fully engaged in the operation
of a special industry mentioned in Section 11 of this Act
throughout any year, in calculating tax pursuant to this
Section, tax shall be charged by Twenty percent of the taxable
income, instead of Twenty Five percent thereof.
(12a) Tax shall be charged by twenty percent of the
taxable income earned by any individual from exports in any
income year."
(13) Notwithstanding anything contained elsewhere in
this Section, an additional tax to be set by 1.5 percent of the
taxable income that is beyond the taxable income mentioned in
Clause (c) of Sub-section (1) or Clause (c) of Sub-section (2)


385
shall be levied on an individual or spouse referred to in
Section 50.”
(2) Of Section 2:
(a) The following Clause (b) shall be Substituted for Clause (b) of
Sub-section (3):
"(b) In cases where the entity,
(1) Builds and operates any road, bridge, tunnel,
ropeway or sky-bridge, or
(2) Operates any trolley bus or tram, or"
(b) The following Sub-section (3a) shall be inserted after Sub-
section (3):
"(3a) Tax shall be levied by twenty percent on the
taxable income earned by any entity, through its source in
Nepal, from exports in any income year."
(c) The following Sub-section (5) shall be Substituted for Sub-
section (5):
"(5) Tax shall be levied, pursuant to Sub-sections (1) and
(4) of Section 1 of this Schedule, on the taxable income of a trust
acquiring or looking after the property belonging to any
deceased resident person or of a disabled resident individual in
any income year as if the one who acquires or looks after or that
trust money or trust resident were an individual."

(d) Amendment to Sub-section (7):


386
“(7) Ta shall be levied by five percent on the taxable
income of any non-resident person in relation to the income
referred to in Section 70 in any income year.
Provided that, in the case of a non-resident person
providing telecommunication, air transport or water ransport
service, which does not so depart from the State of Nepal that it
has destination in a foreign country, tax shall be evied by two
percent.
(e) The following Sub-section (8) shall be inserted after Sub-section
(7):
"(8) Notwithstanding anything contained elsewhere in
this Section, there shall be levied an additional tax to be set by
1.5 percent of the taxable income to be set for any e tity other
than that mentioned in Sub-sections (6) and (7) of Section 2."










387
Financial Act, 2063 (2006)
Date of Authentication and the Publication
2063.7.20 (6 Nov. 2006)
Act Number 12 of the year 2063 (2006)
An Act Made to Implement Proposals Relating to Finance of the Government
of Nepal
Preamble: Whereas, it is expedient to levy some charges, taxes, duties,
cesses and fees, continue or alter the existing ones a d also to amend the
laws in force relating to revenue administration in order to implement the
proposals relating to finance of the Government of Nepal;
Now, therefore, be it enacted by the House of Representatives in the
First Year of the issuance of the Proclamation of the House of
Representatives, 2063 (2006).
1. Short title and commencement: (1) This Act may be called as the
“Financial Act, 2063 (2006)."
(2) Sections 1, 2, 3, 4, 5, 9 and 18 of this Act shall be deemed to
have come into force on 28 Ashad 2063 (12 july 2006) and the
other Sections on 1 Shrwan 2063(17 july 2006).
30. Amendment to the Income Tax Act, 2058 (2002): Of the Income Tax
Act, 2058(2002):-
(1) Of Section 2:
(a) The following clause (p1) shall be inserted after clause
(p):


388
(p1) "turn-over" means a turn-over equivalent to the
total amount to be included under Section 7, 8 or 9
for purposes of computing the income of a
business or investment in any income year."
(b) Of clause (r):
(1) The following Sub-clause (2a) shall be inserted
after Sub-clause (2):
(2a) A benefit of any beneficiary held in the
retirement fund,"
(2) The words "land and" shall be inserted before the
words "private building" contained in Sub-clause
(3).
(c) The following clause (s) shall be Substituted for clause
(s):
“(s) "organization entitled to enjoy exemption" means
the following entity:
(1) Any of the following entities registered in the
Department as an entity enjoying tax exemption:
(a) A social, religious, educational or
benevolent organization of public nature
established with non-profit motive,
(b) An amateur sports organization so formed
with a view to promoting social or sports
related facilities that the organization or its
member does not derive profits,


389
(2) A political party registered in the Election
Commission,
(3) Village Development Committee, Municipality or
District Development Committee,
(4) Nepal Rastra Bank,
(5) Government of Nepal,
Provided that, in cases where any person has
derived any benefit from the property of that organiz tion
and the monies obtained from that organization except in
making payment for the property or the service provided
by any person to that organization or in discharging
functions in consonance with the objective of the
organization entitled to exemption, tax exemption shall not
be granted to such organization."
(d) The figures "(1), (2), (3) and (4)" shall be Substituted for the
figures "(1), (2) and (3)” contained in Sub-clause (5) of clause
(x).
(e) The following Sub-clauses (1) and (2) shall be Substituted for
Sub-clauses (1) and (2) of clause (ad):
“(1) Payment for having acquired the right to extrac water,
minerals or other living and non-living resources from the
earth, or
(2) Amounts calculated based on the quantity or value of
living or non-living resources of the natural resources
and minerals extracted fully or partly from the earth".


390
(f) The following clause (af) shall be Substituted for clause (af):
"(af) "Rent" means all payments including a premium received
for the house rent as well as for the lease of a tangible
property.
Provided that this term does not include any payment
made for natural resources".
(g) The following clause (ab) shall be substituted for clause (ab):
"(ab) "Investment" means the act of holding one or more
properties or investing such properties, except with the
followings:
(1) Holding any property used by the owner thereof in
personal use, or
(2) Employment or occupation.
Provided that holding non-business taxable property
shall be deemed as investment."
(h) Of clause (ae):
(a) The words " in respect of any income year" contained in
the first sentence of paragraph (b) of Sub-clause (1) shall
be deleted.
(b) The word "or" shall be inserted at the end of paragraph
(b) of Sub-clause (3).
(c) The word "or" shall be inserted at the end of para (a) of
Sub-clause (4).


391
(d) The following Sub-clause (4a) shall be inserted after Sub-
clause (4):
"(4a) Government of Nepal,"
(e) The word "or" shall be Substituted for the word "and"
contained in the second sentence of Sub-clause (6).
(i) The words "exemption, premium under loan liability" shall be
substituted for the word "premium" contained in the first
sentence of paragraph (2) of Sub-clause (ai).
(j) The words "sold or" contained in clause (aj) shall be deleted.
(k) The figure "(5)" shall be substituted for the figure "(4)"
contained in the second sentence of clause (ao).
(l) The following clause (at1) shall be inserted after clause (aad):
"(at1) "adjusted taxable income" means taxable income
calculated without deducting any amounts as referred to in
Section 12 and without deducting any amount under Sub-
section (2) of Section 14, Section 17 or 18, while calculating the
taxable income of any person in any income year."
(m) The words "related with the work" contained in clause (aab)
shall be deleted, and the words "as referred to in clause (y)"
shall be inserted the words "any entity" contained in that
clause.
(2) Of section 4:
(a) The following Sub-section (l) shall be Substituted for Sub-
section (1):


392
"(1) The amount of tax required to be paid by any person
referred to in Section 3 for any income year shall be equal
to the total amount of tax required to be paid by such
person in capacity of any one or more than one person
mentioned in clauses (a), (b) and (c) of the Section."
(b) The words "or both Sections" shall be inserted after the figure
"71" as contained in Sub-section (2).
(c) The following clause (c) shall be Substituted for clause (c) of
Sub-section (3):
"(c) The employer has made a claim only for the adjustment of
tax on medical expenses paid by him and for Subtraction
of retirement contribution paid by the employer himself
and not claimed for Subtraction of expenses for donati
as referred to in Section 12."
(d) Of Sub-section (4):
(1) The following clause (a1) shall be inserted after clause
(a):
"(a1) having not claimed for adjustment of tax for
medical expenses under Section 51 and for
advance tax deduction under Section 93,"
(2) The following clause (b) shall be substituted for clause (b):
"(b) The income earned from the business and the
turnover of the business do not exceed one
hundred fifty thousand rupees and one million five
hundred thousand rupees, respectively."


393
(e) The figures "87, 88 and 89" shall be substituted for the figure
"88" contained in the fourth line of Sub-section (6).
(3) The words "or both Sections" shall be inserted after the words
"Section 12 and 63" contained in Section 5.
(4) The words "or both Sections" shall be inserted after the words
"Section 11 or 64" contained in the proviso to clause (b) of
Section 6.
(5) The words "shall be income" shall be Substituted for the words
"shall be computed in the income" contained in Sub-section (1)
of Section 7.
(6) The words "shall be" shall be substituted for the words
"computed as the income" contained in Sub-section (1) of
Section 9.
(7) Of Section 11:
(a) The following Sub-section (2) shall be Substituted Sub-
section (2):
“(2) No tax shall be levied on the income of a
cooperative organization and saving and credit
cooperative organization or institution based in rural
communities, which has been registered and operated
under the Cooperatives Act, 2048 (1991) and which
carries on agricultural and forest based industries such as
professional forest related enterprises inclusive of
sericulture and silk production, horticulture and fruits
processing, animal husbandry, dairy industry, poultry
farming, fishery, tea gardening and processing, coffee


394
farming and processing, herbiculture and herb
processing, vegetable seeds farming, bee keeping, honey
production, rubber farming, leasehold forestry, agro-
forestry etc., cold storage established for the storage of
vegetables, agro-seeds, pesticides, fertilizers and
agricultural inputs (except those operated with
mechanical power). No tax shall also be levied on the
dividends distributed by such organization or
institution.”
Explanation: The term “rural communities” means any
area, other the municipal area and the VDC adjoining
such area.
(b) The following Sub-sections (3a), 3(b) and 3(c) shall be
inserted after Sub-section (3):
"(3a) Hundred percent of the income tax chargeable on
the income of an industry established in the
special economic zone shall be exempted until
five years from the date of establishment of that
industry, and fifty percent of the income tax
chargeable for the Subsequent income years
shall be exempted.
(3b) Hundred percent of the income tax chargeable on
the income of an industry established in remote
areas shall be exempted until ten years from the
date of operation of the industry.
(3c) Twenty-five percent of the income tax chargeabl
on the income of an information technology


395
industry established in the information
technology park as specified by the Government
of Nepal by a notification in the Nepal Gazette.”
(c) The following Sub-section (4) shall be Substituted for
Sub-section (4):
"(4) In computing the income by the person as referd
to in clauses (a) and (b) of Sub-sections (1), (2), and (3),
Sub-sections (3a), (3b) and (3c), Section 11A., Sub-
section (12) of Section 1 of Schedule 1 and Sub-sections
(3) and (4) of Section 2 of Schedule 1 and a body doing
petroleum works pursuant to the Nepal Petroleum Act,
2040, such person or body shall compute the income as if
that only income were derived by other separate person."
(d) The following Sub-section (5) shall be substituted for
Sub-section (5):
"(5) A person who is in a position to have more
than one exemption in respect of the same income
pursuant to the above mentioned Sub-sections shall
enjoy only one exemption chosen by him."
(8) The following Section 11A. Shall be inserted after Section 11:
"11A. Tax chargeable on the build and operate of
infrastructures:
If any agreement is concluded between the Government
of Nepal and any person for building and operating
infrastructures, the person building and operating such
infrastructures shall be entitled to enjoy tax facilities


396
provided by this Act pertaining to tax prevailing at the
time of conclusion of that agreement during the period of
such agreement."
(9) The following Sub-section (2) shall be substituted for Sub-
section (2) of Section 12:
"(2) Notwithstanding anything contained in Sub-section (1),
the expenditure deductible in any income year under that
Sub-section shall not exceed one hundred thousand
rupees or five percent of the adjusted taxable income that
person in that year, whichever is lesser."
(10) of Section 14:
(1) Of Sub-section (2):
(a) The phrase "the total interest amount which a
resident entity controlled by an organization
entitled to tax exemption can deduct under Sub-
section (1) in any income year shall not exceed the
total of the following amounts if the interest is paid
to the controlling person or associated person"
shall be Substituted for the phrase "the total
interest amount which a resident entity controlled
by an organization entitled to tax exemption can
deduct under that Sub-section in any income year
shall not exceed the total of the following
amounts" contained at the end.
(b) The words "income of adjusted taxable income"
shall be Substituted for the words "of taxable
income" contained in clause (b)".


397
(2) The words “except the Government of Nepal” shall be
inserted after the word “means” contained in explanation
of Sub-section (3).
(11) Of Section 15:
"(a) The following proviso shall be inserted in explanation (c):
"Provided that no amount in respect of repair and
maintenance and depreciation shall be included in the
overhead costs of a factory."
(b) The following proviso shall be inserted in explanation (d):
"Provided that no amount in respect of repair and
maintenance and depreciation shall be included in the
variable overhead costs of a factory."
(c) Sub-section (10) shall be deleted.
(12) Of Section 16:
(a) Of Sub-section (2):
(1) The word "seven" shall be Substituted for the
word "Five" contained in the fourth line.
(2) The phrase "and where expenses are incurred in
excess thereof, such deduction can be made only
as per the order of such expenses incurred"
contained at the end shall be deleted.
(3) The following proviso shall be inserted at the end:
"Provided that this limitation shall not apply to the
repair and maintenance costs incurred by a person


398
providing air transport service in overhauling an
aircraft in accordance with the standards fixed by
the Civil Aviation Authority of Nepal".
(b) The following Sub-section (3) shall be Substituted for
Sub-section (3):
"(3) Any excess expense or part thereof which is not
deductible by virtue of the limit referred to in Sub-
section (2) may be added to the depreciation base
amount of the group of the concerned property at
the beginning of the forthcoming income year".
(13) Of Section 17:
(a) The following Sub-section (2) shall be Substituted for
Sub-section (2):
"(2) Notwithstanding anything contained in Sub-
section (1), in computing the limit of expenses
deductible under that Sub-section in any income
year, it shall not exceed fifty percent of the
adjusted taxable income earned from all businesses
operated by that person".
(b) The words "at the beginning of the coming income year"
shall be inserted after the word "capitalization" contained
in the second line of Sub-section (3).
(14) Of Section 18:
(a) The following Sub-section (2) shall be Substituted for
Sub-section (2):


399
"(2) Notwithstanding anything contained in Sub-
section (1), in computing the limit of expenses
deductible under that Sub-section in any income
year, it shall not exceed fifty percent of the
adjusted taxable income earned from all businesses
operated by that person".
(b) The words "at the beginning of the coming income year"
shall be inserted after the word "capitalization" contained
in the second line of Sub-section (3).
(15) The words "shall" shall be Substituted for the word "may"
contained in Sub-section (1) of Section 19.
(16) Of Section 20:
(a) The following proviso shall be substituted for the
proviso contained in clause (b) of Sub-section (1):
"Provided that in the case of the projects which involve
building and operation of public infrastructures and are
transferred to the Government of Nepal and the projects
on construction of powerhouses and generation and
transmission of electricity, loss not deducted in the last
seven income years and the loss of a body doing
petroleum works pursuant to the Nepal Petroleum Act,
2040(--) not deducted in the last twelve income years."
(b) The following Sub-section (8) shall be substituted after
Sub-section (7):
“(8) Where any person has enjoyed a full or partial tax
exemption in relation to the income derived from a


400
business or investment in any income year, such
person shall not be entitled to carry forward the
loss made in such income year to the Subsequent
income years.”
(17) The word "private" shall be Substituted for the words "made
for" contained in the second line of paragraph clause (1) of
explanation of Section 21.
(18) Of Section 24
(a) The words "in calculating the income earned by a
person" shall be Substituted for the words "in the
calculation of the income earned by the person"
contained in Sub-section (2); and the following Sub-
clause (2) shall be Substituted for Sub-clause (2):
"(2) the value of such liability can be ascertained
actually, and"
(b) The following Sub-section (3) shall be Substituted for
Sub-section (3):
"(3) Notwithstanding anything contained in Sub-
section (1), the Department may recognize the accounting
specified by the Nepal Rastra Bank, Subject to the Nepal
Rastra Bank Act, 2058(2002) and the banking laws in
force, in respect of banking business."
(c) The following Sub-section (4) shall be substituted for
Sub-section (4):
"(4) In calculating a person's income earned from a
business or investment on the accrual basis, where


401
the person includes any payment to which the
person is entitled or deducts any payment that the
person is obliged to make and a difference in the
payment received or made by the person occurs as
a result, inter alia, of a change in exchange rate,
the amount of difference shall be adjusted at the
time when payment is received or made."
(19) The words "refund of amount" shall be Substituted for the
words "reimbursement of amount" contained in the second line
of clause (a) of Sub-section (1) of Section 25.
(20) The words "money or" contained in the second line of clause (a)
of Sub-section (1) of Section 27 and the words "money and"
contained in the same clause shall be deleted.
(21) The following Section 29 shall be Substituted for Section 29:
"29. Indirect payments: In cases where any person derives
benefits indirectly from payments made by the payer or a
person associated with him or specifies another person to
receive payment, the Department may, by issuing a notice
in writing, treat the person himself deriving such benefit
or specifying such other person as the recipient of
payment.”
(22) The word "seller" contained in Sub-section (3) of Section 32
shall be deleted.
(23) The following Sub-clause (2) shall be Substituted for Sub-clause
(2) of clause (a) of Sub-section (1) of Section 38:


402
"(2) Any amount required to be included in the assessment of
the income of that person as a result of acquisition of that
property."
(24) The word "payment" shall be substituted for the words "amount
Subject to tax" contained in the proviso to clause (c) of Sub-
section (1) of Section 39.
(25) Of Section 41:
(a) The following Sub-clause (2) shall be substituted for Sub-
clause (2) of clause (a):
"(2) In re-disposing that property, the net outgoings
made for that property until the disposal pursuant
to this Section shall be deemed to be equal to the
amount receivable."
(b) The following Sub-clause (2) shall be substituted for Sub-
clause (2) of clause (b):
"(2) In re-disposing that liability, the net incomings
made for that liability pursuant to Sub-clause (1)
until the disposal under this Section shall be
deemed to be equal to the outgoings".
(26) The word "taxable" shall be substituted for the words "Subject
to tax" contained in Sub-section (2) of Section 45.
(27) The following Sub-section (3) shall be inserted after Sub-section
(2) of Section 50:


403
"(3) Notwithstanding anything contained in Sub-sections (1)
and (2), a resident widow or widower who has to maintain
and subsist dependents shall be treated as spouse."
(28) Of Section 54:
(a) Of Sub-section (1):
(1) The words "if distributed" shall be inserted befor
the words "final" contained in clause (a).
(2) The following clause (b) shall be Substituted for
clause (b):
"(b) No tax shall be imposed if other entities
make distribution."
(b) The following Sub-section (3) shall be Substituted for
Sub-section (3):
"(3) Notwithstanding anything contained in Sub-
section (1), no tax shall be charged if dividend
received upon deduction of tax under that Sub-
section is distributed".
(c) Sub-section (4) shall be deleted.
(29) The following Sub-section (1a) shall be inserted after Sub-
section (1) of Section 57:
"(1a) For the purposes of computing the change of fifty
percent or more than fifty percent ownership of any
entity as referred to in Sub-section (1),only the following
ownership of that entity shall be included:


404
(a) The ownership held by a shareholder holding one
percent or more of the total ownership of that
entity, and
(b) The ownership held by an associated person of
the shareholder who holds more than one percent
of the total ownership of that entity, out of the
shareholders who hold less than one percent of
the total ownership of that entity."
(30) The following Sub-section (1) shall be substituted for Sub-
section (1) of Section 58:
"(1) An arrangement made by any entity by maintaining all of
the following conditions shall be treated as an
arrangement made for reducing dividend tax:
(a) Where that entity has reserved, current or
expected profits,
(b) Where any person who acquires an interest of the
entity and the recipient of the interest or his
associated person makes any payment to the
present or previous beneficiary of the entity or his
associated person irrespective of whether or not it
is related to the acquisition of interest and whether
or not payment is made at the time of acquisition
of interest,
(c) Where the payment is fully or partly reflected in
the profits of that entity,


405
(d) Where that entity distributes dividends to the
recipient of interest and the dividends fully or
partly cover the profits."
(31) Of section 59:
(a) The following Sub-section (1a) shall be inserted after
Sub-section (1):
"(1a) An amount that is up to five percent of a due and
recoverable loan held in the risk bearing fund by a
person carrying on banking business Subject to
the standards prescribed by the Nepal Rstara Bank
shall be deducted as an expense. Where the risk
bearing fund is so maintained, and the expenses
debited to the profits as a bad debt, the same shall
not be written off; and where the amount in that
fund is capitalized or profits or dividends are
distributed, the same shall be included in the
income of the year in which such distribution is
made."
(b) The following proviso shall be inserted in Sub-section
(2):
"Provided that, if the amount as referred to in Sub-
section (1a) is deducted as expenditures, such loss shall
not be deductible.”
(32) Of Section 61:
(a) The following Sub-clause (2) shall be Substituted for
Sub-clause (2) of clause (b) of Sub-section (2):


406
"(2) The premiums as referred to in Sub-clause (1) of
clause (a) returned to the insured".
(b) The words "shall not be considered as expenses" hall be
Substituted for the words "shall be included in the
expenses" contained in Sub-section (3).
(33) Of Section 63:
(a) The following proviso shall be inserted in Sub-section (1):
"Provided that the Citizen Investment Fund established under
the Citizen Investment Fund Act, if it intends to maintain a
retirement fund, and the Employee Provident Fund establi hed
under the Employee Provident Fund Act, 2019, if it operates a
retirement fund, shall not be required to obtain permission for
such fund."
(b) The phrase " may make a claim for deduction in calculating his
income" shall be Substituted for the phrase "may make a claim
to deduct from the income" contained in Sub-section (2).
(34) The words "mentioned in Sub-section (1) of Section 2 of Schedule-1"
shall be Substituted for the words "applicable to companies" contained
in Sub-section (3) of Section 64.
(35) The words "or the retirement payments made by Government of Nepal"
shall be inserted after the words "from the interest" contained in the
second line of Sub-section (1) of Section 65.
(36) Section 66 shall be repealed.


407
(37) The word "employment" shall be Substituted for the words "such
acts" contained in the first line of Sub-clause (2) of clause (i) of Sub-
section (6) of Section 67.
(38) The following clause (b) shall be Substituted for clause (b) of the
explanation contained in Section 71:
"(b) "Average rate of tax of Nepal" means the rate to be set by
multiplying with one hundred the amount to be set by dividing
the amount of tax payable by a person as referred to in clause (a)
of Section 3 in any income year by the taxable income of that
person in that year prior to the adjustment of any foreign tax in
that year."
(39) The words "Big Taxpayer Office or" shall be inserted before the words
"Inland Revenue Office" contained in Sub-section (2) of Section 72.
(40) The following Sub-section (1) shall be Substituted for Sub-section (1)
of Section 74:
"(1) The taxpayer shall perform the duties as mentioned in this Act."
(41) Of Section 78:
(a) The following Sub-section (1) shall be substituted for Sub-section (1):
“78. Permanent accounts number: (1) The Department shall
issue an identity number called as permanent accounts number
to any person for purposes of identifying that person, Subject
to this Act.
Provided that, a body having obtained approval from the
Department may give such permanent accounts number by
fulfilling the procedures referred to in this Act. Taxpayer


408
receiving permanent accounts number shall not do, in such
manner, the transaction of export and import up to the period
specified by the Department.
(b) The following Sub-sections (4) and (5) shall be inserted after
Sub-section (3):
“(4) Notwithstanding anything contained in Sub-
section (1), any person specified pursuant to Sub-
section (3) shall obtain the permanent accounts
number prior to doing transactions.
(5) Notwithstanding anything contained in Sub-
section (1), (2), (3) or 4, no one shall be released
from the liability of tax by the reason that he has
not obtained the permanent accounts number.
(42) The words “at least” contained in Sub-section (2) of Section 81 shall be
deleted.
(43) Of Section 88:
“(a) The word "and" shall be Substituted for the words "in making
payment and if that person is an approved retirement fund, any"
contained in Sub-section (1), and the following provis shall be
Substituted for the proviso to that Sub-section:
"Provided that tax shall be withheld at the following rate
from the following payment:
(1) In the case of the retirement payment made by the
Government of Nepal or by the approved
retirement fund, at the Rate of six percent from the


409
benefits calculated pursuant to clause (b) of Sub-
section (1) of Section 65,
(2) In the case of the commission paid by a resident
employer company to a non-resident person, at the
rate of five percent,
(3) In the case of payment of amount for aircraft lease,
at the rate of ten percent."
(b) The following Sub-section (2) shall be Substituted for Sub-
section (2):
"(2) A resident person shall, in making the following
payments having source in Nepal, withhold tax at the
following rate:
(a) In making payment of dividends, five percent of
the amount paid,
(b) In making payment of investment insurance
benefits, five percent of the amount of benefits,
(c) In making payment of benefits from an
unapproved retirement fund, ten percent of the
amount of benefits".
(c) The following Sub-section (3) shall be Substituted for Sub-
section (3):
"(3) Notwithstanding anything contained in Sub-
section (1), in making payment of interest or of an
amount in the form of interest as follows by a resid nt
bank, financial institution or any other entity issuing


410
bonds or a company registered under the laws in
force to any individual for deposits, bonds,
debentures and governmental bonds, tax shall be
withheld from the total amount of payment at the rat
of six percent:
(a) Which has source in Nepal, and
(b) Which is not related with the operation of
business."
(d) The following clauses (a1) and (a2) shall be inserted after clause
(a) of Sub-section (4):
"(a1) Service fee paid to a resident company,
(a2) Payment for an article published in a newspaper nd for
preparing question papers and examining answer books."
(e) The following clause (d) shall be inserted after clause (c) of Sub-
section (4):
"(d) The interregional interchange fee paid to a bank issuing
credit card."
(44) The following Section 89A. shall be inserted after Section 89:
“89A. Tax withholding in making payment of value added tax invoice:
Notwithstanding anything contained in Sections 87 and 88, in making
payment of a value added tax invoice, tax shall be withheld at the rate
of one and half percent.”
(45) Of Section 90:


411
(a) The following Sub-section (1) shall be Substituted for Sub-
section (1):
"(1) Each person who is obliged to withhold tax has to Submit
to the Department a statement in such mode and format
as specified by the Department within fifteen days fter
the expiration of each month."
(b) The phrase "in the following conditions, the person Subject to
tax withholding" shall be Substituted for the phrase "In cases
where the person withholding tax does not withhold or pay tax
as follows, both the person Subject to tax withholding"
contained in Sub-section (5).
(46) Of Sub-section (1) of Section 92:
(a) The following clause (e) shall be Substituted for clause (e):
"(e) Interest as follows paid by a bank, financial institution or
any other entity issuing bonds or a company enlisted
pursuant to the laws in force, as mentioned in Sub-
section (3) of Section 88:
(1) Which has source in Nepal and which is not
related with the operation of business and paid to
an individual,
(2) Which is paid to an institution entitled to tax
exemption pursuant to clause (d) of Section 2.”
(b) The following clauses (g) and (h) shall be inserted after clause
(f):


412
"(g) Retirement payments made by the Government of Nepal
or an approved retirement fund, and
(h) Payment for meeting allowance and part-time teaching."
(47) Of Section 94:
(a) The following Sub-section (1) shall be Substituted for Sub-
section (1):
"(1) A person who has or will have assessable income in any
income year from any business or investment has to pay
tax in three installments as follows:
Date on which payment has to be made Amount to be paid
By the end of Poush (mid January) Amount of due and payable tax
out of 40% of the estimated tax
By the end of Chaitra (mid April) Amount of due and payable tax
out of 70% of the estimated tax
By the end of Ashad (mid July) Amount of due and payable tax
out of 100% of the estimated tax
Explanation: For the purposes of this Sub-section,-
(a) "Estimated tax" means the estimated tax in installment
computed by any person liable to pay tax in installment
pursuant to Section 95 at the time when the installment
tax is to be paid in any year.
(d) "Due and payable tax" means the amount that remains
shortfall after Subtracting the following total sum from
the amount to be set by the percentage prescribed for


413
payment of estimated tax in installments under thisSub-
section:
(1) The amount of tax paid in that income year by a
prior installment pursuant to this Section before
the date on which the installment in question is to
be paid,
(2) The amount of tax deducted from the payments to
be included in computing the income of any
person in any income year pursuant to Chapter-17
before the date on which the installment in
question is to be paid in that year,
(3) In cases where the agent withholding tax or the
person Subject to tax withholding pays to the
Department the amount of tax deemed to be
withheld from the payment referred to in clause (2)
pursuant to Sub-section (3) of Section 90 in that
year before the date on which the installment is to
be paid, such amount of tax, and
(4) The amount of tax adjustment for medical
treatment expenses which that person may claim
pursuant to Section 51 in respect of the accepted
medical treatment expenses incurred by that
person before the date on which the installment is
to be paid."
(b) The words "total of all installments" shall be Substituted
for the words “of installments" contained in Sub-section
(2)."


414
(48) Of Section 95:
(a) The words "by the Department" shall be inserted after the
words "may be prescribed" contained in Sub-section (1).
(b) The words "or where it is so specified pursuant to Sub-section
(6) that any person is not required to Submit an estimate to pay
installment of tax" contained in Sub-section (7) shall be deleted.
(49) Of Sub-section (2) of Section 96:
(a) Sub-clauses (4) and (5) of clause (a) shall be del ted.
(b) Sub-clause (1) of clause (c) shall be deleted.
(50) Of Section 97:
(a) The words "except where the Department issues a written order
or issues order by publishing a public notice" shall be
Substituted for the words "except where the Departmen issues
a written order" contained at the beginning.
(b) The word "or" contained at the end of clause (b) shall be
deleted.
(c) The words “natural person or” shall be Substituted for the
words “natural person” contained at the end of clause (c).
(d) The following clause (d) shall be inserted after clause (c):
"(d) If the motor vehicle owner making payment of tax
pursuant to Sub-section (11) of Section 1 of Schedule-1 is
an individual, such individual."
(51) The word "fifteen" shall be Substituted for the word "seven"
contained in the fourth line of Sub-section (6) of Section 101.


415
(52) The word "Department" shall be Substituted for the words "Tax
Department" contained in Section 106.
(53) The following Section 110A. shall be inserted after Section 110:
“110A. Realization of tax by installment:
Where any person make a written request for payment of his tax
arrears by installment prior to institution of case pursuant to
Section 111, the Tax Officer may give permission to pay the
same by installment within a reasonable period of time as
specified by the Tax Officer.”
(54) The following Sub-section (3) shall be substituted for Sub-section (3)
of Section 113:
“(3) If any person makes an application to the Department, as
prescribed, for the refund of the amount pursuant to Sub-
section (1), such refund shall be made within sixty days
after the date on which such application is made."
(55) The words "assessment of expenses incurred in an auction sale as
referred to in Sub-section (5) of Section 105" shall be inserted after the
words "assessment of tax contained in clause (e) of Sub-section (1) of
Section 114.
(56) Of Section 115:
(a) The word “one-third” shall be Substituted for the words “fifty
percent” contained in Sub-section (6).
(b) The word "sixty" shall be Substituted for the word "ninety"
contained in Sub-section (8).
(57) Of Section 117:


416
(a) Clause (a) of Sub-section (1) shall be deleted.
(b) The words "0.1 percent" shall be Substituted for the words "one
and half percent" contained in Sub-section (2), andthe words
"per year" shall be Substituted for the words "per month"
contained in that Sub-section.
(58) The following Section 118 shall be Substituted for Section 118:
"118. Interest to be charged where the person making payment in
installments makes lesser payment of estimated tax:
(1) In cases where, in the case of the amount of installment
to be paid by any person under Section 94 in any income
year, the amount mentioned in clause (b) is more than t e
amount mentioned in clause (a), interest shall be charged
on such excess amount pursuant to Sub-section (2):
(m) Amount of each installment paid by that person in
any income year,
(n) Eighty percent of the estimated or revised estimated
amount of total amount payable by installments for
each installment period in that income year if such
estimate or revised estimate is correct and, if such
estimated or revised estimated amount is not correct,
that of such amount, of the total amount of tax to be
paid by any person referred to in clauses (a) and (b)
of Section 3, as is to be paid in installment for each
installment period in any income year.
(2) An interest to be set by the normal rate of interest, for
each month and portion of the month, from the due date


417
for payment of the installment in that year to the
following period shall be imposed on the person referr d
to in Sub-section (1):
(a) In the case of a person in respect of whom tax is to
be assessed under Sub-section (1) of Section 99,
until the date for Submission of the income return,
(b) In the case of a person in respect of whom the
Department has made revised tax assessment for
the first time under Section 101 because of failure
to make tax assessment under Sub-section (1) of
Section 99, until the date on which a notice of that
revised tax assessment is delivered pursuant to
Section 102.
Explanation: For the purposes of this Section, "amount
payable by installment" means the amount of installments
calculated pursuant to Sub-section (1) of Section 94 in
the case of a taxpayer who fails to Submit a revised
estimate once an estimate has been Submitted and in
respect of whom the Department has made estimate
pursuant to Sub-section (7) of Section 95 because of his
failure to Submit an estimate and calculated pursuant to
Sub-section (5) of Section 95 in the case of a taxpayer
Submits a revised estimate and in respect of whom the
Department has made estimate pursuant to Sub-section
(7) of Section 95 because of being unsatisfied with the
Submitted estimate or revised estimated."
(59) The following Section 119A. shall be Substituted for Section 119A.:


418
“119A. Fees to be charged: Except as otherwise provided in this Act, a
person who fails to observe any provision of this Act or the Rules
framed hereunder shall be liable to pay fees equivalent to the fine
specified pursuant to Section 128.”
(60) The following Section 136A. shall be inserted after Section 136:
“136A. Fine, fees not to be charged: Notwithstanding anything
contained elsewhere in this Act, where any interpretation or decision
done or made under this Act or the Regulation framed h reunder
results in a change to tax burden but not to the tax recovery amount,
the fine, fees chargeable prior to doing or making such interpretation or
decision shall not be charged.”
(61) The following Section 141A. shall be inserted after Section 141:
“141A. There shall be charged and collected tax on the income of Hid
Majesty the King, Her Majesty the Queeen, the Crown Pri ce and royal
family members.”
(62) The following clause (g) shall be Substituted for clause (g) of Sub-
section (2) of Section 143:
"(g) Amendment to Section 15 of the Industrial Enterprises Act,
2049 (1992):
(1) Clauses (a), (c), (d), (e), (j), (l), (p), (q), (r and (s) of Section
15 of the Industrial Enterprises Act, 2049 (1992) shall be
deleted.
(2) The words "respectively thirty, twenty-five and twenty
percent on the income tax until ten years of the date of
operation and" contained in clause (f) shall be deleted."
Schedule-1


419
(63) Amendment to Schedule-1:
(1) Of Section 1:
(a) The words "one hundred thousand rupees", "one
hundred twenty five thousand rupees", "one hundred
seventy five thousand rupees", and " two hundred
thousand rupees", respectively shall be Substituted for
the words "fifty five thousand rupees", "seventy five
thousand rupees", "one hundred thirty thousand rupees"
and "one hundred fifty thousand rupees" contained in
various places of Sub-sections (1), (2), (3) and (4).
(b) The proviso to clause (b) of Sub-section (4) shall be
deleted.
(c) The following Sub-section (5) shall be Substituted for
Sub-section (5):
"(5) For the individuals working in the remote areas
specified by the Government of Nepal, a maximum
sum of thirty thousand rupees shall, for the remote
allowance, be deducted from the taxable income, as
prescribed, and the tax shall then be calculated on
the remaining amount only, in accordance with this
Section".
(d) The following Sub-section (6) shall be Substituted for
Sub-section (6):
"(6) For the employee working in the abroad based
diplomatic missions of the State of Nepal, seventy
five percent amount of their abroad allowance shall


420
be deducted from the taxable income, and the tax
shall then be calculated on the remaining amount
only, in accordance with this Section."
(e) The following Sub-section (9a) shall be inserted after
Sub-section (9):
“(9a) Notwithstanding anything contained elsewhere in
this Section, where any resident individual is the
disabled, additional fifty percent of the amount
mentioned in clause (a) of Sub-section (1) for such
individual and in clause (a) of Sub-section (1) for spouse
shall be deducted from the taxable income, and the tax
shall then be calculated on the remaining amount only, in
accordance with this Section."
(f) The following Sub-sections (10), (11), (12), (13) and (14)
shall be inserted after Sub-section (9a):
"(10) Notwithstanding anything contained elsewhere in
this Section, where any resident individual has
procured an insurance business, the amount to be
set by seven percent of the sum of investment
insurance or ten thousand rupees, whichever is
lesser, out of the premium paid for the same, shall
be deducted from the taxable income, and the tax
shall then be calculated on the remaining amount
only, in accordance with this Section".
(11) Notwithstanding anything contained elsewhere in
this Section, the owners of vehicles on hire shall
pay annual tax at the following rates. If the owner


421
of vehicle is an individual, the tax so paid shall be
final and binding.
Category of vehicles Annual tax payable per
vehicle
(a) Mini-bus, mini-truck, truck and bus Rs. 1,500/-
(b) Car, jeep, van and microbus Rs.1,200/-
(c) Three wheeler, auto-rickshaw, tempo Rs. 850/-
(d) Tractor and power tiller Rs. 750/-

(12) Notwithstanding anything contained elsewhere in
this Section, if an individual is fully engaged in the
operation of a special industry mentioned in
Section 11 of this Act throughout any year, in
calculating tax pursuant to this Section, tax shall
be charged by twenty percent of the taxable
income, instead of twenty five percent thereof.
(13) Tax shall be charged by twenty percent of the
taxable income earned by any individual from
exports in any income year."
(14) Notwithstanding anything contained elsewhere in
this Section, an additional tax to be set by 1.5
percent of the taxable income that is beyond the
taxable income mentioned in clause (c) of Sub-
section (1) or clause (c) of Sub-section (2) shall be


422
levied on an individual or spouse referred to in
Section 50."
(2) Of Section 2:
(a) The words “cigarette, Bidi, cigar, chewing tobacco, Khaini,
liquors, beer” shall be inserted after the words “in any income
year” contained in Sub-section (2).
(b) The following clause (b) shall be Substituted for clause (b) of
Sub-section (3):
"(b) In cases where the entity,
(1) Builds and operates any road, bridge, tunnel,
ropeway or sky-bridge, or
(2) Operates any trolley bus or tram, or"
(c) The following Sub-section (3a) shall be inserted after Sub-
section (3):
"(3a) Tax shall be levied by twenty percent on the axable
income earned by any entity, through its source in Nepal,
from exports in any income year."
(d) The following Sub-section (5) shall be Substituted for Sub-
section (5):
"(5) Tax shall be levied, pursuant to Sub-sections (1) and (4)
of Section 1 of this Schedule, on the taxable income f a
trust acquiring or looking after the property belonging to
any deceased resident person or of a disabled resident
individual in any income year as if the one who acquires


423
or looks after or that trust money or trust resident were an
individual."
(e) Amendment to Sub-section (7):
“(7) Ta shall be levied by five percent on the taxable income
of any non-resident person in relation to the income
referred to in Section 70 in any income year.
Provided that in the case of a non-resident person
providing telecommunication, air transport or water
transport service, which does not so depart from the
State of Nepal that it has destination in a foreign country,
tax shall be levied by two percent.
(f) The following Sub-section (8) shall be inserted after Sub-
section (7):
"(8) Notwithstanding anything contained elsewhere in
this Section, there shall be levied an additional tax to be
set by 1.5 percent of the taxable income to be set for any
entity other than that mentioned in Sub-sections (6) and
(7) of Section 2."
Section 31:
The words “the Government of Nepal” shall be Substituted for the
words “His Majesty’s Government” contained in various places of the
Income Tax Act, Value-added Tax Act, Excise Duty Act and Motor
Vehicle Tax Act.
Section 32:


424
Effect of inoperativeness of the Finance Ordinance, 2062(2005):
With the Finance Ordinance, 2062 (2005) being inoperative, unless a
different intention appears, the inoperativeness shall not:
(a) Revive anything not in force or existing at the time at
which the Ordinance became inoperative;
(b) affect the matter in operation as per the Ordinance or
anything duly done or any punishment suffered
thereunder;
(c) affect any right, privilege, obligation or liability acquired,
accrued or incurred under the Ordinance;
(d) affect any penalty, punishment or forfeiture incurred
under the Ordinance;
(e) affect any action or remedy made or taken in respect of
any such right, privilege, obligation, liability, penalty or
punishment as aforesaid; and any such legal proceeding
or remedy may be instituted, continued or enforced as if
the Ordinance were in force.


425
Financial Act, 2064 (2007)
Date of Authentication and the Publication
2064.3.28 (12 July, 2007)
An Act Made to Implement Proposals Relating to Finance of the
Government of Nepal
Preamble: Whereas, it is expedient to levy some charges, taxes, duties,
cesses and fees, continue or alter the existing ones a d also to amend the
laws in force relating to revenue administration in order to implement the
proposals relating to finance of the Government of Nepal;
Now, therefore, be it enacted by Legislature-Parliament.
1. Short title and commencement: (1) This Act may be called as the
“Financial Act, 2064 (2007)."
(2) Sections 1, 2, 3, 4, 5, 9 and 11 of this Act shall be deemed to
have come into force on 28 Ashad 2064 (11 July 2007) and the other
Sections on 1 Shrawan 2064(17 July 2007).
37. Amendment to the Income Tax Act, 2058 (2002): Of the Income
Tax Act, 2058(2002):-
(1) Of Section 2:
(a) The following Clause (p1) shall be inserted after Clause
(p):
“(p1) “turn-over” means a turn-over equivalent to the
total amount to be included under Section 7, 8 or 9


426
for purposes of computing the income of a
business or investment in any income year”.
(b) Of Clause (r):
(1) The following Sub-clause (2a) shall be inserted
after Sub-clause (2):
“(2a) A benefit of any beneficiary held in the
retirement fund”,
(2) The words "land and" shall be inserted before the
words "private building" contained in Sub-clause
(3).
(c) The following Clause (s) shall be substituted for Clause
(s):
“(s) "organization entitled to enjoy exemption" means
the following entity:
(1) Any of the following entities registered in
the Department as an entity enjoying tax
exemption:
(a) A social, religious, educational or
benevolent organization of public
nature established with non-profit
motive,
(b) An amateur sports organization so
formed with a view to promoting
social or sports related facilities that


427
the organization or its member does
not derive profits,
(2) A political party registered in the Election
Commission,
(3) Village Development Committee,
Municipality or District Development
Committee,
Provided that, in cases where any
person has derived any benefit from the
property of that organization and the
monies obtained from that organization
except in making payment for the property
or the service rendered by any person to
that organization or in discharging
functions in consonance with the objective
of the organization entitled to exemption, tax
exemption shall not be granted to such
organization."
(d) The figures and letters "(1), (2), (3) and (4)" shall be
substituted for the figures and letters "(1), (2) and (3)”
contained in Sub-clause (5) of Clause (x).
(e) The following Sub-clauses (1) and (2) shall be
Substituted for Sub-clauses (1) and (2) of Clause (ad):
“(1) Payment for having acquired the right to extrac
water, minerals or other living and non-living
resources from the earth, or


428
(2) Amounts calculated based on the quantity or
value of living or non-living resources of the
natural resources and minerals extracted fully or
partly from the earth”.
(f) The following Clause (af) shall be Substituted for Clause
(af):
"(af) "Rent" means all payments including a premium
received for the house rent as well as for the lease
of a tangible property.
Provided that, this term does not include
any payment made for natural resources".
(g) The following Clause (ab) shall be Substituted for Clause
(ab):
“(ab) "Investment" means the act of holding one or m e
properties or investing such properties, except
with the followings:
(1) Holding any property used by the owner
thereof in personal use, or
(2) Employment or occupation.
Provided that, holding non-business
taxable property shall be deemed as
investment.”
(h) Of Clause (ae):


429
(a) The words " in respect of any income year"
contained in the first sentence of paragraph (b) of
Sub-clause (1) shall be deleted.
(b) The word "or" shall be inserted at the end of
paragraph (b) of Sub-clause (3).
(c) The word "or" shall be inserted at the end of para
(a) of Sub-clause (4).
(d) The following Sub-clause (4a) shall be inserted
after Sub-clause (4):
"(4a) Government of Nepal,"
(e) The word "or" shall be Substituted for the word
"and" contained in the second sentence of Sub-
clause (6).
(i) The words "exemption, premium under loan liability" shall
be Substituted for the word "premium" contained in the
first sentence of paragraph (2) of Sub-clause (ai).
(j) The words "sold or" contained in Clause (aj) shall be
deleted.
(k) The following Clause (an1) shall be inserted after
Clause (an):
“(an1) "Electronic medium" means the computer, fax,e-
mail, internet, electronic cash machine, fiscal
printer and other approved medium as specified
the Department”.


430
(l) The figure "(5)" shall be Substituted for the figure "(4)"
contained in the second sentence of Clause (ao).
(m) The following Clause (at1) shall be inserted after Clause
(at):
“(at1) "adjusted taxable income" means taxable income
calculated without deducting any amounts as
referred to in Section 12 and without deducting
any amount under Sub-section (2) of Section 14,
Section 17 or 18, while calculating the taxable
income of any person in any income year.”
(n) The words "Ten" shall be substituted for the words
"Fifteen" contained in Clause (aw) of Section 2.
(o) The words "related with the work" contained in Clause
(aab) shall be deleted, and the words "as referred to in
Clause (y)" shall be inserted the words "any entity"
contained in that Clause.
(2) Of section 4:
(a) The following Sub-section (l) shall be Substituted for Sub-
section (1):
“(1) The amount of tax required to be paid by any person
referred to in Section 3 for any income year shall be equal
to the total amount of tax required to be paid by such
person in capacity of anyone or more than one person
mentioned in Clauses (a), (b) and (c) of the Section.”
(b) The words "or both Sections" shall be inserted after the figure
"Section 51 or 71" as contained in Sub-section (2).


431
(c) The following Clause (c) shall be Substituted for Clause (c) of
Sub-section (3):
“(c) The employer has made a claim only for the adjustment of
tax on medical expenses paid by him/her and for
Subtraction of retirement contribution paid by the
employer him/herself and not claimed for Subtraction of
expenses for donation as referred to in Section 12.”
(d) Of Sub-section (4):
(1) The following Clause (a1) shall be inserted after Clause
(a):
“(a1) Having not claimed for adjustment of tax for
medical expenses under Section 51 and for
advance tax deduction under Section 93.”
(2) The following Clause (b) shall be substituted for Clause
(b):
"(b) The income earned from the business and the
turnover of the business do not exceed One
Hundred Fifty Thousand Rupees and One Million
Five Hundred Thousand Rupees, respectively."
(e) The figures "Section 87, 88 and 89" shall be Substituted for the
figure "Section 88" contained in the fourth line of Sub-section
(6).
(3) The words "or both Sections" shall be inserted after the words
"Section 12 or 63" contained in Section 5.


432
(4) The words "or both Sections" shall be inserted after the words
"Section 11 or 64" contained in the proviso to Clause (b) of Section 6.
(5) The words "shall be income" shall be Substituted for the words "shall
be computed in the income" contained in Sub-section (1) of Section 7.
(6) The words "shall be" shall be Substituted for the words "computed as
the income" contained in Sub-section (1) of Section 9.
(7) The following Clause (i) shall be inserted after Clause (h) in Section 10:
(i) Any kind of income of Government of Nepal.
(8) Of Section 11:
(a) The following Sub-section (2) shall be Substituted Sub-section
(2):
“(2) No tax shall be levied on the income of a
cooperative organization and saving and credit cooperative
organization or institution based in rural communities, which has
been registered and operated under the Cooperatives Act, 2048
(1991) and which carries on agricultural and forest based
industries such as professional forest related enterpris s
inclusive of sericulture and silk production, horticulture and
fruits processing, animal husbandry, dairy industry, poultry
farming, fishery, tea gardening and processing, coffee arming
and processing, herbiculture and herb processing, ve etable
seeds farming, bee keeping, honey production, rubber farming,
leasehold forestry, agro-forestry etc., cold storage established
for the storage of vegetables, agro-seeds, pesticides, fertilizers
and agricultural inputs (except those operated withmechanical


433
power). No tax shall also be levied on the dividends distributed
by such organization or institution.”
Explanation: The term “rural communities” means any area,
other the municipal area and the VDC adjoining such area.
(b) The following Sub-sections (3a), (3b) and (3c) shall be inserted
after Sub-section (3):
“(3a) Exemption or concessions regarding income tax to
industries established at specified economic zone ad t x on
dividend distributed by them shall be follows:-
(a) In case the industry is established in a special
economic zone situated at Himali district or at any
hilly district notified by Government of Nepal, cent
per cent for Ten years from the date of
commencement of the business of the industry
and Fifty percent for upcoming income years.
(b) Incase of any industry established in any other
special economic zone cent per cent for Five years
from the commencement of the business of the
industry and half of the income tax to be levied on
it for the income years thereafter.
(c) In the case of tax to be levied on dividend
distributed upto Five years from the date of
commencement of the business and after the
expiry of Five years at the rate of fifty percent for
a maximum period of Three years.


434
(d) In the case of income generated as service charge
or royalty for technology transfer or management
services provided by a foreign investor for the
industries established at any special economic
zone at the rate of Fifty percent.
(3b) Cent percent of the income tax chargeable on the
income of an industry established in remote areas shall be
exempted upto Ten years from the date of operation of the
industry.
(3c) Twenty-Five percent of the income tax chargeabl on
the income of an information technology industry established in
the information technology park as specified by the Government
of Nepal by a notification in the Nepal Gazette.”
(c) The following Sub-section (4) shall be Substituted for Sub-
section (4):
“(4) In computing the income of a person as referred to
in Clauses (a) and (b) of Sub-sections (1), (2), and (3), Clause (b)
of Sub-section (3), Sub-sections (3a), (3b) and (3c), Sub-section
(12) of Section 1 of Schedule 1 and Sub-sections (3) of Section 2
of Schedule 1, it shall compute as if the income were derived by
a separate person.”
(d) The following Sub-section (5) shall be Substituted for Sub-
section (5):
"(5) A person, who is in a position to have more than
one exemption in respect of the same income pursuant to the
above mentioned Sub-sections, shall enjoy only one exemption
chosen by him/her."


435
(e) The following Sub-section (7) shall be inserted after Sub-section
(6):
"(7) Notwithstanding anything contained in Sub-sections
(3a) and (3b), those industries availing tax exemption or tax
concession under the same Sub-sections (3a) and (3b) shall not
avail the facility in case the assets it has acquired for the
industry were already used by another person for such industry
or for any other business."
(9) The following Section 11A. shall be inserted after Section 11:
"11A. Tax chargeable on the build and operate of infrastructures : If
any agreement is concluded between the Government of Nepal
and any person for building and operating infrastructures, the
person building and operating such infrastructures shall be
entitled to enjoy tax facilities provided by this Act pertaining to
tax prevailing at the time of conclusion of that agreement during
the period of such agreement."
(10) The following Sub-section (2) shall be Substituted for Sub-section (2)
of Section 12:
"(2) Notwithstanding anything contained in Sub-section (1), the
expenditure deductible in any income year under that Sub-section shall
not exceed One Hundred Thousand Rupees or Five percent of the
adjusted taxable income that person in that year, whichever is lesser."
(11) The following Section 12A. shall be inserted after Section 12:
"12A. Expenses on heritage preservation and expenses for development
of sports: In case, any company incurs expenses on
preservation and development of ancient, religious r cultural


436
heritage located in Nepal; incurs expenses on construction of
public infrastructure required for the development of sports,
upon taking prior approval of the Department, for incurring the
expenses of any income year, such a company may claim for the
deduction of One Million Rupees or Ten percent of the
assessable income, whichever is lower."
(12) of Section 14:
(a) The words "created for an act to generate income from the
occupation or investment" shall be inserted after th words "of
such person" in Sub-section (1) and the provision in the
Clause (b) shall be deleted.
(b) Of Sub-section (2),-
(a) The phrase "the total interest amount which a resident
entity controlled by an organization entitled to tax
exemption can deduct under Sub-section (1) in any
income year shall not exceed the total of the following
amounts if the interest is paid to the controlling person or
associated person" shall be Substituted for the phrase
"the total interest amount which a resident entity
controlled by an organization entitled to tax exemption
can deduct under that Sub-section in any income year
shall not exceed the total of the following amounts"
contained at the end.
(b) The words "income of adjusted taxable income" shall be
substituted for the words "of taxable income" contained
in Clause (b)".
(13) Of Section 15:


437
"(a) The following proviso shall be inserted in explanation (c):
"Provided that, no amount in respect of repair and
maintenance and depreciation shall be included in the overhead
costs of a factory."
(b) The following proviso shall be inserted in explanation (d):
"Provided that, no amount in respect of repair and
maintenance and depreciation shall be included in the variable
overhead costs of a factory."
(14) Of Section 16:
(a) The following Sub-section (2) shall be Substituted for Sub-section (2):
“(2) Notwithstanding anything contained in Sub-
section (1), in deducting the expenses allowable under that Sub-
section, it shall not exceed Seven percent of the depreciation
base amount of the group of property remaining at the end of
that income year.
Provided that, this limitation shall not apply to the repair
and maintenance costs incurred by a person providing air
transport service in overhauling an aircraft in accordance with
the standards fixed by the Civil Aviation Authority of Nepal."
(b) The following Sub-section (3) shall be Substituted for Sub-
section (3):
"(3) Any excess expense or part thereof which is not
deductible by virtue of the limit referred to in Sub-section (2)
may be added to the depreciation base amount of the group of


438
the concerned property at the beginning of the forthcoming
income year".
(15) Of Section 17:
(a) The following Sub-section (2) shall be Substituted for Sub-section (2):
"(2) Notwithstanding anything contained in Sub-section
(1), in computing the limit of expenses deductible under that
Sub-section in any income year, it shall not exceed Fifty percent
of the adjusted taxable income earned from all businesses
operated by that person".
(b) The words "at the beginning of the coming income year" shall
be inserted after the word "capitalization" contained in the
second line of Sub-section (3).
(16) Of Section 18:
(a) The following Sub-section (2) shall be Substituted for Sub-section (2):
"(2) Notwithstanding anything contained in Sub-
section (1), in computing the limit of expenses deductible under
that Sub-section in any income year, it shall not exce d Fifty
percent of the adjusted taxable income earned from all
businesses operated by that person".
(b) The words "at the beginning of the coming income year" shall
be inserted after the word "any part" contained in the second
line of Sub-section (3).
(17) The words "shall" shall be Substituted for theword "may" contained
in Sub-section (1) of Section 19.
(18) Of Section 20:


439
(a) The following Clause (b) shall be Substituted for the Clause (b)
contained in Sub-section (1):
"(b) Loss suffered by that person from any business which
was not deducted in the last Seven income years.
Provided that, in the case of the projects which
involve building and operation of public infrastruct res
to be transferred to the Government of Nepal,
powerhouses construction, generation and transmission
of electricity and petroleum works pursuant to the Nepal
Petroleum Act, 2040 any loss not deducted in the last
Twelve income years."
(b) The following Sub-section (2) shall be Substituted for Sub-
section (2):
"(2) For the purposes of computing the income earned by
any person from any investment in any income year, such
person may deduct the loss suffered from any investm n which
was not deducted in that year and for an undeducted loss of
past Seven income years suffered by such person from such or
any other investment."
(c) The following Sub-section (8) shall be substituted after Sub-
section (7):
“(8) Where any person has enjoyed a full or partial tax
exemption in relation to the income derived from a business or
investment in any income year, such person shall not be entitled
to carry forward the loss made in such income year to the
Subsequent income years.”


440
(19) The word "private expenses of the natural person" shall be substituted
for the words "expenses made for" any natural person contained in the
second line of paragraph Clause (1) of explanation of Section 21.
(20) Of Section 24
(a) The words "in calculating the income earned by a person" shall
be substituted for the words "in the calculation of the income
earned by the person" contained in Sub-section (2); and the
following Sub-clause (2) shall be substituted for Sub-clause (2):
"(2) The value of such liability can be ascertained
actually, and"
(b) The following Sub-section (3) shall be substituted for Sub-
section (3):
"(3) Notwithstanding anything contained in Sub-section
(1), the Department may recognize the accounting specified by
the Nepal Rastra Bank, Subject to the Nepal Rastra Bank Act,
2058(2002) and the banking laws in force, in respect of banking
business."
(c) The following Sub-section (4) shall be substituted for Sub-section (4):
"(4) In calculating a person's income earned from a
business or investment on the accrual basis, where t person
includes any payment to which the person is entitled or deducts
any payment that the person is obliged to make and a difference
in the payment received or made by the person occurs as a
result, inter alia, of a change in exchange rate, the amount of
difference shall be adjusted at the time when payment is
received or made."


441
(21) The words "refund of amount" shall be Substituted for the words
"reimbursement of amount" contained in the second line of Clause (a)
of Sub-section (1) of Section 25.
(22) The words "money or" contained in the second li e of Clause (a) of
Sub-section (1) of Section 27 and the words "money and" contained in
the same Clause shall be deleted.
(23) The following Section 29 shall be substituted for Section 29:
“29. Indirect payments: In cases where any person derives benefits
indirectly from payments made by the payer or a person
associated with him or specifies another person to receive
payment, the Department may, by issuing a notice in wr ting,
treat the person himself deriving such benefit or specifying such
other person as the recipient of payment.”
(24) The word "seller" contained in Sub-section (3) of Section 32 shall be
deleted.
(25) The following Sub-clause (2) shall be substituted for Sub-clause (2) of
Clause (a) of Sub-section (1) of Section 38:
"(2) Any amount required to be included in the assessment of the
income of that person as a result of acquisition of that
property."
(26) The word "payment" shall be substituted for the words "amount
Subject to tax" contained in the proviso to Clause (c) of Sub-section (1)
of Section 39.
(27) Of Section 41:


442
(a) The following Sub-clause (2) shall be Substituted for Sub-clause
(2) of Clause (a):
"(2) In re-disposing that property, the net outgoings made for
that property until the disposal pursuant to this Section
shall be deemed to be equal to the amount receivabl."
(b) The following Sub-clause (2) shall be Substituted for Sub-clause
(2) of Clause (b):
"(2) In re-disposing that liability, the net incomings made for
that liability pursuant to Sub-clause (1) until the disposal
under this Section shall be deemed to be equal to the
outgoings."
(28) The word "taxable" shall be substituted for the words "Subject to tax"
contained in Sub-section (2) of Section 45.
(29) The following Sub-section (3) shall be inserted after Sub-section (2) of
Section 50:
"(3) Notwithstanding anything contained in Sub-sections (1) and (2),
a resident widow or widower who has to maintain and subsist
dependents shall be treated as spouse."
(30) Of Section 54:
(a) Of Sub-section (1):
(1) The words "if distributed" shall be inserted after the
words "shareholder" contained in Clause (a).
(2) The following Clause (b) shall be substituted for Clause
(b):


443
"(b) No tax shall be imposed if other entities make
distribution."
(b) The following Sub-section (3) shall be substituted for Sub-
section (3):
"(3) Notwithstanding anything contained in Sub-section
(1), no tax shall be charged if dividend received upon deduction
of tax under that Sub-section is distributed".
(c) Sub-section (4) shall be deleted.
(31) Of Section 57,-
(a) The following Sub-section (1a) shall be inserted after Sub-
section (1) of Section 57:
"(1a) For the purposes of computing the change of Fifty
percent or more than Fifty percent ownership of anye tity as
referred to in Sub-section (1), only the following ownership of
that entity shall be included:
(a) The ownership held by a shareholder holding One
percent or more of the total ownership of that
entity, and
(b) The ownership held by an associated person of
the shareholder who holds more than one percent
of the total ownership of that entity, out of the
shareholders who hold less than one percent of
the total ownership of that entity."
(b) The word and figure "Section 59 or 60" shall bed leted
contained in the Clause (c) of Sub-section (2).


444
(32) The following Sub-section (1) shall be Substituted for Sub-section (1)
of Section 58:
"(1) An arrangement made by any entity by maintaining all of
the following conditions shall be treated as an arrangement made for
reducing dividend tax:
(a) Where that entity has reserved, current or expected
profits,
(b) Where any person who acquires an interest of the entity
and the recipient of the interest or his associated person
makes any payment to the present or previous
beneficiary of the entity or his associated person
irrespective of whether or not it is related to the
acquisition of interest and whether or not payment is
made at the time of acquisition of interest,
(c) Where the payment is fully or partly reflected in the
profits of that entity,
(d) Where that entity distributes dividends to the recipient of
interest and the dividends fully or partly cover the
profits."
(33) Of section 59:
(a) The following Sub-section (1a) shall be inserted after Sub-
section (1):
"(1a) An amount that is up to five percent of a due and
recoverable loan held in the risk bearing fund by a person
carrying on banking business Subject to the standards
prescribed by the Nepal Rstara Bank shall be deducted as an


445
expense. Where the risk bearing fund is so maintained, and the
expenses debited to the profits as a bad debt, the sam shall not
be written off; and where the amount in that fund is capitalized
or profits or dividends are distributed, the same shall be
included in the income of the year in which such distribution is
made."
(b) Sub-section (2) and (3) shall be deleted
(34) Of Section 60:
(a) The following Sub-clause (3) shall be inserted after Sub-clause
(2) of Clause (b) of Sub-section (2):
"(3) Sum total of the following amounts provided for risk
coverage fund:
(a) Fifty percent of the net premium credited to the
profit and loss statement during the year: and
(b) One Hundred Fifteen percent of the pending
unsettled pending claims outstanding at the end of
the year.
Provided that, these amounts that are
shown as expenses during the year as profit shall
be included in the income of subsequent year.
(b) Sub-section (3) and (4) shall be deleted
(35) Of Section 61:
(a) The following Sub-clause (2) shall be Substituted for Sub-clause
(2) of Clause (b) of Sub-section (2):


446
"(2) The premiums as referred to in Sub-clause (1) of Clause
(a) returned to the insured".
(b) The words "shall not be considered as expenses" shall be
Substituted for the words "shall be included in theexpenses"
contained in Sub-section (3).
(36) Of Section 63:
(a) The following proviso shall be inserted in Sub-section (1):
"Provided that, the Citizen Investment Fund established
under the Citizen Investment Fund Act, if it intends to maintain
a retirement fund, and the Employee Provident Fund established
under the Employee Provident Fund Act, 2019 (--), if it operates
a retirement fund, shall not be required to obtain permission for
such fund."
(b) The phrase " may make a claim for deduction in calculating his
income" shall be Substituted for the phrase "may make a claim
to deduct from the income" contained in Sub-section (2).
(37) The words "mentioned in Sub-section (1) of Section 2 of Schedule-1"
shall be substituted for the words "applicable to companies" contained
in Sub-section (3) of Section 64.
(38) Of Section 65:
(a) The words "or the retirement payments made by Government of
Nepal" shall be inserted after the words "from the interest"
contained in the second line of Sub-section (1) of Section 65.
(b) The following proviso shall be inserted at the end of the
explanation:


447
"Provided that, the payment made from the non-
contributory fund of the beneficiary shall not be considered as
benefit received as an interest from the unapproved retirement
fund."
(39) Section 66 shall be repealed.
(40) The word "employment" shall be Substituted for the words "such
acts" contained in the first line of Sub-clause (2) of Clause (i) of Sub-
section (6) of Section 67.
(41) The following Clause (b) shall be Substituted for Clause (b) of the
explanation contained in Section 71:
“(b) "Average rate of tax of Nepal" means the rate to be set by
multiplying with One Hundred the amount to be set by dividing
the amount of tax payable by a person as referred to in Clause
(a) of Section 3 in any income year by the taxable income of that
person in that year prior to the adjustment of any foreign tax in
that year.”
(42) The words "Big Taxpayer Office or" shall be inserted after the words
"Inland Revenue Office" contained in Sub-section (2) of Section 72.
(43) The following Sub-section (1) shall be substituted for Sub-section (1)
of Section 74:
"(1) The taxpayer shall perform the duties as mentioned in this Act."
(44) The following Sub-section (3) shall be inserted after Sub-section (2) of
Section 77:


448
"(3) The Department may prescribe to submit any information or
particular or document to be submitted by a person to the Department
through the electronic medium."
(45) Of Section 78:
(a) The following Sub-section (1) shall be Substituted for Sub-section (1):
“78. Permanent accounts number: (1) The Department shall
issue an identity number called as permanent accounts
number to any person for purposes of identifying that
person, Subject to this Act.
Provided that, a body having obtained approval from
the Department may give such permanent accounts number
by fulfilling the procedures referred to in this Act. Taxpayer
receiving permanent accounts number shall not do, in such
manner, the transaction of export and import up to the
period specified by the Department.
(c) The following Sub-sections (4) and (5) shall be inserted after
Sub-section (3):
“(4) Notwithstanding anything contained in Sub-section
(1), any person specified pursuant to Sub-section (3) shall
obtain the permanent accounts number prior to doing
transactions.
(5) Notwithstanding anything contained in Sub-section
(1), (2), (3) or 4, no one shall be released from the liability of tax
by the reason that he has not obtained the permanent ccounts
number.”
(46) Of Section 81:


449
(a) The words “at least” contained in Sub-section (2) of Section 81
shall be deleted.
(b) The following Sub-section (4) shall be inserted after Sub-section
(3):
"(4) The Department provides approval to maintain
documents through electronic medium which are to be
maintained pursuant to Sub-section (1)."
(47) The following words shall be inserted end of the Sub-section (1) Of
Section 85:
“The Department may prescribe to pay the tax, to be so paid,
also through the electronic medium.”
(48) Of Section 88:
“(a) The word "service charge, commission or sale bonus and" shall
be Substituted for the words "in making payment servic charge
and if that person is an approved retirement fund, any"
contained in Sub-section (1), and the following provis shall be
Substituted for the proviso to that Sub-section:
Provided that, tax shall be withheld at the following rate
from the following payment:
(1) In the case of the retirement payment made by the
Government of Nepal or by the approved
retirement fund, at the Rate of Five percent from
the benefits calculated pursuant to Clause (b) of
Sub-section (1) of Section 65,


450
(2) In the case of the commission paid by a resident
employer company to a non-resident person, at the
rate of Five percent,
(3) In the case of payment of amount for aircraft lease,
at the rate of ten percent.
(4) In case of service provider resident person whois
registered in the Value Add Tax, on the payment of
service charge, at the rate of One point Five (One
and half) percent of the paid amount.”
(b) The following Sub-section (2) shall be Substituted for Sub-section (2):
"(2) A resident person shall, in making the following
payments having source in Nepal, withhold tax at the following
rate:
(a) In making payment of dividends, Five percent of
the amount paid to the resident person and Ten
percent to the non-resident of the same amount,
(b) In making payment of investment insurance
benefits and compensation for personal accident,
Five percent of the payment amount,
(c) In making payment of benefits from an
unapproved retirement fund, Ten percent of the
amount of benefits".
(c) The following Sub-section (3) shall be Substituted for Sub-section (3):
"(3) Notwithstanding anything contained in Sub-section
(1), in making payment of interest or of an amount in the form of


451
interest as follows by a resident bank, financial institution or
any other entity issuing bonds or a company registered under
the laws in force to any individual for deposits, bonds,
debentures and governmental bonds, tax shall be withheld from
the total amount of payment at the rate of Five percent:
(a) Which has source in Nepal, and
(b) Which is not related with the operation of
business."
(d) of Sub-section (4):
(1) The following Clauses (a1) shall be inserted after Clause (a) of
Sub-section (4):
"(a1) Payment for an article published in a newspaper and for
preparing question papers and examining answer books."
(2) The following Clause (d) and (e) shall be inserted after Clause
(c) of Sub-section (4):
"(d) The interregional interchange fee paid to a bank issuing
credit card."
(e) Any interest or fee paid by the Government of Nepal to a
foreign government or a foreign organization pursuant to
an agreement between Government of Nepal and foreign
government or Government of Nepal and International
Organization."
(49) The following explanation shall be inserted in the Section 89:
"Explanation: For the purpose of this Section "contraction or contract"
means a contract or agreement concluded to supply goods or labour or


452
construction, fixation or establishment of tangible property or structure
and any act prescribed by the Department as a contraction or contract
as well as it shall included the payment made for a service rendered in
case such service is being included by the contraction or contract in
the course of construction or taxation or establishment."
(50) The following Section 89A. Shall be inserted after Section 89:
“89A. Tax withholding in the benefit received from disposal of benefits
by the resident organization:
Except the resident organization engaged in the share
transaction upon registering itself pursuant to the prevailing law
in any year, if a person receives any benefit from the disposal of
an interest of a resident organization, such a person hall
withhold tax, as following, in the benefit computed pursuant to
Section 37:
(a) In the case of benefit received from the disposal
of the interest of an organization which is listed in
the security market, by the organization which acts
as a security exchange market, at the rate of Ten
percent in profit amount in relation the resident
natural person and at the rate of Fifteen percent in
any other case,
(b) In the case of benefit received from the disposal f
the interest of an organization which is not listed
in the security market, by the organization whose
interest was disposed, at the rate of Ten percent in
profit amount in relation the resident natural


453
person and at the rate of Fifteen percent in any
other case.
(51) Of Section 90:
(a) The following Sub-section (1) shall be Substituted for Sub-
section (1):
"(1) Each person who is obliged to withhold tax has to
Submit to the Department a statement in such mode an format
as specified by the Department within Fifteen days fter the
expiration of each month."
(b) The phrase "in the following conditions, the person Subject to
tax withholding" shall be Substituted for the phrase "In cases
where the person withholding tax does not withhold or pay tax
as follows, both the person Subject to tax withholding"
contained in Sub-section (5).
(c) The following Sub-section (8) shall be inserted after Section (7):
"(8) In case a person does not file details or does not pay
tax pursuant to Sub-section (1) or (2) or if the Department is
convinced that there is a situation of Sub-section (5) in relation
to a person, it may issue an order to submit the amount which is
not submitted or less amount submitted and interest as referred
to in Section 119.
Provided that, before issuing such an order, a Fifteen
days written notice along with reasons thereof shall be issued
for defense enclosing the evidence and proofs."
(52) Of Sub-section (1) of Section 92:


454
(a) At the end of Clause (c) the words "and payment of
compensation for personal accident" shall be inserted.
(b) The following Clause (e) shall be Substituted for Clause (e):
"(e) Interest as follows paid by a bank, financial institution or any
other entity issuing bonds or a company enlisted pursuant to
the laws in force, as mentioned in Sub-section (3) of Section 88:
(1) Which has source in Nepal and which is not
related with the operation of business and paid to
an individual?
(2) Which is paid to an institution entitled to tax
exemption pursuant to Clause (d) of Section 2."
(c) The following Clauses (g) and (h) shall be inserted after Clause
(f):
"(g) Payment for meeting allowance and part-time teaching."

"(h) Retirement payment made by the Government of Nepal or
approved retirement fund or un-approved retirement fu d
including all types of retirement payments."
(53) Of Section 94:
(a) The following Sub-section (1) shall be Substituted for Sub-
section (1):
"(1) A person who has or will have assessable income
in any income year from any business or investment has to pay
tax in three installments as follows:


455
Date on which payment has to
be made
Amount to be paid
By the end of Poush (mid
January)
Amount of due and payable tax
out of Forty percent of the
estimated tax
By the end of Chaitra (mid April)
Amount of due and payable tax
out of Seventy percent of the
estimated tax
By the end of Ashad (mid July)
Amount of due and payable tax
out of Hundred percent of the
estimated tax
Explanation: For the purposes of this Sub-section,-
(a) "Estimated tax" means the estimated tax in
installment computed by any person liable to pay
tax in installment pursuant to Section 95 at the time
when the installment tax is to be paid in any year.
(b) "Due and payable tax" means the amount that
remains shortfall after Subtracting the following
total sum from the amount to be set by the
percentage prescribed for payment of estimated tax
in installments under this Sub-section:
(1) The amount of tax paid in that income year
by a prior installment pursuant to this
Section before the date on which the
installment in question is to be paid,


456
(2) The amount of tax deducted from the
payments to be included in computing the
income of any person in any income year
pursuant to Chapter-17 before the date on
which the installment in question is to be
paid in that year,
(3) In cases where the agent withholding tax or
the person Subject to tax withholding pays
to the Department the amount of tax deemed
to be withheld from the payment referred to
in Clause (2) pursuant to Sub-section (3) of
Section 90 in that year before the date on
which the installment is to be paid, such
amount of tax, and
(4) The amount of tax adjustment for medical
treatment expenses which that person may
claim pursuant to Section 51 in respect of
the accepted medical treatment expenses
incurred by that person before the date on
which the installment is to be paid."
(b) The words "total of all installments" shall be Substituted for the
words “of installments" contained in Sub-section (2)."
(54) Of Section 95:
(a) The words "by the Department" shall be inserted after the
words "may be prescribed" contained in Sub-section (1).


457
(b) The words "or where it is so specified pursuant to Sub-section
(6) that any person is not required to Submit an estimate to pay
installment of tax" contained in Sub-section (7) shall be deleted.
(55) Of Sub-section (2) of Section 96:
(a) Sub-clauses (4) and (5) of Clause (a) shall be del ted.
(b) Sub-clause (1) of Clause (c) shall be deleted.
(56) Of Section 97:
(a) The words "except where the Department issues a written order
or issues order by publishing a public notice" shall be
Substituted for the words "except where the Departmen issues
a written order" contained at the beginning.
(b) The word "or" contained at the end of Clause (b) shall be
deleted.
(c) The words “natural person or” shall be Substituted for the
words “natural person” contained at the end of Clause (c).
(d) The following Clause (d) shall be inserted after Clause (c):
"(d) If the motor vehicle owner making payment of tax
pursuant to Sub-section (11) of Section 1 of Schedule-1 is
an individual, such individual."
(57) The following Sub-section (2) shall be Substituted for Sub-section (2)
of Section 100:
"(2) Notwithstanding anything contained in Sub-section (1), in
the circumstances mentioned in Sub-section (5) of Section 96, the
Department may, base on the amounts mentioned in Sub-cla ses (1),
(2), and (3) of Clause (a) of Sub-section (2) of Section 96, for any


458
income year or any part of that year, assess the tax of hat person in a
justifiable manner."

(58) The word "Fifteen" shall be Substituted for the word "Seven"
contained in the fourth line of Sub-section (6) of Section 101.
(59) The word "Department" shall be Substituted for the words "Tax
Department" contained in Section 106.
(60) The following Section 110A. shall be inserted after Section 110:
“110A. Realization of tax by installment: Where any person make a
written request for payment of his tax arrears by installment prior
to institution of case pursuant to Section 111, the Tax Officer
may give permission to pay the same by installment within a
reasonable period of time as specified by the Tax Officer.”
(61) The following Sub-section (3) shall be Substituted for Sub-section (3)
of Section 113:
“(3) If any person makes an application to the Department, as
prescribed, for the refund of the amount pursuant to Sub-section (1),
such refund shall be made within Sixty days after the date on which
such application is made.”
(62) of Sub-section (1) of Section 114.
(a) The following Clauses (a1) shall be inserted after Clause (a):
"(a1) The decision or order made pursuant to Sub-section (8)
of Section 90.


459
(b) The words "assessment of expenses incurred in an auction sale
as referred to in Sub-section (5) of Section 105" shall be inserted
after the words "assessment of tax" contained in Clause (e) of
Sub-section (1) of Section 114.
(63) of Section 115:
(a) The word “total amount in case of undisputed tax and One Third
in case of disputed tax” shall be Substituted for the words “Fifty
percent of tax to be paid” contained in Sub-section (6).
(b) The word "Sixty" shall be Substituted for the word "Ninety"
contained in Sub-section (8).
(64) Of Section 117:
(a) The following Sub-section (1) shall be Substituted for Sub-
section (1):
"(1) If any person does not do as followings, such a
person shall be imposed fees as follows:-

(a) In case income details of any income year are not
submitted pursuant to Sub-section (1) of Section
95, at the rate of Two Thousand Rupees for each
detail.
(b) In case income details of any income year are not
submitted pursuant to Sub-section (1) of Section
96, at the rate of One Hundred Rupees per month,
to a person as referred to in Sub-section (4) of
Section 4 of the Act and an amount which is


460
higher out of an amount, calculated in a case of
other person at the rate of 0.1 percent per anum on
the computable amount without deducting any
amount where one may deduct such an amount in
computing the income in that income year and
including such an amount which is to be included
on it or at the rate of One Hundred Rupees per
month, whichever is higher in those items."
(b) The words "0.1 percent" shall be Substituted for the words
"One and half percent" contained in Sub-section (2), and the
words "per year" shall be Substituted for the words "per month"
contained in that Sub-section.
(65) The following Section 118 shall be substituted for Section 118:
"118. Interest to be charged where the person making payment in
installments makes lesser payment of estimated tax: (1) In
cases where, in the case of the amount of installment to be paid
by any person under Section 94 in any income year, the amount
mentioned in Clause (b) is more than the amount mentioned in
Clause (a), interest shall be charged on such excess amount
pursuant to Sub-section (2):
(o) Amount of each installment paid by that person in
any income year,
(p) Eighty percent of the estimated or revised
estimated amount of total amount payable by
installments for each installment period in that
income year if such estimate or revised estimate is
correct and, if such estimated or revised estimated


461
amount is not correct, that of such amount, of the
total amount of tax to be paid by any person
referred to in Clauses (a) and (b) of Section 3, as is
to be paid in installment for each installment period
in any income year.
(2) An interest to be set by the normal rate of interest, for
each month and portion of the month, from the due date for
payment of the installment in that year to the following period
shall be imposed on the person referred to in Sub-section (1):
(a) In the case of a person in respect of whom tax is to
be assessed under Sub-section (1) of Section 99,
until the date for Submission of the income return,
(b) In the case of a person in respect of whom the
Department has made revised tax assessment for
the first time under Section 101 because of failure
to make tax assessment under Sub-section (1) of
Section 99, until the date on which a notice of that
revised tax assessment is delivered pursuant to
Section 102.
Explanation: For the purposes of this Section,
"amount payable by installment" means the amount of
installments calculated pursuant to Sub-section (1) of
Section 94 in the case of a taxpayer who fails to Submit a
revised estimate once an estimate has been Submitted
and in respect of whom the Department has made
estimate pursuant to Sub-section (7) of Section 95
because of his failure to Submit an estimate and
calculated pursuant to Sub-section (5) of Section 95 in


462
the case of a taxpayer Submits a revised estimate and in
respect of whom the Department has made estimate
pursuant to Sub-section (7) of Section 95 because of
being unsatisfied with the Submitted estimate or revis d
estimated."
(66) The following Section 119A. shall be Substituted for Section 119A.:
“119A. Fees to be charged: Except as otherwise provided in this Act, a
person who fails to observe any provision of this Act or the
Rules framed hereunder shall be liable to pay fees equivalent to
the fine specified pursuant to Section 128.”
(67) The following Section 136A. shall be inserted after Section 136:
“136A. Provision of Reward: In case someone avoids or attempts to
avoid the tax liability as a whole or in part and if someone
informs the same along with evidence such an informant may be
awarded equal to Twenty percent of the amount of the tax
assessable from the evidence submitted by such an informant
out of the tax amount recovered on the basis of such
information.
(68) The following Section 141A. Shall be inserted after Section 141:
“141A. Tax shall be charged : Tax shall be charged and collected on
the income of His Majesty the King and members of the royal
family.”
(69) Repeal and Amendment: Section 15 of the Industrial Enterprises Act,
2049 (1992):


463
(1) Clauses (a), (c), (d), (e), (j), (l), (p), (q), (r and (s) of Section
15 of the Industrial Enterprises Act, 2049 (1992) shall be
deleted.
(2) The words "respectively Thirty, Twenty-Five and Twenty
percent on the income tax until Ten years of the date of
operation and" contained in Clause (f) shall be deleted."
Schedule-1
(70) Amendment to Schedule-1:
(1) Of Section 1:
(a) The Number and words "Rs.12,750", shall be Substituted
for the Number and words "Rs. 11,250 " and the words
"One Hundred Fifteen Thousand Rupees", "One
Hundred Forty Thousand Rupees", "Two Hundred
Thousand Rupees", and "Two Hundred Twenty Five
Thousand Rupees", respectively shall be Substituted for
the words "Fifty Five Thousand Rupees", "Seventy Five
Thousand Rupees", One Hundred Thirty Thousand
Rupees" and "One Hundred Fifty Thousand Rupees"
contained in various places of Sub-sections (1), (2), (3)
and (4).
(b) The proviso to Clause (b) of Sub-section (4) shall be
deleted.
(c) The following Sub-section (5) shall be substituted for
Sub-section (5):
"(5) For the individuals working in the remote
areas specified by the Government of Nepal, a maximum


464
sum of Thirty Thousand Rupees shall, for the remote
allowance, be deducted from the taxable income, as
prescribed, and the tax shall then be calculated on the
remaining amount only, in accordance with this Section."
(d) The following Sub-section (6) shall be Substituted for
Sub-section (6):
"(6) For the employee working in the abroad
based diplomatic missions of the State of Nepal, Seventy
Five percent amount of their abroad allowance shall be
deducted from the taxable income, and the tax shall t en
be calculated on the remaining amount only, in
accordance with this Section."
(e) The following Sub-section (9a) shall be inserted after
Sub-section (9):
“(9a) Notwithstanding anything contained
elsewhere in this Section, where any resident indivdual is
the disabled, additional Fifty percent of the amount
mentioned in Clause (a) of Sub-section (1) for such
individual and in Clause (a) of Sub-section (1) for spouse
shall be deducted from the taxable income, and the tax
shall then be calculated on the remaining amount only, in
accordance with this Section.”
(f) The following Sub-sections (10), (11), (12), (13) and (14)
shall be inserted after Sub-section (9a):
"(10) Notwithstanding anything contained
elsewhere in this Section, where any resident indivdual
has procured an insurance business, the amount to be set


465
by seven percent of the sum of investment insurance or
Ten Thousand Rupees, whichever is lesser, out of the
premium paid for the same, shall be deducted from the
taxable income, and the tax shall then be calculated on the
remaining amount only, in accordance with this Section".
(11) Notwithstanding anything contained
elsewhere in this Section, the owners of vehicles on hire
shall pay annual tax at the following rates. If theowner of
vehicle is an individual, the tax so paid shall be final and
binding."
Category of vehicles Annual tax payable
per vehicle
(a) Mini-bus, mini-truck, truck and bus Rs. 1,500/-
(b) Car, jeep, van and microbus Rs.1,200/-
(c) Three wheeler, auto-rickshaw, tempo Rs. 850/-
(d) Tractor and power tiller Rs. 750/-
(12) Notwithstanding anything contained
elsewhere in this Section, if an individual is fully engaged
in the operation of a special industry mentioned in
Section 11 of this Act throughout any year, in calculating
tax pursuant to this Section, tax shall be charged by
Twenty percent of the taxable income, instead of Twenty
Five percent thereof.
(13) Tax shall be charged by Twenty percent of the
taxable income earned by any individual from exports in
any income year.


466
(14) Notwithstanding anything contained
elsewhere in this Section, an additional tax to be set by
1.5 percent of the taxable income that is beyond the
taxable income mentioned in Clause (c) of Sub-section (1)
or Clause (c) of Sub-section (2) shall be levied on an
individual or spouse referred to in Section 50."
(2) Of Section 2:
(a) The words “cigarette, Bidi, cigar, chewing tobacco, Khaini,
liquors, beer” shall be inserted after the words “in any income
year” contained in Sub-section (2).
(b) The following Clause (b) shall be Substituted for Clause (b) of
Sub-section (3):
"(b) In cases where the entity,
(1) Builds and operates any road, bridge, tunnel,
ropeway or sky-bridge, or
(2) Operates any trolley bus or tram, or"
(c) The following Sub-section (3a) shall be inserted after Sub-section (3):
"(3a) Tax shall be levied by twenty percent on the
taxable income earned by any entity, through its source in
Nepal, from exports in any income year."

(d) The following Sub-section (5) shall be substituted for Sub-
section (5):


467
"(5) Tax shall be levied, pursuant to Sub-sections (1)
and (4) of Section 1 of this Schedule, on the taxable income of a
trust acquiring or looking after the property belonging to any
deceased resident person or of a disabled resident individual in
any income year as if the one who acquires or looks after or that
trust money or trust resident were an individual."
(e) The word (Five) shall be Substituted for (Ten) of Sub-section
(3):
(f) Amendment to Sub-section (7):
“(7) Tax shall be levied by Five percent on the taxable
income of any non-resident person in relation to the income
referred to in Section 70 in any income year.
Provided that, in the case of a non-resident person
providing telecommunication, air transport or water ransport
service, which does not so depart from the State of Nepal that it
has destination in a foreign country, tax shall be evied by two
percent."
(g) The following Sub-section (8) shall be inserted after Sub-section
(7):
"(8) Notwithstanding anything contained elsewhere in
this Section, there shall be levied an additional tax to be set by
1.5 percent of the taxable income to be set for any e tity other
than that mentioned in Sub-sections (6) and (7) of Section 2."



468
Financial Act, 2065 (2008)
Date of Authentication and the Publication
2065.6.3 (19 nov. 2008)
An Act Made to Implement Proposals Relating to Finance of the
Government of Nepal
Preamble: Whereas, it is expedient to levy some charges, taxes, duties,
cesses and fees, continue or alter the existing ones a d also to amend the
laws in force relating to revenue administration in order to implement the
proposals relating to finance of the Government of Nepal;
Now, therefore, be it enacted by the Constitution Assembly pursuant
to Sub-articles (1) of Article 83 of Interim Constitution of Nepal,2063 (2007).
1. Short title and commencement: (1) This Act may be called the
“Financial Act, 2065 (2008)."
(2) This Act shall come into force immediately.
40. Amendment to the Income Tax Act, 2058 (2002): Of the Income
Tax Act, 2058(2002):-
(1) Of Section 2:
(a) The following Clause (p1) shall be inserted after Clause (p):
“(p1) “turn-over” means a turn-over equivalent to the
total amount to be included under Section 7, 8 or 9
for purposes of computing the income of a
business or investment in any income year”.


469
(b) Of Clause (r):
(1) The following Sub-clause (2a) shall be inserted
after Sub-clause (2):
“(2a) A benefit of any beneficiary held in the
retirement fund”,
(2) The words "land and private building" shall be
inserted before the words "private building"
contained in Sub-clause (3).
(c) The following Clause (s) shall be substituted for Clause (s):
“(s) "Organization entitled to enjoy exemption" means
the following entity:
(1) Any of the following entities registered in
the Department as an entity enjoying tax
exemption:
(a) A social, religious, educational or
benevolent organization of public
nature established with non-profit
motive,
(b) An amateur sports organization so
formed with a view to promoting
social or sports related facilities that
the organization or its member does
not derive profits,
(2) A political party registered in the Election
Commission,


470
(3) Village Development Committee, Municipality
or District Development Committee,
Provided that, in cases where any
person has derived any benefit from the
property of that organization and the
monies obtained from that organization
except in making payment for the property
or the service rendered by any person to
that organization or in discharging
functions in consonance with the objective
of the organization entitled to exemption, tax
exemption shall not be granted to such
organization."
(d) The figures and letters "Sub-`clause (1), (2), (3) and (4)"
shall be substituted for the figures and letters "Sub-
`clause(1), (2) and (3)” contained in Sub-clause (5) of
Clause (x).
(e) The following Sub-clauses (1) and (2) shall be
Substituted for Sub-clauses (1) and (2) of Clause (ad):
“(1) Payment for having acquired the right to extrac
water, minerals or other living and non-living
resources from the earth, or
(2) Amounts calculated based on the quantity or
value of living or non-living resources of the
natural resources and minerals extracted fully or
partly from the earth”.
(f) The following Clause (;af) shall be Substituted for Clause (af):


471
"(af) "Rent" means all payments including a premium
received for the house rent as well as for the lease
of a tangible property.
Provided that, this term does not include
any payment made for natural resources".
(g) The following Clause (ab) shall be Substituted for Clause
(ab):
“(ab) "Investment" means the act of holding one or m e
properties or investing such properties, except
with the followings:
(1) Holding any property used by the owner
thereof in personal use, or
(2) Employment or occupation.
Provided that, holding non-business
taxable property shall be deemed as investment.”
(h) Of Clause (ae):
(a) The words " in respect of any income year"
contained in the first sentence of paragraph (b) of
Sub-clause (1) shall be deleted.
(b) The word "or" shall be inserted at the end of
paragraph (b) of Sub-clause (3).
(c) The word "or" shall be inserted at the end of para
(a) of Sub-clause (4).


472
(d) The following Sub-clause (4a) shall be inserted
after Sub-clause (4):
"(4a) Government of Nepal,"
(e) The word "or" shall be Substituted for the word
"and" contained in the second sentence of Sub-
clause (6).
(i) The words "exemption, premium under loan liability" shall
be Substituted for the word "premium" contained in the
first sentence of paragraph (2) of Sub-clause (ai).
(j) The words "sold or" contained in Clause (aj) shall be
deleted.
(k) The following Clause (an1) shall be inserted after
Clause (an):
“(an1) "Electronic medium" means the computer, fax,e-
mail, internet, electronic cash machine, fiscal
printer and other approved medium as specified
the Department”.
(l) The figure and letters "Sub-clause (5)" shall be
Substituted for the figure and letters "Sub-clause (4)"
contained in the second sentence of Clause (ao).
(m) The following Clause (at1) shall be inserted after Clause
(at):
“(at1) "adjusted taxable income" means taxable income
calculated without deducting any amounts as
referred to in Section 12 and without deducting


473
any amount under Sub-section (2) of Section 14,
Section 17 or 18, while calculating the taxable
income of any person in any income year.”
(n) The words "Ten percent" shall be substituted for the
words "Fifteen percent" contained in Clause (aw) of
Section 2.
(o) The words "related with the work" contained in Clause
(aab) shall be deleted, and the words "as referred to in
Clause (y)" shall be inserted the words "any entity"
contained in that Clause.
(2) Of section 4:
(a) The following Sub-section (l) shall be Substituted for Sub-
section (1):
“(1) The amount of tax required to be paid by any person
referred to in Section 3 for any income year shall be equal
to the total amount of tax required to be paid by such
person in capacity of anyone or more than one person
mentioned in Clauses (a), (b) and (c) of the Section.”
(b) The words "or both Sections" shall be inserted after the figure
"Section 51 or 71" as contained in Sub-section (2).
(c) The following Clause (c) shall be Substituted for Clause (c) of
Sub-section (3):
“(c) The employer has made a claim only for the adjustment of
tax on medical expenses paid by him/her and for
Subtraction of retirement contribution paid by the


474
employer him/herself and not claimed for Subtraction of
expenses for donation as referred to in Section 12.”
(d) Of Sub-section (4):
(1) The following Clause (a1) shall be inserted after
Clause (a):
“(a1) Having not claimed for adjustment of tax for
medical expenses under Section 51 and for
advance tax deduction under Section 93.”
(2) The following Clause (b) shall be substituted for
Clause (b):
"(b) The income earned from the business and the
turnover of the business do not exceed One
Hundred Fifty Thousand Rupees and One Million
Five Hundred Thousand Rupees, respectively."
(e) The figures and letters "Section 87, 88 and 89"shall be
substituted for the figure and letters "Section 88"contained in
the fourth line of Sub-section (6).
(3) The words "or both Sections" shall be inserted after the words
"Section 12 or 63" contained in Section 5.
(4) The words "or both Sections" shall be inserted after the words
"Section 11 or 64" contained in the proviso to Clause (b) of Section 6.
(5) The words "shall be income" shall be Substituted for the words "shall
be computed in the income" contained in Sub-section (1) of Section 7.


475
(6) The words "shall be" shall be Substituted for the words "computed as
the income" contained in Sub-section (1) of Section 9.

(7) The following Clause (i) shall be inserted after Clause (h) in Section 10:
(i) Any kind of income of Government of Nepal.
(8) Of Section 11:
(a) The following Sub-section (2) shall be Substituted Sub-section
(2):
“(2) No tax shall be levied on the income of a
cooperative organization and saving and credit cooperative
organization or institution based in rural communities, which has
been registered and operated under the Cooperatives Act, 2048
(1991) and which carries on agricultural and forest based
industries such as professional forest related enterpris s
inclusive of sericulture and silk production, horticulture and
fruits processing, animal husbandry, dairy industry, poultry
farming, fishery, tea gardening and processing, coffee arming
and processing, herbiculture and herb processing, ve etable
seeds farming, bee keeping, honey production, rubber farming,
leasehold forestry, agro-forestry etc., cold storage established
for the storage of vegetables, agro-seeds, animal feed, ......
pesticides, fertilizers and agricultural inputs (except those
operated with mechanical power). No tax shall also be levied on
the dividends distributed by such organization or institution.”


476
Explanation: The term “provision for this section rural
community” means any area, other the municipal area nd the
VDC adjoining such area.
(b) The words "from a special industry and information technology
industry" shall be substituted for the words "from a special
industry" contained in Sub-section (3) of Section 11 and the
following Clause (a) shall be substituted for Clause (a) of same
Sub-section:
(a) If the special industry and information technology
industry gives direct employment to Five hundred or
more Nepalese citizens throughout the year, ninety
percent of the rate of tax on the income of that year
(c) The following Sub-sections (3a), (3b) and (3c) shall be inserted
after Sub-section (3):
“(3a) Exemption or concessions regarding income tax to
industries established at specified economic zone ad t x on
dividend distributed by them shall be follows:-
(a) In case the industry is established in a special
economic zone situated at Himali districts or at
any hilly districts notified by Government of
Nepal, the industry shall avail an income tax
exemption for Ten years from the commencement
of the business of the industry and Fifty percent
of income tax in the upcoming income year.
(b) Any industry established at any other special
economic zone shall avail tax exemption for Five
years from the commencement of the business of


477
the industry and half of the income tax to be levied
on it for the income years thereafter.
(c) The above industries established at any special
economic zone shall avail tax exemption on
dividend distributed for Five years from the
commencement of the business. After expiry of
the Five years, for a maximum period of Three
years a tax concession of Fifty percent of the tax
rate applicable shall be available.
(d) Tax concessions at Fifty percent is provided on
income generated as service charge or royalty for
technology transfer or management services
provided by a foreign investor for the industries
established at any special economic zone.
(3b) Hundred percent of the income tax chargeable on the
income of an industry established in remote areas shall be
exempted upto Ten years from the date of operation of the
industry.
(3c) Twenty-Five percent of the income tax chargeabl on
the income of an information technology industry established in
the information technology park as specified by the Government
of Nepal by a notification in the Nepal Gazette.”
(d) The following Sub-section (4) shall be substituted for Sub-
section (4):
“(4) In computing the income of a persons as referrd
to in Clauses (a) and (b) of Sub-sections (1), (2), and (3), Clause
(b) of Sub-section (3), Sub-sections (3a), (3b) and (3c), Sub-


478
section (12) of Section 1 of Schedule 1 and Sub-sections (3) of
Section 2 of Schedule 1, shall compute the income as if that only
income were derived by other separate person.”
(e) The following Sub-section (5) shall be Substituted for Sub-
section (5):
"(5) A person, who is in a position to have more than
one exemption in respect of the same income pursuant to the
above mentioned Sub-sections, shall enjoy only one exemption
chosen by him/her."
(f) The following Sub-section (7) shall be inserted after Sub-section
(6):
"(7) Notwithstanding anything contained in Sub-sections
(3a) and (3b), those industries availing tax exemption or tax
concession under the same Sub-sections (3a) and (3b) shall not
avail the facility in case the assets it has acquired for the
industry were already used by another person for such industry
or for any other business."
(9) The following Section 11A. shall be inserted after Section 11:
"11A. Tax chargeable on the build and operate of infrastructures : If
any agreement is concluded between the Government of Nepal
and any person for building and operating infrastructures, the
person building and operating such infrastructures shall be
entitled to enjoy tax facilities provided by this Act pertaining to
tax prevailing at the time of conclusion of that agreement during
the period of such agreement."


479
(10) The following Sub-section (2) shall be Substituted for Sub-section (2)
of Section 12:
"(2) Notwithstanding anything contained in Sub-section (1), the
expenditure deductible in any income year under that Sub-section shall
not exceed One Hundred Thousand Rupees or Five percent of the
adjusted taxable income that person in that year, whichever is lesser."
(11) The following Section 12A. shall be inserted after Section 12:
"12A. Expenseson heritage preservation and expenses for
development of sports: In case, any company incurs
expenses on preservation and development of ancient, religious
or cultural heritage located in Nepal; incurs expenses on
construction of public infrastructure required for the
development of sports, upon taking prior approval of the
Department, for incurring the expenses of any income year, such
a company claim for the deduction of One Million Rupees or
Ten percent of the assessable income, whichever is lower."
(12) of Section 14:
(a) The words "created for an act to generate income from the
occupation or investment" shall be inserted after th words "of
such person" in Sub-section (1) and the provision in the
Clause (b) shall be deleted.
(b) Of Sub-section (2),-
(a) The phrase "the total interest amount which a resident
entity controlled by an organization entitled to tax
exemption can deduct under Sub-section (1) in any
income year shall not exceed the total of the following


480
amounts if the interest is paid to the controlling person or
associated person" shall be Substituted for the phrase
"the total interest amount which a resident entity
controlled by an organization entitled to tax exemption
can deduct under that Sub-section in any income year
shall not exceed the total of the following amounts"
contained at the end and The words "income of adjusted
taxable income" shall be substituted for the words "of
taxable income" contained in Clause (b)".
(13) Of Section 15:
"(a) The following proviso shall be inserted in explanation (c):
"Provided that, no amount in respect of repair and
maintenance and depreciation shall be included in the overhead
costs of a factory."
(b) The following proviso shall be inserted in explanation (d):
"Provided that, no amount in respect of repair and
maintenance and depreciation shall be included in the variable
overhead costs of a factory."
(14) Of Section 16:
(a) The following Sub-section (2) shall be Substituted for Sub-
section (2):
“(2) Notwithstanding anything contained in Sub-
section (1), in deducting the expenses allowable under that Sub-
section, it shall not exceed Seven percent of the depreciation
base amount of the group of property remaining at the end of
that income year.


481
Provided that, this limitation shall not apply to the repair
and maintenance costs incurred by a person providing air
transport service in overhauling an aircraft in accordance with
the standards fixed by the Civil Aviation Authority of Nepal."
(b) The following Sub-section (3) shall be Substituted for Sub-
section (3):
"(3) Any excess expense or part thereof which is not
deductible by virtue of the limit referred to in Sub-section (2)
may be added to the depreciation base amount of the group of
the concerned property at the beginning of the forthcoming
income year".
(15) Of Section 17:
(a) The following Sub-section (2) shall be Substituted for Sub-
section (2):
"(2) Notwithstanding anything contained in Sub-section
(1), in computing the limit of expenses deductible under that
Sub-section in any income year, it shall not exceed Fifty percent
of the adjusted taxable income earned from all businesses
operated by that person".
(b) The words "at the beginning of the coming income year" shall
be inserted after the word "capitalization" contained in the
second line of Sub-section (3).
(16) Of Section 18:
(a) The following Sub-section (2) shall be Substituted for Sub-
section (2):


482
"(2) Notwithstanding anything contained in Sub-
section (1), in computing the limit of expenses deductible under
that Sub-section in any income year, it shall not exce d Fifty
percent of the adjusted taxable income earned from all
businesses operated by that person".
(b) The words "at the beginning of the coming income year" shall
be inserted after the word "any part" contained in the second
line of Sub-section (3).
(17) The words "shall" shall be Substituted for theword "may" contained
in Sub-section (1) of Section 19.
(18) Of Section 20:
(a) The following Clause (b) shall be Substituted for the Clause (b)
contained in Sub-section (1):
"(b) Loss suffered by that person from any business which
was not deducted in the last Seven income years.
Provided that, in the case of the projects which
involve building and operation of public infrastruct res
to be transferred to the Government of Nepal,
powerhouses construction, generation and transmission
of electricity and petroleum works pursuant to the Nepal
Petroleum Act, 2040 any loss not deducted in the last
Twelve income years."
(b) The following Sub-section (2) shall be substituted for Sub-
section (2):
"(2) For the purposes of computing the income earned by
any person from any investment in any income year, such


483
person may deduct the loss suffered from any investm n which
was not deducted in that year and for an undeducted loss of
past Seven income years suffered by such person from such or
any other investment."
(c) The following Sub-section (8) shall be substituted after Sub-
section (7):
“(8) Where any person has enjoyed a full or partial tax
exemption in relation to the income derived from a business or
investment in any income year, such person shall not be entitled
to carry forward the loss made in such income year to the
Subsequent income years.”
(19) The word "private expenses of the natural person" shall be substituted
for the words "expenses made for" any natural person contained in the
second line of paragraph Clause (1) of explanation of Section 21.
(20) Of Section 24
(a) The words "in calculating the income earned by a person" shall
be substituted for the words "in the calculation of the income
earned by the person" contained in Sub-section (2); and the
following Sub-clause (2) shall be substituted for Sub-clause (2):
"(2) The value of such liability can be ascertained
actually, and"
(b) The following Sub-section (3) shall be substituted for Sub-
section (3):
"(3) Notwithstanding anything contained in Sub-section
(1), the Department may recognize the accounting specified by
the Nepal Rastra Bank, Subject to the Nepal Rastra Bank Act,


484
2058(2002) and the banking laws in force, in respect of banking
business."
(c) The following Sub-section (4) shall be substituted for Sub-
section (4):
"(4) In calculating a person's income earned from a
business or investment on the accrual basis, where t person
includes any payment to which the person is entitled or deducts
any payment that the person is obliged to make and a difference
in the payment received or made by the person occurs as a
result, inter alia, of a change in exchange rate, the amount of
difference shall be adjusted at the time when payment is
received or made."
(21) The words "refund of amount" shall be Substituted for the words
"reimbursement of amount" contained in the second line of Clause (a)
of Sub-section (1) of Section 25.
(22) The words "money or" contained in the second li e of Clause (a) of
Sub-section (1) of Section 27 and the words "money and" contained in
the same Clause shall be deleted.
(23) The following Section 29 shall be substituted for Section 29:
“29. Indirect payments: In cases where any person derives benefits
indirectly from payments made by the payer or a person
associated with him or specifies another person to receive
payment, the Department may, by issuing a notice in wr ting,
treat the person himself deriving such benefit or specifying such
other person as the recipient of payment.”


485
(24) The word "seller" contained in Sub-section (3) of Section 32 shall be
deleted.
(25) The following Sub-clause (2) shall be substituted for Sub-clause (2) of
Clause (a) of Sub-section (1) of Section 38:
"(2) Any amount required to be included in the assessment of the
income of that person as a result of acquisition of that
property."
(26) The word "payment" shall be substituted for the words "amount
Subject to tax" contained in the proviso to Clause (c) of Sub-section (1)
of Section 39.
(27) Of Section 41:
(a) The following Sub-clause (2) shall be Substituted for Sub-clause
(2) of Clause (a):
"(2) In re-disposing that property, the net outgoings made for
that property until the disposal pursuant to this Section
shall be deemed to be equal to the amount receivabl."
(b) The following Sub-clause (2) shall be Substituted for Sub-clause
(2) of Clause (b):
"(2) In re-disposing that liability, the net incomings made for
that liability pursuant to Sub-clause (1) until the disposal
under this Section shall be deemed to be equal to the
outgoings."
(28) The word "taxable" shall be substituted for the words "Subject to tax"
contained in Sub-section (2) of Section 45.


486
(29) The following Sub-section (3) shall be inserted after Sub-section (2) of
Section 50:
"(3) Notwithstanding anything contained in Sub-sections (1) and (2),
a resident widow or widower who has to maintain and subsist
dependents shall be treated as spouse."
(30) Of Section 54:
(a) Of Sub-section (1):
(1) The words "if distributed" shall be inserted after the
words "shareholder" contained in Clause (a).
(2) The following Clause (b) shall be Substituted for Clause
(b):
"(b) No tax shall be imposed if other entities make
distribution."
(b) The following Sub-section (3) shall be Substituted for Sub-
section (3):
"(3) Notwithstanding anything contained in Sub-section
(1), no tax shall be charged if dividend received upon deduction
of tax under that Sub-section is distributed".
(c) Sub-section (4) shall be deleted.
(31) Of Section 57,-
(a) The following Sub-section (1a) shall be inserted after Sub-
section (1) of Section 57:
"(1a) For the purposes of computing the change of Fifty
percent or more than Fifty percent ownership of anye tity as


487
referred to in Sub-section (1), only the following ownership of
that entity shall be included:
(a) The ownership held by a shareholder holding One
percent or more of the total ownership of that
entity, and
(b) The ownership held by an associated person of
the shareholder who holds more than one percent
of the total ownership of that entity, out of the
shareholders who hold less than one percent of
the total ownership of that entity."
(b) The word and figure and letters "Section 59 or 60" shall be
deleted contained in the Clause (c) of Sub-section (2).
(32) The following Sub-section (1) shall be Substituted for Sub-section (1)
of Section 58:
"(1) An arrangement made by any entity by maintaining all of
the following conditions shall be treated as an arrangement made for
reducing dividend tax:
(a) Where that entity has reserved, current or expected
profits,
(b) Where any person who acquires an interest of the entity
and the recipient of the interest or his associated person
makes any payment to the present or previous
beneficiary of the entity or his associated person
irrespective of whether or not it is related to the
acquisition of interest and whether or not payment is
made at the time of acquisition of interest,


488
(c) Where the payment is fully or partly reflected in the
profits of that entity,
(d) Where that entity distributes dividends to the recipient of
interest and the dividends fully or partly cover the
profits."
(33) Of section 59:
(a) The following Sub-section (1a) shall be inserted after Sub-
section (1):
"(1a) An amount that is up to five percent of a due and
recoverable loan held in the risk bearing fund by a person
carrying on banking business Subject to the standards
prescribed by the Nepal Rstara Bank shall be deducted as an
expense. Where the risk bearing fund is so maintained, and the
expenses debited to the profits as a bad debt, the sam shall not
be written off; and where the amount in that fund is capitalized
or profits or dividends are distributed, the same shall be
included in the income of the year in which such distribution is
made."
(b) Sub-section (2) and (3) shall be deleted
(35) Of Section 60:
(a) The following Sub-clause (3) shall be inserted after Sub-clause
(2) of Clause (b) of Sub-section (2):
"(3) Sum total of the following amounts provided for risk
coverage fund:


489
(c) Fifty percent of the net premium credited to the
profit and loss statement during the year: and
(d) One Hundred Fifteen percent of the pending
unsettled pending claims outstanding at the end of
the year.
Provided that, these amounts that are
shown as expenses during the year as profit shall
be included in the income of subsequent year.
(b) Sub-section (3) and (4) shall be deleted
(35) Of Section 61:
(a) The following Sub-clause (2) shall be Substituted for Sub-clause
(2) of Clause (b) of Sub-section (2):
"(2) The premiums as referred to in Sub-clause (1) of Clause
(a) returned to the insured".
(b) The words "shall not be considered as expenses" shall be
Substituted for the words "shall be included in theexpenses"
contained in Sub-section (3).
(36) Of Section 63:
(a) The following proviso shall be inserted in Sub-section (1):
"Provided that, the Citizen Investment Fund established
under the Citizen Investment Fund Act, if it intends to maintain
a retirement fund, and the Employee Provident Fund established
under the Employee Provident Fund Act, 2019 (--), if it operates
a retirement fund, shall not be required to obtain permission for
such fund."


490
(b) The phrase " may make a claim for deduction in calculating his
income" shall be Substituted for the phrase "may make a claim
to deduct from the income" contained in Sub-section (2).
(37) The words "mentioned in Sub-section (1) of Section 2 of Schedule-1"
shall be Substituted for the words "applicable to companies" contained
in Sub-section (3) of Section 64.
(38) Of Section 65:
(a) The words "or the retirement payments made by Government of
Nepal" shall be inserted after the words "from the interest"
contained in the second line of Sub-section (1) of Section 65.
(b) The following proviso shall be inserted at the end of the
explanation:
"Provided that, the payment made from the non-
contributory fund of the beneficiary shall not be considered as
benefit received as an interest from the unapproved retirement
fund."
(39) The word "employment" shall be Substituted for the words "such
acts" contained in the first line of Sub-clause (2) of Clause (i) of Sub-
section (6) of Section 67.
(40) The following Clause (b) shall be Substituted for Clause (b) of the
explanation contained in Section 71:
“(b) "Average rate of tax of Nepal" means the rate to be set by
multiplying with One Hundred the amount to be set by dividing
the amount of tax payable by a person as referred to in Clause
(a) of Section 3 in any income year by the taxable income of that


491
person in that year prior to the adjustment of any foreign tax in
that year.”
(41) The words "Big Taxpayer Office or" shall be inserted after the words
"Inland Revenue Office" contained in Sub-section (2) of Section 72.
(42) The following Sub-section (1) shall be substituted for Sub-section (1)
of Section 74:
"(1) The taxpayer shall perform the duties as mentioned in this Act."
(43) The following Sub-section (3) shall be inserted after Sub-section (2) of
Section 77:
"(3) The Department may prescribe to submit any information or
particular or document to be submitted by a person to the Department
through the electronic medium."
(44) Of Section 78:
(a) The following Sub-section (1) shall be Substituted for Sub-
section (1):
(1) The Department shall issue an identity number called
as permanent accounts number to any person for purposes of
identifying that person, Subject to this Act.
Provided that, a body having obtained approval from the
Department may give such permanent accounts number by
fulfilling the procedures referred to in this Act. Taxpayer
receiving permanent accounts number shall not do, in such
manner, the transaction of export and import up to the period
specified by the Department.



492

(45) Of Section 78:
(a) The following Sub-section (3) shall be substituted for Sub-
section (3):
(3) Department may specify the circumstances where any
person has to show or mention his/her permanent account
number.
(b) The following Sub-sections (4) and (5) shall be inserted after Sub-
section (3):
“(4) Notwithstanding anything contained in Sub-section
(1), any person specified pursuant to Sub-section (3) shall
obtain the permanent accounts number prior to doing
transactions.
(5) Notwithstanding anything contained in Sub-section
(1), (2), (3) or 4, no one shall be released from the liability of tax
by the reason that he has not obtained the permanent ccounts
number.”
(46) Of Section 81:
(a) The words “at least” contained in Sub-section (2) of Section 81
shall be deleted.
(b) The following Sub-section (4) shall be inserted after Sub-
section (3):


493
"(4) The Department provides approval to maintain
documents through electronic medium which are to be
maintained pursuant to Sub-section (1)."
(47) The words “The Department may prescribe to pay the tax, to be
so paid, also through the electronic medium.” words shall be
inserted after the word "to be so paid" of the Sub-section (1) Of
Section 85:
(48) Of Section 88:
“(a) The word "service charge, commission or sale bonus and" shall
be Substituted for the words "in making payment servic charge
and if that person is an approved retirement fund, any"
contained in Sub-section (1), and the following provis shall be
Substituted for the proviso to that Sub-section:
Provided that, tax shall be withheld at the following rate
from the following payment:
(1) In the case of the retirement payment made by the
Government of Nepal or by the approved
retirement fund, at the Rate of Five percent from
the benefits calculated pursuant to Clause (b) of
Sub-section (1) of Section 65,
(2) In the case of the commission paid by a resident
employer company to a non-resident person, at the
rate of Five percent,
(3) In the case of payment of amount for aircraft lease,
at the rate of ten percent.


494
(4) In case of service provider resident person who
are registered in the Value Add Tax, on the
payment of service charge, at the rate of One point
Five (One and half) percent of the paid amount.”
(5) In the case of the rent paid by a resident person
having source in Nepal, at the rate of Ten percent,
(b) The following Sub-section (2) shall be Substituted for Sub-
section (2):
"(2) A resident person shall, in making the following
payments having source in Nepal, withhold tax at the following
rate:
(a) In making payment of dividends, Five percent of
the payment amount,
(b) In making payment of investment insurance
benefits, Five percent of the payment amount,
(c) In making payment of benefits from an
unapproved retirement fund, Ten percent of the
amount of benefits".
(c) The following Sub-section (3) shall be Substituted for Sub-
section (3):
"(3) Notwithstanding anything contained in Sub-section
(1), in making payment of interest or of an amount in the form of
interest as follows by a resident bank, financial institution or
any other entity issuing bonds or a company registered under
the laws in force to any individual for deposits, bonds,


495
debentures and governmental bonds, tax shall be withheld from
the total amount of payment at the rate of Five percent:
(a) Which has source in Nepal, and
(b) Which is not related with the operation of
business."
(d) of Sub-section (4):
(1) The following Clauses (a1) shall be inserted after Clause (a) of
Sub-section (4):
"(a1) Payment for an article published in a newspaper and for
preparing question papers and examining answer books."
(2) The following Clause (d), (e) and (f) shall be inserted after
Clause (c) of Sub-section (4):
"(d) The interregional interchange fee paid to a bank issuing
credit card."
(e) Any interest or fee paid by the Government of Nepal to a
foreign government or a foreign organization pursuant to
an agreement between Government of Nepal and foreign
government or Government of Nepal and International
Organization."
(f) Payment of an amount, Ten Thousand Rupees as an
interest by a Micro Finance Institution based on rural
community, Rural Development Bank, Postal Saving Bank
and collected amount deposited in a co-operative
pursuant to Sub-section (2) of Section 11 of this Act. "
(49) of section 89.


496
(a) The following Sub-section (1) shall be Substituted for
Sub-section (1):
(1) In making payment of a sum exceeding Fifty
Thousand Rupees for payment of contraction or contract, a
resident person shall withhold tax at the rate of one and half
percent of the total amount of payment.
(b) The following Sub-clause (a), (b), (c) and (d) shall be
substituted for Sub-clause (a) and (b) of Sub-section (3):
(a) Relating to service contraction or contract- Ten
percent.
(b) Other contraction or contract- Five percent.
(c) In making payment of premium to non-resident
insurance company- one and half percent.
(d) Except as provided here in above, where the
Department has given a notice to resident person
in writing, at the rate specified in that notice.
(c) The following explanation shall be inserted in the
Section 89:
"Explanation: For the purpose of this Section "contraction
or contract" means a contract or agreement concluded to
supply goods or labour or construction, fixation or
establishment of tangible property or structure andy act
prescribed by the Department as a contraction or contract
as well as it shall included the payment made for a service
rendered in case such service is being included by the


497
contraction or contract in the course of construction or
taxation or establishment."
(50) The following Section 89A. Shall be inserted after Section 89:
“89A. Tax withholding in the benefit received from disposal of interest
by the resident organization:
Except the resident organization engaged in the share
transaction upon registering itself pursuant to the prevailing law
in any year, if a person receives any benefit from the disposal of
an interest of a resident organization, such a person hall
withhold tax, as following, in the benefit computed pursuant to
Section 37:
(a) In the case of benefit received from the disposal
of the benefits of an organization which is listed in
the security market, by the organization which acts
as a security exchange market, at the rate of Fifteen
percent of profit amount.
(b) In the case of benefit received from the disposal f
the interest of an organization which is not listed
in the security market, by the organization whose
interest was disposed, at the rate of Fifteen
percent of profit amount.
(51) Of Section 90:
(a) The following Sub-section (1) shall be Substituted for Sub-
section (1):
"(1) Each person who is obliged to withhold tax has to
Submit to the Department a statement in such mode an format


498
as specified by the Department within Fifteen days fter the
expiration of each month."
(b) The phrase "in the following conditions, the person Subject to
tax withholding" shall be Substituted for the phrase "In cases
where the person withholding tax does not withhold or pay tax
as follows, both the person Subject to tax withholding"
contained in Sub-section (5).
(c) The following Sub-section (8) shall be inserted after Section (7):
"(8) In case a person does file details or pays tax pursuant to Sub-
section (1) or (2) or if the Department is convinced that there is a
situation of Sub-section (5) in relation to a person, it may issue
an order to submit the amount is not submitted or less amount
submitted and interest as referred to in Section 119. Provided
that, before issuing such an order, a Fifteen days written notice
along with reasons thereof, shall be issued for defense
enclosing the evidence and proofs."
(52) Of Sub-section (1) of Section 92:
(a) The word "Payment for benefit and Payment for personal
accident" shall be Substituted for the words "Payment of
benefit" contained in Sub-clause (c) of Sub-section (1) of
Section 67.
(b) The following Clause (e) shall be substituted for Clause (e):
"(e) Interest as follows paid by a bank, financial institution or
any other entity issuing bonds or a company enlisted
pursuant to the laws in force, as mentioned in Sub-
section (3) of Section 88:


499
(1) Which has source in Nepal and which is not
related with the operation of business and paid to
an individual?
(2) Which is paid to an institution entitled to tax
exemption pursuant to Clause (d) of Section 2."
(c) The following Clauses (g) and (h) shall be inserted after Clause
(f):
"(g) Payment for meeting allowance and part-time teaching."

"(h) Retirement payment made by the Government of Nepal or
approved retirement fund or un-approved retirement fu d
including all types of retirement payments."
(53) Of Section 94:
(a) The following Sub-section (1) shall be Substituted for Sub-
section (1):
"(1) A person who has or will have assessable income
in any income year from any business or investment has to pay
tax in three installments as follows:
Date on which payment has to
be made
Amount to be paid
By the end of Poush (mid
January)
Amount of due and payable tax
out of Forty percent of the
estimated tax
By the end of Chaitra (mid April) Amount of due and payable tax
out of Seventy percent of the


500
estimated tax
By the end of Ashad (mid July)
Amount of due and payable tax
out of Hundred percent of the
estimated tax
Explanation: For the purposes of this Sub-section,-
(a) "Estimated tax" means the estimated tax in
installment computed by any person liable to pay
tax in installment pursuant to Section 95 at the time
when the installment tax is to be paid in any year.
(b) "Due and payable tax" means the amount that
remains shortfall after Subtracting the following
total sum from the amount to be set by the
percentage prescribed for payment of estimated tax
in installments under this Sub-section:
(1) The amount of tax paid in that income year
by a prior installment pursuant to this
Section before the date on which the
installment in question is to be paid,
(2) The amount of tax deducted from the
payments to be included in computing the
income of any person in any income year
pursuant to Chapter-17 before the date on
which the installment in question is to be
paid in that year,
(3) In cases where the agent withholding tax or
the person Subject to tax withholding pays
to the Department the amount of tax deemed


501
to be withheld from the payment referred to
in Clause (2) pursuant to Sub-section (3) of
Section 90 in that year before the date on
which the installment is to be paid, such
amount of tax, and
(4) The amount of tax adjustment for medical
treatment expenses which that person may
claim pursuant to Section 51 in respect of
the accepted medical treatment expenses
incurred by that person before the date on
which the installment is to be paid."
(b) The words "total of all installments" shall be Substituted for the
words “of installments" contained in Sub-section (2)."
(54) Of Section 95:
(a) The words "by the Department" shall be inserted after the
words "may be prescribed" contained in Sub-section (1).
(b) The words "or where it is so specified pursuant to Sub-section
(6) that any person is not required to Submit an estimate to pay
installment of tax" contained in Sub-section (7) shall be deleted.
(55) Of Sub-section (2) of Section 96:
(a) Sub-clauses (4) and (5) of Clause (a) shall be del ted.
(b) Sub-clause (1) of Clause (c) shall be deleted.
(56) Of Section 97:
(a) The words "except where the Department issues a written order
or issues order by publishing a public notice" shall be


502
Substituted for the words "except where the Departmen issues
a written order" contained at the beginning.
(b) The word "or" contained at the end of Clause (b) shall be
deleted.
(c) The words “natural person or” shall be Substituted for the
words “natural person” contained at the end of Clause (c).
(d) The following Clause (d) shall be inserted after Clause (c):
"(d) If the motor vehicle owner making payment of tax
pursuant to Sub-section (11) of Section 1 of Schedule-1 is
an individual, such individual."
(57) The following Sub-section (2) shall be Substituted for Sub-section (2)
of Section 100:
"(2) Notwithstanding anything contained in Sub-section (1), in
the circumstances mentioned in Sub-section (5) of Section 96, the
Department may, base on the amounts mentioned in Sub-cla ses (1),
(2), and (3) of Clause (a) of Sub-section (2) of Section 96, for any
income year or any part of that year, assess the tax of hat person in a
justifiable manner."
(58) The word "Fifteen" shall be Substituted for the word "Seven"
contained in the fourth line of Sub-section (6) of Section 101.
(59) The word "Department" shall be Substituted for the words "Tax
Department" contained in Section 106.
(60) The following Section 110A. shall be inserted after Section 110:
“110A. Realization of tax by installment: Where any person make a
written request for payment of his tax arrears by installment prior


503
to institution of case pursuant to Section 111, the Tax Officer
may give permission to pay the same by installment within a
reasonable period of time as specified by the Tax Officer.”
(61) The following Sub-section (3) shall be Substituted for Sub-section (3)
of Section 113:
“(3) If any person makes an application to the Department, as
prescribed, for the refund of the amount pursuant to Sub-section (1),
such refund shall be made within Sixty days after the date on which
such application is made.”
(62) of Sub-section (1) of Section 114.
(a) The following Clauses (a1) shall be inserted after Clause (a):
"(a1) The decision or order made pursuant to Sub-section (8)
of Section 90.
(b) The words "assessment of expenses incurred in an auction sale
as referred to in Sub-section (5) of Section 105" shall be inserted
after the words "assessment of tax" contained in Clause (e) of
Sub-section (1) of Section 114.
(63) of Section 115:
(a) The word “total amount in case of undisputed tax and One Third
in case of disputed tax” shall be Substituted for the words “Fifty
percent of tax to be paid” contained in Sub-section (6).
(b) The word "Sixty" shall be Substituted for the word "Ninety"
contained in Sub-section (8).
(64) Of Section 117:


504
(a) The following Sub-section (1) shall be Substituted for Sub-
section (1):
"(1) If any person does not do as followings, such a
person shall be imposed fees as follows:-
(a) In case income details of any income year are not
submitted pursuant to Sub-section (1) of Section
95, at the rate of Two Thousand Rupees for each
detail.
(b) In case income details of any income year are not
submitted pursuant to Sub-section (1) of Section
96, at the rate of One Hundred Rupees per month,
to a person as referred to in Sub-section (4) of
Section 4 of the Act and an amount which is
higher out of an amount, calculated in a case of
other person at the rate of 0.1 percent per anum on
the computable amount without deducting any
amount where one may deduct such an amount in
computing the income in that income year and
including such an amount which is to be included
on it or at the rate of One Hundred Rupees per
month, whichever is higher in those items."
(b) The words "0.1 percent" shall be Substituted for the words
"One and half percent" contained in Sub-section (2), and the
words "per year" shall be Substituted for the words "per month"
contained in that Sub-section.
(65) The following Section 118 shall be Substituted for Section 118:


505
"118. Interest to be charged where the person making payment in
installments makes lesser payment of estimated tax: (1) In
cases where, in the case of the amount of installment to be paid
by any person under Section 94 in any income year, the amount
mentioned in Clause (b) is more than the amount mentioned in
Clause (a), interest shall be charged on such excess amount
pursuant to Sub-section (2):
(q) Amount of each installment paid by that person in any
income year,
(r) Eighty percent of the estimated or revised estimated
amount of total amount payable by installments for
each installment period in that income year if such
estimate or revised estimate is correct and, if such
estimated or revised estimated amount is not correct,
that of such amount, of the total amount of tax to be
paid by any person referred to in Clauses (a) and (b) of
Section 3, as is to be paid in installment for each
installment period in any income year.
(2) An interest to be set by the normal rate of interest, for
each month and portion of the month, from the due date for
payment of the installment in that year to the following period
shall be imposed on the person referred to in Sub-section (1):
(a) In the case of a person in respect of whom tax is to
be assessed under Sub-section (1) of Section 99,
until the date for Submission of the income return,
(b) In the case of a person in respect of whom the
Department has made revised tax assessment for


506
the first time under Section 101 because of failure
to make tax assessment under Sub-section (1) of
Section 99, until the date on which a notice of that
revised tax assessment is delivered pursuant to
Section 102.
Explanation: For the purposes of this Section,
"amount payable by installment" means the
amount of installments calculated pursuant to Sub-
section (1) of Section 94 in the case of a taxpayer
who fails to Submit a revised estimate once an
estimate has been Submitted and in respect of
whom the Department has made estimate pursuant
to Sub-section (7) of Section 95 because of his
failure to Submit an estimate and calculated
pursuant to Sub-section (5) of Section 95 in the
case of a taxpayer Submits a revised estimate and
in respect of whom the Department has made
estimate pursuant to Sub-section (7) of Section 95
because of being unsatisfied with the Submitted
estimate or revised estimated."
(66) The following Section 119A. shall be inserted after Section 119.:
“119A. Fees to be charged: Except as otherwise provided in this Act, a
person who fails to observe any provision of this Act or the
Rules framed hereunder shall be liable to pay fees equivalent to
the fine specified pursuant to Section 128.”
(67) The following Section 136A. shall be inserted after Section 136:


507
“136A. Provision of awarded : In case someone avoids or attempts to
avoid the tax liability as a whole or in part and if someone
informs the same along with evidence such a person shall may
be awarded equal to Twenty percent of the amount of the tax
assessable from the evidence submitted by such a person out of
the tax amount recovered on the basis of such information.
(68) Repeal and Amendment: (1) Section 3A and 66 shall be deleted.
(2) Amendment to Schedule-1:
(1) Of Section 1:
(a) The Number and words "Rs.12,750", shall be Substituted
for the Number and words "Rs. 11,250 " and the words
"One Hundred Fifteen Thousand Rupees", "One
Hundred Forty Thousand Rupees", "Two Hundred
Thousand Rupees", and "Two Hundred Twenty Five
Thousand Rupees", respectively shall be Substituted for
the words "Fifty Five Thousand Rupees", "Seventy Five
Thousand Rupees", One Hundred Thirty Thousand
Rupees" and "One Hundred Fifty Thousand Rupees"
contained in various places of Sub-sections (1), (2), (3)
and (4).
(b) The proviso to Clause (b) of Sub-section (4) shall be
deleted.
(c) The following Sub-section (5) shall be substituted for
Sub-section (5):
"(5) For the individuals working in the remote
areas specified by the Government of Nepal, a maximum


508
sum of Thirty Thousand Rupees shall, for the remote
allowance, be deducted from the taxable income, as
prescribed, and the tax shall then be calculated on the
remaining amount only, in accordance with this Section."
(d) The following Sub-section (6) shall be Substituted for
Sub-section (6):
"(6) For the employee working in the abroad
based diplomatic missions of the State of Nepal, Seventy
Five percent amount of their abroad allowance shall be
deducted from the taxable income, and the tax shall t en
be calculated on the remaining amount only, in
accordance with this Section."
(e) The following Sub-section (7) shall be substituted after
Sub-section (7):
"(7) The amount of tax pursuant to sub-section (4) of
Section 4 of this Act shall be as follows:-
(a) In the case of a natural person carrying on a
business in the municipal corporation or sub-
municipal corporation area, Five Thousand
Rupees,
(b) In the case of a natural person carrying on a
business in the municipal area, Two Thousand
Five Hundred Rupees,
(c) In the case of a natural person carrying on a
business in any other place, One Thousand Five
Hundred Rupees.


509
(f) The following Sub-section (10), (11),(12),(13),(14) and (15)
shall be inserted after Sub-section (9):
“(10) Notwithstanding anything contained
elsewhere in this Section, where any resident indivdual is
a disable, additional Fifty percent of the amount
mentioned in Clause (a) of Sub-section (1) for such
individual and in Clause (a) of Sub-section (1) for spouse
shall be deducted from the taxable income, and the tax
shall then be calculated on the remaining amount only, in
accordance with this Section.”
(11) Notwithstanding anything contained
elsewhere in this Section, if resident natural person is a
woman whose taxable income is only the remuneration,
such a person shall receive a Ten percent of tax
exemption on the tax to be paid by the natural person ."
"(12) Notwithstanding anything contained
elsewhere in this Section, where any resident natural
person has procured an insurance business, the amount
to be set by investment insurance or Twenty Thousand
Rupees, whichever is lesser, out of the premium paid for
the same, shall be deducted from the taxable income, and
the tax shall then be calculated on the remaining amount
only, in accordance with this Section".
(13) Notwithstanding anything contained
elsewhere in this Section, the owners of vehicles on hire
shall pay annual tax at the following rates. If theowner of
vehicle is a natural, the tax so paid shall be final and
binding."


510

Category of vehicles Annual tax payable
per vehicle
(a) Mini-bus, mini-truck, truck and bus Rs. 1,500/-
(b) Car, jeep, van and microbus Rs.1,200/-
(c) Three wheeler, auto-rickshaw, tempo Rs. 850/-
(d) Tractor and power tiller Rs. 750/-
(14) Notwithstanding anything contained
elsewhere in this Section, if a natural person is fully
engaged in the operation of a special industry mentioned
in Section 11 of this Act throughout any year, in
calculating tax pursuant to this Section, tax shall be
charged at the rate of Twenty percent of the taxable
income, on Twenty Five percent of taxable income.
(15) Tax shall be charged at the rate of Twenty
percent of the taxable income earned by any individual
from exports in any income year.
(3) Section (2) of schedule 1:
(a) The words “cigarette, Bidi, cigar, chewing tobacco, Khaini,
liquors, beer” shall be inserted after the words “in any income
year” contained in Sub-section (2).
(b) The following Clause (b) shall be Substituted for Clause (b) of
Sub-section (3):
"(b) In cases where the entity,


511
(1) Builds and operates any road, bridge, tunnel,
ropeway or sky-bridge, or
(2) Operates any trolley bus or tram, or"
(3) Any co-operative so transacting except the co-
operatives which is registered pursuant to Co-
operatives Act, 2048 and enjoying tax exemption in
its transaction.
(c) The following Sub-section (3a) shall be
inserted after Sub-section (3):
"(3a) Tax shall be levied by twenty percent on the
taxable income earned by any entity, through its source in
Nepal, from exports in any income year."
(d) The following Sub-section (5) shall be substituted for Sub-
section (5):
"(5) Tax shall be levied, pursuant to Sub-sections (1)
and (4) of Section 1 of this Schedule, on the taxable income of a
trust acquiring or looking after the property belonging to any
deceased resident person or of a disabled resident individual in
any income year as if the one who acquires or looks after or that
trust money or trust resident were an individual."
(e) The word (Five) shall be Substituted for (Ten) of Sub-section
(3):
(f) The following Sub-section (7) shall be substituted for Sub-
section (7):


512
“(7) Tax shall be levied by Five percent on the taxable
income of any non-resident person in relation to the income
referred to in Section 70 in any income year.
Provided that, in the case of a non-resident person
providing telecommunication, air transport or water ransport
service, which does not so depart from the State of Nepal that it
has destination in a foreign country, tax shall be evied by two
percent."
(g) The following Sub-section (8) shall be inserted after Sub-section
(7):
"(8) Notwithstanding anything contained elsewhere in
this Section, there shall be levied an additional tax to be set by
1.5 percent of the taxable income to be set for any e tity other
than that mentioned in Sub-sections (6) and (7) of Section 2."
41. Amendment of Industrial Enterprises Act, 2049 (1992) : (1) Clauses
(a) of Section 15 of the Industrial Enterprises Act, 2049 (1992) shall be
deleted.





513
Financial Act, 2066 (2009)
Date of Authentication and the Publication
2066.3.29 (13 July 2009)
An Act Made to Implement Proposals Relating to Finance of the
Government of Nepal
Preamble: Whereas, it is expedient to levy some charges, taxes, duties,
cesses and fees, continue or alter the existing ones a d also to amend the
laws in force relating to revenue administration in order to implement the
proposals relating to finance of the Government of Nepal;
Now, therefore, be it enacted by the Constitution Assembly pursuant
to Sub-articles (1) of Article 83 of Interim Constitution of Nepal,2063 (2007).
1. Short title and commencement: (1) This Act may be called the
“Financial Act, 2066 (2009)."
(2) Sections 1, 2, 3, 4, 5 and 10 of this Act shall be deemed to
have come into force immediately and the other Sections on 1
Shrawan 2066(16 July 2009).
32. Amendment to the Income Tax Act, 2058 (2002): Of the
Income Tax Act, 2058(2002):-
(1) Of Section 2:
(a) The following Clause (h) shall be substituted for Clause (h):
“(h) "Income" means the income earned by any person
from employment, profession, investment or


514
windfall gain and the total amount of that income
calculated under this Act.”
(b) The following Clause (h1) shall be inserted after Clause
(h):
“(h1) "Windfall gain" means lottery, gift, prize, baksis,
award for wining (jitauri) and any other types
windfall gains.”
(c) The following Clause (p1) shall be inserted after Clause
(p):
“(p1) “turn-over” means a turn-over equivalent to the
total amount to be included under Section 7, 8 or 9
for purposes of computing the income of a
business or investment in any income year”.
(d) Of Clause (r):
(1) The following Sub-clause (r) shall be substituted
for Sub-clause (r) :
(r) "Non-occupational taxable assets" means any
land, building and interest or security in any entity
except the following properties:
(1) Occupational assets, depreciable assets or
stocks-in-trade,
(2) A private building owned by a natural
person in the following situation,-


515
(a) Being under ownership for a
continuous period of Ten years or
more, and
(b) Where that person has resided for a
total period of Ten years or more
continuously or at several times.
(3) A benefit of any beneficiary held in the
retirement fund”,
(4) A private building belonging to and
disposed of by any natural person for a
value less than Five million Rupees, or
(5) An asset disposed of by way of transfer in
any manner other than the purchase and
sale within three generations.
(e) The following Clause (s) shall be substituted for Clause
(s):
“(s) "organization entitled to enjoy exemption" means
the following entity:
(1) Any of the following entities registered in
the Department as an entity enjoying tax
exemption:
(a) A social, religious, educational or
benevolent organization of public
nature established with non-profit
motive,


516
(b) An amateur sports organization so
formed with a view to promoting
social or sports related facilities that
the organization or its member does
not derive profits,
(2) A political party registered in the Election
Commission,
(3) Village Development Committee, Municipality
or District Development Committee,
Provided that, in cases where any
person has derived any benefit from the
property of that organization and the
monies obtained from that organization
except in making payment for the property
or the service rendered by any person to
that organization or in discharging
functions in consonance with the objective
of the organization entitled to exemption, tax
exemption shall not be granted to such
organization."
(f) The figures and letters "Sub-`clause (1), (2), 3 and (4)"
shall be substituted for the figures and letters "Sub-
`clause (1), (2) and (3)” contained in Sub-clause (5) of
Clause (x).
(g) The following Sub-clauses (1) and (2) shall be
Substituted for Sub-clauses (1) and (2) of Clause (ad):


517
“(1) Payment for having acquired the right to extrac
water, minerals or other living and non-living
resources from the earth, or
(2) Amounts calculated based on the quantity or
value of living or non-living resources of the
natural resources and minerals extracted fully or
partly from the earth”.
(h) The following Clause (af) shall be Substituted for Clause
(af):
"(af) "Rent" means all payments including a premium
received for the house rent as well as for the lease
of a tangible property.
Provided that, this term does not include
any payment made for natural resources".
(i) The following Clause (ab) shall be substituted for Clause
(ab):
“(ab) "Investment" means the act of holding one or m e
properties or investing such properties, except
with the followings:
(1) Holding any property used by the owner
thereof in personal use, or
(2) Employment or occupation.
Provided that, holding non-business
taxable property shall be deemed as
investment.”


518
(j) Of Clause (ae):
(1) The words " in respect of any income year"
contained in the first sentence of paragraph (b) of
Sub-clause (1) shall be deleted.
(2) The word "or" shall be inserted at the end of
paragraph (b) of Sub-clause (3).
(3) The word "or" shall be inserted at the end of para
(a) of Sub-clause (4).
(4) The following Sub-clause (4a) shall be inserted
after Sub-clause (4):
"(4a) Government of Nepal,"
(5) The word "or" shall be Substituted for the word
"and" contained in the second sentence of Sub-
clause (6).
(k) The words "exemption, premium under loan liabilty" shall
be Substituted for the word "premium" contained in the
first sentence of paragraph (2) of Sub-clause (ai).
(l) The words "sold or" contained in Clause (aj) shall be
deleted.
(m) The following Clause (an1) shall be inserted after
Clause (an):
“(an1) "Electronic medium" means the computer, fax,e-
mail, internet, electronic cash machine, fiscal
printer and other approved medium as specified
the Department”.


519
(n) The figure and letters "Sub-clause (5)" shall be
Substituted for the figure and letters "Sub-clause (4)"
contained in the second sentence of Clause (ao).
(o) The following Clause (at1) shall be inserted after Clause
(at):
“(at1) "adjusted taxable income" means taxable income
calculated without deducting any amounts as
referred to in Section 12 and without deducting
any amount under Sub-section (2) of Section 14,
Section 17 or 18, while calculating the taxable
income of any person in any income year.”
(p) The words "Ten percent" shall be substituted for the
words "Fifteen percent" contained in Clause (aw) of
Section 2.
(q) The words "related with the work" contained in Clause
(aab) shall be deleted, and the words "as referred to in
Clause (y)" shall be inserted the words "any entity"
contained in that Clause.
(2) Of section 4:
(a) The following Sub-section (l) shall be substituted for Sub-
section (1):
“(1) The amount of tax required to be paid by any person
referred to in Section 3 for any income year shall be equal
to the total amount of tax required to be paid by such
person in capacity of anyone or more than one person
mentioned in Clauses (a), (b) and (c) of the Section.”


520
(b) The words "or both Sections" shall be inserted after the figure
"Section 51 and 71" as contained in Sub-section (2).
(c) The following Clause (c) shall be substituted for Clause (c) of
Sub-section (3):
“(c) The employer has made a claim only for the adjustment of
tax on medical expenses paid by him/her and for
Subtraction of retirement contribution paid by the
employer him/herself and not claimed for Subtraction of
expenses for donation as referred to in Section 12.”
(d) Of Sub-section (4):
(1) The following Clause (a1) shall be inserted after
Clause (a):
“(a1) having not claimed for adjustment of tax for
medical expenses under Section 51 and for
advance tax deduction under Section 93.”
(2) The following Clause (b) shall be substituted for Clause (b):
"(b) The income earned from the business and the
turnover of the business do not exceed One
Hundred Fifty Thousand Rupees and One Million
Five Hundred Thousand Rupees, respectively."
(e) The figures and letters "Section 87, 88 and 89"shall be
substituted for the figure and letters "Section 88"contained in
the fourth line of Sub-section (6).
(3) Of Section (5):


521
(a) The words "or both Sections" shall be inserted after the words
contained in the third line of paragraph "Section 12 or 63"
contained in Section 5.
(b) The words "and" shall be deleted contained in end of Sub-
clause (b) of section (5).
(c) The following Clause (d) shall be inserted after Clause (c):
"(d) windfall gain"
(4) The words "or both Sections" shall be inserted after the words
"Section 11 or 64" contained in the proviso to Clause (b) of Section 6.
(5) The words "shall be income" shall be Substituted for the words "shall
be computed in the income" contained in Sub-section (1) of Section 7.
(6) The words "shall be" shall be Substituted for the words "computed as
the income" contained in Sub-section (1) of Section 9.
(7) The following Clause (i) shall be inserted after Clause (h) in Section 10:
(i) Any kind of income of Government of Nepal.
(8) Of Section 11:
(a) The following Sub-section (2) shall be Substituted Sub-section
(2):
“(2) No tax shall be levied on the income of a
cooperative organization and saving and credit cooperative
organization or institution based in rural communities, which has
been registered and operated under the Cooperatives Act, 2048
(1991) and which carries on agricultural and forest based
industries such as professional forest related enterpris s


522
inclusive of sericulture and silk production, horticulture and
fruits processing, animal husbandry, dairy industry, poultry
farming, fishery, tea gardening and processing, coffee arming
and processing, herbiculture and herb processing, ve etable
seeds farming, bee keeping, honey production, rubber farming,
leasehold forestry, agro-forestry etc., cold storage established
for the storage of vegetables, agro-seeds, animal feed,
pesticides, fertilizers and agricultural inputs (except those
operated with mechanical power). No tax shall also be levied on
the dividends distributed by such organization or institution.”
Explanation: The term “provision for this section rural
community” means any area, other the municipal area nd the
VDC adjoining such area.
(b) The words "from a special industry and information technology
industries" shall be Substituted for the words "from a special
industry" contained in Sub-section (3) of Section 11 and The
following Clause (a) and (b) shall be substituted for Clause
(a) and (b) of same Sub-section:
(a) If the special industry and information technology
industries give direct employment to Three Hundred or
more Nepalese citizens throughout the year, Ninety
percent, If the special industry gives direct employment
to One Thousand and Two hundred or more Nepalese
citizens throughout the year, Eighty percent of the rate
of tax on the income of that year and; if the special
industry give direct employment to at least Thirty Three
percent for women, dalit or disable persons including


523
One Hundred or more Nepalese citizens throughout the
year, Eighty percent,
(b) If a special industry has been operated in remot ,
undeveloped and underdeveloped areas, respectively
Fifty, Seventy and Seventy-Five percent of the tax
leviable on income of the years for Ten income years
including the income year in which such an industry
started operating.
(c) The following Sub-sections (3a), (3b), (3c) and (3d) shall be
inserted after Sub-section (3):
“(3a) Exemption or concessions regarding income tax to
industries established at specified economic zone ad t x on
dividend distributed by them shall be follows:-
(a) In case the industry is established at special
economic zone situated at Himali districts or at
any hilly districts notified by Government of
Nepal, the industry shall avail an income tax
exemption for Ten years from the commencement
of the business of the industry and Fifty percent
of income tax in the upcoming income year.
(b) Any industry established at any other special
economic zone shall avail tax exemption for Five
years from the commencement of the business of
the industry and half of the income tax to be levied
on it for the income years thereafter.
(c) The above industries established at any special
economic zone shall avail tax exemption on


524
dividend distributed for Five years from the
commencement of the business. After expiry of
the Five years, for a maximum period of Three
years a tax concession of Fifty percent of the tax
rate applicable shall be available.
(d) Tax concessions at Fifty percent is provided on
income generated as service charge or royalty for
technology transfer or management services
provided by a foreign investor for the industries
established at any special economic zone.
(3b) Hundred percent of the income tax chargeable on the
income of an industry established in remote areas shall be
exempted upto Ten years from the date of operation of the
industry.
(3c) Twenty-Five percent of the income tax chargeabl on
the income of an information technology industry established in
the information technology park as specified by the Government
of Nepal by a notification in the Nepal Gazette.”
(3d) In a case, the agency (body corporate) receiving
license for the production, transmission and distribution of the
electricity begins with commercial production of hydro-power,
production and transmission, production and distribu ion or
production, transmission or distribution, upto Chaitra 2075 B.S.,
such as an agency (body corporate), shall receive full income tax
remission upto for first Seven years; and Fifty percent income
tax remission for upto Three years thereafter. Such a facility
shall also be provided to the solar power, wind power and bio-
power production.


525
Provided that, in the case of a license who has already
started commercial production at the time of commencement of
this Sub-section the provision prevailing at the time of receiving
of the license shall be applicable.
(d) The following Sub-section (4) shall be Substituted for Sub-section (4):
“(4) In computing the income of a persons as referrd
to in Clauses (a) and (b) of Sub-sections (1), (2), and (3), Clause
(b) of Sub-section (3), Sub-sections (3a), (3b) and (3c), Sub-
section (12) of Section 1 of Schedule 1 and Sub-sections (3) of
Section 2 of Schedule 1, shall compute the income as if that only
income were derived by other separate person.”
(e) The following Sub-section (5) shall be Substituted for Sub-
section (5):
"(5) A person, who is in a position to have more than
one exemption in respect of the same income pursuant to the
above mentioned Sub-sections, shall enjoy only one exemption
chosen by him/her."
(f) The following Sub-section (7) shall be inserted after Sub-section
(6):
"(7) Notwithstanding anything contained in Sub-sections
(3a) and (3b), those industries availing tax exemption or tax
concession under the same Sub-sections (3a) and (3b) shall not
avail the facility in case the assets it has acquired for the
industry were already used by another person for such industry
or for any other business."
(9) The following Section 11A. and 11b shall be inserted after Section 11:


526
"11A. Tax chargeable on the build and operate of infrastructures: If
any agreement is concluded between the Government of Nepal
and any person for building and operating infrastructures, the
person building and operating such infrastructures shall be
entitled to enjoy tax facilities provided by this Act pertaining to
tax prevailing at the time of conclusion of that agreement during
the period of such agreement.
11B. Relaxation to the infrastructure development projects of
national importance: In the case of hydro-power, international
airport, underground ways, roadways, railways and similar
infrastructure development projects of national importance and
the production industry employing more than Three Hundred
workers and using more than Fifty percent domestic raw material
(other than cigarette, alcoholic beverage and beers), no source
of income shall be sought on the investment if it is made upto
last day of Chaitra 2075 B.S."
(10) The following Sub-section (2) shall be Substituted for Sub-section (2)
of Section 12:
"(2) Notwithstanding anything contained in Sub-section (1), the
expenditure deductible in any income year under that Sub-section shall
not exceed One Hundred Thousand Rupees or Five percent of the
adjusted taxable income that person in that year, whichever is lesser."
(11) The following Section 12A. shall be inserted after Section 12:
"12A. Expenseson heritage preservation and expenses for
development of sports: In case, any company incurs
expenses on preservation and development of ancient, religious
or cultural heritage located in Nepal; incurs expenses on


527
construction of public infrastructure required for the
development of sports, upon taking prior approval of the
Department, for incurring the expenses of any income year, such
a company claim for the deduction of One Million Rupees or
Ten percent of the assessable income, whichever is lower."
(12) of Section 14:
(a) The words "created for an act to generate income from the
occupation or investment" shall be inserted after th words "of
such person" in Sub-section (1) and the provision in the
Clause (b) shall be deleted.
(b) Of Sub-section (2),-
(a) The phrase "the total interest amount which a resident
entity controlled by an organization entitled to tax
exemption can deduct under Sub-section (1) in any
income year shall not exceed the total of the following
amounts if the interest is paid to the controlling person or
associated person" shall be Substituted for the phrase
"the total interest amount which a resident entity
controlled by an organization entitled to tax exemption
can deduct under that Sub-section in any income year
shall not exceed the total of the following amounts"
contained at the end and The words "income of adjusted
taxable income" shall be substituted for the words "of
taxable income" contained in Clause (b)".
(13) Of Section 15:
"(a) The following proviso shall be inserted in explanation (c):


528
"Provided that, no amount in respect of repair and
maintenance and depreciation shall be included in the overhead
costs of a factory."
(b) The following proviso shall be inserted in explanation (d):
"Provided that, no amount in respect of repair and
maintenance and depreciation shall be included in the variable
overhead costs of a factory."
(14) Of Section 16:
(a) The following Sub-section (2) shall be Substituted for Sub-
section (2):
“(2) Notwithstanding anything contained in Sub-
section (1), in deducting the expenses allowable under that Sub-
section, it shall not exceed Seven percent of the depreciation
base amount of the group of property remaining at the end of
that income year.
Provided that, this limitation shall not apply to the repair
and maintenance costs incurred by a person providing air
transport service in overhauling an aircraft in accordance with
the standards fixed by the Civil Aviation Authority of Nepal."
(b) The following Sub-section (3) shall be Substituted for Sub-
section (3):
"(3) Any excess expense or part thereof which is not
deductible by virtue of the limit referred to in Sub-section (2)
may be added to the depreciation base amount of the group of
the concerned property at the beginning of the forthcoming
income year".


529
(15) Of Section 17:
(a) The following Sub-section (2) shall be Substituted for Sub-
section (2):
"(2) Notwithstanding anything contained in Sub-section
(1), in computing the limit of expenses deductible under that
Sub-section in any income year, it shall not exceed Fifty percent
of the adjusted taxable income earned from all businesses
operated by that person".
(b) The words "at the beginning of the coming income year" shall
be inserted after the word "capitalization" contained in the
second line of Sub-section (3).
(16) Of Section 18:
(a) The following Sub-section (2) shall be Substituted for Sub-
section (2):
"(2) Notwithstanding anything contained in Sub-
section (1), in computing the limit of expenses deductible under
that Sub-section in any income year, it shall not exce d Fifty
percent of the adjusted taxable income earned from all
businesses operated by that person".
(b) The words "at the beginning of the coming income year" shall
be inserted after the word "any part" contained in the second
line of Sub-section (3).
(17) The words "shall" shall be Substituted for theword "may" contained
in Sub-section (1) of Section 19.
(18) Of Section 20:


530
(a) The following Clause (b) shall be Substituted for the Clause (b)
contained in Sub-section (1):
"(b) Loss suffered by that person from any business which
was not deducted in the last Seven income years.
Provided that, in the case of the projects which
involve building and operation of public infrastruct res
to be transferred to the Government of Nepal,
powerhouses construction, generation and transmission
of electricity and petroleum works pursuant to the Nepal
Petroleum Act, 2040(--) any loss not deducted in the last
Twelve income years."
(b) The following Sub-section (2) shall be substituted for Sub-
section (2):
"(2) For the purposes of computing the income earned by
any person from any investment in any income year, such
person may deduct the loss suffered from any investm n which
was not deducted in that year and for an undeducted loss of
past Seven income years suffered by such person from such or
any other investment."
(c) The following Sub-section (8) shall be substituted after Sub-
section (7):
“(8) Where any person has enjoyed a full or partial tax
exemption in relation to the income derived from a business or
investment in any income year, such person shall not be entitled
to carry forward the loss made in such income year to the
Subsequent income years.”


531
(19) The word "private expenses of the natural person" shall be substituted
for the words "expenses made for" any natural person contained in the
second line of paragraph Clause (1) of explanation of Section 21.
(20) Of Section 24
(a) The words "in calculating the income earned by a person" shall
be substituted for the words "in the calculation of the income
earned by the person" contained in Sub-section (2); and the
following Sub-clause (2) shall be substituted for Sub-clause (2):
"(2) The value of such liability can be ascertained
actually, and"
(b) The following Sub-section (3) shall be substituted for Sub-
section (3):
"(3) Notwithstanding anything contained in Sub-section
(1), the Department may recognize the accounting specified by
the Nepal Rastra Bank, Subject to the Nepal Rastra Bank Act,
2058(2002) and the banking laws in force, in respect of banking
business."
(c) The following Sub-section (4) shall be substituted for Sub-
section (4):
"(4) In calculating a person's income earned from a
business or investment on the accrual basis, where t person
includes any payment to which the person is entitled or deducts
any payment that the person is obliged to make and a difference
in the payment received or made by the person occurs as a
result, inter alia, of a change in exchange rate, the amount of
difference shall be adjusted at the time when payment is


532
received or made."
(21) The words "refund of amount" shall be substituted for the words
"reimbursement of amount" contained in the second line of Clause (a)
of Sub-section (1) of Section 25.
(22) The words "money or" contained in the second li e of Clause (a) of
Sub-section (1) of Section 27 and the words "money and" contained in
the same Clause shall be deleted.
(23) The following Section 29 shall be substituted for Section 29:
“29. Indirect payments: In cases where any person derives benefits
indirectly from payments made by the payer or a person
associated with him or specifies another person to receive
payment, the Department may, by issuing a notice in wr ting,
treat the person himself deriving such benefit or specifying such
other person as the recipient of payment.”
(24) The following explanation shall be inserted for Section 31:
"Provided that, the payment amount received as a compensation
for the physical damage happened in personal accident of a resident
natural person shall not need to be included in the income and the
treatment cost incurred in the damage from such an accident shall not
be claimed for adjustment into the tax as referred to in Section 51."
(25) The word "seller" contained in Sub-section (3) of Section 32 shall be
deleted.
(26) The following Sub-clause (2) shall be substituted for Sub-clause (2) of
Clause (a) of Sub-section (1) of Section 38:


533
"(2) Any amount required to be included in the assessment of the
income of that person as a result of acquisition of that
property."
(27) The word "payment" shall be substituted for the words "amount
Subject to tax" contained in the proviso to Clause (c) of Sub-section (1)
of Section 39.
(28) Of Section 41:
(a) The following Sub-clause (2) shall be Substituted for Sub-clause
(2) of Clause (a):
"(2) In re-disposing that property, the net outgoings made for
that property until the disposal pursuant to this Section
shall be deemed to be equal to the amount receivabl."
(b) The following Sub-clause (2) shall be Substituted for Sub-clause
(2) of Clause (b):
"(2) In re-disposing that liability, the net incomings made for
that liability pursuant to Sub-clause (1) until the disposal
under this Section shall be deemed to be equal to the
outgoings."
(29) The word "taxable" shall be substituted for the words "Subject to tax"
contained in Sub-section (2) of Section 45.
(20) The following Sub-section (3) shall be inserted after Sub-section (2) of
Section 50:
"(3) Notwithstanding anything contained in Sub-sections (1) and (2),
a resident widow or widower who has to maintain and subsist
dependents shall be treated as spouse."


534
(31) Of Section 54:
(a) Of Sub-section (1):
(1) The words "if distributed" shall be inserted after the
words "shareholder" contained in Clause (a).
(2) The following Clause (b) shall be Substituted for Clause
(b):
"(b) No tax shall be imposed if other entities make
distribution."
(b) The following Sub-section (3) shall be Substituted for Sub-
section (3):
"(3) Notwithstanding anything contained in Sub-section
(1), no tax shall be charged if dividend received upon deduction
of tax under that Sub-section is distributed".
(c) Sub-section (4) shall be deleted.
(32) Of Section 57,-
(a) The following Sub-section (1a) shall be inserted after Sub-
section (1) of Section 57:
"(1a) For the purposes of computing the change of Fifty
percent or more than Fifty percent ownership of anye tity as
referred to in Sub-section (1), only the following ownership of
that entity shall be included:
(a) The ownership held by a shareholder holding One
percent or more of the total ownership of that
entity, and


535
(b) The ownership held by an associated person of
the shareholder who holds more than one percent
of the total ownership of that entity, out of the
shareholders who hold less than one percent of
the total ownership of that entity."
(b) The word and figure and letters "Section 59 or 60" shall be
deleted contained in the Clause (c) of Sub-section (2).
(33) The following Sub-section (1) shall be substituted for Sub-section (1)
of Section 58:
"(1) An arrangement made by any entity by maintaining all of
the following conditions shall be treated as an arrangement made for
reducing dividend tax:
(a) Where that entity has reserved, current or expected
profits,
(b) Where any person who acquires an interest of the entity
and the recipient of the interest or his associated person
makes any payment to the present or previous
beneficiary of the entity or his associated person
irrespective of whether or not it is related to the
acquisition of interest and whether or not payment is
made at the time of acquisition of interest,
(c) Where the payment is fully or partly reflected in the
profits of that entity,
(d) Where that entity distributes dividends to the recipient of
interest and the dividends fully or partly cover the
profits."


536
(34) Of section 59:
(a) The following Sub-section (1a) shall be inserted after Sub-
section (1):
"(1a) An amount that is up to five percent of a due and
recoverable loan held in the risk bearing fund by a person
carrying on banking business Subject to the standards
prescribed by the Nepal Rstara Bank shall be deducted as an
expense. Where the risk bearing fund is so maintained, and the
expenses debited to the profits as a bad debt, the sam shall not
be written off; and where the amount in that fund is capitalized
or profits or dividends are distributed, the same shall be
included in the income of the year in which such distribution is
made."
(b) Sub-section (2) and (3) shall be deleted
(35) Of Section 60:
(a) The following Sub-clause (3) shall be inserted after Sub-clause
(2) of Clause (b) of Sub-section (2):
"(3) Sum total of the following amounts provided for risk
coverage fund:
(e) Fifty percent of the net premium credited to the
profit and loss statement during the year: and
(f) One Hundred Fifteen percent of the pending
unsettled pending claims outstanding at the end of
the year.


537
Provided that, these amounts that are
shown as expenses during the year as profit shall
be included in the income of subsequent year.
(b) Sub-section (3) and (4) shall be deleted
(36) Of Section 61:
(a) The following Sub-clause (2) shall be substituted for Sub-clause
(2) of Clause (b) of Sub-section (2):
"(2) The premiums as referred to in Sub-clause (1) of Clause
(a) returned to the insured".
(b) The words "shall not be considered as expenses" shall be
Substituted for the words "shall be included in theexpenses"
contained in Sub-section (3).
(37) Of Section 63:
(a) The following proviso shall be inserted in Sub-section (1):
"Provided that, the Citizen Investment Fund established
under the Citizen Investment Fund Act, if it intends to maintain
a retirement fund, and the Employee Provident Fund established
under the Employee Provident Fund Act, 2019 (--), if it operates
a retirement fund, shall not be required to obtain permission for
such fund."
(b) The phrase " may make a claim for deduction in calculating his
income" shall be Substituted for the phrase "may make a claim
to deduct from the income" contained in Sub-section (2).


538
(38) The words "mentioned in Sub-section (1) of Section 2 of Schedule-1"
shall be substituted for the words "applicable to companies" contained
in Sub-section (3) of Section 64.
(39) Of Section 65:
(a) The words "or the retirement payments made by Government of
Nepal" shall be inserted after the words "from the interest"
contained in the second line of Sub-section (1) of Section 65.
(b) The following proviso shall be inserted at the end of the
explanation:
"Provided that, the payment made from the non-
contributory fund of the beneficiary shall not be considered as
benefit received as an interest from the unapproved retirement
fund."
(40) The word "employment" shall be Substituted for the words "such
acts" contained in the first line of Sub-clause (2) of Clause (i) of Sub-
section (6) of Section 67.
(41) The following Clause (b) shall be Substituted for Clause (b) of the
explanation contained in Section 71:
“(b) "Average rate of tax of Nepal" means the rate to be set by
multiplying with One Hundred the amount to be set by dividing
the amount of tax payable by a person as referred to in Clause
(a) of Section 3 in any income year by the taxable income of that
person in that year prior to the adjustment of any foreign tax in
that year.”
(42) The words "Big Taxpayer Office or" shall be inserted after the words
"Inland Revenue Office" contained in Sub-section (2) of Section 72.


539
(43) The following Sub-section (1) shall be substituted for Sub-section (1)
of Section 74:
"(1) The taxpayer shall perform the duties as mentioned in this Act."
(44) The following Sub-section (3) shall be inserted after Sub-section (2) of
Section 77:
"(3) The Department may prescribe to submit any information or
particular or document to be submitted by a person to the Department
through the electronic medium."
(45) Of Section 78:
(a) The following Sub-section (1) shall be Substituted for Sub-
section (1):
(1) The Department shall issue an identity number called
as permanent accounts number to any person for purposes of
identifying that person, Subject to this Act.
Provided that, a body having obtained approval from the
Department may give such permanent accounts number by
fulfilling the procedures referred to in this Act. Taxpayer
receiving permanent accounts number shall not do, in such
manner, the transaction of export and import up to the period
specified by the Department.
(46) Of Section 78:
(a) The following Sub-section (3) shall be Substituted for Sub-
section (3):


540
(3) Department may specify the circumstances where any
person has to show or mention his/her permanent account
number.
(d) The following Sub-sections (4) and (5) shall be inserted after
Sub-section (3):
“(4) Notwithstanding anything contained in Sub-section
(1), any person specified pursuant to Sub-section (3) shall
obtain the permanent accounts number prior to doing
transactions.
(5) Notwithstanding anything contained in Sub-section
(1), (2), (3) or 4, no one shall be released from the liability of tax
by the reason that he has not obtained the permanent ccounts
number.”
(47) Of Section 81:
(a) The words “at least” contained in Sub-section (2) of Section 81
shall be deleted.
(b) The following Sub-section (4) shall be inserted after Sub-
section (3):
"(4) The Department provides approval to maintain
documents through electronic medium which are to be
maintained pursuant to Sub-section (1)."
(48) The words “The Department may prescribe to pay the tax, to be
so paid, also through the electronic medium.” words shall be
inserted after the word "to be so paid" of the Sub-section (1) Of
Section 85:


541
(49) Of Section 88:
“(a) The word "service charge, commission or sale bonus and" shall
be Substituted for the words "in making payment servic charge
and if that person is an approved retirement fund, any"
contained in Sub-section (1), and the following provis shall be
Substituted for the proviso to that Sub-section:
Provided that, tax shall be withheld at the following rate
from the following payment:
(1) In the case of the retirement payment made by the
Government of Nepal or by the approved
retirement fund, at the Rate of Five percent from
the benefits calculated pursuant to Clause (b) of
Sub-section (1) of Section 65,
(2) In the case of the commission paid by a resident
employer company to a non-resident person, at the
rate of Five percent,
(3) In the case of payment of amount for aircraft lease,
at the rate of ten percent.
(4) In case of service provider resident person who
are registered in the Value Add Tax, on the
payment of service charge, at the rate of One point
Five (One and half) percent of the paid amount.”
(5) In the case of the rent paid by a resident person
having source in Nepal, at the rate of Ten percent,


542
(6) In the case of a person receiving profit and benefit
from the trade under commodity by future market,
at the rate of Ten percent.
(b) The following Sub-section (2) shall be substituted for Sub-
section (2):
"(2) A resident person shall, in making the following
payments having source in Nepal, withhold tax at the following
rate:
(a) In making payment of dividends, Five percent of
the payment amount,
(b) In making payment of investment insurance
benefits, Five percent of the payment amount,
(c) In making payment of benefits from an
unapproved retirement fund, Ten percent of the
amount of benefits".
(c) The following Sub-section (3) shall be Substituted for Sub-
section (3):
"(3) Notwithstanding anything contained in Sub-section
(1), in making payment of interest or of an amount in the form of
interest as follows by a resident bank, financial institution or
any other entity issuing bonds or a company registered under
the laws in force to any individual for deposits, bonds,
debentures and governmental bonds, tax shall be withheld from
the total amount of payment at the rate of Five percent:
(a) Which has source in Nepal, and


543
(b) Which is not related with the operation of
business."
(d) of Sub-section (4):
(1) The following Clauses (a1) shall be inserted after Clause (a) of
Sub-section (4):
"(a1) Payment for an article published in a newspaper and for
preparing question papers and examining answer books."
(2) The following Clause (d), (e) and (f) shall be inserted after
Clause (c) of Sub-section (4):
"(d) The interregional interchange fee paid to a bank issuing
credit card."
(e) Any interest or fee paid by the Government of Nepal to a
foreign government or a foreign organization pursuant to
an agreement between Government of Nepal and foreign
government or Government of Nepal and International
Organization."
(f) Payment of interest, Ten Thousand Rupees by Small
Finance Institution basis on rural community, Rural
Development Bank, Postal Saving Bank and collected
deposit income in finance pursuant to Sub-section (2) of
Section 11 of this Act. "
(50) The following Section (88A) shall be inserted after S ction (88):
“88A. Withholding tax in windfall income: In a payment of
windfall income tax shall be levied at the rate of Twenty
Five percent.


544
Provided that, Government of Nepal may provide
exemption in the windfall income by publishing a
Notification in the Nepal Gazette on the national or
international awards received for contributing in the
sector of literature, art, culture, sports, journalism,
science, technology and public administration.”
(51) of section 89.
(a) The following Sub-section (1) shall be Substituted for
Sub-section (1):
“(1) In making payment of a sum exceeding Fifty
Thousand Rupees for payment of contraction or contract
to a resident person it shall be withhold tax at the rate of
one and half percent of the total amount of payment.”
(b) The following Sub-clause (a), (b), (c) and (d)shall be
substituted for Sub-clause (a) and (b) of Sub-section (3):
“(a) Relating to service contraction or contract- Ten
percent.
(b) Aircraft maintenance and other contraction
or contract- Five percent.
(c) In making payment of premium to non-
resident insurance company- one and half
percent.
(d) Except as mentioned herein above, where
the Department has given a notice to
resident person in writing, at the rate
specified in that notice.”


545
(c) The following explanation shall be inserted in the
Section 89:
"Explanation: For the purpose of this Section
"contraction or contract" means a contract or agreement
concluded to supply goods or labour or construction,
fixation or establishment of tangible property or structure
and any act prescribed by the Department as a
contraction or contract as well as it shall included the
payment made for a service rendered in case such service
is being included by the contraction or contract in the
course of construction or taxation or establishment."
(52) The following Section 89A. Shall be inserted after S ction 89:
“89A. Tax withholding in the benefit received from disposal of
interest by the resident organization: Except the resident
organization engaged in the share transaction upon registering
itself pursuant to the prevailing law in any year, if a person
receives any benefit from the disposal of an interest of a
resident organization, such a person shall withhold tax, as
following, in the benefit computed pursuant to Section 37:
(a) In the case of benefit received from the disposal f
the interest of an organization which is listed in the
security market, by the organization which acts as
a security exchange market, at the rate of Fifteen
percent of profit amount.
(b) In the case of benefit received from the disposal f
the interest of an organization which is not listed
in the security market, by the organization of


546
whose interest was disposed, at the rate of Fifteen
percent of profit amount.”
(53) The following Section 89B. Shall be inserted after Section 89A:
“89B. Withholding of tax in capital gain: In a case, where a natural
person has made any capital gain from the disposal of a building
(House) or building and land, the Land Revenue Office shall
withhold the following tax at the time of registration:
(a) If the non-commercial taxable property (building or
building and land) so disposed was in his/her ownership
since more than Five years at the rate of Five percent.
(b) If the non-commercial taxable property (building or
building and land) so disposed was in his/her ownership
since less than Five years at the rate of Ten percent.
(54) Of Section 90:
(a) The following Sub-section (1) shall be Substituted for Sub-
section (1):
"(1) Each person who is obliged to withhold tax has to
Submit to the Department a statement in such mode an format
as specified by the Department within Fifteen days fter the
expiration of each month."
(b) The phrase "in the following conditions, the person Subject to
tax withholding" shall be Substituted for the phrase "In cases
where the person withholding tax does not withhold or pay tax
as follows, both the person Subject to tax withholding"
contained in Sub-section (5).


547
(c) The following Sub-section (8) shall be inserted after Section (7):
"(8) In case a person does file details or pays tax
pursuant to Sub-section (1) or (2) or if the Department is
convinced that there is a situation of Sub-section (5) in relation
to a person, it may issue an order to submit the amount is not
submitted or less amount submitted and interest as referred to in
Section 119. Provided that, before issuing such an order, a
Fifteen days written notice along with reasons thereof, shall be
issued for defense enclosing the evidence and proofs."
(55) Of Sub-section (1) of Section 92:
(a) The word "Payment for benefit and Payment for personal
accident" shall be substituted for the words "Payment of
benefit" contained in Sub-clause (c) of Sub-section (1) of
Section 67.
(b) The following Clause (e) shall be substituted for Clause (e):
"(e) Interest as follows paid by a bank, financial institution or
any other entity issuing bonds or a company enlisted
pursuant to the laws in force, as mentioned in Sub-
section (3) of Section 88:
(1) Which has source in Nepal and which is not
related with the operation of business and paid to
an individual.
(2) Which is paid to an institution entitled to tax
exemption pursuant to Clause (d) of Section 2."
(c) The following Clauses (g) and (h) shall be inserted after Clause
(f):


548
"(g) Payment for meeting allowance and part-time teaching."

"(h) Retirement payment made by the Government of Nepal or
approved retirement fund or un-approved retirement fu d
including all types of retirement payments."
(56) Of Section 94:
(a) The following Sub-section (1) shall be substituted for Sub-
section (1):
"(1) A person who has or will have assessable income
in any income year from any business or investment has to pay
tax in Three installments as follows:
Date on which payment has to
be made
Amount to be paid
By the end of Poush (mid January) Amount of due and payable tax out of
Forty percent of the estimated tax
By the end of Chaitra (mid April) Amount of due and payable tax out of
Seventy percent of the estimated tax
By the end of Ashad (mid July) Amount of due and payable tax out of
Hundred percent of the estimated tax
Explanation: For the purposes of this Sub-section,-
(a) "Estimated tax" means the estimated tax in
installment computed by any person liable to pay
tax in installment pursuant to Section 95 at the time
when the installment tax is to be paid in any year.


549
(b) "Due and payable tax" means the amount that
remains shortfall after Subtracting the following
total sum from the amount to be set by the
percentage prescribed for payment of estimated tax
in installments under this Sub-section:
(1) The amount of tax paid in that income year
by a prior installment pursuant to this
Section before the date on which the
installment in question is to be paid,
(2) The amount of tax deducted from the
payments to be included in computing the
income of any person in any income year
pursuant to Chapter-17 before the date on
which the installment in question is to be
paid in that year,
(3) In cases where the agent withholding tax or
the person Subject to tax withholding pays
to the Department the amount of tax deemed
to be withheld from the payment referred to
in Clause (2) pursuant to Sub-section (3) of
Section 90 in that year before the date on
which the installment is to be paid, such
amount of tax, and
(4) The amount of tax adjustment for medical
treatment expenses which that person may
claim pursuant to Section 51 in respect of
the accepted medical treatment expenses


550
incurred by that person before the date on
which the installment is to be paid."
(b) The following words Sub-section (2) shall be Substituted for the
Sub-section (2)."
(2) Notwithstanding anything contained in sub-section
(1), in cases where the amount of installment to be paid pursuant
to that sub-section is less than Five Thousand Rupees, amount
of such installment need not to be paid.
(57) Of Section 95:
(a) The words "by the Department" shall be inserted after the
words "may be prescribed" contained in Sub-section (1).
(b) The words "or where it is so specified pursuant to Sub-section
(6) that any person is not required to Submit an estimate to pay
installment of tax" contained in Sub-section (7) shall be deleted.
(58) Of Sub-section (2) of Section 96:
(a) Sub-clauses (4) and (5) of Clause (a) shall be del ted.
(b) Sub-clause (1) of Clause (c) shall be deleted.
(59) Of Section 97:
(a) The words "except where the Department issues a written order
or issues order by publishing a public notice" shall be
Substituted for the words "except where the Departmen issues
a written order" contained at the beginning.
(b) The word "or" contained at the end of Clause (b) shall be
deleted.


551
(c) The words “natural person or” shall be Substituted for the
words “natural person” contained at the end of Clause (c).
(d) The following Clause (d) shall be inserted after Clause (c):
"(d) If the motor vehicle owner making payment of tax
pursuant to Sub-section (11) of Section 1 of Schedule-1 is
an individual, such individual."
(60) The following Sub-section (2) shall be Substituted for Sub-section (2)
of Section 100:
"(2) Notwithstanding anything contained in Sub-section (1), in
the circumstances mentioned in Sub-section (5) of Section 96, the
Department may, base on the amounts mentioned in Sub-cla ses (1),
(2), and (3) of Clause (a) of Sub-section (2) of Section 96, for any
income year or any part of that year, assess the tax of hat person in a
justifiable manner."
(61) The word "Fifteen" shall be Substituted for the word "Seven"
contained in the fourth line of Sub-section (6) of Section 101.
(62) The word "Department" shall be Substituted for the words "Tax
Department" contained in Section 106.
(63) The following Section 110A. shall be inserted after Section 110:
“110A. Realization of tax by installment: Where any person makes a
written request for payment of his tax arrears by installment prior
to institution of case pursuant to Section 111, the Tax Officer
may give permission to pay the same by installment within a
reasonable period of time as specified by the Tax Officer.”


552
(64) The following Sub-section (3) shall be substituted for Sub-section (3)
of Section 113:
“(3) If any person makes an application to the Department, as
prescribed, for the refund of the amount pursuant to Sub-section (1),
such refund shall be made within Sixty days after the date on which
such application is made.”
(65) of Sub-section (1) of Section 114.
(a) The following Clauses (a1) shall be inserted after Clause (a):
"(a1) The decision or order made pursuant to Sub-section (8)
of Section 90.
(b) The words "assessment of expenses incurred in an auction sale
as referred to in Sub-section (5) of Section 105" shall be inserted
after the words "assessment of tax" contained in Clause (e) of
Sub-section (1) of Section 114.
(66) of Section 115:
(a) The word “total amount in case of undisputed tax and One Third
in case of disputed tax” shall be Substituted for the words “Fifty
percent of tax to be paid” contained in Sub-section (6).
(b) The word "Sixty" shall be Substituted for the word "Ninety"
contained in Sub-section (8).
(67) Of Section 117:
(a) The following Sub-section (1) shall be Substituted for Sub-
section (1):
"(1) If any person does not do the followings, such a
person shall be imposed fees as follows:-


553
(a) In case income details of any income year are not
submitted pursuant to Sub-section (1) of Section
95, at the rate of Two Thousand Rupees for each
detail.
(b) In case income details of any income year are not
submitted pursuant to Sub-section (1) of Section
96, at the rate of One Hundred Rupees per month,
to a person as referred to in Sub-section (4) of
Section 4 of the Act and an amount which is
higher out of an amount, calculated in a case of
other person at the rate of 0.1 percent per annual
on the computable amount without deducting any
amount where one may deduct such an amount in
computing the income in that income year and
including such an amount which is to be included
on it or at the rate of One Hundred Rupees per
month, higher in those items."
(b) The following Sub-section (2) shall be Substituted for Sub-
Section (2) :
(2) If any person does not maintain the documents required to
be maintained in any income year pursuant to Section 81, a fee in a sum
to be set by one and a half percent per year of the assessable income
drawn out without deducting any amount, if any, that can be deducted
and by including any amount, if any, that has to be included in
computing the income of any income year for each month and portion
of the month or a sum set by one Thousand Rupees per month,
whichever is higher, shall be imposed on such a person.
(68) The following Section 118 shall be Substituted for Section 118:


554
"118. Interest to be charged where the person making payment in
installments makes lesser payment of estimated tax: (1) In
cases where, in the case of the amount of installment to be paid
by any person under Section 94 in any income year, the amount
mentioned in Clause (b) is more than the amount mentioned in
Clause (a), interest shall be charged on such excess amount
pursuant to Sub-section (2):
(s) Amount of each installment paid by that person in
any income year,
(t) Eighty percent of the estimated or revised
estimated amount of total amount payable by
installments for each installment period in that
income year if such estimate or revised estimate is
correct and, if such estimated or revised estimated
amount is not correct, that of such amount, of the
total amount of tax to be paid by any person
referred to in Clauses (a) and (b) of Section 3, as is
to be paid in installment for each installment period
in any income year.
(2) An interest to be set by the normal rate of interest, for
each month and portion of the month, from the due date for
payment of the installment in that year to the following period
shall be imposed on the person referred to in Sub-section (1):
(a) In the case of a person in respect of whom tax is to
be assessed under Sub-section (1) of Section 99,
until the date for Submission of the income return,


555
(b) In the case of a person in respect of whom the
Department has made revised tax assessment for
the first time under Section 101 because of failure
to make tax assessment under Sub-section (1) of
Section 99, until the date on which a notice of that
revised tax assessment is delivered pursuant to
Section 102.
Explanation: For the purposes of this Section,
"amount payable by installment" means the
amount of installments calculated pursuant to Sub-
section (1) of Section 94 in the case of a taxpayer
who fails to Submit a revised estimate once an
estimate has been Submitted and in respect of
whom the Department has made estimate pursuant
to Sub-section (7) of Section 95 because of his
failure to Submit an estimate and calculated
pursuant to Sub-section (5) of Section 95 in the
case of a taxpayer Submits a revised estimate and
in respect of whom the Department has made
estimate pursuant to Sub-section (7) of Section 95
because of being unsatisfied with the Submitted
estimate or revised estimated."
(69) The following Section 119A. shall be inserted after Section 119.:
“119A. Fees to be charged: Except as otherwise provided in this Act, a
person who fails to observe any provision of this Act or the
Rules framed hereunder shall be liable to pay fees equivalent to
the fine specified pursuant to Section 128.”
(70) The following Section 136A. shall be inserted after Section 136:


556
“136A. Provision of awarded: In case someone avoids or attempts to
avoid the tax liability as a whole or in part and if someone
informs the same along with evidence such a person shall may
be awarded equal to Twenty percent of the amount of the tax
assessable from the evidence submitted by such a person out of
the tax amount recovered on the basis of such information.
(71) Repeal : Section 3A and 66 shall be deleted.
(72) Amendment to Schedule-1:
(1) Of Section 1:
(a) The following Sub-section (1), (2), (3), (4), (5), (6) and (7)
shall be substituted for Sub-section (1), (2), (3), (4), (5), (6)
and (7) :
"(1) Tax shall be levied at the following rate on the
taxable income of any resident natural person in any
income year, subject to Sub-sections (2) and (4) of this
Schedule:-
(a) For the taxable income not exceeding One
Hundred Sixty Thousand Rupees on
employment, at the rate of One percent tax.
Provided that, in the case of taxpayer
of a sole registered firm such One percent
tax shall not be levied.
(b) Where the taxable income is more than One
Hundred Sixty Thousand Rupees but less
than Two Hundred Sixty Thousand Rupees,
pursuant to Clause (a), One Thousand Six


557
Hundred Rupees for upto One Hundred
Sixty Thousand Rupees and at the rate of
Fifteen percent if the taxable income is more
than One Hundred Sixty Thousand Rupees.
(c) Where the taxable income is more than Two
Hundred Sixty Thousand Rupees, pursuant
to Clause (b), Sixteen Thousand Rupees for
upto Two Hundred Sixty Thousand Rupees
and at the rate of Twenty Five percent if the
taxable income is more than Hundred Sixty
Thousand Rupees.
(2) Tax shall be levied by the following rates on
the taxable income of any spouse making a choice
pursuant to Section 50 in any income year, subject to
sub-sections (4) of this Schedule:-
(a) One percent tax shall be levied on the
taxable income on employment not
exceeding Two Hundred Thousand Rupees.
Provided that, in the case of taxpayer
of a sole registered firm such One percent
tax shall not be levied.
(b) Where the taxable income is more than Two
Hundred Thousand Rupees but less than
Three Hundred Sixty Thousand Rupees,
pursuant to Clause (a), Two Hundred
Thousand Rupees for upto Two Thousand
Rupees and at the rate of Fifteen percent if


558
the taxable income is more than Two
Hundred Sixty Thousand Rupees.
(c) Where the taxable income is more than
Three Hundred Thousand Rupees,
pursuant to Clause (b), seventeen
Thousand Rupees for upto Three Hundred
Thousand Rupees and at the rate of Twenty
Five percent if the taxable income is more
than Three Hundred Thousand Rupees.
(3) The provision contained in sub-section (4) of
this Schedule shall apply in the following circumstances:-
(a) In the case of a resident natural person,
where the income is more than One
Hundred Sixty Thousand Rupees in any
income year or in the case of a resident
spouse who has not made a choice
pursuant to Section 50, where the income is
more than Two Hundred Thousand Rupees
in any income year, and
(b) Where the net profit derived from the
disposal of non-business taxable property
is included in the computation of the
income and corresponding taxable income
of that natural person or spouse.
(4) Tax shall be levied by the following rate on the
following person, subject to sub-section (3) of this
Schedule:-


559
(a) Tax shall be levied by the rate referred to in
sub-section (1) or (2) of this Schedule on
the amount whichever is higher out of the
following amounts, as if only it were the
taxable income of that natural person or
spouse:-
(1) The amount remaining balance after
subtracting the amount of profit from
the total taxable income of that
natural person or spouse, or
(2) One Hundred Sixty Thousand
Rupees, in the case of a natural
person, or Two Hundred Thousand
Rupees, in the case of a spouse.
(b) Tax shall be levied by ten percent on the
remaining amount of the taxable income.
Provided that,
(1) Tax shall be levied by Five percent
on Disposal of non-business taxable
property (land and building and land)
on more than Five years of
ownership.
(2) Tax shall be levied by Ten percent on
Disposal of non-business taxable
property (land and building and land)
on less than Five years of ownership.


560
(5) For the individuals working in the remote
areas specified by the Government of Nepal, a maximum
sum of Thirty Thousand Rupees shall, for the remote
allowance, be deducted from the taxable income, as
prescribed, and the tax shall then be calculated on the
remaining amount only, in accordance with this Section."
(6) For the employee working in the abroad
based diplomatic missions of the State of Nepal, Seventy
Five percent amount of their abroad allowance shall be
deducted from the taxable income, and the tax shall t en
be calculated on the remaining amount only, in
accordance with this Section."
(7) The amount of tax pursuant to sub-section
(4) of Section 4 of this Act shall be as follows:-
(a) In the case of a natural person carrying on a
business in the municipal corporation or
sub-municipal corporation area, Five
Thousand Rupees,
(b) In the case of a natural person carrying on a
business in the municipal area, Two
Thousand Five Hundred Rupees,
(c) In the case of a natural person carrying on a
business in any other place, One Thousand
Five Hundred Rupees."
(b) The following Sub-section (10), (11),(12),(13),(14) and (15)
shall be inserted after Sub-section (9):


561
“(10) Notwithstanding anything contained
elsewhere in this Section, where any resident natural
person is the disabled, additional Fifty percent of the
amount mentioned in Clause (a) of Sub-section (1) for
such individual and in Clause (a) of Sub-section (2) for
spouse shall be deducted from the taxable income, and
the tax shall then be calculated on the remaining amount
only, in accordance with this Section.”
(11) Notwithstanding anything contained
elsewhere in this Section, if resident natural person is a
woman whose taxable income mentioned in labour, such
person shall be exempt Ten percent from the taxable
amount."
(12) Notwithstanding anything contained
elsewhere in this Section, where any resident indivdual
has procured an insurance business, the amount to be set
by investment insurance or Twenty Thousand Rupees,
whichever is lesser, out of the premium paid for the same,
shall be deducted from the taxable income, and the tax
shall then be calculated on the remaining amount only, in
accordance with this Section.
(13) Notwithstanding anything contained
elsewhere in this Section, the owners of vehicles on hire
shall pay annual tax at the following rates. If theowner of
vehicle is an individual, the tax so paid shall be final and
binding.



562
Category of vehicles Annual tax payable
per vehicle
(a) Mini-bus, mini-truck, truck and bus Rs. 1,500/-
(b) Car, jeep, van and microbus Rs.1,200/-
(c) Three wheeler, auto-rickshaw, tempo Rs. 850/-
(d) Tractor and power tiller Rs. 750/-

(14) Notwithstanding anything contained
elsewhere in this Section, if an individual is fully engaged
in the operation of a special industry mentioned in
Section 11 of this Act throughout any year, in calculating
tax pursuant to this Section, tax shall be charged by
Twenty percent of the taxable income, instead of Twenty
Five percent thereof.
(15) Tax shall be charged by Twenty percent of the
taxable income earned by any natural person from exports
in any income year."
(2) of Section (2):
(a) The words “cigarette, Bidi, cigar, chewing tobacco, Khaini,
liquors, beer” shall be inserted after the words “in any income
year” contained in Sub-section (2).
(b) The following Clause (b) shall be substituted for Clause (b) of
Sub-section (3):
"(b) In cases where the entity,


563
(1) Builds and operates any road, bridge, tunnel, ropeway or sky-bridge, or
(2) Operates any trolley bus or tram, or"
(3) Any co-operative so transacting except the co-
operatives which is registered pursuant to Co-
operatives Act, 2048 and enjoying tax exemption in
its transaction.
(c) The following Sub-section (3a) shall be inserted after Sub-
section (3):
"(3a) Tax shall be levied by twenty percent on the
taxable income earned by any entity, through its source in
Nepal, from exports in any income year."
(d) The following Sub-section (5) shall be substituted for Sub-
section (5):
"(5) Tax shall be levied, pursuant to Sub-sections (1)
and (4) of Section 1 of this Schedule, on the taxable income of a
trust acquiring or looking after the property belonging to any
deceased resident person or of a disabled resident individual in
any income year as if the one who acquires or looks after or that
trust money or trust resident were an individual."
(e) The word "Five" shall be Substituted for "Ten" of Sub-section
(3):
(f) The following Sub-section (7) shall be substituted for Sub-
section (7):


564
“(7) Tax shall be levied by Five percent on the taxable
income of any non-resident person in relation to the income
referred to in Section 70 in any income year.
Provided that, in the case of a non-resident person
providing telecommunication, air transport or water ransport
service, which does not so depart from the State of Nepal that it
has destination in a foreign country, tax shall be evied by two
percent."
(33) Amendment of Industrial Enterprises Act, 2049 (1992) : (1) Clauses
(a) of Section 15 of the Industrial Enterprises Act, 2049 (1992) shall be
deleted.
(34) Prevalence of Amendment and appeal: Notwithstanding anything
contained in the prevailing laws, the provisions amended and repealed
(deleted) of this Act shall be amended and repealed upto fiscal year
2066/067 and after the expiry of that period, such provisions shall ipso
facto deem to be received.

Financial Act, 2067 (2011)
Date of Authentication and the Publication
2067.11.03 (15 Feb.2011)
An Act Made to Implement Proposals Relating to Finance of the
Government of Nepal
Preamble: Whereas, it is expedient to levy some charges, taxes, duties,
cesses and fees, continue or alter the existing ones a d also to amend the


565
laws in force relating to revenue administration in order to implement the
proposals relating to finance of the Government of Nepal;
Now, therefore, be it enacted by the Constitution Assembly pursuant
to Sub-articles (1) of Article 83 of Interim Constitution of Nepal,2063 (2007).
1. Short title and commencement: (1) This Act may be called the
“Financial Act, 2067 (2011)."
(2) This Act shall come into force immediately.
33. Amendment to the Income Tax Act, 2058 (2002): Of the
Income Tax Act, 2058(2002):-
(1) Of Section 2:
(a) The following Clause (h) shall be substituted for Clause (h):
“(h) "Income" means the income earned by any person
from employment, profession, investment or
windfall gain and the total amount of that income
calculated under this Act.”
(b) The following Clause (h1) shall be inserted after Clause
(h):
“(h1) "Windfall gain" means lottery, gift, prize, baksis,
award for wining (jitauri) and any other types
windfall gains.”
(c) The following Sub-clause (2) shall be substituted for Sub-clause (2)
of Clause (n) :
(2) The amount payable by the person withholding
advance tax or the person subject to tax


566
withholding under Section 90 or the amount
payable by the person making payment in
installment under section 94 or the amount of
advance tax payable by the person making
payment under section 95A or the amount payable
after the assessment of tax under Sections 99, 100
and 101,
(d) The following Clause (p1) shall be inserted after Clause (p):
“(p1) “turn-over” means a turn-over equivalent to the
total amount to be included under Section 7, 8 or 9
for purposes of computing the income of a
business or investment in any income year”.
(e) Of Clause (r):
(1) The following Sub-clause (r) shall be substituted
for Sub-clause (r) :
(r) "Non-occupational taxable assets" means any
land, building and interest or security in any entity
except the following properties:
(1) Occupational assets, depreciable assets or
stocks-in-trade,
(2) A private building owned by a natural
person in the following situation,-
(a) Being under ownership for a
continuous period of Ten years or
more, and


567
(b) Where that person has resided for a
total period of Ten years or more
continuously or at several times.
(3) A benefit of any beneficiary held in the
retirement fund”,
(4) A private building belonging to and
disposed of by any natural person for a
value less than Tree million Rupees, or
Explanation: for the propose of this Sub-
clause "private building" means building
and area of land covered equal to the
building or one ropany land , among them
which is less.
(5) An asset disposed of by way of transfer in
any manner other than the purchase and
sale within three generations.
(f) The following Clause (s) shall be substituted for Clause (s):
“(s) "Organization entitled to enjoy exemption" means
the following entity:
(1) Any of the following entities registered in
the Department as an entity enjoying tax
exemption:
(a) A social, religious, educational or
benevolent organization of public
nature established with non-profit
motive,


568
(b) An amateur sports organization so
formed with a view to promoting
social or sports related facilities that
the organization or its member does
not derive profits,
(2) A political party registered in the Election
Commission,
(3) Village Development Committee, Municipality
or District Development Committee,
Provided that, in cases where any
person has derived any benefit from the
property of that organization and the
monies obtained from that organization
except in making payment for the property
or the service rendered by any person to
that organization or in discharging
functions in consonance with the objective
of the organization entitled to exemption, tax
exemption shall not be granted to such
organization."
(g) The figures and letters "Sub-`clause (1), (2), (3) and (4)"
shall be substituted for the figures and letters "Sub-
`clause (1), (2) and (3)” contained in Sub-clause (5) of
Clause (x).
(h) The following Sub-clauses (1) and (2) shall be
Substituted for Sub-clauses (1) and (2) of Clause (ad):


569
“(1) Payment for having acquired the right to extrac
water, minerals or other living and non-living
resources from the earth, or
(2) Amounts calculated based on the quantity or
value of living or non-living resources of the
natural resources and minerals extracted fully or
partly from the earth”.
(i) The following Clause (af) shall be Substituted for Clause
(af):
"(af) "Rent" means all payments including a premium
received for the house rent as well as for the lease
of a tangible property.
Provided that, this term does not include
any payment made for natural resources".
(j) The following Clause (ab) shall be substituted for Clause
(ab):
“(ab) "Investment" means the act of holding one or m e
properties or investing such properties, except
with the followings:
(1) Holding any property used by the owner
thereof in personal use, or
(2) Employment or occupation.
Provided that, holding non-business
taxable property shall be deemed as
investment.”


570
(k) Of Clause (ae):
(1) The words " in respect of any income year"
contained in the first sentence of paragraph (b) of
Sub-clause (1) shall be deleted.
(2) The word "or" shall be inserted at the end of
paragraph (b) of Sub-clause (3).
(3) The word "or" shall be inserted at the end of para
(a) of Sub-clause (4).
(4) The following Sub-clause (4a) shall be inserted
after Sub-clause (4):
"(4a) Government of Nepal,"
(5) The word "or" shall be Substituted for the word
"and" contained in the second sentence of Sub-
clause (6).
(l) The words "exemption, premium under loan liability" shall
be Substituted for the word "premium" contained in the
first sentence of paragraph (2) of Sub-clause (ai).
(m) The words "sold or" contained in Clause (aj) shall be
deleted.
(n) The following Clause (an1) shall be inserted after
Clause (an):
“(an1) "Electronic medium" means the computer, fax,e-
mail, internet, electronic cash machine, fiscal
printer and other approved medium as specified
the Department”.


571
(o) The figure and letters "Sub-clause (5)" shall be
Substituted for the figure and letters "Sub-clause (4)"
contained in the second sentence of Clause (ao).
(p) The following Clause (at1) shall be inserted after Clause
(at):
“(at1) "adjusted taxable income" means taxable income
calculated without deducting any amounts as
referred to in Section 12 and without deducting
any amount under Sub-section (2) of Section 14,
Section 17 or 18, while calculating the taxable
income of any person in any income year.”
(q) The words "Ten percent" shall be substituted for the
words "Fifteen percent" contained in Clause (aw) of
Section 2.
(r) The words "related with the work" contained in Clause
(aab) shall be deleted, and the words "as referred to in
Clause (y)" shall be inserted the words "any entity"
contained in that Clause.
(2) Of section 4:
(a) The following Sub-section (l) shall be substituted for Sub-
section (1):
“(1) The amount of tax required to be paid by any person
referred to in Section 3 for any income year shall be equal
to the total amount of tax required to be paid by such
person in capacity of anyone or more than one person
mentioned in Clauses (a), (b) and (c) of the Section.”


572
(b) The words "or both Sections" shall be inserted after the figure
"Section 51 or 71" as contained in Sub-section (2).
(c) The following Clause (c) shall be Substituted for Clause (c) of
Sub-section (3):
“(c) The employer has made a claim only for the adjustment of
tax on medical expenses paid by him/her and for
Subtraction of retirement contribution paid by the
employer him/herself and not claimed for Subtraction of
expenses for donation as referred to in Section 12.”
(d) Of Sub-section (4):
(1) The following Clause (a1) shall be inserted after Clause
(a):
“(a1) Having not claimed for adjustment of tax for
medical expenses under Section 51 and for
advance tax deduction under Section 93.”
(2) The following Clause (b) shall be substituted for Clause
(b):
"(b) The income earned from the business and the
turnover of the business do not exceed One
Hundred Fifty Thousand Rupees and One Million
Five Hundred Thousand Rupees, respectively."
(e) The figures and letters "Section 87, 88 and 89"shall be
substituted for the figure and letters "Section 88"contained in
the fourth line of Sub-section (6).
(3) Of Section (5):


573
(a) The words "or both Sections" shall be inserted after the words
contained in the third line of paragraph "Section 12 or 63"
contained in Section 5.
(b) The words "and" shall be deleted contained in end of Sub-
clause (b) of section (5).
(c) The following Clause (d) shall be inserted after Clause (c):
"(d) windfall gain"
(4) The words "or both Sections" shall be inserted after the words
"Section 11 or 64" contained in the proviso to Clause (b) of Section 6.
(5) The words "shall be income" shall be Substituted for the words "shall
be computed in the income" contained in Sub-section (1) of Section 7.
(6) The words "shall be" shall be substituted for the words "computed as
the income" contained in Sub-section (1) of Section 9.
(7) The following Sub-Clause (4) shall be inserted after Sub-Clause (3) of
Clause (3) in Section 10:
(4) Any kind of income earned by Security Board of Nepal in
consonance with its purpose.
(8) The following Clause (i) shall be inserted after Clause (h) in Section 10:
(i) Any kind of income of Government of Nepal.
(9) Of Section 11:
(a) The following Sub-section (2) shall be Substituted Sub-section
(2):


574
“(2) No tax shall be levied on the income of a
cooperative organization and saving and credit cooperative
organization or institution based in rural communities, which has
been registered and operated under the Cooperatives Act, 2048
(1991) and which carries on agricultural and forest based
industries such as professional forest related enterpris s
inclusive of sericulture and silk production, horticulture and
fruits processing, animal husbandry, dairy industry, poultry
farming, fishery, tea gardening and processing, coffee arming
and processing, herbiculture and herb processing, ve etable
seeds farming, bee keeping, honey production, rubber farming,
leasehold forestry, agro-forestry etc., cold storage established
for the storage of vegetables, agro-seeds, animal feed,
pesticides, fertilizers and agricultural inputs (except those
operated with mechanical power). No tax shall also be levied on
the dividends distributed by such organization or institution.”
Explanation: The term “provision for this section rural
community” means any area, other the municipal area nd the
VDC adjoining such area.
(b) The words "from a special industry and information technology
industries" shall be Substituted for the words "from a special
industry" contained in Sub-section (3) of Section 11 and The
following Clause (a) and (b) shall be substituted for Clause
(a) and (b) of same Sub-section:
(a) If the special industry and information technology
industries give direct employment to Three Hundred or
more Nepalese citizens throughout the year, Ninety
percent, If the special industry gives direct employment


575
to One Thousand and Two hundred or more Nepalese
citizens throughout the year, Eighty percent of the rate
of tax on the income of that year and; if the special
industry give direct employment to at least Thirty Three
percent for women, dalit or disable persons including
One Hundred or more Nepalese citizens throughout the
year, Eighty percent,
(b) If a special industry has been operated in remot ,
undeveloped and underdeveloped areas, respectively
Fifty, Seventy and Seventy-Five percent of the tax
leviable on income of the years for Ten income years
including the income year in which such an industry
started operating.
(c) The following Sub-sections (3a), (3b), (3c), (3d), (3e), (3f), (3g),
(3h), (3i), and (3j) shall be inserted after Sub-section (3):
“(3a) Exemption or concessions regarding income tax to
industries established at specified economic zone ad t x on
dividend distributed by them shall be follows:-
(a) In case the industry is established at special
economic zone situated at Himali districts or at
any hilly districts notified by Government of
Nepal, the industry shall avail an income tax
exemption for Ten years from the commencement
of the business of the industry and Fifty percent
of income tax in the upcoming income year.
(b) Any industry established at any other special
economic zone shall avail tax exemption for Five


576
years from the commencement of the business of
the industry and half of the income tax to be levied
on it for the income years thereafter.
(c) The above industries established at any special
economic zone shall avail tax exemption on
dividend distributed for Five years from the
commencement of the business. After expiry of the
Five years, for a maximum period of Three years a
tax concession of Fifty percent of the tax rate
applicable shall be available.
(d) Tax concessions at Fifty percent is provided on
income generated as service charge or royalty for
technology transfer or management services
provided by a foreign investor for the industries
established at any special economic zone.
(3b) Hundred percent of the income tax chargeable on the
income of an industry established in remote areas shall be
exempted upto Ten years from the date of operation of the
industry.
(3c) Twenty-Five percent of the income tax chargeabl on
the income of an information technology industry established in
the information technology park as specified by the Government
of Nepal by a notification in the Nepal Gazette.”
(3d) In a case, the agency (body corporate) receiving
license for the production, transmission and distribution of the
electricity begins with commercial production of hydro-power,
production and transmission, production and distribu ion or


577
production, transmission or distribution, upto Chaitra 2075 B.S.,
such as an agency (body corporate), shall receive full income tax
remission upto for first Seven years; and Fifty percent income
tax remission for upto Three years thereafter. Such a facility
shall also be provided to the solar power, wind power and bio-
power production.
Provided that, in the case of a license who has already
started commercial production at the time of commencement of
this Sub-section the provision prevailing at the time of receiving
of the license shall be applicable.
(3e) If a manufacturing industry exports goods that it has
manufactured, tax rebate shall be granted by Twenty Five
percent on the rate of tax leviable on income earned th refrom.
(3f) If roads, bridges, airports, tunnel roads are built and
operated or if investment is made on tram, trolley buses, tax
rebate shall be granted by Twenty Five percent on the rate of tax
leviable on income earned therefrom.
(3g) Tax rebate shall be granted by Ten percent on the tax
exempt on the manufacturing, tourism service, hydropower
generation, distribution and distribution industries nlisted in
the stock exchange and the entities set forth in Sub-section (3c)
of Section 11.
(3h) Tax rebate by Forty percent shall be granted for up
to Ten years after the date of commencement of transaction to
the industries that are established in the least developed areas
and produce fruit based brandy, cider as well as wine.


578
(3i) A person shall be entitled to tax rebate by Twenty
Five percent of the rate of income tax leviable on the royalty
income earned from the export of intellectual property right.
(3j) A person shall be entitled to tax rebate by Fifty
percent of the rate of income tax leviable on the royalty income
earned from the transfer of intellectual property right.
(d) The following Sub-section (4) shall be Substituted for Sub-
section (4):
“(4) In computing the income of a persons as referrd
to in Clauses (a) and (b) of Sub-sections (1), (2), and (3), Sub-
sections (3a), (3b) and (3c), Sub-section (12) of Section 1 of
Schedule 1 and Sub-sections (3) of Section 2 of Schedule 1, shall
compute the income as if that only income were derived by other
separate person.”
(e) The following Sub-section (5) shall be Substituted for Sub-
section (5):
"(5) A person, who is in a position to have more than
one exemption in respect of the same income pursuant to the
above mentioned Sub-sections, shall enjoy only one exemption
chosen by him/her."
(f) The following Sub-section (7) shall be inserted after Sub-section
(6):
"(7) Notwithstanding anything contained in Sub-sections
(3a) and (3b), those industries availing tax exemption or tax
concession under the same Sub-sections (3a) and (3b) shall not
avail the facility in case the assets it has acquired for the


579
industry were already used by another person for such industry
or for any other business."
(10) The following Section 11A. and 11B. shall be inserted after Section 11:
"11A. Tax chargeable on the build and operate of infrastructures: If
any agreement is concluded between the Government of Nepal
and any person for building and operating infrastructures, the
person building and operating such infrastructures shall be
entitled to enjoy tax facilities provided by this Act pertaining to
tax prevailing at the time of conclusion of that agreement during
the period of such agreement.
11B. Relaxation to the infrastructure development projects of
national importance: In the case of hydro-power, international
airport, underground ways, roadways, railways and similar
infrastructure development projects of national importance and
the production industry employing more than Three Hundred
workers and using more than Fifty percent domestic raw material
(other than cigarette, alcoholic beverage and beers), no source
of income shall be sought on the investment if it is made upto
last day of Chaitra 2075 B.S."
(11) The following Sub-section (2) shall be Substituted for Sub-section (2)
of Section 12:
"(2) Notwithstanding anything contained in Sub-section (1), the
expenditure deductible in any income year under that Sub-section shall
not exceed One Hundred Thousand Rupees or Five percent of the
adjusted taxable income that person in that year, whichever is lesser."
(12) The following Section 12A. shall be inserted after Section 12:


580
"12A. Expenseson heritage preservation and expenses for
development of sports: In case, any company incurs
expenses on preservation and development of ancient, religious
or cultural heritage located in Nepal; incurs expenses on
construction of public infrastructure required for the
development of sports, upon taking prior approval of the
Department, for incurring the expenses of any income year, such
a company claim for the deduction of One Million Rupees or
Ten percent of the assessable income, whichever is lower."
(13) of Section 14:
(a) The words "created for an act to generate income from the
occupation or investment" shall be inserted after th words "of
such person" in Sub-section (1) and the provision in the
Clause (b) shall be deleted.
(b) Of Sub-section (2),-
(a) The phrase "the total interest amount which a resident
entity controlled by an organization entitled to tax
exemption can deduct under Sub-section (1) in any
income year shall not exceed the total of the following
amounts if the interest is paid to the controlling person or
associated person" shall be Substituted for the phrase
"the total interest amount which a resident entity
controlled by an organization entitled to tax exemption
can deduct under that Sub-section in any income year
shall not exceed the total of the following amounts"
contained at the end and The words "income of adjusted


581
taxable income" shall be substituted for the words "of
taxable income" contained in Clause (b)".
(14) The following Sub-section (6) shall be substituted for Sub-section (6)
of Section 15:
“(6) If the stock-in-trade of business of any person cannot be
determined, that person may choose to the first in first out method or
average cost method to compute the cost of stock-in-trade.”
(15) The following Clause (a) shall be substituted for Sub-section (8) of
Section 15:
“(a) In computing as per the average cost method, to compute on the
basis of all weightage average costs of all the stock-in-trade of
the same type in the business under the widely recognized
accounting principle”.
(16) Of Section 15,-
Of explanation:
"(a) The following proviso shall be inserted in explanation (c):
"Provided that, no amount in respect of repair and
maintenance and depreciation shall be included in the overhead
costs of a factory."
(b) The following proviso shall be inserted in explanation (d):
"Provided that, no amount in respect of repair and
maintenance and depreciation shall be included in the variable
overhead costs of a factory."
(17) Of Section 16:


582
(a) The following Sub-section (2) shall be substituted for Sub-
section (2):
“(2) Notwithstanding anything contained in Sub-
section (1), in deducting the expenses allowable under that Sub-
section, it shall not exceed Seven percent of the depreciation
base amount of the group of property remaining at the end of
that income year.
Provided that, this limitation shall not apply to the repair
and maintenance costs incurred by a person providing air
transport service in overhauling an aircraft in accordance with
the standards fixed by the Civil Aviation Authority of Nepal."
(b) The following Sub-section (3) shall be substituted for Sub-
section (3):
"(3) Any excess expense or part thereof which is not
deductible by virtue of the limit referred to in Sub-section (2)
may be added to the depreciation base amount of the group of
the concerned property at the beginning of the forthcoming
income year".
(18) Of Section 17:
(a) The following Sub-section (2) shall be Substituted for Sub-
section (2):
"(2) Notwithstanding anything contained in Sub-section
(1), in computing the limit of expenses deductible under that
Sub-section in any income year, it shall not exceed Fifty percent
of the adjusted taxable income earned from all businesses
operated by that person".


583
(b) The words "at the beginning of the coming income year" shall
be inserted after the word "capitalization" contained in the
second line of Sub-section (3).
(19) Of Section 18:
(a) The following Sub-section (2) shall be Substituted for Sub-
section (2):
"(2) Notwithstanding anything contained in Sub-
section (1), in computing the limit of expenses deductible under
that Sub-section in any income year, it shall not exce d Fifty
percent of the adjusted taxable income earned from all
businesses operated by that person".
(b) The words "at the beginning of the coming income year" shall
be inserted after the word "any part" contained in the second
line of Sub-section (3).
(20) The words "shall" shall be Substituted for theword "may" contained
in Sub-section (1) of Section 19.
(21) Of Section 20:
(a) The following Clause (b) shall be Substituted for the Clause (b)
contained in Sub-section (1):
"(b) Loss suffered by that person from any business which
was not deducted in the last Seven income years.
Provided that, in the case of the projects which
involve building and operation of public infrastruct res
to be transferred to the Government of Nepal,
powerhouses construction, generation and transmission


584
of electricity and petroleum works pursuant to the Nepal
Petroleum Act, 2040 any loss not deducted in the last
Twelve income years."
(b) Sub-section (2) shall be deleted.
(c) The following Sub-section (8) shall be substituted after Sub-
section (7):
“(8) Where any person has enjoyed a full or partial tax
exemption in relation to the income derived from a business or
investment in any income year, such person shall not be entitled
to carry forward the loss made in such income year to the
Subsequent income years.”
(22) The word "private expenses of the natural person" shall be substituted
for the words "expenses made for" any natural person contained in the
second line of paragraph Clause (1) of explanation of Section 21.
(23) Of Section 24
(a) The words "in calculating the income earned by a person" shall
be substituted for the words "in the calculation of the income
earned by the person" contained in Sub-section (2); and the
following Sub-clause (2) shall be substituted for Sub-clause (2):
"(2) The value of such liability can be ascertained
actually, and"
(b) The following Sub-section (3) shall be substituted for Sub-section (3):
"(3) Notwithstanding anything contained in Sub-section
(1), the Department may recognize the accounting specified by
the Nepal Rastra Bank, Subject to the Nepal Rastra Bank Act,


585
2058(2002) and the banking laws in force, in respect of banking
business."
(c) The following Sub-section (4) shall be substituted for Sub-section (4):
"(4) In calculating a person's income earned from a
business or investment on the accrual basis, where t person
includes any payment to which the person is entitled or deducts
any payment that the person is obliged to make and a difference
in the payment received or made by the person occurs as a
result, inter alia, of a change in exchange rate, the amount of
difference shall be adjusted at the time when payment is
received or made."
(24) The words "refund of amount" shall be substituted for the words
"reimbursement of amount" contained in the second line of Clause (a)
of Sub-section (1) of Section 25.
(25) The words "money or" contained in the second li e of Clause (a) of
Sub-section (1) of Section 27 and the words "money and" contained in
the same Clause shall be deleted.
(26) The following Section 29 shall be substituted for Section 29:
“29. Indirect payments: In cases where any person derives benefits
indirectly from payments made by the payer or a person
associated with him or specifies another person to receive
payment, the Department may, by issuing a notice in wr ting,
treat the person himself deriving such benefit or specifying such
other person as the recipient of payment.”
(27) The following explanation shall be inserted for Section 31:
"Provided that, the payment amount received as a compensation


586
for the physical damage happened in personal accident of a resident
natural person shall not need to be included in the income and the
treatment cost incurred in the damage from such an accident shall not
be claimed for adjustment into the tax as referred to in Section 51."
(28) The word "seller" contained in Sub-section (3) of Section 32 shall be
deleted.
(29) The following Sub-clause (2) shall be substituted for Sub-clause (2) of
Clause (a) of Sub-section (1) of Section 38:
"(2) Any amount required to be included in the assessment of the
income of that person as a result of acquisition of that
property."
(30) The word "payment" shall be substituted for the words "amount
Subject to tax" contained in the proviso to Clause (c) of Sub-section (1)
of Section 39.
(31) Of Section 41:
(a) The following Sub-clause (2) shall be substituted for Sub-clause
(2) of Clause (a):
"(2) In re-disposing that property, the net outgoings made for
that property until the disposal pursuant to this Section
shall be deemed to be equal to the amount receivabl."
(b) The following Sub-clause (2) shall be substituted for Sub-clause
(2) of Clause (b):
"(2) In re-disposing that liability, the net incomings made for
that liability pursuant to Sub-clause (1) until the disposal


587
under this Section shall be deemed to be equal to the
outgoings."
(32) The word "taxable" shall be substituted for the words "Subject to tax"
contained in Sub-section (2) of Section 45.
(33) The word "not to give" shall be substituted for the words "not to take"
contained in Sub-section (4) of Section 45.
(34) The following Section 47A. shall be inserted after Section 47:
“47A. Special provision relating to disposal owing to merger or
acquisition of business: (1) If entities of similar nature carrying
on banking and financial business or insurance business are
merged to each other, provisions of Clauses (a), (b), (d), (e), (f)
and (g) of Sub-section (2) of Section 57 and Sub-section (3)
thereof shall not apply.
Provided that, if there is any loss that could not be
deducted of any entity that ceased to exist upon merger, such
loss has to be deducted in the coming Seven years on pro rata
basis. If the entity that so deducts loss by equal installments is
again divided prior to the deduction of loss wholly, tax on the
amount deducted for the deducted loss has to be paid at the rate
of tax prevailing in the financial year of merger or acquisition.
(2) If the disposal of assets and liability is made upon
the merger of entities pursuant to Sub-section (1), the following
shall apply:
(a) In the case of disposal of trade-in-stock and
business property:


588
(1) The amount equal to the net expenses
incurred in that property immediately before
the disposal shall be deemed to have been
acquired by that person in consideration for
that disposal, and
(2) The amount equal to that set forth in Clause
(1) shall be deemed to be cost incurred by
the person acquiring the property.
(b) In the case of disposal of depreciable propety:
(1) The amount equal to the remaining value of
the diminishing system of the group
pursuant to Section 4 of Schedule-2 at the
time of disposal shall be deemed to have
been acquired in consideration for that
disposal, and
(2) The amount equal to that set forth in Clause
(1) shall be deemed to be the cost incurred
by the person acquiring the property.
(c) In the case of disposal of liability:
(1) The amount equal to that amount whichever
is lesser out of the market value of the
liability and the net income immediately
before the disposal shall be deemed to be
the cost incurred by that person in
consideration for disposal.


589
(2) The amount equal to that set forth in Clause
(1) shall be deemed to be the cost incurred
by the person bearing liability in
consideration having borne that liability.
(d) In calculating the cost of merged assets and
liability, the entity merging business or the entity
merged shall calculate only the cost in
consideration for assets and liability existed at the
time of operation of the merged business by the
merged entity (prior to merger or acquisition),
pursuant to Clauses (a), (b) and (c).
(3) Tax deduction shall be made on the payment by
giving Fifty percent rebate on the rate of tax deduction to be
applied on the retirement pension on the additional lump sum
payment (except the payment made through the retirement fund
or the payment to be made as mentioned in the terms and
conditions of employees0 for the purposes of awarding group
retirement to the employees serving in the entity disposed upon
merger or the entity following merger pursuant to Sub-section
(1).
(4) The shareholders existing in the entity disposed
upon merger pursuant to Sub-section (1) dispose their s ares by
sale within Two years after the merger, no capital gain tax shall
be charged on the profits made on the shares so disp sed.
(5) Tax shall not be levied on the dividends
distributed by the entity that has been disposed upon being
merged pursuant to Sub-section (1) to the shareholdrs existing
at the time of merger within Two years after the date of merger.


590
(6) An entity that intends to be disposed upon being
merger pursuant to Sub-section (1) shall have to give a letter of
intent to be merged to the Inland Revenue Department no later
than the last month of Kartik of the year 2068.
(7) An entity that intends to be disposed upon being
merger pursuant to Sub-section (1) shall have to fulfill no later
than the last month of Kartik of the year 2070.
(8) The provisions of this Section shall not be deemed
to be applicable to an entity that does not give a l tter of
intent within the period specified in Sub-section (6) and an
entity that has not completed the process of merger by the
date set forth in Sub-section (7).
(35) The following Sub-section (3) shall be inserted after Sub-section (2) of
Section 50:
Notwithstanding anything contained in Sub-section (1) and (2) the
resident widow and widower who has to take care of a dependent shall
be consider as spouse.
(36) Of Section 54:
(a) Of Sub-section (1):
(1) The words "if distributed" shall be inserted after the
words "shareholder" contained in Clause (a).
(2) The following Clause (b) shall be Substituted for Clause
(b):
"(b) No tax shall be imposed if other entities make
distribution."


591
(b) The following Sub-section (3) shall be Substituted for Sub-
section (3):
"(3) Notwithstanding anything contained in Sub-section
(1), no tax shall be charged if dividend received upon deduction
of tax under that Sub-section is distributed".
(c) Sub-section (4) shall be deleted.
(37) Of Section 57,-
(a) The following Sub-section (1a) shall be inserted after Sub-
section (1) of Section 57:
"(1a) For the purposes of computing the change of Fifty
percent or more than Fifty percent ownership of anye tity as
referred to in Sub-section (1), only the following ownership of
that entity shall be included:
(a) The ownership held by a shareholder holding One
percent or more of the total ownership of that
entity, and
(b) The ownership held by an associated person of
the shareholder who holds more than one percent
of the total ownership of that entity, out of the
shareholders who hold less than one percent of
the total ownership of that entity."
(b) The word and figure and letters "Section 59 or 60" shall be
deleted contained in the Clause (c) of Sub-section (2).
(38) The following Sub-section (1) shall be substituted for Sub-section (1)
of Section 58:


592
"(1) An arrangement made by any entity by maintaining all of
the following conditions shall be treated as an arrangement made for
reducing dividend tax:
(a) Where that entity has reserved, current or expected
profits,
(b) Where any person who acquires an interest of the entity
and the recipient of the interest or his associated person
makes any payment to the present or previous
beneficiary of the entity or his associated person
irrespective of whether or not it is related to the
acquisition of interest and whether or not payment is
made at the time of acquisition of interest,
(c) Where the payment is fully or partly reflected in the
profits of that entity,
(d) Where that entity distributes dividends to the recipient of
interest and the dividends fully or partly cover the
profits."
(39) Of section 59:
(a) The following Sub-section (1a) shall be inserted after Sub-
section (1):
"(1a) An amount that is up to five percent of a due and
recoverable loan held in the risk bearing fund by a person
carrying on banking business Subject to the standards
prescribed by the Nepal Rstara Bank shall be deducted as an
expense. Where the risk bearing fund is so maintained, and the
expenses debited to the profits as a bad debt, the sam shall not


593
be written off; and where the amount in that fund is capitalized
or profits or dividends are distributed, the same shall be
included in the income of the year in which such distribution is
made."
(b) Sub-section (2) and (3) shall be deleted
(40) Of Section 60:
(a) The following Sub-clause (3) shall be inserted after Sub-clause
(2) of Clause (b) of Sub-section (2):
"(3) Sum total of the following amounts provided for risk
coverage fund:
(g) Fifty percent of the net premium credited to the
profit and loss statement during the year: and
(h) One Hundred Fifteen percent of the pending
unsettled pending claims outstanding at the end of
the year.
Provided that, these amounts that are
shown as expenses during the year as profit shall
be included in the income of subsequent year.
(b) Sub-section (3) and (4) shall be deleted
(41) Of Section 61:
(a) The following Sub-clause (2) shall be substituted for Sub-clause
(2) of Clause (b) of Sub-section (2):
"(2) The premiums as referred to in Sub-clause (1) of Clause
(a) returned to the insured".


594
(b) The words "shall not be considered as expenses" shall be
Substituted for the words "shall be included in theexpenses"
contained in Sub-section (3).
(42) Of Section 63:
(a) The following proviso shall be inserted in Sub-section (1):
"Provided that, the Citizen Investment Fund established
under the Citizen Investment Fund Act, if it intends to maintain
a retirement fund, and the Employee Provident Fund established
under the Employee Provident Fund Act, 2019 (--), if it operates
a retirement fund, shall not be required to obtain permission for
such fund."
(b) The phrase " may make a claim for deduction in calculating his
income" shall be Substituted for the phrase "may make a claim
to deduct from the income" contained in Sub-section (2).
(43) The words "mentioned in Sub-section (1) of Section 2 of Schedule-1"
shall be Substituted for the words "applicable to companies" contained
in Sub-section (3) of Section 64.
(44) Of Section 65:
(a) The words "or the retirement payments made by Government of
Nepal" shall be inserted after the words "from the interest"
contained in the second line of Sub-section (1) of Section 65.
(b) The following proviso shall be inserted at the end of the
explanation:
"Provided that, the payment made from the non-
contributory fund of the beneficiary shall not be considered as


595
benefit received as an interest from the unapproved retirement
fund."
(45) The word "employment" shall be Substituted for the words "such
acts" contained in the first line of Sub-clause (2) of Clause (i) of Sub-
section (6) of Section 67.
(46) The following Clause (b) shall be Substituted for Clause (b) of the
explanation contained in Section 71:
“(b) "Average rate of tax of Nepal" means the rate to be set by
multiplying with One Hundred the amount to be set by dividing
the amount of tax payable by a person as referred to in Clause
(a) of Section 3 in any income year by the taxable income of that
person in that year prior to the adjustment of any foreign tax in
that year.”
(47) The following Sub-section (2) shall be substituted for Sub-section 92)
of Section 72:
“(2) The Government of Nepal may, by a notification in the
Nepal Gazette, establish large taxpayer offices or Inland
Revenue Offices or taxpayer service offices under the
Department and prescribe their working areas, in order to render
assistance to the Department in fulfilling its responsibilities
mentioned in Sub-section (1). The offices of which working
areas have been so specified shall be deemed as orgns of the
Department.”
(48) The following Sub-section (1) shall be substituted for Sub-section (1)
of Section 74:
"(1) The taxpayer shall perform the duties as mentioned in this Act."


596
(49) The following Sub-section (3) shall be inserted after Sub-section (2) of
Section 77:
"(3) The Department may prescribe to submit any information or
particular or document to be submitted by a person to the Department
through the electronic medium."
(50) Of Section 78:
(a) The following Sub-section (1) shall be Substituted for Sub-
section (1):
(1) The Department shall issue an identity number called
as permanent accounts number to any person for purposes of
identifying that person, Subject to this Act.
Provided that, a body having obtained approval from the
Department may give such permanent accounts number by
fulfilling the procedures referred to in this Act. Taxpayer
receiving permanent accounts number shall not do, in such
manner, the transaction of export and import up to the period
specified by the Department.
(51) Of Section 78:
(a) The following Sub-section (3) shall be Substituted for Sub-section (3):
(3) Department may specify the circumstances where any
person has to show or mention his/her permanent account
number.
(b) The following Sub-sections (4) and (5) shall be inserted after Sub-
section (3):


597
“(4) Notwithstanding anything contained in Sub-section
(1), any person specified pursuant to Sub-section (3) shall
obtain the permanent accounts number prior to doing
transactions.
(5) Notwithstanding anything contained in Sub-section
(1), (2), (3) or 4, no one shall be released from the liability of tax
by the reason that he has not obtained the permanent ccounts
number.”
(52) Of Section 81:
(a) The words “at least” contained in Sub-section (2) of
Section 81 shall be deleted.
(b) The following Sub-section (4) shall be inserted after
Sub-section (3):
"(4) The Department provides approval to maintain
documents through electronic medium which are to be
maintained pursuant to Sub-section (1)."
(53) The words “ the Department may prescribe to pay the tax, to be
so paid, also through the electronic medium.” words shall be
inserted after the word "and to be so paid" of the Sub-section
(1) Of Section 85:
(54) Of Section 88:
“(a) The word "service charge, commission or sale bonus and" shall
be Substituted for the words "in making payment servic charge
and if that person is an approved retirement fund, any"
contained in Sub-section (1), and the following provis shall be
Substituted for the proviso to that Sub-section:


598
Provided that, tax shall be withheld at the following rate
from the following payment:
(1) In the case of the retirement payment made by the
Government of Nepal or by the approved
retirement fund, at the Rate of Five percent from
the benefits calculated pursuant to Clause (b) of
Sub-section (1) of Section 65,
(2) In the case of the commission paid by a resident
employer company to a non-resident person, at the
rate of Five percent,
(3) In the case of payment of amount for aircraft lease,
at the rate of ten percent.
(4) In case of service provider resident person who
are registered in the Value Add Tax, on the
payment of service charge, at the rate of One point
Five (One and half) percent of the paid amount.”
(5) In the case of the rent paid by a resident person
having source in Nepal, at the rate of Ten percent,
(6) In the case of a person receiving profit and benefit
from the trade under commodity by future market,
at the rate of Ten percent.
(b) Clause (g) of Sub-section (1) of Section 88 shall be deleted.
(c) The following Sub-section (2) shall be substituted for Sub-section
(2):


599
"(2) A resident person shall, in making the following
payments having source in Nepal, withhold tax at the following
rate:
(a) In making payment of dividends, Five percent of
the payment amount,
(b) In making payment of investment insurance
benefits, Five percent of the payment amount,
(c) In making payment of benefits from an
unapproved retirement fund, Ten percent of the
amount of benefits".
(d) The following Sub-section (3) shall be Substituted for Sub-
section (3):
"(3) Notwithstanding anything contained in Sub-section
(1), in making payment of interest or of an amount in the form of
interest as follows by a resident bank, financial institution or
any other entity issuing bonds or a company registered under
the laws in force to any individual for deposits, bonds,
debentures and governmental bonds, tax shall be withheld from
the total amount of payment at the rate of Five percent:
(a) Which has source in Nepal, and
(b) Which is not related with the operation of
business."
(d) of Sub-section (4):
(1) The following Clauses (a1) shall be inserted after Clause (a) of
Sub-section (4):


600
"(a1) Payment for an article published in a newspaper and for
preparing question papers and examining answer books."
(2) The following Clause (d), (e) and (f) shall be inserted after
Clause (c) of Sub-section (4):
"(d) The interregional interchange fee paid to a bank issuing
credit card."
(e) Any interest or fee paid by the Government of Nepal to a
foreign government or a foreign organization pursuant to
an agreement between Government of Nepal and foreign
government or Government of Nepal and International
Organization.
(f) Payment of interest, Ten Thousand Rupees by Small
Finance Institution basis on rural community, Rural
Development Bank, Postal Saving Bank and collected
deposit income in finance pursuant to Sub-section (2) of
Section 11 of this Act."
(55) The following Section (88A) shall be inserted after S ction (88):
“88A. Withholding tax in windfall income: In a payment of
windfall income tax shall be levied at the rate of Twenty
Five percent.
Provided that, Government of Nepal may provide
exemption in the windfall income by publishing a
Notification in the Nepal Gazette on the national or
international awards received for contributing in the
sector of literature, art, culture, sports, journalism,
science, technology and public administration.”


601
(56) of section 89.
(a) The following Sub-section (1) shall be substituted for
Sub-section (1):
“(1) In making payment of a sum exceeding Fifty
Thousand Rupees for payment of contraction or contract
to a resident person it shall be withhold tax at the rate of
one and half percent of the total amount of payment.”
(b) The following Sub-clause (a), (b), (c) and (d)shall be
substituted for Sub-clause (a) and (b) of Sub-section (3):
“(a) Relating to service contraction or contract- Ten
percent.
(b) Aircraft maintenance and other contraction
or contract- Five percent.
(c) In making payment of premium to non-
resident insurance company- one and half
percent.
(d) Except as mentioned herein above, where
the Department has given a notice to
resident person in writing, at the rate
specified in that notice.”
(c) The following explanation shall be inserted in the Section 89:
" Explanation: For the purpose of this Section
"contraction or contract" means a contract or agreement
concluded to supply goods or labour or construction,
fixation or establishment of tangible property or structure


602
and any act prescribed by the Department as a
contraction or contract as well as it shall included the
payment made for a service rendered in case such service
is being included by the contraction or contract in the
course of construction or taxation or establishment."
(57) Section 89A. And 89B shall be deleted.
(58) Of Section 90:
(a) The following Sub-section (1) shall be substituted for Sub-
section (1):
"(1) Each person who is obliged to withhold tax has to
Submit to the Department a statement in such mode an format
as specified by the Department within Fifteen days fter the
expiration of each month."
(b) The phrase "in the following conditions, the person Subject to
tax withholding" shall be Substituted for the phrase "In cases
where the person withholding tax does not withhold or pay tax
as follows, both the person Subject to tax withholding"
contained in Sub-section (5).
(c) The following Sub-section (8) shall be inserted after Section (7):
"(8) In case a person does file details or pays tax
pursuant to Sub-section (1) or (2) or if the Department is
convinced that there is a situation of Sub-section (5) in relation
to a person, it may issue an order to submit the amount is not
submitted or less amount submitted and interest as referred to in
Section 119. Provided that, before issuing such an order, a
Fifteen days written notice along with reasons thereof, shall be
issued for defense enclosing the evidence and proofs."


603
(59) Of Sub-section (1) of Section 92:
(a) The following Clause (c) shall be substituted for Clause (c):
(c) Profit paid by a resident person for investment insurance,
(b) The following Clause (e) shall be substituted for Clause (e):
"(e) Interest as follows paid by a bank, financial institution or
any other entity issuing bonds or a company enlisted
pursuant to the laws in force, as mentioned in Sub-
section (3) of Section 88:
(1) Which has source in Nepal and which is not
related with the operation of business and paid to
an individual.
(2) Which is paid to an institution entitled to tax
exemption pursuant to Clause (d) of Section 2."
(c) The following Clauses (g) (h) and (i) shall be inserted after
Clause (f):
"(g) Payment for meeting allowance and part-time teaching."
(h) Retirement payment made by the Government of Nepal or
approved retirement fund or un-approved retirement fu d
including all types of retirement payments."
(i) Payment for windfall gain.
(60) The words "and advance tax" shall be inserted after the word
"installment" contained in chapter title of Chapter 18.
(61) Of Section 94:


604
(a) The following Sub-section (1) shall be substituted for Sub-
section (1):
"(1) A person who has or will have assessable income
in any income year from any business or investment has to pay
tax in Three installments as follows:
Date on which payment has to
be made
Amount to be paid
By the end of Poush (mid January) Amount of due and payable tax out of
Forty percent of the estimated tax
By the end of Chaitra (mid April) Amount of due and payable tax out of
Seventy percent of the estimated tax
By the end of Ashad (mid July) Amount of due and payable tax out of
Hundred percent of the estimated tax

Explanation: For the purposes of this Sub-section,-
(a) "Estimated tax" means the estimated tax in
installment computed by any person liable to pay
tax in installment pursuant to Section 95 at the time
when the installment tax is to be paid in any year.
(b) "Due and payable tax" means the amount that
remains shortfall after Subtracting the following
total sum from the amount to be set by the
percentage prescribed for payment of estimated tax
in installments under this Sub-section:


605
(1) The amount of tax paid in that income year
by a prior installment pursuant to this
Section before the date on which the
installment in question is to be paid,
(2) The amount of tax deducted from the
payments to be included in computing the
income of any person in any income year
pursuant to Chapter-17 before the date on
which the installment in question is to be
paid in that year,
(3) In cases where the agent withholding tax or
the person Subject to tax withholding pays
to the Department the amount of tax deemed
to be withheld from the payment referred to
in Clause (2) pursuant to Sub-section (3) of
Section 90 in that year before the date on
which the installment is to be paid, such
amount of tax, and
(4) The amount of tax adjustment for medical
treatment expenses which that person may
claim pursuant to Section 51 in respect of
the accepted medical treatment expenses
incurred by that person before the date on
which the installment is to be paid."
(b) The following words Sub-section (2) shall be Substituted for the
Sub-section (2)."


606
(2) Notwithstanding anything contained in sub-section
(1), in cases where the amount of installment to be paid pursuant
to that sub-section is less than Five Thousand Rupees, amount
of such installment need not to be paid.
(62) Of Section 95:
(a) The words "by the Department" shall be inserted after the
words "may be prescribed" contained in Sub-section (1).
(b) The words "or where it is so specified pursuant to Sub-section
(6) that any person is not required to Submit an estimate to pay
installment of tax" contained in Sub-section (7) shall be deleted.
(63) The following Section 95A. shall be inserted after Section 95:
“95A. To collect advance tax: (1) An entity operating the commodity
future market service shall collect advance tax in the sum to be set by
Ten percent on the profits and income earned by a person trading
under the commodity future market from that business.
(2) If any person other than a resident entity doing transaction
of purchase and sale of securities upon being regist red pursuant to
the laws in force is benefitted from the disposal of interest in any
resident entity, that person shall collect the advance tax as follows on
such benefit to be calculated pursuant to Section 37:
(a) In the case of benefit from the disposal of interest of an
entity enlisted in the Nepal Securities Board, the entity
performing the functions of the stock exchange, Ten
percent of amount of the benefit in the case of resident
natural persons and Fifteen percent of the amount of
benefit in the case of other persons.


607
(b) In the case of benefit from the disposal of interest of an
entity not enlisted in the Nepal Securities Board, the
entity of which benefit has been disposed shall make
deduction by Ten percent of the amount of benefit in the
case of resident natural persons and Fifteen percent of
the amount of benefit in the case of other persons.
(3) The Land Revenue Office shall collect the advance tax as
follows on the capital gain made for the disposal of the land or
personal building of any natural person:
(a) At the rate of Five percent if the ownership of
disposed non-business taxable property (land and
building) is for Five years or more,
(b) At the rate of Ten percent if the ownership of
disposed non-business taxable property (land and
building) is for less than Five years,
(4) Even though a person who is to collect advance tax
pursuant to Sub-sections (1), (2) and (3) has not collected the advance
tax, the tax shall be deemed to have been collected at the time when it
has to be recovered.
(5) A person who is to collect advance tax has to furnish the
returns with the Department in such manner and formas specified by
the Department within Twenty Five days of the expiration of every
month.
(6) The amount of the advance tax collected or the amount
deemed to have been collected pursuant to Clause (a) of Sub-section
(3) has to be furnished to the Department along with the returns as


608
referred to in Sub-section (5) within the time limit as referred to in that
Sub-section.
(7) The person who is to furnish the advance tax and the
person who is to collect advance tax shall be jointly and severally
responsible for payment of the advance tax in the following
circumstance:
(a) In the event of failure of the person who is to
collect advance tax to collect the advance tax, and
(b) In the event of failure of the person who is to
collect advance tax fails to pay the amount deemed
to have been collected pursuant to Sub-section (4)
to the Department.
(8) A person who is to pay the advance tax pursuant to Sub-
sections (7) has to pay the tax within Twenty Five days after the
expiration of the time limit set forth in Sub-section (5).
(9) If a person who is to collect advance tax has pid to the
advance tax not recovered to the Department pursuant to Sub-section
(6), the person shall be entitled to recover the amount equal to the
amount of tax so paid from the person who is to pay th t tax.
(10) A person who is to pay the advance tax that has been
paid pursuant to this Section shall be entitled to educt the same from
the annual tax liability to be paid."
(64) Of Sub-section (2) of Section 96:
(a) Sub-clauses (4) and (5) of Clause (a) shall be del ted.
(b) Sub-clause (1) of Clause (c) shall be deleted.


609
(65) Of Section 97:
(a) The words "except where the Department issues a written order
or issues order by publishing a public notice" shall be
Substituted for the words "except where the Departmen issues
a written order" contained in Sub-section (1) of Section 97.
(b) The word "or" contained at the end of Clause (b) shall be
deleted.
(c) The words “natural person or” shall be Substituted for the
words “natural person” contained at the end of Clause (c).
(d) The following Clause (d) shall be inserted after Clause (c):
"(d) If the motor vehicle owner making payment of tax
pursuant to Sub-section (11) of Section 1 of Schedule-1 is
an individual, such individual."
(66) The following Sub-section (2) shall be Substituted for Sub-section (2)
of Section 100:
"(2) Notwithstanding anything contained in Sub-section (1), in
the circumstances mentioned in Sub-section (5) of Section 96, the
Department may, base on the amounts mentioned in Sub-cla ses (1),
(2), and (3) of Clause (a) of Sub-section (2) of Section 96, for any
income year or any part of that year, assess the tax of hat person in a
justifiable manner."
(67) The word "Fifteen" shall be Substituted for the word "Seven"
contained in the fourth line of Sub-section (6) of Section 101.
(68) The word "Department" shall be Substituted for the words "Tax
Department" contained in Section 106.


610
(69) The following Section 110A. shall be inserted after Section 110:
“110A. Realization of tax by installment: Where any person makes a
written request for payment of his tax arrears by installment prior
to institution of case pursuant to Section 111, the Tax Officer
may give permission to pay the same by installment within a
reasonable period of time as specified by the Tax Officer.”
(70) The following Sub-section (3) shall be substituted for Sub-section (3)
of Section 113:
“(3) If any person makes an application to the Department, as
prescribed, for the refund of the amount pursuant to Sub-section (1),
such refund shall be made within Sixty days after the date on which
such application is made.”
(71) of Sub-section (1) of Section 114.
(a) The following Clauses (a1) shall be inserted after Clause (a):
"(a1) The decision or order made pursuant to Sub-section (8)
of Section 90.
(b) The words "assessment of expenses incurred in an auction sale
as referred to in Sub-section (5) of Section 105" shall be inserted
after the words "assessment of tax" contained in Clause (e) of
Sub-section (1) of Section 114.
(72) of Section 115:
(a) The word “total amount in case of undisputed tax and One Third
in case of disputed tax” shall be Substituted for the words “Fifty
percent of tax to be paid” contained in Sub-section (6).


611
(b) The word "Sixty" shall be Substituted for the word "Ninety"
contained in Sub-section (8).
(73) Of Section 117:
(a) The following Sub-section (1) shall be Substituted for Sub-
section (1):
"(1) If any person does not do the followings, such a
person shall be imposed fees as follows:-
(a) In case income details of any income year are not
submitted pursuant to Sub-section (1) of Section
95, at the rate of Two Thousand Rupees for each
detail.
(b) If any person withholding tax does not submit the
return referred to in Sub-section (5) of Section
95A, a fee in a sum to be set by one and a half
percent per year of the amount of tax to be
withheld for each month and portion of the month
from the due date for submission of the return until
the date on which such return is submitted shall be
imposed on such a person.
(c) In case income details of any income year are not
submitted pursuant to Sub-section (1) of Section
96, at the rate of One Hundred Rupees per month,
to a person as referred to in Sub-section (4) of
Section 4 of the Act and an amount which is
higher out of an amount, calculated in a case of
other person at the rate of 0.1 percent per annual
on the computable amount without deducting any


612
amount where one may deduct such an amount in
computing the income in that income year and
including such an amount which is to be included
on it or at the rate of One Hundred Rupees per
month, higher in those items."
(b) The following Sub-section (2) shall be Substituted for Sub-
Section (2) :
(2) If any person does not maintain the documents
required to be maintained in any income year pursuant to
Section 81, a fee in a sum to be set by one and a half percent per
year of the assessable income drawn out without deducting any
amount, if any, that can be deducted and by including any
amount, if any, that has to be included in computing he income
of any income year for each month and portion of the month or a
sum set by one Thousand Rupees per month, whichever is
higher, shall be imposed on such a person.
(74) The following Section 118 shall be Substituted for Section 118:
"118. Interest to be charged where the person making payment in
installments makes lesser payment of estimated tax: (1) In
cases where, in the case of the amount of installment to be paid
by any person under Section 94 in any income year, the amount
mentioned in Clause (b) is more than the amount mentioned in
Clause (a), interest shall be charged on such excess amount
pursuant to Sub-section (2):
(a) Amount of each installment paid by that person in
any income year,


613
(b) Eighty percent of the estimated or revised
estimated amount of total amount payable by
installments for each installment period in that
income year if such estimate or revised estimate is
correct and, if such estimated or revised estimated
amount is not correct, that of such amount, of the
total amount of tax to be paid by any person
referred to in Clauses (a) and (b) of Section 3, as is
to be paid in installment for each installment period
in any income year.
(2) An interest to be set by the normal rate of interest, for
each month and portion of the month, from the due date for
payment of the installment in that year to the following period
shall be imposed on the person referred to in Sub-section (1):
(a) In the case of a person in respect of whom tax is to
be assessed under Sub-section (1) of Section 99,
until the date for Submission of the income return,
(b) In the case of a person in respect of whom the
Department has made revised tax assessment for
the first time under Section 101 because of failure
to make tax assessment under Sub-section (1) of
Section 99, until the date on which a notice of that
revised tax assessment is delivered pursuant to
Section 102.
Explanation: For the purposes of this Section,
"amount payable by installment" means the
amount of installments calculated pursuant to Sub-
section (1) of Section 94 in the case of a taxpayer


614
who fails to Submit a revised estimate once an
estimate has been Submitted and in respect of
whom the Department has made estimate pursuant
to Sub-section (7) of Section 95 because of his
failure to Submit an estimate and calculated
pursuant to Sub-section (5) of Section 95 in the
case of a taxpayer Submits a revised estimate and
in respect of whom the Department has made
estimate pursuant to Sub-section (7) of Section 95
because of being unsatisfied with the Submitted
estimate or revised estimated."
(75) The following Sub-section (3) shall be Substituted for Sub-section (3)
Section 119:
(3) The person withholding tax pursuant to Sub-section (8) of
Section 95A or the person shall not be allowed to recover the interest
payable by him/her from the person withholding advance tax pursuant
to Sub-section (4) of Section 90.
(76) The following Section 119A. shall be inserted after Section 119.:
“119A. Fees to be charged: Except as otherwise provided in this Act, a
person who fails to observe any provision of this Act or the
Rules framed hereunder shall be liable to pay fees equivalent to
the fine specified pursuant to Section 128.”
(77) The words "in this Act" shall be Substituted for "Chapter-23"
contained in Section121:
(78) The following explanation shall be substituted for the explanation of
Section 124:


615
“Explanation: For purposes of this Section, "any information or
statement submitted to the Department" means any statement
submitted in writing to the Department or to the officer authorized by
the Department in the course of performing the duties pursuant to this
Act and includes the statement submitted as follows:
(a) Application, notice, description, complaint, deposition, or
other document submitted, prepared, given or furnished
pursuant to this Act,
(b) Document submitted to the Department or any officer of
the Department,
(c) Reply to any question asked by the Department or any
officer to any person, or
(d) Information given by any person who has reasonable
knowledge of the matter to be informed to the Department
or any officer through any other person.”
(79) The following Section 136A. shall be inserted after Section 136:
“136A. Provision of awarded: In case someone avoids or attempts to
avoid the tax liability as a whole or in part and if someone
informs the same along with evidence such a person shall may
be awarded equal to Twenty percent of the amount of the tax
assessable from the evidence submitted by such a person out of
the tax amount recovered on the basis of such information.
(80) Repeal : Section 3A and 66 shall be deleted.
(81) Amendment to Schedule-1:
(1) Of Section 1:


616
(a) The following Sub-section (1), (2), (3), (4), (5), (6) and (7)
shall be substituted for Sub-section (1), (2), (3), (4), (5), (6)
and (7) :
"(1) Tax shall be levied at the following rate on the
taxable income of any resident natural person in any
income year, subject to Sub-sections (2) and (4) of this
Schedule:-
(a) For the taxable income not exceeding One
Hundred Sixty Thousand Rupees on
employment, at the rate of One percent tax.
(b) Where the taxable income is more than One
Hundred Sixty Thousand Rupees but less
than Two Hundred Sixty Thousand Rupees,
pursuant to Clause (a), One Thousand Six
Hundred Rupees for upto One Hundred
Sixty Thousand Rupees and at the rate of
Fifteen percent if the taxable income is more
than One Hundred Sixty Thousand Rupees.
(c) Where the taxable income is more than Two
Hundred Sixty Thousand Rupees, pursuant
to Clause (b), Sixteen Thousand Rupees for
upto Two Hundred Sixty Thousand Rupees
and at the rate of Twenty Five percent if the
taxable income is more than Hundred Sixty
Thousand Rupees. and
(d) Where the taxable income is more than
Twenty Five Hundred Thousand Rupees,


617
pursuant to Clause (c), additional Forty
percent tax shall be levied.
Provided that, in the case of taxpayer
of a sole registered firm pursuant to Clause
(a), One percent tax shall not be levied.
(2) Tax shall be levied by the following rates on
the taxable income of any spouse making a choice
pursuant to Section 50 in any income year, subject to
sub-sections (4) of this Schedule:-
(a) One percent tax shall be levied on the
taxable income on employment not
exceeding Two Hundred Thousand Rupees.
(b) Where the taxable income is more than Two
Hundred Thousand Rupees but less than
Three Hundred Sixty Thousand Rupees,
pursuant to Clause (a), Two Hundred
Thousand Rupees for upto Two Thousand
Rupees and at the rate of Fifteen percent if
the taxable income is more than Two
Hundred Sixty Thousand Rupees.
(c) Where the taxable income is more than
Three Hundred Thousand Rupees,
pursuant to Clause (b), seventeen
Thousand Rupees for upto Three Hundred
Thousand Rupees and at the rate of Twenty
Five percent if the taxable income is more
than Three Hundred Thousand Rupees.


618
(d) Where the taxable income is more than
Twenty Five Hundred Thousand Rupees,
pursuant to Clause (c), additional Forty
percent tax shall be levied.
Provided that, in the case of taxpayer
of a sole registered firm pursuant to Clause
(a), One percent tax shall not be levied.
(3) The provision contained in sub-section (4) of
this Schedule shall apply in the following circumstances:-
(a) In the case of a resident natural person,
where the income is more than One
Hundred Sixty Thousand Rupees in any
income year or in the case of a resident
spouse who has not made a choice
pursuant to Section 50, where the income is
more than Two Hundred Thousand Rupees
in any income year, and
(b) Where the net profit derived from the
disposal of non-business taxable property
is included in the computation of the
income and corresponding taxable income
of that natural person or spouse.
(4) Tax shall be levied by the following rate on the
following person, subject to sub-section (3) of this
Schedule:-
(a) Tax shall be levied by the rate referred to in
sub-section (1) or (2) of this Schedule on


619
the amount whichever is higher out of the
following amounts, as if only it were the
taxable income of that natural person or
spouse:-
(1) The amount remaining balance after
subtracting the amount of profit from
the total taxable income of that
natural person or spouse, or
(2) One Hundred Sixty Thousand
Rupees, in the case of a natural
person, or Two Hundred Thousand
Rupees, in the case of a spouse.
(b) Tax shall be levied by ten percent on the
remaining amount of the taxable income.
Provided that,
(1) Tax shall be levied by Five percent
on Disposal of non-business taxable
property (land and building and land)
on more than Five years of
ownership.
(2) Tax shall be levied by Ten percent on
Disposal of non-business taxable
property (land and building and land)
on less than Five years of ownership.
(5) For the individuals working in the remote
areas specified by the Government of Nepal, a maximum


620
sum of Fifty Thousand Rupees shall, for the remote
allowance, be deducted from the taxable income, as
prescribed, and the tax shall then be calculated on the
remaining amount only, in accordance with this Section."
(6) For the employee working in the abroad
based diplomatic missions of the State of Nepal, Seventy
Five percent amount of their abroad allowance shall be
deducted from the taxable income, and the tax shall t en
be calculated on the remaining amount only, in
accordance with this Section."
(7) The amount of tax pursuant to sub-section
(4) of Section 4 of this Act shall be as follows:-
(a) In the case of a natural person carrying on a
business in the municipal corporation or
sub-municipal corporation area, Three
Thousand Five Hundred Rupees,
(b) In the case of a natural person carrying on a
business in the municipal area, Two
Thousand Rupees,
(c) In the case of a natural person carrying on a
business in any other place, One Thousand
Two Hundred Fifty Rupees."
(b) The following Sub-section (9), (10), (11),(12),(13),(14) and
(15) shall be inserted after Sub-section (8 ):
(9) Notwithstanding anything contained elsewhere
in this Section, in cases where any resident natural


621
person has a pension income, tax shall be computed
pursuant to this Section only on the amount remaining
balance after subtracting an additional twenty-five
percent of the amount mentioned in clause (a) of Sub-
section (1) for the natural person or in clause (a) of Sub-
section (2) for the spouse from the taxable income. But
the threshold of such reducing amount will not be more
than as prescribed.
“(10) Notwithstanding anything contained
elsewhere in this Section, where any resident natural
person is the disabled, additional Fifty percent of the
amount mentioned in Clause (a) of Sub-section (1) for
such individual and in Clause (a) of Sub-section (2) for
spouse shall be deducted from the taxable income, and
the tax shall then be calculated on the remaining amount
only, in accordance with this Section.”
(11) Notwithstanding anything contained
elsewhere in this Section, if resident natural person is a
woman whose taxable income mentioned in labour, such
person shall be exempt Ten percent from the taxable
amount."
(12) Notwithstanding anything contained
elsewhere in this Section, where any resident indivdual
has procured an insurance business, the amount to be set
by investment insurance or Twenty Thousand Rupees,
whichever is lesser, out of the premium paid for the same,
shall be deducted from the taxable income, and the tax


622
shall then be calculated on the remaining amount only, in
accordance with this Section.
(13) Notwithstanding anything contained
elsewhere in this Section, the owners of vehicles on hire
shall pay annual tax at the following rates. If theowner of
vehicle is an individual, the tax so paid shall be final and
binding.
Category of vehicles Annual tax payable
per vehicle
(a) Mini-bus, mini-truck, truck and bus Rs. 1,500/-
(b) Car, jeep, van and microbus Rs.1,200/-
(c) Three wheeler, auto-rickshaw, tempo Rs. 850/-
(d) Tractor and power tiller Rs. 750/-
(14) Notwithstanding anything contained
elsewhere in this Section, if an individual is fully engaged
in the operation of a special industry mentioned in
Section 11 of this Act throughout any year, in calculating
tax pursuant to this Section, tax shall be charged by
Twenty percent of the taxable income, instead of Twenty
Five percent thereof.
(15) Tax shall be charged at the rate of Fifteen
percent on the taxable income, instead of Twenty Five
percent if it is earned by a natural person from exports in
any income year."
(2) of Section (2):


623
(a) The words “cigarette, Bidi, cigar, chewing tobacco, Khaini,
liquors, beer” shall be inserted after the words “in any income
year” contained in Sub-section (2).
(b) The following Clause (b) shall be substituted for Clause (b) of
Sub-section (3):
"(b) In cases where the entity,
(1) Builds and operates any road, bridge, tunnel,
ropeway or sky-bridge, or
Explanation:Ropeway includes cablekar
constructed for the purpose for carrying goods or
movement of the people .
(2) Operates any trolley bus or tram, or"
(3) Any co-operative so transacting except the
co-operatives which is registered pursuant to Co-
operatives Act, 2048 and enjoying tax exemption in
its transaction.
(c) The following Sub-section (3a) shall be inserted after Sub-
section (3):
"(3a) Tax shall be levied by twenty percent on the
taxable income earned by any entity, through its source in
Nepal, from exports in any income year."
(d) The following Sub-section (5) shall be substituted for Sub-
section (5):


624
"(5) Tax shall be levied, pursuant to Sub-sections (1)
and (4) of Section 1 of this Schedule, on the taxable income of a
trust acquiring or looking after the property belonging to any
deceased resident person or of a disabled resident individual in
any income year as if the one who acquires or looks after or that
trust money or trust resident were an individual."
(e) The word "Five" shall be Substituted for "Ten" of Sub-section
(3):
(f) The following Sub-section (7) shall be substituted for Sub-
section (7):
“(7) Tax shall be levied by Five percent on the taxable
income of any non-resident person in relation to the income
referred to in Section 70 in any income year.
Provided that, in the case of a non-resident person
providing telecommunication, air transport or water ransport
service, which does not so depart from the State of Nepal that it
has destination in a foreign country, tax shall be evied by two
percent."
(2) Of Schedule-2:
(a) The words "Sub-section (5)" shall be substituted for "Section
(5) contained in Clause (b) of Sub-section (3) of Section (2) :
(b) The following Sub-sections (3) and (4) shall be inserted after
Sub-section (3):
(3) The production oriented industries which have
capitalized capital amount from its property to generate
power (urjashakti) required for such industry shall be


625
entitled to claim the Fifty percent depreciation in same
year.
(4) If a person issues receipts (bills) installing fiscal printer
and cash machine, he/she may claim the total amount
invested on such machines as depreciation in the sam
year.
(34) Amendment of Industrial Enterprises Act, 2049 (1992) : (1) Clause (a) of
Section 15 of the Industrial Enterprises Act, 2049 (1 92) shall be
deleted.
(35) Prevalence of Amendment and appeal: Notwithstanding anything
contained in the prevailing laws, the provisions amended and repealed
(deleted) of this Act shall be amended and repealed upto fiscal year
2066/067 and after the expiry of that period, such provisions shall ipso
facto deem to be received.
(36) Inoperativeness of the Finance Ordinance: (1) Finance Ordinance, 2067
(2010) which in force before at the time of commencement of this Act
shall be ipso facto deemed to be inoperative.
(2) With the Finance Ordinance, 2062 (2005) being inoperative,
unless a different intention appears, the inoperativeness shall not:
(a) revive anything not in force or existing at the time at
which the Ordinance became inoperative;
(b) affect the matter in operation as per the Ordinance or
anything duly done or any punishment suffered
thereunder;
(c) affect any right, privilege, obligation or liability acquired,
accrued or incurred under the Ordinance;


626
(d) affect any penalty, punishment or forfeiture incurred
under the Ordinance;
(e) affect any action or remedy made or taken in respect of
any such right, privilege, obligation, liability, penalty or
punishment as aforesaid Clause (a), (b), (c) and (d) ; and
any such legal proceeding or remedy may be instituted,
continued or enforced as if the Ordinance were in force.