What is capital gain tax in Nepal?

Capital gains tax in Nepal is a tax levied on profits earned from the sale of capital assets like property, shares, and other investments. It is calculated as the difference between the sale price and the purchase price of an asset. The tax applies when an asset is sold for more than it was purchased for. Capital gains tax is only triggered when an asset is actually sold, not while it is held by the investor.

How to calculate capital gain tax?

To calculate capital gains tax in Nepal:

1. 1. Determine the sale price of the asset

1. 1. Subtract the purchase price (cost basis)

1. 1. The difference is the capital gain

1. 1. Apply the applicable tax rate to the capital gain amount

For example, if shares are bought for Rs. 100,000 and sold for Rs. 150,000: Capital gain = Rs. 150,000 – Rs. 100,000 = Rs. 50,000 Capital gains tax = Rs. 50,000 x applicable tax rate

What is the capital gain tax rate?

Capital gains tax rates in Nepal vary based on the type of asset and holding period:

• • Listed company shares held by individuals: 5%

• • Unlisted company shares held by individuals: 10%

• • Shares held by entities: 10-15%

• • Land/building owned <5 years: 5%

• • Land/building owned >5 years: 2.5%

• • Other assets: 10-15%

The rates are lower for assets held longer-term to incentivize investment.

How to file capital gain tax returns?

To file capital gains tax returns in Nepal:

1. 1. Calculate the capital gain for each asset sold during the tax year

1. 1. Complete Form No. 9 – Capital Gains Tax Return

1. 1. Attach supporting documents like purchase/sale agreements

1. 1. Submit the return to your local tax office within 3 months of the end of the fiscal year

1. 1. Pay any tax due at the time of filing

For shares sold through brokers, tax is withheld automatically. For other assets, you must calculate and pay the tax yourself when filing.

Are there exemptions for capital gain tax?

Some key capital gains tax exemptions in Nepal include:

• • Sale of personal residential property owned and occupied for over 10 years

• • Agricultural land used for farming

• • Gains up to Rs. 300,000 per year for individuals

• • Reinvestment of gains in residential property within 2 years

• • Transfer of assets between spouses or to children

• • Gains on sale of government bonds and securities

• • Disposal of assets through inheritance

However, exemptions are limited and most capital gains are taxable. Consult a tax advisor regarding specific situations.

How does capital gain tax apply to property sales?

For property sales in Nepal, capital gains tax applies as follows:

• • Tax is levied on the difference between sale price and purchase price

• • Rate is 5% if property owned less than 5 years

• • Rate is 2.5% if owned more than 5 years

• • Exemption for personal residence owned/occupied over 10 years

• • Tax withheld by land registration office at time of sale

• • Seller must file capital gains tax return and pay any additional tax due

• • Allowable deductions include improvement costs, brokerage fees

• • Losses on property sales can offset gains on other properties

Proper documentation of purchase price and improvement costs is important to accurately calculate the taxable gain.

Is capital gain tax applicable on shares?

Yes, capital gains tax is applicable on shares in Nepal:

• • For shares listed on Nepal Stock Exchange:
    

     

    • • 5% tax rate for resident individuals
    • • 10% for other entities

• • For unlisted shares:
    

     

    • • 10% tax rate for resident individuals
    • • 15% for other entities

• • Tax is withheld automatically by brokers when shares are sold

• • Gains/losses are calculated separately for each sale transaction

• • Short-term and long-term gains are taxed at the same rates

• • Losses on share sales can be offset against other share gains

Proper record keeping of purchase prices and dates is important for accurate tax calculation.

How to pay capital gain tax?

To pay capital gains tax in Nepal:

1. 1. For property sales: Tax is withheld by the land registration office at the time of sale

1. 1. For listed shares: Tax is automatically withheld by stockbrokers when shares are sold

1. 1. For other assets:
      1. Calculate the tax due when filing your annual tax return
      1. Pay the tax at designated banks or through online banking
      1. Use voucher form obtained from Inland Revenue Department

       

      1. 1. Keep payment receipt as proof

1. 1. If tax withheld exceeds final liability, claim refund in annual tax return

1. 1. Pay any additional tax due within 3 months of fiscal year end

Timely payment is important to avoid penalties and interest charges.

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What are allowable deductions for capital gain tax?

Allowable deductions for capital gains tax in Nepal include:

1. 1. Original purchase price of the asset

1. 1. Stamp duty and registration fees paid

1. 1. Legal fees related to purchase/sale

1. 1. Brokerage fees for shares/property

1. 1. Cost of improvements to property

1. 1. Advertising costs for sale

1. 1. Valuation fees

1. 1. Repair and maintenance costs for rental properties

1. 1. Depreciation claimed (added back to cost base)

1. 1. Inheritance tax paid on inherited assets

Proper documentation is required to claim these deductions. Some personal expenses like mortgage interest are not deductible. Consult a tax professional for guidance on allowable deductions in specific situations.

Are there penalties for not paying capital gain tax?

Yes, there are penalties for not paying capital gains tax in Nepal:

1. 1. Late payment interest of 15% per annum

1. 1. Late filing fee of 0.1% of tax due per day

1. 1. Penalty of 50% of tax evaded for underreporting

1. 1. Penalty of 100% of tax for fraudulent evasion

1. 1. Possible criminal prosecution for large-scale evasion

1. 1. Withholding of services like property registration

1. 1. Freezing of bank accounts in severe cases

1. 1. Penalties also apply for late/non-filing of returns

The tax authority conducts audits to detect non-compliance. Voluntary disclosure and payment of overdue taxes can reduce penalties. It’s advisable to pay capital gains tax on time to avoid these consequences.

What is the tax rate for long-term capital gains?

In Nepal, the tax rates for long-term capital gains are:

1. 1. For listed company shares held by individuals: 5%

1. 1. For unlisted company shares held by individuals: 10%

1. 1. For land and buildings owned for more than 5 years: 2.5%

1. 1. For other assets held by entities: 15%

The tax system does not have significantly lower rates for long-term gains compared to short-term gains. However, the rates for property are lower if held longer than 5 years to incentivize longer-term investment. There is no separate category for “long-term” gains as in some other countries.

How to reduce capital gain tax liability?

To reduce capital gains tax liability in Nepal:

1. 1. Hold assets for longer periods to qualify for lower rates

1. 1. Use the Rs. 300,000 annual exemption for individuals

1. 1. Offset capital gains with capital losses

1. 1. Reinvest property sale proceeds in new property within 2 years

1. 1. Invest in tax-exempt government bonds and securities

1. 1. Donate appreciated assets to charity for a tax deduction

1. 1. Use installment sales to spread gains over multiple years

1. 1. Transfer assets to spouse/children to utilize their basic exemption

1. 1. Invest through tax-advantaged retirement accounts

1. 1. Properly document all deductible expenses and improvement costs

Consult a tax advisor to determine the most appropriate strategies for your specific situation while staying compliant with tax laws.

How are foreign capital gains taxed?

Foreign capital gains are taxed for Nepal residents as follows:

1. 1. Residents are taxed on worldwide income, including foreign capital gains

1. 1. Gains must be reported on annual tax returns

1. 1. Tax rates are the same as for domestic capital gains

1. 1. Foreign currency gains are also taxable

1. 1. Foreign tax credit available for taxes paid abroad

1. 1. Supporting documents required to claim foreign tax credit

1. 1. Gains from foreign real estate and shares are taxable

1. 1. Special rules may apply under tax treaties

1. 1. Non-residents generally not taxed on foreign capital gains

1. 1. Professional advice recommended for complex situations

Proper reporting of foreign capital gains is important to avoid penalties. Currency conversion and timing issues can complicate calculations for foreign assets.

What is the capital gain tax on inherited property?

Capital gains tax on inherited property in Nepal works as follows:

1. 1. No immediate tax on inheritance itself

1. 1. Tax applies when inherited property is later sold

1. 1. Cost basis is fair market value at time of inheritance

1. 1. Holding period starts from date of inheritance

1. 1. Normal capital gains tax rates apply on sale

1. 1. 5% if sold within 5 years of inheritance

1. 1. 2.5% if sold after 5 years of inheritance

1. 1. Exemption if property was deceased’s residence for 10+ years

1. 1. Losses on sale can offset other capital gains

1. 1. Proper valuation at time of inheritance is important

Documenting the property’s value when inherited is crucial for accurate tax calculation later. Consult a tax professional for guidance on complex inheritance situations.

What is the holding period for capital gains?

The holding period for capital gains in Nepal is:

1. 1. No distinction between short-term and long-term for most assets

1. 1. For land and buildings:
      1. Less than 5 years: 5% tax rate

       

      1. 1. More than 5 years: 2.5% tax rate

1. 1. For shares and other assets: Same rate regardless of holding period

1. 1. Holding period starts from date of acquisition

1. 1. For inherited assets, holding period starts from date of inheritance

1. 1. For property, improvements reset holding period for that portion

1. 1. Partial sales use first-in-first-out (FIFO) method

1. 1. Holding period does not affect taxability, only rate for property

1. 1. No preferential treatment for long-term holdings except property

1. 1. Accurate records of purchase dates are important

Unlike some countries, Nepal does not have significantly lower rates for assets held long-term, except for real estate.

Capital Gain Tax in Nepal

Q1: What is Capital Gain Tax in Nepal?

A1: It’s a tax on profits from the sale of capital assets like property or shares.

Q2: What is the Capital Gain Tax rate in Nepal?

A2: The rate varies, typically 5-10% for individuals and 25% for entities.

Q3: When is Capital Gain Tax paid in Nepal?

A3: It’s paid when a capital asset is sold or transferred for a profit.

Q4: Are there exemptions from Capital Gain Tax in Nepal?

A4: Yes, some exemptions exist for primary residences and certain investments.

Q5: How is Capital Gain calculated for tax purposes in Nepal?

A5: It’s calculated as the difference between the selling price and the purchase price plus improvements.