What is the income tax rate in Nepal?

Nepal has a progressive income tax system with rates ranging from 1% to 36% for individuals. For the 2023/24 tax year, the rates for individuals are: 1% on income up to NPR 500,000 10% on income from NPR 500,001 to 700,000 20% on income from NPR 700,001 to 1,000,000
30% on income from NPR 1,000,001 to 2,000,000 36% on income over NPR 2,000,000

The general corporate tax rate is 25%, with some industries like banks and telecoms taxed at 30%.

How to calculate income tax in Nepal?

To calculate income tax in Nepal:

1. 1. Determine your total taxable income for the year

1. 1. Subtract any allowable deductions and exemptions

1. 1. Apply the progressive tax rates to each income bracket

1. 1. Sum up the tax amounts for each bracket

1. 1. Add any applicable surcharges or additional taxes

1. 1. Subtract any tax credits you’re eligible for

The final amount is your total income tax payable. Tax software or an accountant can help ensure accurate calculations based on your specific situation.

Are there different income tax rates?

Yes, Nepal has different income tax rates for various categories:

Individuals: Progressive rates from 1-36% Couples: Slightly higher thresholds for each tax bracket Corporations: Generally 25%, with 30% for certain industries Non-resident individuals: Flat 25% on Nepal-sourced income Cooperatives: 5-20% depending on location and type Special industries: Reduced rates of 20% Export income: 15-20% rates Foreign companies: 5% on repatriated income

The applicable rate depends on the taxpayer’s classification and nature of income.

How to find the latest income tax rates?

To find the latest income tax rates in Nepal:

1. 1. Check the Inland Revenue Department (IRD) website (ird.gov.np)

1. 1. Review the most recent Finance Act passed by Parliament

1. 1. Consult tax guides published by accounting firms

1. 1. Subscribe to IRD email notifications

1. 1. Follow reputable Nepali financial news sources

1. 1. Speak with a certified tax professional

The rates are typically announced in the annual budget speech and formalized in the Finance Act. Staying informed through official channels ensures you have the most up-to-date information for tax planning.

What is the tax rate for individuals?

The individual income tax rates in Nepal for 2023/24 are:

1% on first NPR 500,000 10% on next NPR 200,000 (500,001 to 700,000) 20% on next NPR 300,000 (700,001 to 1,000,000) 30% on next NPR 1,000,000 (1,000,001 to 2,000,000) 36% on income above NPR 2,000,000

These rates apply to resident individuals. Non-residents are taxed at a flat 25% rate. Couples can opt for joint filing with slightly higher thresholds. Some deductions and credits may apply to reduce taxable income or tax liability.

What is the corporate income tax rate?

The standard corporate income tax rate in Nepal is 25%. However, certain industries face a higher rate of 30%, including:

• • Banks and financial institutions

• • General insurance companies

• • Telecommunication and internet service providers

• • Money transfer businesses

• • Capital market businesses

• • Petroleum companies

Some businesses may qualify for reduced rates, such as:

• • Special industries: 20%

• • Export income: 20%

• • Hydropower companies: 20%

Additional surcharges or incentives may apply based on factors like location, employment, and investment amount.

Are there reduced rates for senior citizens?

Nepal does not have specific reduced income tax rates for senior citizens. However, there are some tax benefits available to elderly taxpayers:

1. 1. Higher basic exemption limit of NPR 450,000 (vs. NPR 400,000 for others)

1. 1. Full exemption on pension income up to NPR 500,000

1. 1. Additional deduction of NPR 100,000 for medical expenses

1. 1. Tax-free interest income up to NPR 25,000 from savings accounts

These provisions aim to provide some tax relief to senior citizens, though the standard progressive tax rates still apply to their taxable income above the exemption thresholds.

Read More:

• Tax Exemption in Nepal
• Tax Office in Nepal
• Tax Rates in Nepal

How does income tax apply to NRNs?

Income tax for Non-Resident Nepalis (NRNs) applies as follows:

1. 1. Flat tax rate of 25% on Nepal-sourced income

1. 1. Taxed only on income earned or received in Nepal

1. 1. Must file returns if staying in Nepal for 183+ days in a year

1. 1. Double taxation relief available through tax treaties

1. 1. Remittance of foreign income to Nepal is tax-free

1. 1. NRN tax status valid for 10 years after leaving Nepal

1. 1. Special provisions for NRN investments in certain sectors

NRNs should maintain proper documentation of their residency status and income sources to ensure correct tax treatment.

How are income tax brackets determined?

Income tax brackets in Nepal are determined through the following process:

1. 1. The Ministry of Finance proposes bracket adjustments in the annual budget.

1. 1. Parliament debates and approves the brackets in the Finance Act.

1. 1. Economic factors like inflation and income growth are considered.

1. 1. Policy goals such as revenue targets and income redistribution influence decisions.

1. 1. International comparisons and expert recommendations may be factored in.

1. 1. Brackets are typically reviewed annually but may remain unchanged for several years.

1. 1. The Inland Revenue Department implements the approved brackets.

The goal is to balance fair taxation, economic growth, and government revenue needs when setting the brackets.

Is Nepal’s Income Tax Rate Progressive?

Yes, Nepal’s income tax rate structure for individuals is progressive. This means that as taxable income increases, it is subject to progressively higher tax rates. The system divides income into brackets, each taxed at a higher percentage. For example, in 2023/24:

• • 1% on first NPR 500,000

• • 10% on next NPR 200,000

• • 20% on next NPR 300,000

• • 30% on next NPR 1,000,000

• • 36% on income above NPR 2,000,000

This progressive structure aims to ensure that those with higher incomes contribute a larger proportion of their earnings in taxes, promoting vertical equity in the tax system.

How often do income tax rates change in Nepal?

Income tax rates in Nepal typically change annually, but significant revisions are less frequent. The process usually follows this pattern:

1. 1. Rates are reviewed during annual budget preparations

1. 1. Changes are proposed in the budget speech (usually May/June)

1. 1. Parliament debates and approves changes in the Finance Act

1. 1. New rates take effect from the start of the fiscal year (mid-July)

While minor adjustments to thresholds or specific provisions occur most years, major structural changes to the tax rates are less common, often happening every few years. Economic conditions, political priorities, and revenue needs influence the frequency and extent of changes.

Are bonuses taxable in Nepal?

Yes, bonuses are taxable in Nepal. They are treated as part of employment income and taxed as follows:

1. 1. Added to regular salary for determining the applicable tax bracket

1. 1. Taxed at the employee’s marginal tax rate

1. 1. Subject to withholding tax by the employer

1. 1. Must be reported on the annual tax return

1. 1. Social Security Fund contributions may apply

1. 1. No special lower rate for bonuses (unlike some countries)

1. 1. Non-cash bonuses are valued at fair market value for tax purposes

Employers must ensure proper withholding and reporting of bonus payments. Employees should factor in bonus income when estimating their annual tax liability.

What is the tax rate for dividends?

The dividend tax rate in Nepal is generally 5%. Key points include:

1. 1. Applies to dividends from resident companies and partnerships

1. 1. Withheld at source by the distributing entity

1. 1. Final tax for resident individuals (no further tax obligation)

1. 1. Credited against total tax liability for resident entities

1. 1. Exempt if distributed by one resident company to another (with some conditions)

1. 1. 5% rate also applies to dividends from mutual funds

1. 1. Non-resident recipients may be subject to different rates based on tax treaties

This relatively low rate on dividends aims to encourage investment and avoid double taxation of corporate profits.

How are foreign incomes taxed?

Foreign incomes of Nepali residents are taxed as follows:

1. 1. Worldwide income principle applies

1. 1. Foreign-sourced income included in total taxable income

1. 1. Taxed at regular progressive rates for individuals

1. 1. Standard corporate rate applies for companies

1. 1. Foreign tax credit available to avoid double taxation

1. 1. Credit limited to Nepal’s tax rate on that income

1. 1. Unilateral relief provided even without tax treaties

1. 1. Some exemptions for foreign-earned income of non-resident Nepalis

1. 1. Special rules for controlled foreign corporations

Proper documentation of foreign income and taxes paid is crucial for claiming credits and ensuring compliance with Nepal’s tax laws.

Are there income tax exemptions?

Yes, Nepal offers various income tax exemptions, including:

1. 1. Basic exemption limit (NPR 500,000 for individuals, NPR 600,000 for couples)

1. 1. Agricultural income for natural persons

1. 1. Income of diplomatic missions and their staff

1. 1. Certain types of interest income (e.g., on National Savings Certificates)

1. 1. Dividends received by one resident company from another

1. 1. Income of approved charitable organizations

1. 1. Pension income up to NPR 500,000 for senior citizens

1. 1. Exemptions for certain industries in underdeveloped areas

1. 1. Income from exports (partial exemption)

1. 1. Remittances from Non-Resident Nepalis

These exemptions aim to promote specific economic activities, support vulnerable groups, and align with international agreements. Taxpayers should consult the latest regulations to confirm their eligibility for exemptions.

Income Tax Rate in Nepal

Q1: What are the current income tax rates in Nepal?

A1: Income tax rates in Nepal range from 1% to 36%, depending on income level and taxpayer category.

Q2: Is there a flat tax rate for businesses in Nepal?

A2: No, businesses in Nepal are subject to progressive tax rates based on their annual turnover.

Q3: Are there different tax rates for residents and non-residents?

A3: Yes, non-residents may be subject to different tax rates or withholding taxes in Nepal.

Q4: How often do income tax rates change in Nepal?

A4: Income tax rates in Nepal may change annually with the budget announcement.

Q5: Are there special tax rates for certain industries?

A5: Yes, some industries like agriculture and tourism may have special tax rates or incentives.