The income tax system in Nepal is administered by the Inland Revenue Department (IRD) under the Ministry of Finance. The system is designed to generate revenue for the government and to ensure that individuals and businesses are contributing their fair share. The tax system is based on a progressive tax structure, which means that individuals and businesses are taxed at increasing rates as their income increases. This is intended to ensure that those who earn more contribute a greater proportion of their income to the government.
In the fiscal year 2079/80 (2022-23), the tax threshold slabs have been updated as per the budget speech. The updated tax rates and rules apply to both individuals and couples as well as businesses.
- For individuals and couples, the updated tax rates range from 1% to 36%.
- For businesses, the tax rate is 30% on net profit, with some exceptions for certain industries and small businesses.
It’s important to note that there are a number of deductions and allowances available to taxpayers, including deductions for charitable donations and contributions to pension schemes. Taxpayers are encouraged to take advantage of these deductions to minimize their tax liability.
Tax Rates (FY 2079-80)
| Tax Banding | Income | Income Tax Rates |
|---|---|---|
| Unmarried person | 2022-23 (FY 2079-80) | |
| (a) Band 1 | First 500,000 | 1%* |
| (b) Band 2 | Next 200,000 | 10% |
| (c) Band 3 | Next 300,000 | 20% |
| (d) Band 4 | Next 10,00,000 | 30% |
| (e) Additional Tax | Remaining above 2,000,000 | 36%** |
| Married Person | ||
| (a) Band 1 | First 600,000 | 1%* |
| (b) Band 2 | Next 200,000 | 10% |
| (c) Band 3 | Next 300,000 | 20% |
| (d) Band 4 | Next 10,00,000 | 30% |
| (e) Additional Tax | Remaining above 2,000,000 | 36%** |
Example Calculation:
Based on the tax rates for an unmarried individual in the fiscal year 2079/80, if you have a total salary of Nrs. 7,50,000, your tax liability will be calculated as follows:
- First NPR. 5,00,000 at 1% = NPR. 5,000
- Next NPR. 2,00,000 at 10% = NPR. 20,000
- Remaining NPR. 50,000 at 20% = NPR. 10,000
- Total Tax = Nrs. 5,000 + Nrs. 20,000 + Nrs. 10,000 = Nrs. 35,000
Therefore, your tax liability for a total salary of NPR. 7,50,000 as an unmarried individual would be Nrs. 35,000.
Also read: How to make Dollar Card in Nepal
Tax for Freelancers, YouTubers, Contractors or Full Time Employees of Foreign Companies:
“If any person receives payment in foreign currency for providing software or similar other electronic facilities outside Nepal, BFIs and Money Transfers shall deduct advance tax of 1%.”
This includes revenue from Google Ads, YouTube, Websites, In-app Ads, Freelancing platforms like Upwork, Fiverr and income from working in foreign companies remotely where all payments are made in foreign currencies.
Overall, the income tax system in Nepal is designed to ensure that individuals and businesses are contributing their fair share to the government. The recent updates to tax rates and rules are intended to ensure that the system remains fair and equitable for all taxpayers. In the context of freelancers, contractors and full time employees of companies abroad who receive salary in foreign currency, the current 1% tax might increase in the future.
