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WHT, Advance Tax, Important Notes extracted from PP & Final Vs Advance

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Amended by Finance Act, 2080/81

Rate of Sec. FWP

S.N. Payments Nature of Payment TDS (u/s 92)
-2080/81
Slab rate,
Payment to Employees including Pension but monthly 87
excluding Retirement Payments basis
Slab rate,
Meeting allowance in excess of Rs. 20k per meeting monthly 87
paid to employees basis
Slab rate,
1 Employment Payment of any types of commission & sales monthly 87
Service Fee incentives to employees basis
Slab rate,
Payment for part time teachers excluding occasional monthly 87
lecture fee basis
Slab rate,
RP to employee by employer (GON or other) but in monthly 87
regular basis ( like pension) basis
Payment of setting question paper & checking answer 15% 88 FWP
sheets to employee
Meeting allowance up to Rs. 20k per meeting paid to 15% 88 FWP
employees
Exempt retirement payments (Gratuity, leave
encashment accrued up to 18 th Chaitra 2058 and No TDS
medical treatment expenditure up to Rs. 180k)
RP to Employees - by GON 5% on 88 FWP
gain
RP to Employees - by other than GON 15% 88 FWP
Tax Exempt Interest No TDS
Interest paid to resident BAFIs No TDS
Interest paid to foreign BAFIs for foreign currency
loan to be taken by hydro-electricity projects based on
reservoirs or semi-reservoirs with capacity more than 5%
200 MW that completes financial closure within
Chaitra end, 2082 B.S.
Interest paid for inter-cooperative lending (only on
2 Interest loan among cooperative bank or society or union) No TDS
Interest paid to Foreign Banks for foreign currency FWP

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loan obtained by resident BAFIs for the purpose of 10% 88

investment in the sectors prescribed by NRB
Interest paid to Natural Person other than
conducting business by BAFIAs, Cooperatives, 6% 88 FWP
Listed entity & Entity Issuing Debenture
Interest paid to Natural Person other than conducting 15% 88
business by others
Interest paid to Sole Proprietorship Business by any 15% 88
person
Interest paid to Entity by any person 15% 88
Interest paid to Tax Exempt Organization by BAFIs,
Cooperatives, Listed entity & Entity Issuing Debenture 15% 88 FWP
Interest paid by BAFIAs on deposit of Resident Life 5% 88
Insurance Company
House Rent to Natural Person other than conducting No TDS
business
Land Rent to Natural Person other than conducting 10% 88 FWP
business
House rent & Land rent to natural person with 10% 88
business (to Proprietorship)
Vehicle Rent paid to natural person other than 10% 88 FWP
3 Rent
conducting business
Vehicle Rent/ Vehicle service paid to others without 10% 88
VAT bill
Making payment to a person for providing 1.5% 88
➢ transport services or
➢ rental of transport vehicle if the service provider is
registered in VAT.
In a payment for carriage service or rent payment for 2.5% 88 FWP
carriage service
Payment for Lease of Aircraft 10% 88
Payment for use of satellite, radio, optical fiber,
telecommunication equipment or electricity 10% 88
transmission line
Rent paid for participation in exhibition outside No TDS
Nepal
Rent paid to Approved Retirement fund (this is not 10% 88
exempt income of ARF - IRD Circular)
For all other cases of payment of rent 10% 88
Natural For All cases of payment of Natural Resource
Resource Payment
4 Payment 15% 88
Payment for user right for software (IRD Circular to 15% 88
Nepal Clearing House Ltd.)

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Payment for articles (Lekh, Rachana) publised in No TDS

5 Royalty newspapers
Payment for articles to resident person (Lekh,
Rachana) other than published in newspapers 1.5% 88
Payment for articles to non-resident person (Lekh,
Rachana) other than published in newspapers 15% 88 FWP
For all other cases of payment of royalty 15% 88
If dividend income is exempt (section 11 gives list of No TDS
6 exempt dividend)
Dividend Payment of dividend by resident company or 5% 88 FWP
partnership
Payment of dividend by other resident entity (this is No TDS
exempt)
Meeting allowance up to Rs. 20k per meeting paid to 15% 88 FWP
non-employees
Meeting allowance in excess of Rs. 20k per meeting 15% 88
paid to non-employees
Payment of service fees which are VAT Exempted 1.5% 88
7 Service Fees services
Payment for Service Fees with VAT bills 1.5% 88
Payment of registration fee, tuition fee and
examination fee paid to Foreign schools or 5% 88 FWP
universities.
Payment of Training fees for training conducted No TDS
outside Nepal
Payment of Interregional interchange fees paid to No TDS
banks issuing credit cards
Payment of setting question paper & checking answer 15% 88 FWP
sheets to non-employees
Payment for Guest lecture- occasional lecture fee 15% 88 FWP
(Patake Adhyapan - including training fees)
Payment of service fees other than above like: 15% 88
i. Interest Payment to guthi sansthan.
ii. Daily wage payment to workers & so on.
Payment of Commission by resident employment 5% 88
agency to non- resident person
8 Commission Payment of Incentives (commission) to natural
person other than conducting business who made
payments for purchases through electronic means like No TDS
payment card, e-money (wallet), mobile banking etc.
Payment of any other Commissions against VAT bill 1.5% 88
Payment of any other Commissions against No VAT 15% 88
bill
9 Sales Bonus Payment of sales bonus (a type of commission) 15% 88
(whether VAT bill or not)

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Retirement Retirement Payment by Approved Retirement Fund 5% on 88 FWP

10 Payments by Formula: gain
Retirement Taxable Amount(TA): Total amount received- amount
Funds relating to before 18 chaitra 2058
Taxable amount- 50% of TA or 5 lakhs whichever is
higher = Net Taxable amount
TDS: Net Taxable amount x 5%
Retirement Payment by Unapproved Retirement Fund 5% on 88 FWP
Formula: gain
Net Taxable Amount(TA): Total amount- amount
relating to before 18 chaitra 2058 – Own Contribution
TDS: Net Taxable amount x 5%
Retirement Payments by other funds (except 15% on 88 FWP
employer) (not on gain) RP
Other Payment of Gain by Mutual Fund to natural person 5% 88 FWP
11 payments Payment of Gain by Mutual Fund to other person 15% 88
Payment of Gain on Investment Insurance paid by 5% 88 FWP
resident person
Exempt windfall Gain (for prize up to Rs. 5 lakhs No TDS
12 Windfall Gain
but conditions must be met)
Conditions:
- In cas e of p ayment related t o national or i n t e r na t i o n al
level aw ards for lit erat ure, art , cult ure, game s ,
journalis m, s cience, t echnology and p ublic
adminis t ration, N epal government may w aive the cas ual
t ax by p ublishing t he fact in N epal G azette.
- P res ent ly , no w indfall gain t ax s hall be levied on
n ati on al an d i n te rn ati on al pri z e u p to Rs .5 l ak h s
re ce i ved for provi din g con tribu tion to literature, art,
cu l tu re, s ports, Jou rnalis m, s cience, Tech nology a n d
pu bl i c admi nistration sectors.
For other cases of windfall Gain 25% 88Ka FWP
Made to resident person where payment does not
exceed Rs. 50,000 (count 10 previous days payment No TDS 89
from today- 11 moving days)
Made to resident person where payment exceeds Rs.
Contractual 50,000 (count 10 previous days payment from today - 1.5% 89
13 Payment 11 moving days)
Made to non-resident person for arms, ammunitions FWP
& communication devices purchased by Nepal Army, 5% 89
Armed Police Force or Nepal Police for their own use.
Made to non-resident person (other cases than 5% 89 FWP
above)
Insurance Premium paid to Non-resident insurance 1.5% 89 FWP
company
Commission paid to non-resident insurance
company for accepting re-insurance premium 1.5% 89 FWP
Payment to Consumer Group in excess of Rs. 50 1.5% 89

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lakhs
Advance Tax
14 Collection of Any individual resident not involved in the operation of business receiving
Advance Tax payment in foreign currency for providing software or similar kind of other
(Sec. 95A) electronic service outside Nepal, the concerned bank, financial institution or
money transfer institution shall collect advance tax @5% of the amount
received at the time of payment of such amount.
Any individual resident not involved in the operation of business receiving
payment in foreign currency for providing consultancy service outside Nepal, the
concerned bank, financial institution or money transfer institution shall collect
advance tax @5% of the amount received at the time of payment of such
amount.
Any individual resident not involved in the operation of business receiving
payment in foreign currency for uploading audio- visual material in social
network, the concerned bank, financial institution or money transfer institution
shall collect advance tax @5% of the amount received at the time of payment of
such amount.
15 Collection of In case a person sells goods, services or goods and services through the E-
Advance Tax commerce platform, the resident Ecommerce operator shall deduct advance
Section 95A tax at the rate of 1% at the time of payment against sale of goods, services or
(6E) good and services.
16 Advance tax Tax shall be Collected at the customs point if imported for business purpose @
collection on 5%
import • ox, buffalo, goat, sheep, mountain goat under Chapter 1 of the Custom
Section 95A Classification,
(7) • live, fresh and frozen fish under Chapter 3,
• fresh flowers under Chapter 6,
• fresh vegetables, potato, onion, dry vegetables, garlic, baby corn under Chapter
7
• fresh fruits under Chapter 8

@ 2.5%
• meat under Chapter 2,
• milk products, eggs, honey under Chapter 4,
• barley, millet, sorghum (Junelo), rice, beaten rice under Chapter 10
, • refined wheat flour, wheat flour under Chapter 11,
• herbal medicines, sugarcane under Chapter 12 and
• vegetation products under Chapter 14

However, advance tax shall be collected @ 1.5% in case of import of VAT

attractive goods.
17 Gain from Advance tax @10% on gain on each settlement – collected by person
Transaction in operating future market.
Commodity
future market
18 Gain on A. Listed Shares
Transaction 1. Gain of Resident Natural Person
of Securities
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Ownership Period Rate

More than 365 days 5% of gain
Up to 365 days 7.5% of gain

2. Gain of resident entity: @ 10% of gain

3. Gain of non- resident person: 25% of gain

B. Unlisted Shares
1. Resident Natural Person- 10%
2. Resident Entity- 15%
3. Non-resident Person: 25%

Exemption: No advance tax need to be collected from entities dealing in

securities as per prevailing law.
19 Non-Business  It means mean lands, buildings and interest in any entity, or securities,
Chargeable other than the following assets:
Assets a) Business assets, depreciable assets or trading stocks
(NBCA) b) In case of individual
Land and private house (private building means a building & double the land
occupied by the building or one ropani of land whichever is lower) of a
natural person in the following conditions:
 Under continued ownership for 10 or more years &
 Lived in for 10 or more years continuously or at different times by the
person.
c) Interest of a beneficiary in the retirement fund.
d) Land and private house of a natural person which has been disposed of
(sold) at a price of less than 1 million
e) Assets disposed of through transfer by any means, other than sale and
purchase within three generations.

- In this case, Advance tax is collected by concerned Land Revenue Office

(Malpot Karalya) at the time when sales deed is registered at the office.

NBCA owned by the natural person [(95ka(5)]

If owned for less than 5 years 7.5% of gain
If owned for more than or equal to 5 5% of gain
years
If the land & building is not NBCA No requirement of advance tax

Disposal of Land & Building other than NBCA of Natural Person:

- The advance tax shall be collected at the rate of 1.5% of disposal value. Such
tax isnot applicable for land & building of natural person that is not NBCA,
neither business assets, not trading assets nor depreciable assets

Collection of advance tax is not required if following conditions are met:

- It is not a NBCS of an individual &
- It is not a NBCA, depreciable asset or trading asset

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Difference between: NBCA, Business Assets, Trading assets & Depreciable

assets:

1.NBCA (Non-Current Business Assets): Not business assets, nor trading

assets or neither business asset (as discussed above)

2. Trading Assets: These are assets that a business holds for the purpose of
generating short-term profits through buying and selling activities. Trading assets
include stocks, bonds, and other securities that are actively traded in the market.
The value of trading assets can fluctuate based on market conditions, and they
are typically classified as current assets on the balance sheet.

3. Business Assets: This is a broader term that encompasses all assets owned by
a business, including both non-current and current assets. Business assets can
include NBCA, trading assets, cash, accounts receivable, inventory, and other
assets that contribute to the business's operations and financial health.

4. Depreciable Assets: These are assets that lose value over time due to wear
and tear, obsolescence, or other factors. Depreciable assets include tangible
assets such as buildings, machinery, vehicles, and equipment. Depreciation is the
process of allocating the cost of a depreciable asset over its useful life to reflect
its declining value. Depreciable assets are typically classified as non-current
assets on the balance sheet.

With Holding Tax & Advance Tax- For Both

20 TSD return - Unlike VAT Return that has to be filled even if there is no transaction
& Advance during any month, for TDS- file only when there is transaction
Tax Return attracting TDS.
- File return & Pay TDS within 25 days of end of the month of collection
of TDS.
Responsibility:
sole responsibility: with holding agent for WHT & agent for Advance tax.

Effect of failure to submit within prescribed time/ delay:

Fees as per section 117-

For Withholding tax: 2.5% p.a. of tax amount to be collected on monthly
basis (i.e. part of month to be treated as full month)
For Advance tax: 1.5% p.a. of tax amount to be collected on monthly basis
(i.e. part of month to be treated as full month)

Interest u/s 119- 15% p.a. on WHT or Advance Tax amount calculated on
monthly basis (i.e. part of month to be treated as full month)
21 - TDS shall not be applicable on trade discount.

- Additional commission provided for the recharge dealers on the basis of

yearly/monthly target shall be characterized as sales bonus and the 15%
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tax shall be deducted on the same. (Same treatment has been confirmed by
circulars has been given by IRD dated 2075.11.04)

- As per definition of "Rent", natural person's house rent income that is not
generated through a private firm does not fall under the definition of rent,
which means such income is exempt from income tax. Same shall be paid
Important
to local level government @ 10%.
points
extracted
- Withholding of tax is not applicable on disposal of Non-Business
from
Chargeable asset, as tax withholding is dealt by Sec. 87- 89 of the Act and
solutions of
such sections do not cover gain on disposal of non-business chargeable
past papers.
asset.
However, Sec. 95Ka, Collection of Advance Tax by Agent, is applicable in
such circumstances, in which case if a natural person disposes his land and
building qualifying as non-business chargeable asset, advance tax must be
paid at Land Revenue Office at the time of property registration.

- As per Sec. 54 (3), there shall be not be applicability of dividend tax on

distribution of such profit, on which dividend tax as per Sec. 54 is already
levied.

- As per Sec. 11 (2Ka), income tax is exempt on interest income up to Rs.

25,000 earned on deposit by a natural person during the income year from a
rural development bank based on Rural Municipality.

- Income of approved retirement fund is exempt from tax & hence, as per
sec.88(4), there shall not be withholding payments of amounts exempt from
tax.
- Service fee income is deemed to have source in such country where the
activities are carried out unless it is paid by GON.

- If any payment is exempt income of recipient, payer should not deduct

TDS on such payment.

- When payments are made by resident natural person other than conducting
business, TDS will not be made by such natural person.

- If non-resident person receives withholding payments, these will be always

final withholding payments.

- TDS withheld for payment to PE (i.e. even if paid to foreign entity) is not
final withholding because they need to register themselves and are treated
as company for income tax purpose & are also registered in VAT which
makes it resident entity. (if required).

- Mobilization advance is not payment attracting TDS. However, when

such advance is adjusted against the amount payable – it forms a part of

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payment on which TDS shall be withheld.

Example:
Actual cash outfloe on Magh1: 75 lakhs
Adjustment of advance on Magh 1:10 Lakhs
As such, payment attracting TDS: 85 Lakhs

- Taxability of retirement contribution:

a. If gratuity is deposited in Employer’s Single Account (i.e. Account
opened in the of employer), the amount is deductible for employer as per
IT Directives. In such case, employee will be taxed at the time of
retirement @ 15%.
b. If the gratuity is deposited in individual account of each of the
employees maintained at ARF, the amount is treated as contribution to
ARF by employer and the same is included while calculating income
from employment of employee. At the time of retirement, tax is
applicable at the rate 5% of gain since it is paid by ARF.

- In order to deduct TDS by employer, the following two conditions must be

satisfied
a) the employer must be resident person; &
b) the source of payment must be in Nepal

- In order to deduct TDS under section 88, the following two conditions
must be satisfied
a) the person making payment must be resident person; &
b) the source of payment must be in Nepal

- In order to deduct TDS under section 88Ka, no conditions of exemption

must be satisfied.
- In order to deduct TDS under section 89, only one condition must be
satisfied: the person making payment must be resident person.
For CAP III/Membership Examination only
22 - A professor, teacher or researcher who makes a temporary visit to a
Contracting State for the purpose of teaching or conducting research at a
university, college, school or other recognized educational institution and
who is, or immediately before such visit was, a resident of the other
Contracting State shall be exempted from tax in the first-mentioned State
for a period not exceeding two years in respect of remuneration for such
teaching or research. NOT APPLICABLE FOR PRIVATE BENEFIT.

Important - Any amount not attributable as income of FPE cannot be made taxable in
points Nepal for any foreign entity.
extracted
from - Any amount not taxable under DTAA is not taxable and there is no
solutions of requirement of TDS in such amount.
past papers.
- Article 7 of DTAA between Nepal & India states that “Profit of any
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enterprise of a contracting state shall be taxed in that state only unless the
enterprise carries on business in the other Contracting State through a
permanent establishment situated therein. If the enterprise carries on
business as aforesaid, the profits of the enterprise may be taxed in the other
State but only so much of them as is attributable to (a) that permanent
establishment; (b) sales in that other State of goods or merchandise of the
same or similar kind as those sold through that permanent establishment; or
(c) other business activities carried on in that other State of the same or
similar kind as those effected through that permanent establishment.”

- Article 5 of DTAA between Nepal & India states that “there can be service
permanent establishment of an enterprise of a contracting state in other
contracting state, only when service is furnished within other contracting
state for more than 90days in any 12 months’ period”.
Note: Here, we should understand that if question ask about other part of
PE, the provision mentioned in PE shall be mentioned for the same.

- As per section 73 of IT Act 2058, where an international agreement is

concluded that exempts income & payment from taxation or provides that
lower rate is applied, then the provision of international agreement prevail
over national legislation.

- Article 14 of DTAA between Nepal & India states that “Income derived by
a resident of a Contracting State in respect of professional services or other
activities of an independent character shall be taxable only in that State
unless
a. he has a fixed base regularly available to him in the other Contracting
State for the purpose of performing his activities or
b. he is present in that other State for a period or periods exceeding in the
aggregate 183 days in any twelve-month period.
If he has such a fixed base or is present in that other State for the aforesaid
period or periods, the income, may be taxed in that other State but only so
much of it as is attributable to that fixed base or is derived in that other
State during the aforesaid period or periods.”
The term “professional services" includes especially independent scientific,
literary, artistic, educational or teaching activities as well as the
independent activities of physicians, lawyers, engineers, architects, dentists
and accountants.’

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