Income Tax Slabs for Individuals in Nepal, FY 2083/84

tax bands

5

top rate

29%

first band

10 lakh

structure for all

1

The FY 2083/84 slabs

Tax is applied band by band, not at one rate on the whole income.

What changed from FY 2082/83

Deductions before the slabs

A worked example

A single employee earns NPR 18 lakh a year and contributes NPR 1.8 lakh to SSF.

Try your own numbers in the salary tax calculator, which covers six fiscal years.

Business owners and other income

Sole proprietors are taxed on business profit under the same slabs. Dividends, bank interest and gains on listed shares are usually taxed by final withholding and do not enter the slabs. Freelancers exporting IT services may qualify for a flat rate; see tax on freelancer income in Nepal.

Once profit reaches the upper bands, a company at the 25% corporate rate may cost less overall; see private limited vs sole proprietorship.

Three more worked examples

The earlier example used a single employee in SSF. These show how the slabs behave at other income levels. All use the FY 2083/84 bands above, ignore other allowances and are illustrations, not advice.

1. Employee outside SSF, NPR 12 lakh taxable income. The first 10 lakh is taxed at 1%, which is 10,000. The next 2 lakh is taxed at 10%, which is 20,000. Total tax is 30,000, about 2.5% of taxable income. The 1% on the first band is payable because the employee is not an SSF contributor.

2. Business owner, NPR 30 lakh taxable profit. 10 lakh at 1% is 10,000. 5 lakh at 10% is 50,000. 10 lakh at 20% is 2,00,000. The last 5 lakh at 27% is 1,35,000. Total tax is 3,95,000, about 13% of profit. At this level it is worth comparing the position with a company; see private limited vs sole proprietorship.

3. Senior professional, NPR 60 lakh taxable income. 10 lakh at 1% is 10,000. 5 lakh at 10% is 50,000. 10 lakh at 20% is 2,00,000. 15 lakh at 27% is 4,05,000. The last 20 lakh at 29% is 5,80,000. Total tax is 12,45,000, about 21% of income.

The pattern is the point. Tax is progressive, so only the slice above each threshold bears the higher rate. People who think "I am in the 29% bracket, so I pay 29% on everything" overestimate their tax by a wide margin and sometimes make poor decisions because of it, such as turning down extra income.

How the deductions change the answer

Before the slabs apply, taxable income is reduced by the allowed deductions. For a salaried person with a gross of NPR 24 lakh:

Tax on 21 lakh is 10,000 (first band, if payable) plus 50,000 plus 2,20,000, which is 2,80,000 if the first-band 1% applies, or 2,70,000 if it is waived for an SSF contributor. The deductions saved the person roughly 60,000 to 70,000 of tax. For many employees, maximising allowed deductions matters more than any other planning step.

What the slabs do not cover

Questions people ask

Did the top rate really fall to 29%? Yes, according to the budget and the Finance Act summaries. The previous top rate was 39%, with a 36% band below it.

Does the 1% first band apply to everyone? It applies to the first NPR 10 lakh, but SSF contributors have it waived. People outside SSF pay it.

What is the rebate for women? A resident woman with only employment income receives a 10% rebate on the tax computed. Conditions apply; check the Act.

How do I know my taxable income? Start from gross income, add taxable benefits, then deduct allowed retirement contributions and insurance premiums. Our salary tax calculator does this for six years.

When is the tax paid? Employers deduct it monthly from salary. Business owners pay in instalments and file a return; see filing your income tax return and advance tax instalments.

For a personal tax review before year end, see our tax services. Slabs change with each Finance Act, so confirm the figures for your filing year.

Reading the change in context: what moved and who gains

The new structure is best understood by comparing the tax payable at several incomes under the old FY 2082/83 single-person bands and the FY 2083/84 bands. The old bands were 1% to NPR 5 lakh, 10% to 7 lakh, 20% to 10 lakh, 30% to 20 lakh, 36% to 50 lakh and 39% above. The figures below ignore deductions and the SSF waiver so the comparison is clean.

The gain rises with income, and middle earners benefit most in proportion to their tax because the 30% and 36% bands have been replaced by the 20% and 27% bands, with wider thresholds. Even a salaried person at NPR 8 lakh sees a visible reduction, because the 1% band now covers the whole income.

The arithmetic also shows why advisers warn against treating any single year's slabs as permanent. Tax thresholds in Nepal have moved at almost every budget in recent years, and a decision such as a salary restructure, a decision to incorporate or a timing choice for a bonus should be tested against the present rules and re-tested each year.

Practical decisions that depend on the slabs

Salary versus profit distribution. An owner who runs a company can choose between salary, which is taxed under the slabs, and dividend, which bears 5% withholding after the company's 25% tax. At moderate profits, salary may be cheaper; at high profits, the combined cost of company tax and dividend tax needs to be compared with the top slab. The answer changes with the new bands, so a model is worth building each year.

Timing a bonus or a one-off payment. Because the bands are progressive, a large one-off amount in one year pushes you through several bands, while spreading income across years can lower the total. Where the law and the contract allow flexibility, test it.

Retirement contributions. Contributions to SSF, EPF or CIT reduce taxable income up to the cap. For a person in the 20% or 27% band, each rupee contributed saves 20 or 27 paisa of tax today. The contribution is not lost: it builds a retirement fund. See SSF and labour compliance.

Insurance. Life and health premiums are deductible within limits. For people who would buy insurance anyway, the deduction is a gain; do not buy insurance only for the tax.

Two earners in one household. Where the system assesses individuals separately, income split between spouses can bring each person into lower bands. Where a couple is assessed together, the rules differ. Check how the current Act treats your household.

Business owners. A sole proprietor's profit is taxed in the owner's hands under these slabs. When profit rises into the 27% and 29% bands, the option of a company at 25% with dividend withholding deserves a calculation; see corporate tax rates.

Common mistakes when applying the slabs

A short checklist before you finalise your tax position

Our tax services include a personal tax review for owners and executives, and the salary tax calculator lets you test scenarios. Remember that slabs and allowances change with each Finance Act, so confirm the figures for your filing year.