Capital gains and other income in Nepal

A private building means the building, the land it occupies, and additional land equal to the area the building occupies or one ropani, whichever is less.

if they file an income tax return and claim it. For FY 2083/84 the first slab is NPR 10 lakh.

No capital gains tax is charged on land and private buildings disposed of for less than NPR 10 lakh.

The taxpayer can choose which one of the two is treated as their private building.

A house and land owned and lived in for 10 years or more is not treated as non-business taxable property, so no tax is due on its sale. For other land and buildings of an individual, FY 2083/84 rates are 7.5% of the gain if owned five years or more, and 10% if owned less than five years. Compulsory acquisition by the Government is taxed at 2.5%, and land donated free to any level of government is exempt.

A transfer of land or a house within three generations, other than by purchase and sale, is not treated as non-business taxable property, so no tax is due. If such property is bought or sold, however, tax applies.

It is optional. By filing a return, they can credit the tax already paid in advance, or claim a loss if one arose.

From the office or body where the tax was paid, or from Nepal Stock Exchange.

For FY 2083/84, an individual pays 7.5% of the gain on land or buildings owned five years or more, and 10% if owned less than five years. Compulsory acquisition by the Government: 2.5%. The gain is the sale price less cost, and for property bought before 19 Chaitra 2058, its value on that date.

A gain on disposing of land and buildings not used in a business is treated as non-business taxable income and taxed on the gain calculated. A gain on disposing of land and buildings used in a business is treated as business property, included in business income and taxed. The following are not treated as non-business taxable property: property sold for less than NPR 10 lakh; property transferred within three generations other than by purchase and sale; and a natural person's house owned and lived in for more than 10 years.

Gains from disposing of business assets or liabilities, gains from disposing of depreciable assets, and profits from disposing of trading stock are included in business income, and assessable and taxable income are calculated from there. Gains from non-business taxable assets are calculated separately as capital gains. For entities, whose assets are almost always business assets, the gain is taxed at the entity's normal rate. Capital gains of natural persons for the period before 19/12/2058, when the Income Tax Act 2058 came into force, are not taxed, so older assets must be valued at their market value on that date.

Not all of them. For a natural person, gains from selling gold and silver, a personally owned private vehicle, or property within certain limits are not taxed. For entities such as partnerships, companies and organisations, gains from disposing of business assets or liabilities or depreciable assets are included in business income and taxed. Business assets and liabilities are those used in a business; all of these are taxable assets.

Gains on non-business taxable assets are taxed at different rates. Non-business taxable assets means all land, buildings, interests and securities except: business assets, depreciable assets, trading stock, a private building owned and lived in by a natural person for 10 years or more continuously or in total, interests in retirement funds, land or buildings disposed of for less than NPR 10 lakh, and property transferred within three generations other than by purchase and sale.

The gain from disposing of any capital asset or capital liability, including the net gain after adjusting for losses, or any additional loss. Disposal mainly means ceasing to own the asset or liability, including through sale, distribution, merger into another asset or liability, lease, cancellation, destruction, loss, expiry, surrender, termination, or settlement or release of a liability.

1. 1When land or a building received by partition or gift within three generations is sold, from when is ownership counted, and which cost is allowed?

Ownership is counted from the date of transfer by partition or gift within three generations. The cost allowed is the purchase cost of the person who partitioned or gave it. If that purchase was before 19 Chaitra 2058, the property's value on 19 Chaitra 2058 is allowed as cost.

1. 1When land held separately in the names of husband and wife is sold, is the NPR 10 lakh limit applied separately or combined?

Separately.

1. 1If a plot is split into three pieces, two are sold, and the remaining piece is sold later, from when is ownership counted?

From the date the plot was originally purchased.

1. 1When a house and land are sold, if the land beyond what the building occupies (as defined for a private building) sells for less than NPR 10 lakh, is it within capital gains tax?

If the total sale price of the whole house and land is NPR 10 lakh or more, it is within capital gains tax.

1. 1What proof of a building's cost is needed? What if the local level shows only the building's value, not its cost?

Cost cannot be deducted on the basis of the value set by the local body for tax purposes. It can be deducted only on the basis of evidence showing the building's actual cost.

1. 1How is the period of ownership or residence of a building counted?

Where the local body certifies the date construction was completed, that date is used. Where someone obtained approval for a three-storey building but first built one storey and moved in, ownership and residence periods are counted on the local body's recommendation. For old houses built without an approved plan, ownership and residence are also established on the local body's recommendation.

1. 1How is it known whether the owner lived abroad when counting continuous residence?

The owner makes a self-declaration on whether they lived abroad. A local body recommendation can be requested if needed.

1. 1If someone bought one plot on one date and an adjoining plot later, and merged them into one parcel, is ownership counted from the merger date or from each purchase date?

Separately, from each plot's purchase date.

1. 1Can brokerage, commission or land development costs be deducted from the sale price when calculating capital gains tax?

Expenses not listed in the capital gains declaration form cannot be deducted when paying capital gains tax at the Land Revenue Office. To claim them, file an income tax return.

1. 1When selling land or a building received by partition, gift or family transfer, can the registration fee paid on that transfer be deducted as cost?

Yes.

IRD's answer here states that, like other taxpayers, they must file and pay tax, and can credit tax paid in advance or claim any loss.

Note: elsewhere IRD states that filing is optional for a natural person whose only gain has had tax withheld.

but only against future capital income or gains. It cannot be offset against employment or business income.

Because the sale produces a loss, no tax is withheld. The taxpayer can claim the loss when filing their return and offset it against other investment income.

The stock exchange or body that withholds the tax must deposit it, with a statement, at the nearest Inland Revenue Office or Taxpayer Service Office within 25 days of the end of the month of deduction. A taxpayer paying the tax themselves deposits it like any other income tax.

At the time of disposal, that is when the shares are bought and sold, and it must be deposited as withholding tax. Because this is not a final tax, the taxpayer can calculate the gain with their return, work out taxable income, pay the tax due and credit the tax already withheld.

For FY 2083/84, on shares listed on Nepal Stock Exchange the exchange withholds: resident individuals 7.5% of the gain if held more than 365 days, 10% if held 365 days or less; resident entities 10%; others 25%. For individuals who choose not to file a return, this tax on listed shares is final. On unlisted shares the company whose shares are sold withholds: resident individuals 10%; resident entities 15%; others 25%.

As with other taxes, the taxpayer assesses it themselves through self-assessment.

Under section 95ka, for FY 2083/84:

Commodity futures market profits

10%

Gains on shares listed on Nepal Stock Exchange

resident individuals 7.5% if held more than 365 days, 10% if held 365 days or less; resident entities 10%; others 25%

Gains on unlisted shares

resident individuals 10%; resident entities 15%; others 25%

Capital gains of an individual on land or a private building

7.5% if owned five years or more, 10% if less

Land or buildings compulsorily acquired by the Government

2.5%; no tax where land or a private building is donated free to any level of government

Disposal value of land or buildings owned by any other person

1.5%

Commercial imports of specified agricultural and food products, on customs value

5% or 2.5% by tariff chapter, and 1.5% where the goods attract VAT

Windfall gains such as casino winnings, lotteries and prize money are taxed at 25% of the amount received.

Income from an investment is capital income. Income received unexpectedly without any investment is a windfall gain.

Income tax applies, under the name of windfall gains tax.

Prize money received by artists or athletes is treated as a windfall gain and taxed at 25%. However, national and international awards up to NPR 5 lakh for contributions to literature, art, culture, sport, journalism, science, technology or public administration are not subject to windfall gains tax. For awards above NPR 5 lakh, the Government can grant an exemption by notice in the Nepal Gazette.

Only donations received by a tax-exempt organisation are excluded. For everyone else, donations fall within the definition of windfall gains.

The recipient must still bear the tax. Otherwise the person giving the gift or lottery prize must bear it. Because this tax is collected by withholding at payment, responsibility for compliance lies with the withholding agent, that is the payer.

Calculate the monetary value of the goods and withhold tax on that value.

Unexpected or unforeseen income not directly connected with a person's employment, business or investment, such as lotteries, gifts, prizes, tips, winnings and any other gain received by chance.

A resident of Nepal is taxed in Nepal on worldwide income, including income earned abroad. Tax paid abroad can be credited against Nepali tax, up to the amount calculated at the average Nepali rate, or deducted as an expense.

The average Nepali tax rate is: total tax before foreign tax credit divided by taxable income, multiplied by 100%.

public circulars are also posted on the department's website.

They are not published in the Gazette or Gorkhapatra. They are available in the circular collections the Inland Revenue Department publishes regularly, on the department's website, and through relevant trade and professional associations.

Income from employment, business, investment and windfall gains.

Employment

remuneration, wages, allowances, benefits, bonuses, pension, gratuity and any payment connected with employment, arising from labour.

Business

profits, gains, service fees, proceeds from selling goods or services, business-related capital gains and business-related payments from industry, trade, profession or business, combining active labour, passive investment of capital and entrepreneurship.

Investment

dividends, interest, royalties, rent, natural resource payments, benefits from investment insurance or retirement funds, capital gains and other investment-related payments from investing capital or capital assets.

Windfall gains

lotteries, gifts, prizes, tips, winnings and any other gain received by chance.