Income tax for individuals in Nepal

For FY 2083/84 (2026/27), one schedule applies to both single persons and couples:

First NPR 10 lakh

1% (social security tax)

Next NPR 5 lakh (10 to 15 lakh)

10%

Next NPR 10 lakh (15 to 25 lakh)

20%

Next NPR 15 lakh (25 to 40 lakh)

27%

Above NPR 40 lakh

29%

The 1% on the first slab does not apply to pension income, to contributors to the Social Security Fund or an approved pension fund, or to the business income of a registered sole proprietorship.

For FY 2083/84 the first slab is NPR 10 lakh. On employment income, that slab still attracts the 1% social security tax, so there is no fully tax-free band. On a registered sole proprietorship's business income, and on pension income, the first NPR 10 lakh is not taxed. Contributors to the Social Security Fund are also exempt from the 1%.

For FY 2083/84 (2026/27), one schedule applies to both single persons and couples:

First NPR 10 lakh

1% (social security tax)

Next NPR 5 lakh (10 to 15 lakh)

10%

Next NPR 10 lakh (15 to 25 lakh)

20%

Next NPR 15 lakh (25 to 40 lakh)

27%

Above NPR 40 lakh

29%

The 1% on the first slab does not apply to pension income, to contributors to the Social Security Fund or an approved pension fund, or to the business income of a registered sole proprietorship.

Deductions and reliefs for FY 2083/84:

Retirement contributions (SSF, EPF, CIT, approved funds)

up to one-third of income or NPR 5 lakh, whichever is lower

Life (investment) insurance premium

up to NPR 40,000

Health insurance premium with a resident insurer

up to NPR 20,000

Insurance of a privately owned building

up to NPR 10,000

Donations to approved tax-exempt organisations

up to NPR 3 lakh or 5% of adjusted taxable income, whichever is lower

Medical tax credit

15% of approved medical costs, up to NPR 750 a year

Resident woman with only employment income

10% rebate on tax payable

Pension income

25% added to the exemption band; persons with disabilities: 50% added

Remote area allowance

NPR 10,000 to 50,000 by area category (Ka 50,000; Kha 40,000; Ga 30,000; Gha 20,000; Nga 10,000)

Diplomatic mission staff abroad

75% of foreign allowance

If the tax paid on employment income exceeds the tax due for that income year, the excess can be adjusted in the following year.

Everything paid by an employer to a natural person in the income year, including: wages and salary; leave pay; overtime; fees, commissions, prizes, gifts and bonuses; payments for other benefits; dearness and cost-of-living allowances; rent, entertainment and transport allowances and any other personal allowance; reimbursements of personal expenses of the employee or associated persons; payments for agreeing to any condition of employment; payments on termination, loss of employment or compulsory retirement; retirement payments and retirement contributions made by the employer to a fund for the employee; other payments connected with employment; and any other amounts required to be included when quantifying, allocating and characterising amounts for tax accounting.

Start with total assessable income. Deduct donations to organisations exempt under section 12, and contributions to approved retirement funds under section 63 up to the prescribed limit, to reach taxable income. Deduct the reliefs available under Schedule 1, and apply the Schedule 1 rates to the remainder. From the resulting tax, deduct the medical expense credit under section 51 of up to NPR 750. The balance is divided proportionately across the months and paid in advance when salary is received.

From FY 2083/84, cash payments above NPR 25,000 in a single transaction are not deductible for any person, and businesses can deduct corporate social responsibility spending up to 1% of taxable income.

The employer's office, typically its accounts officer. The employee must tell the accountant their personal details, such as whether they choose single or couple status, any medical tax credit claim, retirement contributions or investment insurance premiums.

When salary is paid. The employer withholds the tax at the time of payment and deposits it.

The employer calculates the tax due on annual taxable income, withholds a proportionate share each month when paying salary, and deposits it.

The entire cash amount received for the vehicle facility must be included in the employee's employment income.

Every kind of benefit or fringe benefit must be included in employment income when calculating taxable income. Where payment is received in kind or as a service, where a benefit is received at below market price (such as a free gift or a loan at a concessional interest rate), or where a benefit is received indirectly through a third party (such as an employer paying a child's school fees directly to the school), the benefit must be quantified and valued at prevailing market prices and the resulting amount included in taxable income.

Housing and vehicle facilities provided by an employer company must be quantified and included in income at fixed rates:

Vehicle facility

0.5% of the basic salary is included in taxable income

Housing facility

2% of the basic salary is included in taxable income

Employment income, or remuneration, includes all payments connected with employment: wages, salary, leave pay, overtime allowance, fees, commissions, prizes, gifts, bonuses, dearness allowance, cost-of-living expenses, rent, entertainment or transport allowances, education allowance, adjustment allowance, any personal allowance or benefit, reimbursement or settlement of personal expenses, payments for agreeing to conditions of employment, payments on termination, loss of employment or compulsory retirement, retirement payments (such as payments from the Employees Provident Fund and Citizen Investment Trust, gratuity and pension), and any other payment connected with employment.

Even where one spouse has no income, the earning spouse can claim a tax credit against their own tax for the other spouse's medical treatment, and for treatment of both. The annual credit cannot exceed NPR 750 or 15% of total medical expenses, whichever is lower. Any unused amount can be carried forward to later years. A health insurance premium paid for the spouse can also be deducted, within the NPR 20,000 limit.

A natural person who lives and works or runs a business in a remote area receives a deduction from taxable income at the rates set by the Income Tax Rules, ranging from NPR 10,000 in category 'Nga' areas up to NPR 50,000 in category 'Ka' areas.

A resident natural person can also claim a direct tax credit for medical expenses of 15% of the expense, capped at NPR 750 a year. Cosmetic surgery is excluded. Any amount that cannot be used within the NPR 750 annual limit can be carried forward to later years.

Under section 12, donations to tax-exempt organisations can be claimed up to NPR 3 lakh or 5% of adjusted taxable income, whichever is lower. To claim the deduction, the person must file an income tax return.

A tax credit of up to NPR 750 can be claimed for approved medical treatment expenses. Proof of the approved expenses must be submitted.

Deductions and reliefs for FY 2083/84:

Retirement contributions (SSF, EPF, CIT, approved funds)

up to one-third of income or NPR 5 lakh, whichever is lower

Life (investment) insurance premium

up to NPR 40,000

Health insurance premium with a resident insurer

up to NPR 20,000

Insurance of a privately owned building

up to NPR 10,000

Donations to approved tax-exempt organisations

up to NPR 3 lakh or 5% of adjusted taxable income, whichever is lower

Medical tax credit

15% of approved medical costs, up to NPR 750 a year

Resident woman with only employment income

10% rebate on tax payable

Pension income

25% added to the exemption band; persons with disabilities: 50% added

Remote area allowance

NPR 10,000 to 50,000 by area category (Ka 50,000; Kha 40,000; Ga 30,000; Gha 20,000; Nga 10,000)

Diplomatic mission staff abroad

75% of foreign allowance

Under the Finance Act 2072, pension income from 1 Shrawan 2072 onwards is not subject to the 1% social security tax.

Pension is taxed. For a resident natural person with pension income, 25% of the amount in Schedule 1, section 1(1)(ka) for individuals or 1(2)(ka) for couples is deducted from taxable income, and tax applies only to the remainder. The 1% social security tax does not apply. Amounts received from the Employees Provident Fund and for medical treatment are taxed.

but the 1% social security tax does not apply.

Deduct 50% of the amount or NPR 5 lakh, whichever is higher, and tax the remainder at 5%.

Contributions are deductible up to one-third of assessable income or NPR 5 lakh, whichever is lower (FY 2083/84). This reduces tax, enforces saving and supports retirement.

An approved retirement fund may invest only in approved investments:

• The Citizen Investment Trust
• Government bonds
• Banks
• Co-financing with banks
• Beneficiaries other than its own shareholders

They can be equal or vary. Either way, they are deductible from taxable income as long as they do not exceed the prescribed annual limit.

This has nothing to do with taxation. It depends on the agreement between the retirement fund and the contributor.

For FY 2083/84, combined contributions to approved funds such as SSF, EPF, CIT and other approved funds, including the employer's share, are deductible up to one-third of assessable income or NPR 5 lakh, whichever is lower. Amounts above the limit are not deductible.

Income an approved retirement fund earns from approved investments is not taxed. Its other income, and the income of unapproved retirement funds, is taxed like any other entity.

For a lump-sum payment from an approved retirement fund, such as Employees Provident Fund money, 50% of the payment or NPR 5 lakh, whichever is higher, is deducted. The remainder is treated as a gain taxed at 5%, and that tax is final. Pension and similar annuity-type payments are included in income and taxed, but a person with pension income can deduct 25% of the individual or family exemption amount from taxable income. For payments from an unapproved retirement fund, the contributions have already been taxed, so the contributions are deducted from the payment to calculate a capital gain, which is taxed at 5%.

A retired employee, a beneficiary who has reached 58, their dependant, a permanently disabled person, or the dependant of a deceased person.

Bodies other than the Employees Provident Fund and the Citizen Investment Trust need approval to operate an approved fund. Contributions to an approved fund are deductible up to one-third of assessable income or NPR 5 lakh, whichever is lower (FY 2083/84). Contributions to an unapproved fund are not deductible.

Retirement funds can be operated by the Employees Provident Fund, the Citizen Investment Trust, the Social Security Fund established under the Contribution-Based Social Security Act 2074 if it wishes to, and the Pension Fund established under the Pension Fund Act 2075. A resident person approved by the Inland Revenue Department, such as a bank or financial institution, can also operate one under prescribed conditions.

The fund operates as a trust. A fund accepting contributions from an employer must be managed and operated independently of the employer. Under the Income Tax Rules 2059, retirement payments can be made to a beneficiary only on retirement from service, on reaching age 58, or on death or permanent disability. The fund's annual audit must be done by an auditor approved by the Office of the Auditor General. Funds may invest only in approved sectors under the Income Tax Rules. The fund must have paid-up capital of at least NPR 1 crore and at least 1,000 beneficiaries.

Any natural person, or their employer on their behalf. Self-employed people without employment income can also contribute.

A body, institution or fund established solely to accept money, including contributions, to provide retirement payments to a natural person or their dependants after they retire from service, and to invest that money in prescribed sectors. Examples of such payments include those from the Employees Provident Fund, Citizen Investment Trust, Social Security Fund, Pension Fund or other approved retirement funds, as well as gratuity and pension.

No approval is needed from the IRD or anyone else. A natural person can choose to file as a couple, and can change that choice in a later year. The choice is available whether both, one or neither spouse has income. Where both spouses have income and the couple option is chosen, their incomes are combined for the tax calculation. A resident widow or widower who supports a dependant is treated the same as a couple.

Liability is as set by law. If a person persistently refuses to pay, the tax can be recovered by auctioning their house and other property.

A human being of any gender, together with a sole proprietorship firm owned by a natural person.