TDS and withholding tax in Nepal

Under Chapter 17 of the Income Tax Act 2058, tax is withheld at the time of payment on investment income, dividends, employment income, service fees, contracts and similar payments, and only the balance is paid. The person obliged to withhold is called the withholding agent. For example, a resident employer paying salary to employees is a withholding agent.

Withholding agents generally withhold on:

• Salary from Nepal-source employment: the resident employer paying it (s.87(1))
• Nepal-source interest, natural resource payments, rent, royalties, service fees, commissions, sales bonuses and retirement payments: the resident person paying them (s.88(1))
• Contract or agreement payments above NPR 50,000: the resident person paying them (s.89(1))
• Windfall gains: the person paying them (s.88ka(1))

The payer, whenever making a payment that is subject to withholding.

Chapter 17 of the Income Tax Act 2058 requires tax to be withheld at source, to bring people with taxable transactions into the tax net and to collect tax regularly. When a person makes a payment of a type listed in Chapter 17, they deduct tax at the prescribed rate and pay the balance. Persons obliged to withhold or collect advance tax must do so on the payments, gains and transactions the law specifies.

Because tax is taken at the time of payment, at the source, it is called Tax Deduction at Source (TDS). Because it is held back from the recipient, it is also called withholding tax. And because tax is paid as income is earned, the approach is also known as Pay As You Earn (PAYE).

The system collects revenue in advance, brings more taxpayers into the net, and lowers compliance costs for both government and taxpayers. It is particularly designed to tax the informal sector, scattered and small payments, and natural persons with passive income, who are otherwise hard to tax.

Withholding rates under sections 87, 88, 88ka, 89 and 95ka, for FY 2083/84:

Employment and interest

• Salary from Nepal-source employment: Schedule 1 rates (s.87(1))
• Nepal-source interest paid to an entity: 15% (s.88(1))
• Natural resource payments, royalties, service fees, commissions, sales bonuses, retirement payments and similar: 15% (s.88(1))
• Commission or service fees to insurance agents: 20%
• Meeting allowances, occasional teaching, setting question papers or marking answer sheets: 15% (s.88(1))
• Retirement payments from the Government or contribution-based payments from an approved retirement fund, on the amount remaining after deducting NPR 5 lakh or 50% of the payment, whichever is higher: 5% (s.88(1) proviso 1)
• Interest paid by a resident bank, financial institution, cooperative, debenture issuer or listed company to a natural person on deposits, bonds, debentures and government bonds, where Nepal-source and not business-related: 6% (s.88(3))
• Interest paid by resident banks and financial institutions to life insurers on deposits: 5% (proviso 12)

Services, rent and transport

• Service fees paid to a VAT-registered resident service provider, or to a resident entity making VAT-exempt supplies: 1.5% (proviso 4)
• Nepal-source rent paid by a resident person: 10% (proviso 5)
• Vehicle hire paid to a VAT-registered vehicle rental business: 1.5% (proviso 5(ka))
• Transport services or hire of transport vehicles: 2.5%, or 1.5% if paid to a VAT-registered transport provider (proviso 8)
• Use of satellite, bandwidth, optical fibre, telecom equipment or electricity transmission lines: 10% (proviso 7)
• Aircraft lease payments: 10% (proviso 3)
• Commission paid by a resident employment company to a non-resident: 5% (proviso 2)
• Royalties to a resident person for literary articles or works: 1.5% (proviso 13)

Investment returns

Mutual fund returns

5% to natural persons, 15% to others (proviso 6)

Nepal-source dividends

5% (s.88(2)(ka))

Investment insurance benefits

5% (s.88(2)(kha))

Benefits from an unapproved retirement fund

5% (s.88(2)(ga))

Windfall gains

25% (s.88ka(1))

Contracts

• Contract or agreement payments above NPR 50,000: 1.5% (s.89(1))
• Contracts with non-residents: 5% (s.89(3)(ka))
• Commission on premiums paid to non-resident insurers, or on reinsurance premiums received from them: 1.5% (s.89(3)(kha))
• Other payments to non-residents: as notified in writing by the department (s.89(3)(ga))

Foreign loans and fees

• Interest on foreign-currency loans taken by resident banks and financial institutions from foreign lenders for sectors designated by Nepal Rastra Bank: 10% (proviso 9)
• Interest on foreign-currency loans for storage and semi-storage hydropower projects above 200 MW reaching financial closure by Chaitra 2082: 5% (proviso 9(ka))
• Registration, tuition and exam fees paid to foreign schools and universities: 5% (proviso 11)

No withholding required

• House rent received by a natural person (proviso 5(kha))
• Incentives given to consumers for paying by card, e-wallet or mobile banking (proviso 10)
• Payments by a natural person not connected with their business (s.88(4)(ka))
• Payments for articles published in newspapers and magazines (s.88(4)(ka1))
• Interest paid to resident banks and financial institutions (s.88(4)(kha))
• Interest on loans between cooperative banks and cooperative societies (s.88(4)(kha1))
• Exempt payments (s.88(4)(ga))
• Interregional interchange fees paid to card-issuing banks (s.88(4)(gha))
• National and international awards up to NPR 5 lakh for contributions to literature, art, culture, sport, journalism, science, technology or public administration (s.88ka(2))

Section 95ka advance tax

• Profits from commodity futures trading, collected by the market operator: 10% (95ka(1))
• Gains on listed securities: resident natural persons 7.5% if held more than 365 days, 10% if 365 days or less; resident entities 10%; others 25% (95ka(2)(ka))
• Gains on unlisted securities: resident natural persons 10%; resident entities 15%; others 25% (95ka(2)(kha))
• Capital gains of a natural person on land or a private building held five years or more: 7.5%; less than five years: 10% (95ka(5))
• Disposal value of land or buildings owned by any other person: 1.5% (95ka(6))
• Foreign exchange provided by a resident bank or financial institution for language and standardised test fees of students going abroad: 15% (95ka(6ka))
• Foreign-currency payments to a resident natural person not in business for software or similar electronic services provided abroad, deducted by the paying bank, financial institution or money transfer company: 5% (95ka(6kha))
• Same, for personal consultancy services provided abroad: 5% (95ka(6ga))
• Same, for uploading audiovisual content to social media: 5% (95ka(6gha))
• Payments by a resident e-commerce operator to sellers on its platform: 1% (95ka(6nga))
• Payments by a resident ride-sharing operator to drivers: 1%
• Land or buildings compulsorily acquired by the Government: 2.5%
• Commercial imports, on customs value: 5% on livestock (chapter 1), fish (chapter 3), fresh flowers (chapter 6), fresh and dried vegetables, potatoes, onions, garlic and baby corn (chapter 7) and fresh fruit (chapter 8); 2.5% on meat (chapter 2), dairy, eggs and honey (chapter 4), millet, buckwheat, sorghum and rice (chapter 10), flours (chapter 11), herbs and sugarcane (chapter 12) and vegetable products (chapter 14); 1.5% where those goods attract VAT (95ka(7))

Note: rates can change with each Finance Act. Use the TDS calculator for the current year.

Any amount paid at market value for services provided by a person, including meeting allowances, management fees and technical service fees. It also includes registration, tuition and examination fees paid to foreign schools and universities.

For FY 2083/84: interest paid by a resident bank, financial institution, cooperative, debenture issuer or listed company to an individual, on deposits, bonds, debentures or government bonds, where not connected with a business: 6% (final). Interest paid to entities, or connected with a business: 15%. Interest paid by banks to life insurers on deposits: 5%. No withholding on interest paid to resident banks and financial institutions.

For FY 2083/84, business-related interest is withheld at 15%. Non-business interest paid by a resident bank or financial institution to an individual is withheld at 6%. No tax is withheld on loan interest between cooperative banks and cooperative societies.

It depends on the payer. An individual paying interest withholds 15% whoever receives it. A resident bank, financial institution, debenture issuer or listed company paying non-business interest withholds 6% for individuals and 15% for entities (FY 2083/84). No withholding applies to interest paid to resident banks and financial institutions, or on interest up to NPR 25,000 a year on deposits with rural microfinance institutions, rural development banks, postal savings banks and qualifying cooperatives.

on all interest except interest paid to resident banks and financial institutions, and interest up to NPR 25,000 a year on deposits with rural community-based microfinance institutions, rural development banks, postal savings banks and cooperatives.

However, a person whose own vehicle is registered as a hire vehicle at the Transport Management Office pays a fixed annual tax on the income earned by hiring it out. For a natural person, that tax is final for the income from the vehicle, so the payer does not withhold tax on hire payments. If tax was withheld and deposited, the owner can claim a refund from the department.

1.5% when paid to a VAT-registered resident service provider, and 15% in other cases.

At the time of payment, whatever period the payment covers.

At the time of the advance payment.

All payments for fulfilling a condition related to buying or selling goods or services, including sales bonuses.

at the time the lease payment is made.

On contract or agreement payments above NPR 50,000.

on any payment made to someone as a bonus for sales.

All payments, including premiums, under a lease of tangible property including house rent, other than payments for natural resources.

Tax is withheld on contract payments to VAT-registered persons in the same way as for anyone else.

a uniform 1.5% applies to service fees paid to VAT-registered resident service providers.

15%. Where the recipient is a resident of a country with which Nepal has a double taxation avoidance agreement, withhold at the rate in that agreement.

At the time of payment, whether it is an advance payment or a deposit.

withholding statements can be filed online. You first need to obtain a one-time password from the relevant tax office. Statements filed through e-TDS must be verified by the relevant office.

The withholding agent must file a statement of the withholding with the relevant office under the Inland Revenue Department. The statement and the payment can be submitted together or separately.

The payer must deposit the withheld tax at the designated bank or office under the relevant revenue heading, and submit the statement and deposit details to the Inland Revenue Office where they hold their PAN, or the office nearest or related to the place of payment, within 25 days of the end of the month in which the payment was made.

Withheld tax, with the statement, must be deposited within 25 days of the end of the month in which the payment was made.

The username and password obtained once can be used indefinitely.

A username and password registered once can be used permanently.

1. 1Open ird.gov.np in Mozilla Firefox and click Taxpayer Portal.
2. 2Select the e-TDS folder and click the e-TDS menu.
3. 3Choose the submission number form and enter a username, password, PAN, withholder name, relevant office, phone number, withholding period (from and to dates), and voucher date (only if the voucher date is before 01/04/2075). Click Register.
4. 4A new submission number and a Transaction Entry button appear. Click Transaction Entry.
5. 5Click Download Sample, enter the withholding details in Microsoft Excel following the sample file, and save it as an Excel 97-2003 workbook (use Save as type).
6. 6Click Load Excel File to load the details into the TDS form, and check they loaded correctly.
7. 7Click the voucher entry form at the top of the page, enter the revenue heading, voucher number, voucher date, payment type (cash, bank or good-for payment) and amount, then click Add. Repeat for each additional voucher.
8. 8Once the withholding and voucher details are entered, click Save on the transaction form.
9. 9When complete, click Submit to file the statement with the relevant office.
10. 10If incomplete, log in later through Withholder Login in the e-TDS menu using the username, password and submission number, update the details and submit.
11. 11Click Print, and take the printout with the original vouchers to the relevant office to have it verified.

The statement is not treated as filed until it is verified, so verify it yourself or at the office within the deadline. Help is available from the e-TDS menu.

The system for filing statements of tax withheld from payments online.

The withholding agent must file the statement with the relevant office under the Inland Revenue Department within 25 days of the end of the month.

Within 25 days of the end of the month in which it was withheld, at the office under the Inland Revenue Department where the PAN is held or which covers the place of payment.

The person whose tax was withheld can claim the credit only against tax due for the income year in which the payment was made. A credit missed in that year cannot be claimed in a later year. However, once all other tax liabilities are settled, excess withholding tax paid can be refunded or carried forward against tax due in the next fiscal year.

Withholding tax, other than final withholding, can be credited against tax due with the income tax return. This does not apply to the D-01 return.

In the tax claim column of Schedule 10 attached to your return, simply enter the e-TDS transaction number along with the other details. No other documents, such as vouchers or withholding forms, need to be attached.

Contact the relevant office under the Inland Revenue Department for a username and password. Then:

1. 1Open ird.gov.np in Mozilla Firefox.
2. 2Click Taxpayer Portal.
3. 3Select the e-TDS folder and click the e-TDS menu.
4. 4Click Withholdee Login.
5. 5Enter your username and password to view your details.

online, provided the person who withheld the tax filed the withholding statement through e-TDS and verified it.

Tax withheld on Nepal-source, non-business interest paid to a natural person cannot be credited. In other cases, business-related withholding can be credited. Where more than the tax due has been paid, the person can claim a refund of tax other than final withholding.

Claim a refund of the excess tax paid, following the rules.

Tax withheld on rent received by a natural person not carrying on a business is final and cannot be credited. Tax withheld on rent received by a natural person carrying on a business, or by an entity, can be credited.

Except for payments to non-residents, it is not final and can be credited.

For a resident natural person, the employer withholds each month a proportionate share of the tax due on annual taxable income and deposits it. For a non-resident natural person, the employer withholds 25% of the payment.

As soon as you or the accounts officer notice the error, correct it and adjust the tax deposited from the following month. If the error is discovered only at the end of the fiscal year: where too much was deposited, claim a refund from the Taxpayer Service Office, Inland Revenue Office, Medium Level Taxpayer Office or Large Taxpayer Office where the employer is registered; where too little was deposited, immediately deposit the shortfall with a statement and the applicable fee and interest.

On employment income the employee does not pay tax directly; the employer withholds it. The employer must deposit it through e-Payment or at the Taxpayer Service Office, Inland Revenue Office, Medium Level Taxpayer Office or Large Taxpayer Office where it is registered. Contact those offices for any queries.

Obtain proof from your employer, or its accounts officer, that tax was withheld from your salary and deposited. The withholding agent must file the e-TDS statement and deposit the tax electronically within 25 days of the end of each month. The employee can obtain a username and password from the Taxpayer Service Office, Inland Revenue Office, Medium Level Taxpayer Office or Large Taxpayer Office that issued their personal PAN, and check the withholding deposited in their name. On that basis, if a tax clearance certificate is needed, it can be obtained from the office where the tax was deposited or the PAN was issued.

The employer must deposit the withheld tax through e-Payment or at the relevant Large Taxpayer Office, Medium Level Taxpayer Office, Inland Revenue Office or Taxpayer Service Office, whichever is linked to the employer's office location or the place of payment. The tax can be paid at a bank and the statement filed through e-TDS. If the employer does not withhold, the employee or couple must calculate and pay the tax themselves. A person with more than one job at a time, or with business income alongside employment, must file a return. Otherwise, once tax has been withheld and deposited, the employee does not need to file a return.

Tax is withheld when each month's salary, or any one-off payment, is paid, and must be deposited by the 25th of the following month.

The employee does not pay tax on employment income directly; the employer withholds it. The employer must deposit it at the Taxpayer Service Office, Inland Revenue Office, Medium Level Taxpayer Office or Large Taxpayer Office where the employer is registered.

The employer is liable for the tax that should have been withheld, plus interest at 15% a year under section 119 and a fee under section 120. An employer that withholds tax but does not file the withholding statement is charged a fee of 2.5% a year of the amount required to be withheld.

At the time of payment, or when the expense is recorded in the accounts.

Both. The person who should have withheld and the person from whom tax should have been withheld are jointly and severally liable.

The following payments are treated as final withholding payments:

• Dividends paid by a resident company or partnership firm
• Rent paid to a natural person, other than one conducting a business, for Nepal-source land or buildings and attached fixtures and fittings
• Benefits paid by a resident person under investment insurance
• Benefits paid by a resident person in respect of an interest in an unapproved retirement fund
• Interest paid by a bank, financial institution, other entity issuing debentures, or a company or cooperative listed under law, as referred to in section 88(3), to a natural person where the interest is Nepal-source and not connected with a business, or to a tax-exempt organisation under section 2(dha)
• Payments to non-residents subject to withholding under sections 87, 88, 88ka or 89
• All retirement payments, including those from the Government, an approved retirement fund or an unapproved retirement fund, other than regular pension
• Meeting allowances up to NPR 20,000 per meeting, and payments for occasional teaching, setting question papers or marking answer sheets
• Windfall gains
• Returns distributed by a collective investment scheme (mutual fund) to a natural person
• Vehicle or transport hire, or transport services, paid to a natural person other than a sole proprietorship

When a resident person pays a non-resident under a contract or agreement: 5% on aircraft maintenance and other contract payments; 1.5% on insurance premiums paid to a non-resident insurer; and in other cases, the rate stated in a written notice from the department to the resident payer.

5% on commission paid by a resident employment company to a non-resident.