Features of Income Tax as per Income Tax Act, 2002

Background

A tax is a compulsory payment to be paid by the citizens who are liable to pay it. There is no favor or advantage in return between the taxpayers and the public authority. A tax is levied to meet public expenditure incurred by the government in the general interest of the nation.

Tax is levied under the provision of the Income Tax Act, 2002, which provides for the imposition and collection of tax on the income of companies. Tax is levied on the net income after making deductions for certain expenses/allowances as specified in the Income Tax Act.

*Company means a body corporate or a company formed under the Companies Act of Nepal and includes foreign companies and other institutions such as Unit Trust, Cooperatives Society, or group of persons other than a partnership having less than 20 partners and proprietorship firm.

Income tax

Taxable Income

Income tax is levied on the net income earned or received from each of the following:

  1. Business income
  2. Employment income
  3. Investment income and
  4. Windfall gains

The income in relation to business consists of the profit or gain derived from conducting the business, including:

  1. Service fee
  2. Amounts derived from the disposal of trading stock
  3. Net gains from the disposal of business assets or liabilities
  4. Gain on the disposal of all depreciable assets in a pool of assets
  5. Gifts received in respect of the business
  6. Amounts derived as consideration for accepting a restriction on the capacity to conduct business; and
  7. Amounts derived that are effectively connected with the business and that would otherwise be included in income from an investment.

Taxation of Individuals

Resident individuals are subject to tax on their worldwide income derived from employment, business, or investment. Non-residents are subject to tax on their net income earned having source in Nepal.

Residence

A person who has resided in Nepal for a period of 183 days or more in a duration of consecutive 365 days or whose normal place of residence is Nepal are considered residents of Nepal. The dual residence is not recognized for the purpose of Nepalese tax.

There is no separate provision for taxing the income of short-term visitors. Depending on the length of stay, they will be classified as resident or non-resident and the Nepal sourced income shall be taxed accordingly.

Taxation of Income

Tax is levied on the total income earned or received by individuals with fewer deductions, relief, and incentives. Certain categories of income are not included in the total income of an individual but are taxed separately under special regimes.

 

DISCLAIMER – The information provided above is designed for helpful information on the subject discussed. It is not meant to be used, nor should it be used as legal advice.

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