

Income Tax

&

Value Added Tax

NEPAL

As per provision on 2071 Shrawan 1 (16 July 2014)

CA. Bhava Nath Dahal,

Advocate

Tax Instructor

Publisher Professional Studies Resources Developers (PSRD)

Naya Baneswar, Phone 01-4782832

Author/Editor CA. Bhava Nath Dahal

Fellow Chartered Accountant

MBA, LLB

Advocate

Arbitrator

Public Procurement National Instructor

International Instructor on SAI-PMF (INTOSAI)

First Edition : 2071 Kartik

Disclaimer: This is NOT an Act of Parliament. This is just translation and not qualified for translation of any statute. Any person using this as an Act of Parliament may creep or misinterprets or otherwise misleads, and hence advised to use Act as published in Nepal Rajpatra. Professional advices and comments are most welcome. Apart from those professional comments, any loss or intended loss using this is initially regretted.

PSRD Series No: 14/2014

## © CA. Bhava Nath Dahal

bhavanathdahal@gmail.com

Editor's First Edition Note

Nothing can be translated into another language as the original is. This is just an effort for using an English law translating from Nepal law. Nothing in this compilation is law itself through it shall be a value add for its user. I expect comments from my valued colleagues.

CA. Bhava Nath Dahal

2071 Kartik 1

In this works, some legal features are used as follows:

  * Use of CAPITAL LETTER: For the words or phrase having defined its technical meaning and applicable for whole act and regulation has written on the basis of First Letter Capital, e.g. Trading Stock in S.15(6) in pg.31. For the phrase having technical meaning and definition has given in any particular Section is given with adjoining "-", e.g. accrual-basis or Tax Period. Capitalization for most common usable word as 'Tax' has not following the pattern of above rule.

  * Use of abbreviation: Many of the usual and repeated words are shortened using its abbreviation form; e.g. Government of Nepal as GON, Tax Officer (for VAT) as TO, Director General as DG, Inland Revenue Office as IRO.

  * Reference to the another part of law or another law: Reference to another law has made in short form as Section 5 as S.5 and Clause (b) of Sub-Section (2) of Section 7 as S.7(2)(b) &c.

  * Use of Calendar: Even the translation has made in English, all the act/rule chronology are kept in Nepali Calendar basis. So Income Tax Act, 2058 has used instead translating it into Gregorian system of Income Tax Act, 2002. Legal reference days should undouble same in two system. Nepali year or month cannot be convertible into Gregorian system easily and conversion is one complex for general use, hence in all case Nepali month are taken as basis (consider one legal case where fiscal year was July-June basis, and a contract has entered for 1993.94, generally it means period covers July1, 1993 to June 30, 1994, the court in Ghana held that, this covers January 1, 1993 to December 31, 1994). For Non-Nepalese users, who need Common Era as calendar may email for the exact date.

  * Use of Chapter Key-notes: In the end of major Chapter of the Act, key-note are inserted based on the rules, manual, directives, public circular, advance rulings, court rulings. Some cases, it has been interpreted based on the publication of Fiscal Committee of the United Nations, Tax Committee of OECD or IMF and practice followed by the Department too.

# INCOME TAX ACT, 2058

Date of Publication in Nepal Gazettee 2058/12/19

An Act Framed to Amend and Consolidate Legislation Relating to Income Tax

Preamble: Whereas it is expedient to amend, consolidate and update the law relating to income tax with the objective of increasing revenue mobilization through an effective revenue collection procedure in order to ensure the economic development of the country,

Now therefore, Parliament has enacted this law.

#### Chapter 1 Preliminary

1. Short Title, Extent, and Commencement: (1) The name of this act is "Income Tax Act, 2058".

(2) It shall be applicable throughout Nepal, as well as to all Resident Persons, irrespective of where they may be living outside Nepal.

(3) It shall come into force at once.

2. Definitions: Unless otherwise meant with reference to the subject or context, in this Act:

(a) "Withholding Tax Agent" means a Person who is required to deduct advance tax according to Chapter 17 while making Payments in consideration of Employment, Investment returns, service fees, and contracts or agreements.

(b) "Officer" means Director-General, Deputy Director-General, Chief Tax Administrator, Director, Chief Tax Officer, Tax Officer, and other Officers working in the Department as mentioned in S.72.

(c) "Final Withholding Payment" means, as mentioned in S.92, Dividends, Rent, gains, Interest and Payments made to Non-Resident Person which are subject to withholding tax.

(d) "Retirement Fund" means an Entity established only with the objective of accepting and investing Retirement Contributions for the purpose of making Retirement Payment to the Beneficiary Natural Persons or their dependents.

(e) "Retirement Payment" mean Payments made to the following persons:

(1) Payments made to Natural Persons in the event of their retirement, or

(2) Payments made to the dependents of a Natural Person in the event of death.

(f) "Retirement Contribution" means a Payment made to a Retirement Fund in order to provide for Retirement Payment or for provisions to be made for retirement in future.

(g) "Incapacitated Person" means a Person who is incapable of managing own affairs due to physical or mental illness.

(h) "Income" means the income earned by any Person through Employment, Business, Investment or Windfall-gain, and the total amount of such incomes calculated under this Act.

(h1) "Windfall-gain" means casually received benefits and includes lottery, gift, prize, tips, winnings or similar receipts.

(i) "Income Year" means the period beginning on Shrawan 1 (mid-July around) of a year and ending on the last day of Ashadh (mid-July around) of the next year.

(j) "Gift or Donation" means any Payment made without getting anything in consideration, or, if the Payment with a consideration, and if the Market Price of the Payment exceeds that of the consideration, the Payment to the extent of such excess value.

(k) "Debt-Obligation" means an obligation equivalent to a Debt-Claim.

(l) "Debt-Claim" means the right of a Person to receive a Payment from another person; the term includes the right of a Person to get back the amount that had given to another person, the right to deposits made in banks and financial institutions, amounts due to be realized, debenture, bills of exchange, bonds, annuities, and the right to get amounts from Finance Lease and sales made under instalment plans.

(m) "Company" means a company established under the prevailing company law, and, for the purposes of tax, the following institutions also shall be treated as companies:

(1) Corporate bodies established under prevailing law.

(2) Any unincorporated association, committee, union or society, or registered or unregistered group or trust of persons, excluding proprietary and Partnership firms.

(3) Partnership firms comprising 20 or more partners which are registered or not registered under prevailing law in force, Retirement Funds, cooperative societies, Unit-Trusts, and joint ventures.

(4) Foreign companies.

(5) Any other foreign Entity prescribed by the Director-General.

(n) "Tax" means the tax imposed under this Act; the term includes the following Payments:

(1) In relation to the Assets of Tax-debtors, the expenses mentioned in S.104(8)(a) which the Department has incurred in consideration of the claim or auction.

(2) Amounts to be paid under S.90 by Withholding Tax Agent or withholdee, or amounts to be paid under S.94 by persons making Payments in instalments, or advance tax collectible under S.95A or amounts to be paid according to Tax Assessments made under S.99, S.100 and S.101.

(3) Amounts to be paid to the Department in relation to the tax liability of a third party under S.107(2), S.108(3) or (4), S.109(1), and S.110(1).

(4) Amounts as mentioned in Chapter 22 which are to be paid in consideration of fees and Interest, and

(5) Fines as mentioned in S.129 which are to be paid on the order of the Department.

(o) "Withholdee" means a Person who receives or is entitled to receive Payments after deduction of tax under Chapter 17 while being paid in consideration of Employment, Investment returns, service fees, and contracts or agreements.

(p) "Tax Assessment" means assessment of tax to be made under this Act; the term includes the assessment of fees and Interest made under S.122.

Provided, the term shall not include existing assessment of tax which has been replaced by the revised Tax Assessment made under S.101.

(p1) "Turnover" means transaction equals to the sum of all inclusions under S.7. S.8 or S.9 for calculating Income of Business, Employment or Investment in the Income Year.

(q) "Non-Resident Person" mean persons other than Resident Persons.

(r) "Non-Business Chargeable Asset" mean lands, buildings and Interest-in-Entity, or securities, other than the following Assets:

(1) Business Assets, Depreciable Assets or Trading Stocks.

(2) Private house of a Natural Person in the following conditions:

(a) Under continued ownership for more than 10-years, and

  2. Stayed in the house for more than 10-years continuously or at different times by the person.

Explanation: "Private house" for the purpose of this Clause means house and land of 1-ropani [5,476 sft~508.7370 m2] or land appurtenant to the house whichever is lower.

(3) Interest in Retirement Fund of a Beneficiary.

(4) Land and private house of a Natural Person which has been disposed of at a price of less than 3-million rupees, or

(5) Assets disposed of through transfer by any means, other than sale and purchase within three generations.

(s) "Tax-Exempt Entity" mean the following entities:

(1) Following of the Entities registered in the Department as Tax Exempted Entity:

(a) Social, religious, educational or charitable public organizations set up with the objective of not-for-profit.

(b) Amateur sports organizations set up for promoting social or sports facilities from which the organizations and their members do not intend to derive any benefit.

(3) Political parties registered with the Election Commission.

(4) Village Development Committees, Municipalities, or District Development Committees.

(5) [Repealed].

(6) [Repealed].

Provided, tax shall not be exempted in case any Person has derived any benefit from the Assets of an Entity entitled to tax exemption, and from the amounts received by such Entity, except when functions are executed according to the objectives of the Entity or when Payments are made for Assets or services provided by any Person to the Entity.

(t) "Trust" means an arrangement for holding property by a Trustee.

Provided, this term shall not include any Partnership or corporate body or any Entity mentioned in Sub-Clause (3) of Clause (m).

(u) "Trustee" means a Natural Person, Gùthi, or corporate body holding an Asset as a trust either singly or together with other Natural Persons, Gùthies, or corporate bodies; the term includes the following persons:

(1) Executor or administrator of the estate of a deceased person.

(2) Liquidator, receiver, or Trustee.

(3) Any Person who is protecting, directing, controlling or managing the Assets of an Incapacitated Person in a private or official capacity.

(4) Any Person who manages Assets under a private foundation or a similar foundation.

(5) Any Person with a position similar to that of a Person mentioned in Sub-Clauses (1), (2), (3) and (4).

(v) "Long-Term Contract" means a contract as mentioned in S.26 which is valid for more than 12-months.

(w) "Relatives" mean the husband, wife, son, daughter (including adopted son and daughter), father, mother, grand-father, grand-mother, elder or younger brother, sister-in-law (elder or younger brother's wife), elder or younger sister, mother-in-law, father-in-law, elder or younger brother-in-law, elder or younger sister-in-law, uncle, aunt, nephew, niece, grandson, and grand-daughter of a Natural Person.

(x) "Entity" means the following institutions and organizations:

(1) Partnership, trust, or Company;

(2) Village Development Committee (VDC), Municipality or District Development Committee (DDC);

(3) Government Of Nepal (GON);

(4) Any foreign government, or the provincial or local authority functioning under such a government, or a public international organization established through a treaty; or

(5) A Permanent Establishment of the institution or organization mentioned in Sub-Clauses (1), (2), (3) and (4) which is not situated in the country in which it is resident.

(y) "Interest-in-Entity" means a right, including a contingent right, to receive the income or capital of an Entity.

(z) "Disposal" means the disposal, including sale and transfer, of any Asset or Liability as mentioned in S.40.

(aa) "Underlying Ownership" means ownership as mentioned below:

(1) In respect to an Entity, the ownership created in the Entity on the basis of an Interest-in-Entity directly or indirectly by any Natural Person, or by an Entity in which no Natural Person has any Interest, through one or more interposed entities.

(2) In respect to an Asset under the ownership of an Entity, ownership of the Asset determined on the basis of the proportionate ownership of persons having Underlying Ownership of the Entity.

(ab) "Lease" means a temporary right of a Person to use the Assets, other than money, of another person; the term includes a license, Rental agreement, option, royalty agreement, or tenancy.

(ac) "Natural Person" means a Natural Person, and, for the purposes of this Act, the term shall also mean a registered or unregistered proprietary firm under the ownership of a Natural Person, and couple filing jointly under S.50 so as to be treated as a single Natural Person.

(ad) "Payments for Natural Resources" mean the following Payments:

(1) Amounts received for having the right to extract water, minerals or any living or non-living resources from the earth, or

(2) Amounts calculated on the basis of the total volume or value of the natural resources and living or non-living sources of minerals extracted wholly or partially from the earth.

(ae) "Market Price" means the normal transaction price of an Asset or service transacted between unrelated persons in the ordinary course of a Business dealing.

(af) "Rent" means all Payments including the premium in consideration of the Lease of a tangible property, including house rent.

Provided, the term shall not include Payments for Natural Resources.

(ag) "Payment" means the following acts:

(1) Transfer of an amount or Asset of one Person to another person, and of a liability of the latter to the former.

(2) In case an Asset created by one Person falls under the ownership of another Person after such creation, or in case the burden of a liability of a Person is borne by another person.

(3) In case one Person provides services to another person.

(4) In case an Asset owned by one Person is used or becomes available for use by another person.

(ah) "Distribution of Profit" means Distribution of Profits of an Entity made under S.53, including capitalization of profits.

(ai) "Unit-Trust" means a trust under which arrangements are made for a trustee to hold Assets for the benefit of at least 20 persons and for the right of the persons to share in the income or capital of the trust to be divided into units in such a manner that the right is determined by the number of units held.

(aj) "Employment" means any kind of past, present or prospective employment.

(ak) "Royalty" means any Payment made under a Lease of an intangible Asset; the term includes any Payment made for the following purposes:

(1) Use of or right to use a copyright, patent, design, model, plan, secret formula or process or trademark.

(2) Supply of technical know-how.

(3) Use of or right to use a motion picture-based film, video tape, sound recording or any other similar means, and using or sharing of industrial, commercial or scientific experience.

(4) Supply of any assistance in such a manner as to prove helpful in matters mentioned in Sub-Clause (1), (2), or (3), or

(5) Observation of a full or partial restriction regarding matters mentioned in Sub-Clause (1), (2), (3), or (4).

Provided, the term shall not include Payments for Natural Resources.

(al) "Investment" means an act of holding or investing of one or more Assets, other than:

(1) Act of holding of Assets by the Person used personally, or

(2) Employment or business.

(am) "Investment Insurance" means any of the following insurances:

(1) Insurance contracted in connection with the event of death of the insured Person or of an associate of the insured person.

(2) Insurance contracted in connection with the event related to personal injury or disability suffered in a particular manner by the insured Person or an associate of the insured person.

Provided, the term of the insurance agreement shall not be less than five years, or shall be for an unlimited period, and arranged in such a manner that the insurer may not terminate it before five years, except in special circumstances mentioned in the contract.

(3) Insurance contracted in such a manner that a certain amount or series of amounts is to be paid to the insured in the future.

(4) Reinsurance of insurance mentioned in Sub-Clause (1), (2), or (3), and

(5) Reinsurance of reinsurance mentioned in Sub-Clause (4).

(an) "Dividends" mean Distribution (of profits) to be made by an Entity.

(ao) "Resident Person" mean following persons in respect to an Income Year:

(1) In respect to a Natural Person:

(a) Place of normal residence is in Nepal.

(b) Stayed in Nepal for 183-days or more consecutively period of 365-days, or

(c) Posted by GON to a foreign country at any time during an Income Year.

(2) Partnership firm.

(3) In respect to trusts, a trust which:

(a) Is established in Nepal.

(b) The Trustee of the trust is a Resident Person in the Income Year.

(c) The trust is controlled in the Income Year by a Resident Person, or by a group of persons, directly or by means of one or more interposed entities.

(4A) Government of Nepal;

(4) In respect to Company, a company:

(a) Which is established under the law of Nepal.

(b) Whose management has been active in Nepal in an Income Year.

(5) Village Development Committee, Municipality, or District Development Committees;

(6) In the case of an Entity of a foreign government or of a provincial or local government of such a government, which is:

(a) Established under the law of Nepal, or

(b) Whose management has been active in Nepal in an Income Year.

(7) An institution or Entity established under a treaty or agreement, and

(8) A Foreign Permanent Establishment of a Non-Resident Person situated in Nepal.

(ap) "Person" means a Natural Person or an Entity.

(aq) "Manager" means a Person who participates in taking managerial decisions of an Entity; the term includes the Trustee of a trust, and a Person having ownership in a Foreign Permanent Establishment.

(ar) "Business" means any kind of industry, trade, profession or any other similar kind of Business transaction; the term includes a past, present or prospective Business of a similar kind. Provided, the term shall not include Employment.

(as) "Interest" means the following Payments or gains:

(1) Payments over the principal, made under a Debt-Obligation,

(2) Gains realized through a discount, premium, swap, or similar other modes of Payment under a Debt-Obligation, and,

(3) Amounts as mentioned in S.32 which are to be treated as interest from among amounts paid by a Person acquiring Assets under annuity or under instalment sales, or in consideration of use of any Asset under a Finance Lease.

(at) "Trading Stock" means the Assets owned by a Person and for sale in the ordinary course of Business, work-in-progress on such Assets, and inventories of materials that are to be included into such Assets.

Provided, the term shall not include an Asset in Foreign currency.

(au) "Business Asset" means an Asset used in a business.

Provided, the term shall not include Trading Stock or a Depreciable Asset in Business.

(av) "Distribution" means the distribution by an Entity as mentioned in S.53.

(av1)"Electronic Media" means computer, internet, email, facsimile, Electronic Cash Register, fiscal printer or similar approved media. This phrase covers any media prescribed by the Department having similar characteristics.

(aw) "Repatriated Income" means repatriate-able income sent through bank to a foreign country, or an amount paid through any other means, by a Non-Resident Person's Nepal-based Foreign Permanent Establishment mentioned in S.68.

(ax) "Foreign-Tax" means a foreign income tax mentioned in S.69(8) levied by a foreign country; the term includes the final withholding tax imposed by a foreign country.

(ay) "Foreign Permanent Establishment" means an Entity mentioned in Sub-Clause (5) of Clause (x).

(az) "Department" means the Inland Revenue Department.

(ba) "Asset in Foreign Currency" means an Asset denominated in any foreign currency other than the Nepali rupee.

(bb) "Permanent Establishment" means a place from where a Person fully or partially conducts business; the term includes the following places:

(1) A place where a Person fully or partially conducts Business through an agent, other than a general agent who functions in an independent manner, in the ordinary course of conducting business.

(2) A place where the main equipment or the main machinery of a Person is kept, used, or installed.

(3) One or more places of a country where a Person has provided any technical, professional, or consultancy service through employees or otherwise for more than 90-days in any period of 12-months, or

(4) A place where a Person is engaged in a construction, assembly, or establishment project for 90-days or more, and the place from where the supervision activities of the project are conducted.

(bc) "Asset" means any kind of tangible or intangible Asset; the term includes currency, goodwill, technical know-how, property, ownership or Interest of a Person in a foreign branch, a right to income or to receive income in the future, and any part of any such Asset.

(bd) "Associated Person" means one or more persons working according to the intentions of another Person or a group of such persons; the term includes the following persons:

(1) A Natural Person and relatives or a partner.

(2) A Foreign Permanent Establishment, and the Person having ownership in that establishment, and

(3) An Entity that controls or derives benefit from 50 percent or more of the income, capital, or voting rights of another Entity either by itself or in association with any Person connected with it, or with an associate Entity or any Person or Entity connected with such an associate Entity.

Provided, following persons shall not be treated as Associated Persons:

(1) Employees,

(2) Person prescribed by the Department as not being Associated Persons.

(bd1) "Adjusted Taxable Income " means Taxable Income of a Person without reducing any amount under S.12 and without deducting expense under S.14(2), S17 or 18 in an Income Year.

(be) "Partnership" means a firm which has less than 20 partners and which is registered or not registered under prevailing law in force..

Provided, the term shall not include a registered or unregistered proprietary firm or a joint venture.

(bf) "General Insurance" means any insurance other than an Investment Insurance.

(bg) "Standard Interest Rate" means the annual Interest rate of 15 percent.

(bh) "Approved Retirement Fund" means a Retirement Fund approved by the Department according to S.63(1).

(bi) "Service Fee" means any fee paid to a Person according to Market Price for the services provided; the term includes commissions, meeting allowances, management fees, or technical services fees.

(bj) "Shareholder" means a Person who is a Beneficiary of a Company.

(bk) "Depreciable Asset" means an Asset which is used for generation of income from any Business or Investment and whose value declines due to wear and tear, obsolescence, or the passing of time.

Provided, the term shall not include any Trading Stock.

(bl) "Beneficiary" means a Person having Interest-in-Entity.

(bm) "Prescribed" or "As Prescribed" means prescribed in the rules framed under this Act.

#### Chapter 2 Tax Base

3. Imposition of Tax: Tax shall be imposed and collected according to this Act on each of the following Person every Income Year:

(a) A Person having Taxable Income in an Income Year;

(b) A Foreign Permanent Establishment situated in Nepal of a Non-Resident Person who repatriates income of an Income Year under Sub-Sections (3) and (4) of S.68; and

(c) A Person who receives Payments subject to Final Withholding Tax in an Income Year.

4. Calculation of Tax and Rates of Tax: (1) The amount of Tax that a Person mentioned in S.3 has to pay in an Income Year shall be equal to the total amount of Tax that has to pay in the capacity of one or more Person as specified in Clause (a), (b) or (c) of that Section.

(2) The amount of tax payable by a Person under Clause (a) of S.3 shall be calculated by applying the appropriate rates mentioned in Schedule 1 to the Taxable Income of the Person during the Income Year concerned. The amount of Tax to be calculated shall be calculated by deducting the amount that the Person may claim for Tax credit under S.51 or 71 or both sections.

(3) Notwithstanding anything contained in Sub-sec.(2), the tax that a Resident Natural Person mentioned in S.3(a), who meets all the following conditions, shall be equal to the total withheld amount under S.87 from Payments made by employer during the Income Year:

(a) Income of the Income Year consist exclusively from Employment having source in Nepal;

(b) has only one Employment at a time during the year and each Employment is by a Resident employer; and

(c) claimed only a Medical tax credit paid through the employer, and a Reduction with respect to Retirement Contributions paid through the employer, and not claimed a reduction for Donation under S.12.

(4) Notwithstanding anything contained in Sub-sec.(2), the amount of tax that a Resident Natural Person mentioned in S.3(a) who has met all the following conditions has to pay in any Income Year shall be equal to the amount mentioned in S.1(7) of Schedule 1:

(a) Income of the Income Year consist exclusively from Business having source in Nepal;

(a1) has not claimed Medical tax credit under S.51 and Withholding Tax adjustment under S.93.

(b) The income earned from the Business does not exceeded Rupees two lakh and the turnover not exceed Rupees twenty lakh; and

(b) The Person has opted for the application of this provision in that Income Year.

(5) The amount of tax that a Foreign Permanent Establishment mentioned in S.3(b) has to pay shall be calculated by applying the rates given in S.2(6) of Sch. 1 to the income it repatriated in that Income Year.

(6) The amount of tax that a Person mentioned in S.3(c) has to pay shall be equal to the total amount calculated by applying the rates mentioned in S.87, 88 and 89 to every Payment subject to final deduction of tax received by the Person in that Income Year.

5. Taxable Income and Classification of Income Heads: The Taxable Income in an Income Year of a Person shall be equal to the amount by deducting the amounts claimed for reduction, if any, under S.12, 12A or 63 or all three Section, from the total amount of assessable incomes earned from each of the following heads of income in that year:

(a) Business,

(b) Employment

(c) Investment, and

(d) Windfall-gain

6. Assessable Income: Following incomes earned by a Person through any Business, Employment, Investment or casual gain in an Income Year shall be regarded as assessable income, subject to this Act:

(a) Income earned by a Resident Person in that year through Business, Employment, Investment or casual gain, irrespective of where its source is located, and

(b) Income earned by a Non-Resident Person in that year through Business, Employment, Investment or casual gain having its source in Nepal.

Provided, income which is non-taxed under S.11 or 64 shall not be included in the assessable income.

Concept Note and Enlightenment

  1. Key Concept and Key words- This Chapter deals the taxability of a Person in various capacity and tax-base of that Person. It refers various portion of the law for the tax rates. Almost cases, tax is multiplication of (taxable) income of that capacity of income. Key words in the Chapter: Tax-base, Final Withholding Tax (FWT), Repatriation Tax, Income Tax Return, Presumptive Tax, Assessable Income, Taxable Income , Full-tax liability (global/universal basis taxation), Limited-tax liability.

  2. Taxable Income and Presumptive tax\- Definition of Taxable Income has not given in the act but method to calculation is in S. 5 for the taxable Person as in S. 3(a). Taxation method u/Sec. 4(2) is based on tax rate given in schedule 1 with some adjustment in S. 11; but for small Business u/s 4(3), public transporter u/s 1(13) of Schedule 1 and for Employment u/s 4(3) is presumptive tax in nature. Gross income without any deduction is Taxable Income for Non-Resident having Nepal source income in cross boarder transport/data transmission u/s 70.

  3. Permanent Establishment- Definition and 4 types of Permanent Establishment (Agency, fixed based, site and service PE) has defined in S. 2, head office cost of PE is allowed as per S. 33, repatriation of income U/s 68 is taxed in the top of regular corporate tax. Act categorized such repatriation tax as separate tax.

  4. Final Withholding Tax- A list of Final Withholding Tax (FWT) has given in S. 92. No deduction is allowed as per S. 21 for income having FWT.

  5. Method of tax calculation\- of a Person (as in three capacity as described in S. 3 has described in S.4. For the Person having Taxable Income , tax is calculated multiplying it by the tax rate is schedule 1 and calculate tax is adjustable with medical tax credit u/s 51 or Foreign-Tax credit u/s 71. Two exception are there in this general rule of tax calculation are- specified employee (see ) Person having repatriating income to its principal or head office is calculated as xv 214.

  6. Tax Return not required\- Resident employee has to withhold tax on Employment based on the calculation of income for the year. If an employee has single resident employer and no other income or no further claim on tax benefit shall be final in nature. In case, employee joins second employer after leaving from first, of course, income and tax benefits from the first-mentioned employer required to be taken into account for Withholding Tax calculation by the second employer to obtain this tax benefit. In case the any employer is Non-Resident or employee have other inputs (of benefit or income) for tax calculation, then employee requires filing Income Tax Return.

  7. Full/limited Tax liability\- According to S.6, Person having foreign income, so-called global basis taxation (also called universal basis taxation or full tax liability) is levied for Resident in the world-wide tax base. For Non-Resident it is taxed in the income having source in Nepal only (so-called limited tax liability). For computation purpose, there is some interesting mathematics as individual source of income is computing for the Person at all source excluding exempt income (Sec.10 or non-taxed income of S.54 or 69) but computing Assessable Income concessional income is and income of ARF is subtracted (see i 206). This impacts additional fee for belated return or documents retention u/s 117.

  8. Reductions \- From Assessable Income 3 payments are allowed to reduce to compute Taxable Income are: Contribution to ARF (for Natural Person), Donation to Exempt Entity and Other (for all) and Contribution for Sports Development or for Heritage Protection (for tax Company). All three reductions are in tight control of authority as: approving the retirement fund, issuing exemption certificate and approving sports etc. cost prior to payment. These reductions are allowed for social cost of a tax-payer is acceptable to the state even the tax base erosion for the IY.

#### Chapter 3 Calculation of Income

7. Calculation of Income From Business: (1) Profits and gains made by a Person from operation a Business in an Income Year shall be taken as the inclusions of that Person from that Business in that Income Year.

(2) Profits and gains made by a Person in an Income Year by operation of a Business shall be calculated by including the following inclusions received by Person in that year:

(a) Service fees,

(b) Amounts received from the Disposal of Trading Stock,

(c) The person's net gains from the Disposal of Business Assets or liability calculated according to Chapter 8.

(d) Amounts which are to be treated as received under S.4(2)(a) of Sch.2 through the Disposal Depreciable Assets of the Business,

(e) Gifts received from the Person in connection with the Business,

(e) Amounts received in consideration of acceptance of any restriction in respect to the operation of the Business,

(f) Amounts received by the Person that is effectively connected with Business and would otherwise be included in income from Investment, and

(g) Other amounts to be included according to Chapter 6 or 7, or S.56 or 60.

(3) Notwithstanding anything contained in Sub-sec.(2), amounts exempt under Sections 10, 54 and 69, and Payments subject to final deduction of tax, need not be included while calculating profits and gains made from conducting a business.

8. Calculation of Income from Employment: (1) Remuneration received by a Natural Person through Employment in any Income Year shall be calculated as income from Employment in that Income Year.

(2) Following Payments made by an employer to a Natural Person in an Income Year shall be included in the calculation of remuneration Income from Employment during that Income Year:

(a) Wages, salary, amounts paid in lieu of leave, Payment for overtime work, fees, commissions, rewards, gifts, bonuses and other facilities.

(b) Dearness allowance, subsistence expense, Rent, entertainment or transport allowance, and any personal allowance.

(c) Payments received as settlement or reimbursement of the expenses incurred for personal purposes or Associated Person.

(d) Payments made in consideration of agreement to any condition of the Employment.

(e) Payments made in consideration of termination of Employment, loss, or compulsory retirement.

(f) Retirement Payment and Retirement Contributions, including amounts contributed by the employer to the Retirement Fund of the employee.

(f) Other Payments in connection with the Employment, and

(g) Other amounts to be included according to Chapter 6 or 7.

(3) Notwithstanding anything contained in Sub-sec.(2), the following need not be included while calculating the remuneration obtained by a Natural Person through Employment:

(a) Amounts exempt under S.10, and Payments subject to Final Withholding Tax.

(b) Meals and refreshments provided by the employer to the employee at the place of work that are available to all the employees on equal terms.

(c) Settlement or reimbursement of the following expenses incurred by an employee:

(1) In case the expenses meet the Business purposes of the employer, or

(2) Expenses, which are or would be exempted while calculating the income of a Natural Person from Business or Investment.

(d) Payment of the Prescribed small amounts maintenance of whose accounts is impractical or difficult from the administrative viewpoint.

Explanation: For the purpose of this Section, the term "Payments" mean Payments made as follows:

(a) that made by the employer,

(b) that made by a Person associated to the employer,

(c) that made by a third Person according to an agreement with the employer or a Person associated to employee.

9. Calculation of Income From Investment: (1) The profit and gains made by a Person from an Investment made in any Income Year shall be calculated as inclusions from that Investment in that Income Year.

(2) The profits and gains made by a Person from Investment in an Income Year shall be calculated by including the following inclusions received in that year:

(a) Dividend and Interest received from that Investment, Payments received in consideration of natural resource, Rent, royalty, gains made from Investment Insurance, and gains made from the benefit of Retirement Fund for which no approval has been obtained under S.63(1), or Retirement Payment received from the Approved Retirement Fund.

(b) The net gain made from the Disposal of the Non-Business Chargeable Asset of the Investment of the Person calculated under Chapter 8.

(c) In case the incomes (incomings) exceed the remaining value, including the expenses incurred (outgoings) for the Assets belonging to the group of Depreciable Assets under S.4(2)(a) of Schedule 2, at the time of Disposal of the Depreciable Assets of the Investments made by the person, the excess amount.

(d) Gifts received by the Person in relation to the Investment.

(e) Retirement Payment made in relation to the Investment, and the Retirement Contributions along with amounts deposited in the Retirement Fund for that person.

(f) Amounts received in consideration of consent given to any prohibition in relation to the Investment, and

(g) Other amounts to be included as per to Chapter 6 or 7, or S.56.

(3) Notwithstanding anything contained in Sub-sec.(2), the following shall not be included while calculating the profits and gains made by a Person from Investment:

(a) Amounts exempt under S.10, 54, and 69, and Payments subject to final deduction of tax, and

(b) Amounts to be included while calculating the income of the Person from Employment or business.

Concept Note and Enlightenment

  9. Key Concept and Key words - This Chapter describe the income recognition procedure (Employment, Business or Investments) of a Person having Taxable Income . Key-words: Employment, Business, Investment, Inclusions, per-country basis, couple filing jointly, qualified widow/er.

  10. Slice-by-slice basis\- S.7 deals the list of Inclusion for a business; similarly S.8 and 9 deals list of Inclusions for an Employment and Investments. Apart from the list, there are many Inclusions scattered in the act. Income is computed for each head separately for an IY (so-called slice-by-slice basis or scheduler income). This Slice-by-slice basis calculation is required for each of source if a Person has more than one income source under that head of income. So, a Person having 3 business require to compute Income from Business for each business separately and then aggregate them. These source of income is calculated for source in each country, so-called per-country basis even though this Chapter is silence about this approach. Per-country basis calculation and slices within same head of income is required for the purpose of S. 67, 20, 36 and 71.

  11. Tax Unit is Person, not a Group\- Taxable Income is computed for a Person, not for any combined form as group of Associated Person. Exceptions are Resident Natural Person being husband and wife may opt for a couple for a particular IY in writing (so-called Couple-filing jointly) or Resident widow or widower with dependent may opt for a single tax unit for a particular IY in writing (so-called Qualified Widow/er). There is little bit tax benefit for such option, hence, if this option is practically beneficial for those having no income of counterpart opting so far. In the case of CFE u/s69, attributable income is deemed as equivalent to branch but not a consolidated ITR.

  12. More than one or no Tax Returns \- General definition of Income Year (IY) is period from Shrawan to Ashadh of next year, which is same as governmental fiscal year (FY). Person require to file ITR for an IY. Some cases a Person is require to file more than one ITR (so multiple Taxable Income ) for the same fiscal year. In the conditions u/s 96(5)- Jeopardy Assessment u/s100, for the purpose of S.57 –change of control, for the purpose of conversion of ARF to URF u/s 64, same Person require to file more than one ITR. Earlier part of FY as being ARF, for the purpose of conversion of ARF to URF u/s 64, ITR to be filed for IY having numerous FYs too. In the next hand, a Person require to treat itself as more than one tax unit for the purpose of S. 11 or 70. Hence, theoretically, one person may have more than one Taxable Income for an IY. This concept has tighten in fee computation in S.117 for practical parlance.

  13. Priority of income\- In case any source is doubt about the source, there is priority of slice as Employment, Business or Investments as per S.2. "Employment" is typically an earning activity consisting predominantly of the provision of labor by an individual under a master-servant relationship. It includes managers of entities like director, Trustees or working promoters. "Business" include trades, professions, vocations, and arrangements with a Business character (means labor and capital combination- active involvement in earning activity). "Investment" covers any income generating Assets with the capital employed only and investors involvement to generate this income is passive (passive income). For all heads on income, each of the definitions of "Employment", "business", and "Investment" is extended to include past, present, or potential Employment, Business, or Investment, respectively. Hence, pension is taxable in the year of receipt as well as dividend from earlier year income or interim dividend from prospective income is taxed to the new Shareholders.

  14. Investment as Business\- One thing of importance in the inclusion in calculating income from a Business is has to pay good care u/s.7(2)(g). Income from an Investment that is effectively connected with a Business is Inclusion for Business and not for Investment. No further expiation has given in this regard. Similar wording are used for DTAAs with all 10 countries (Article 10 Para 4) as defined by OECD and UN as the investment income in the form of active participation is business in nature. Almost cases of investment income of an Entity is taxed under Business. For Natural Person, almost investment income are FWT payments. Hence, practically there is no income from business.

  15. Inclusions list is inclusive in nature\- S. 7(2), 8(2) and 9(2) gives a list of Inclusions to compute the income. By contrast, the list is not a perfect list for the whole act. For example, S. 7(2) has given a list of inclusions, but various S. of the act has more list of inclusion. Just for comparison -7(2)(a)-Service fees, 7(2)(b)-Disposal of Trading Stock, 7(2)(c)-Net gains Business assets or liability. 7(2)(d)-Balance Charging from Depreciation pool, 7(2)(e)-Business gift, 7(2)(f)-Amounts received on acceptance of Business restriction, 22(6)-Gain on changing of tax accounting basis, 24(4)/28-Foreign exchange gain, 25-Bad debt recovery, 25-Earlier deducted expense not required to pay, 26-Cumulative gain from Long-Term Contract, 27-Accommodation facility (25% of rent paid or imputed), 27-Vehicle facility (1% of Market Price per annum), 27-Utilities (cost paid less contribution), 30-Joint Investment income (fiscally transparent basis), 31-Compensation (insurance or other), 32-Interest from finance Lease, 41(3)-Change of residential status to Non-resident, 47A-Loss reversal in demerger, 54-Dividend from Investments in foreign entity (other than CFE), 57-Change of controlling ownership, 58-Dividend stripping, 59-Loan loss provision not required, 59-Loan loss provision more than 5% of loan-base, 69-Attributable income from CFE, 70- cross boarder transportation or data transmission.

  16. Exclusion list is inclusive only\- S. 7 to 9 is the list of inclusions for different heads of income. In the 3rd Sub-Sections, there is exclusion list- primarily exempt income or FWT Payments or Payments for reimbursement. Such exclusion is allowed either based on tax policy (exempt) or already tax (FWT Payment) or just settlement of earlier payments (Reimbursement). The list given is not a complete list of exclusion, for example, Inclusions for Employment is all the payments from employer (or its Associates) to employee (or Associates) but it excludes more than the exclusion given in S. 8(3) as - Outstation travel and daily allowance, Reimbursement of or settlement of employers cost, Employment payment from income that is non-taxable for Natural Person, Small and non-recurring expense upto Rs.500 at a time, Clothes if applicable for workplace only, Duty meals, if available to all, Training cost, Pension from foreign public fund to ex-security personnel, Diplomats working in Nepal.

  17. Income excluding from Inclusions\- In all 3- cases of source of income, exempt income U/s10, dividend from trust u/s54 and dividend income from CFE u/s 69 is not included. Apart from these income, compensation against insurance and gain from disposal of land and building to the extent of sale of Rs.30 lakh or building owned more than 10 years to natural person is also non-taxable receipt u/s31 (see para. in p.51).

#### Chapter 4 Exempt Amounts and Other Concessions

10. Exempt Amounts: Following amounts shall be exempt from tax:

(a) Tax exempt amounts derived by a Person enjoying tax exemption facilities as provided for in a bilateral or multilateral treaty or agreement signed between Government of Nepal and a foreign country or an international organization or institution.

(b) Amounts derived by a Natural Person in consideration of Employment in the government service of a foreign country. Provided,

(1) The Person is a Resident Person solely by reason of performing the Employment or is a Non-Resident Person; and

(2) Such amounts shall have been paid from the public funds of that country.

(c) Amounts derived by a non-Nepali citizen Natural Person mentioned in Clause (b), or by immediate family member, from the state funds of foreign country.

(d) Amounts derived by a non-Nepali citizen appointed in the service of GON on the condition of tax exemption.

(e) Allowances paid by GON to widows, elders, and disabled person.

(f) Amounts derived as gifts or wills, or as inheritance, or scholarships, other than those that are to be included in calculating income under S.7, 8, or 9.

(g) Following amounts derived by an Exempt Organization:

(1) Donations and gifts,

(2) Other contributions directly related to the functions of an Exempt Organization under S.2(s) which are made to such organization without expecting any consideration,

(3) Amounts earned by Nepal Rastra Bank under its objectives, or

(4) Amounts earned by Security Exchange Board of Nepal under its objectives,

(h) Amounts derived from public fund of a foreign state as pension by Nepali citizen who have retired from the service of the army or the police of a foreign nation.

(i) Any income of Government of Nepal.

11. Business Exemptions and Concessions: (1) Agricultural incomes, except those made through agriculture-related Business conducted after registration as a firm, Company, Partnership or corporate body, including agricultural income on lands mentioned in Clauses (d) and (e) of S.12 of the Land Related Act, 2021, shall be exempt from tax.

(2) Cooperative societies or unions registered and operated under Cooperatives Act, 2048 from such agro or forest based industries as sericulture and silk production, horticulture and fruit processing, livestock farming, dairy industry, poultry farming, fish farming, cultivation and processing of tea, coffee, and medicinal herbs, production of vegetable seeds and saplings, beekeeping, honey production, rubber cultivation, enterprises relating to commercial forests, such as Leasehold forests and agro-forestry, as well as cold storage for the storage of vegetables, agricultural seeds and saplings, veterinary feeds, insecticides, fertilizers, and agricultural tools (except those operated through mechanical power) and rural community-based saving and credit is not taxed. Tax on Dividends distributed by such unions or societies is also not levied.

Explanation: The term "rural community" means metropolis or sub-metropolis including adjoin VDCs and municipals for this Sub-section.

(2a) No tax is levied in the interest up to Rs.25,000 from the deposit in rural-based micro-bank, rural development bank, postal saving bank and cooperatives as per Sub-sec.(2).

(3) Tax shall be imposed as follows on income made by a Person from Special-Industry and Information Technology Industry in an Income Year:

(a) If direct Employment for 300 or more Nepali nationals throughout the year, 90 percent of the rate of the tax imposed on the income of that year for Special-Industry and Information Technology Industry; if direct Employment for 1,200 or more Nepali nationals throughout the year, 80 percent of the rate of the tax imposed on the income of that year for Special-Industry; If direct Employment including at least 33% to female, dalit or Incapacitated Person for 100 or more Nepali nationals throughout the year, 80 percent of the rate of the tax imposed on the income of that year for Special-Industry.

(b) In case any Special-Industry is operated in a very-undeveloped, undeveloped or underdeveloped area, tax shall be imposed at the rates of 10, 20 and 30 percent respectively of the rates otherwise applicable, for 10-years including the year in which the industry started its operation.

(c) Special industry with capital investment of more than Rs.1 billion and providing direct employment to more than 500 Nepali throughout the year shall avail exemption in income tax for first 5-years and 50% of the applicable tax rate in subsequent 3-years.

Provided, if existing industry enhance the capital requirement and the employment requirement including at least 25% increase in their installed capacity the exemption shall be provided on the increased income from increased capacity.

(3a) Tax concessions to industries established at Specified Economic Zone and on dividend distributed by them shall be follows:-

(a) In case the industry is established at Special Economic Zone situated at Himali districts or at any hilly districts notified by Government of Nepal, the industry shall avail an income tax exemption for 10-years from the commencement of the business and 50% of tax then-after.

(b) Industry established Special Economic Zone other than stated in Clause (a), shall avail tax exemption for 5-years from the commencement of the business and 50% of tax then-after.

(c) Dividend distributed by Industry in Special Economic Zone for 5-years from the commencement of the business is exempt from tax and 50% of the applicable tax rate in subsequent 3-years.

(d) Tax concessions at 50% is provided on income generated as service charge or royalty for technology transfer or management services provided by a foreign investor for the industries established at Special Economic Zone.

(3b) In a case, Entity involving research and extraction of petroleum or natural gas starts commercial production upto Chaitra-end 2075, such Entity shall exempt from tax for first 7-years and 50% of the applicable tax rate in subsequent 3-years.

(3c) Industry relating to software development, data-processing, cyber-café, digital established in the technology-park, biotech-park and information technology park, as specified by the Government of Nepal by a notification in the Nepal Gazette is exempt for 50% of applicable tax.

(3d) In a case, Entity receiving license for the production, transmission and distribution of the hydro-electricity starts commercial production, production and transmission, production and distribution or production, transmission or distribution, upto Chaitra 2075 B.S., such Entity shall exempt from tax for first 7-years and 50% of the applicable tax rate in subsequent 3-years. Such a facility shall also be provided to the solar power, wind power and bio-power production. Provided,

(a) In case a hydro-power project started its construction up to 2071 Bhadra 7 and starts commercial production till Chaitra-end of 2080, tax is exempt for first 10-years and 50% of the applicable tax rate in subsequent 5-years.

(b) In the case of a licensee who has already started commercial production at the time of commencement of this Sub-section the provision prevailing at the time of receiving of the license shall be applicable.

(3e) Tax concession of 25% of applicable tax rate is allowed for export from manufacturing industry.

(3f) Tax concession of 40% of applicable tax is allowed for the income from investment to construction and operation of road, bridge, airport, underground way, or operation of tram or trolley bus.

(3g) Tax concession of 10% is allowed to the Entities relating to manufacturing, tourism, hydropower, and those as per Sub-sec.(3c) having listed in security market.

(3h) Tax exemption for first 10 years from commencement of commercial transaction is allowed for very-remote based industry producing fruit-based brandy, sider or wine.

(3i) Tax concession of 25% is allowed in the royalty income from export of intellectual property.

(3j) Tax concession of 50% is allowed in the income from sale of intellectual property.

(3k) Tourism industry or airlines having international flights with capital investment of more than Rs.2 billion shall exempt from income tax for first 5-years and 50% of the applicable tax rate in subsequent 3-years.

Provided, if existing industry or airlines enhance the capital requirement including at least 25% increase in their installed capacity the exemption shall be provided on the increased income from increased capacity.

(4) A Person entitled to a concession under Sub-sec.(1), (2), (3), (3a), (3b), (3c) and (3d), Sub-sec.(13), (14) & (15) of S.1. of Sch.1, Sub-sec.(2), (3), (3a) & (4) of S.2 of Sch.1 shall calculate income as stated in those Sub-sections as a separate Person has earned only that income.

(5) In case more than one concessions on a single income under this Section entitled to a Person, shall be entitled to only one concession opted.

(6) Notwithstanding anything contained in Sub-sec.(3), in case the Assets used for the operation of the industry mentioned in Clause (b) of the said Sub-section had been used earlier by another Person for the operation of the same type of industry, the period of such use shall also be taken into account while calculating the period of such use under the said Sub-Section.

(7) Notwithstanding anything contained in Sub-sec.(3a) and (3c), in case the Assets used for the operation of the industry had been used earlier by another Person for the operation of the same type of industry, the period of such use shall also be taken into account while calculating the period of such use under the said Sub-Section.

Explanation: For the purpose of this Section,

(a) Agriculture Business means the Business of producing crops from public or private lands, or obtaining Rent or crops from a tenant using land.

(b) "Very-undeveloped", "undeveloped" and "underdeveloped" areas mean the areas mentioned in Schedule 3 of Industrial Enterprises Act, 2049.

(c) "Special industries" mean manufacturing industries as classified in S.3 of Industrial Enterprises Act, 2049 other than industries producing cigarettes, bídís, cigars, chewing tobacco, khàiní, and similar other products with tobacco as the basic raw material, and industries producing liquor, beer, and similar other products.

11A. Tax on build and operate of infrastructures: If any agreement is concluded between the Government of Nepal and any Person for building and operating infrastructures, the Person building and operating such infrastructures shall be entitled to enjoy tax facilities provided by this Act pertaining to tax prevailing at the time of conclusion of that agreement during the period of such agreement.

11B. Relaxation to the infrastructure development projects of national importance: No source of income shall be sought on the investment if it is made upto 2075 Chaitra-end, in the case of hydro-power, international airport, underground ways, roadways, railways and similar infrastructure development projects of national importance and the manufacturing industry (other than cigarette, alcoholic beverage and beers) employing more than 300 workers and using domestic raw material more than 50%.

12. Donations and Gifts to Exempt Organizations: (1) Calculating Taxable Income for any Income Year, a Person may make a claim for the reduction of the amounts gifted or donated to an Exempt Organization that is approved by the Department for the purpose of this Section.

(2) Notwithstanding anything contained in Sub-sec.(1), expenditures that may be reduced in an Income Year under the said Sub-Section shall not exceed Rs.100,000, or five percent of the Adjusted Taxable Income of the Person for that year.

(3) Notwithstanding anything contained in Sub-Sections (1) and (2), GON may, in special circumstances, prescribe that the amount spent or donated by any Person for any purpose specified by notification in the Nepal Rajapatra may be fully or partially reduced while assessing the income of that person.

12A Contribution for Heritage Conservation and Sports Development: On calculating the Taxable Income in an Income Year if the expenditure is made on prior approval of the Department, a Company can claim a reduction of to the extent of lower of 10% of Assessable income, and Rs.1 million for conservation and promotion of ancient, religious, and cultural heritage situated in Nepal or construction of public physical infrastructure for sports.

Concept Note and Enlightenment

  18. Key Concept and Key words - This Chapter exemptions, concessions, and reductions from tax accounting. Exclusions from tax has strict interpretations (in favor of authority) hence Person obtaining these benefits requires to fulfill all the requirement. Taxation authority has tight control in this regards. Key-words: Exemption, Concessions, Donation, Gift, Reduction.

  19. Exempt income\- Income that exclusively non-tax due to specific provision of the tax law is exempt income. S.10 deals on exempt list of income; again inclusive in nature, because other Section also allowed some exemption as accident compensation u/s 31, payments from NP to employee from which income is not taxed u/s 8(3), non-business payments from NP to NP (except rent), dividend income from trust or dividend imputation u/s 54. All the income of political parties or local government is exempt from Definition u/s 2. There are some exemptions based on international treaties entered or ratified by GON as Income of a Diplomatic subject (immunity under Diplomatic Conventions as well as S.10), the World Bank or IMF or UN, SAARC or similar organization (ratification of Charter). Social contributions as incapacitation or old aged allowance etc. or donation income of an Exempt Organization or ex-security's pension from foreign fund is exempt.

  20. Concessional income\- Income earned by person fulfilling the provision of S.11 is not require to pay tax (but filing ITR is required). Some of income are not taxed forever and many concessions are periodic, even some are linked with useful life of employed equipment. Agro-income (includes vet-income too) is non-taxed for the farmers level only. The provisions u/s 11 are self-explanatory and need not to describe here. Same person, if allowed more than one benefits may opt for only one if the benefit is per-year basis, whereas in case the benefit is opted in one year for a periodic concession, it should continue to the given period, and each case of benefits require separate tax accounting.

  21. Special Relief and non-white source\- S.11A and 11B have some special relief on taxation for investing in public infrastructure business and source there is not subject of its color [tax-shelter for infrastructure and its source]. In case a Person having non-white source income invested in infrastructure or specified manufacturing business, there is immunity of source of such fund (and the tax on those source too). This provision is conflicting with the commitment made by Nepal to FATF and against Anti-Money Laundering laws.

  22. Reduction of donation etc.- S. 12 and 12A allows a tax-payer to reduce certain potion of its Assessable income (capped reduction) to make donation and to contribute for sports development and heritage protection. Both concept are based on social obligation of tax through tax-payer. Tax-Exempt Entity obtaining donation is tax free income, remaining income is taxed as classical tax.

#### Chapter 5 Deductible Amounts

13. General Deductions: For the purpose of calculating Income from any Business or Investment in an Income Year, subject to this Act, a Person may deduct the following expenses connected with transactions:

(a) incurred in that Income Year,

(b) incurred by the Person, and

(c) incurred in the acts of earning Income from Business or Investment.

14. Deduction of Interest: (1) For the purpose of calculating the Income made by a Person from Business or Investment in an Income Year, may deduct all amounts paid as Interest during the year under the following Debt-Obligations arisen for earning Income from Business or Investments of the Person:

(a) In case a Debt-Obligation has emerged as a result of an amount obtained as a loan, if that amount was used up in the same year or used in acquiring an Asset used in the same year, or

(b) In case the Debt-Obligation has emerged in any other circumstances.

(2) Notwithstanding anything contained in Sub-sec.(1), the amount of Interest paid by a resident Entity controlled by an Exempt Organization to that organization or associates that controls the resident Entity may deduct in an Income Year under the said Sub-Section shall not exceed the total of the following amounts:

(a) All Interest amounts received in that year that are to be included in calculating Taxable Income of that Entity, and

(b) Fifty percent of the Adjusted Taxable Income of that Entity in that year which has been calculated without including the amounts of Interest received or without deducting the amounts of Interest paid by that Entity.

(3) The remaining amount of Interest which is not allowed to be deducted or not deducted according to Sub-sec.(2) may be carried forward and shown as expenses during the next year.

Explanation: For the purpose of this Section, the term "a resident Entity controlled by an Exempt Organization" in respect to an Income Year means an Entity which became a Resident Entity in that year and in which the following persons or organizations enjoyed Underlying Ownership or control of 25 percent or more at any time in that year:

(a) Exempt Organizations, and persons associated with them.

(b) Persons enjoying tax concession in that year under S.11, or persons associated with such persons.

(c) Non-Resident Persons or persons associated with them, or

(d) Any combination of persons mentioned in Clauses (a), (b), and (c).

15. Deduction for Cost of Trading Stock: (1) While calculating a Person's Income during an Income Year from any Business, no deduction shall be allowed for the cost of Trading Stock except the allowance determined under Sub-sec.(2) in respect to the Disposal of such stock during the year.

(2) The allowance referred to in Sub-sec.(1) may be calculated by deducting the amount given in Clause (b) from the amount given in Clause (a) as follows:

(a) The amount calculated by adding the cost of the Trading Stock acquired by the Business in the Income Year to the opening value of the Trading Stock of the Business in that Income Year.

(b) The amount of the closing value of the Trading Stock of the Business in the Income Year mentioned in Clause (a).

(3) The opening value of the Trading Stock of a Business in an Income Year shall be the closing value of the Trading Stock of that Business at the end of the preceding Income Year.

(4) The lower of the amounts mentioned below shall be regarded as the closing value of the Trading Stock of the Business in that Income Year:

(a) The cost of Trading Stock of the Business at the end of the Income Year, or

(b) The Market Price of Trading Stock of the Business at the end of the Income Year.

(5) Any Person who is calculating the cost of Trading Stock of Business shall do so in the following manner subject to S.45 and Sub-sec.(6):

(a) In the case of a Person who keeps accounts on a cash-basis while calculating the Income from Business, by using the prime-cost or absorption-cost method, or

(b) In the case of a Person who keeps accounts on an accrual-basis while calculating the Income from Business, by using the absorption-cost method.

(6) In case it is not possible to calculate the Trading Stock of the Business of a Person (in item-to-item basis), make a choice between the first-in-first-out method and the weighted average-cost method to calculate the Trading Stock of the Business.

(7) While calculating the cost of Trading Stock under Sub-sec.(5), the following method shall be followed:

(a) In case the absorption-cost method is adopted, the cost of Trading Stock shall be calculated according to the generally-accepted accounting principles under which the cost of Trading Stock is equal to the total of direct material costs, direct labor costs, and factory overhead costs.

(b) In case the prime-cost method is followed, the cost of Trading Stock shall be calculated according to the generally-accepted accounting principles under which the cost of Trading Stock is equal to the total of direct material costs, direct labor costs, and variable factory overhead costs.

(8) While calculating the cost of Trading Stock under Sub-sec.(6), the following method shall be followed:

(a) Calculation to be made according to the weighted average- cost method shall be made as per the generally- accepted accounting principles under which the cost of a particular type of Trading Stock is calculated as the weighted average cost of all Trading Stock of that type in the Business.

(b) Calculation to be made according to the first-in-first-out method shall be made as per the generally-accepted accounting principles on the basis of the assumption that Trading Stock is disposed of in the order of its acquisition.

Explanation: For the purpose of this Section:

(a) Direct labor cost means the labor cost directly related to the production of Trading Stock.

(b) Direct material cost means the cost of materials that constitute or may constitute the integral part of the trade stock.

(c) Factory overhead cost means the total cost of manufacturing the Trading Stock, except direct labor and direct materials costs.

Provided, the factory overhead cost does not include any amount of repair & improvement cost and depreciation.

(d) Variable factory overhead cost means the overhead cost that varies along with the variation in volume of Trading Stock manufactured.

Provided, the factory overhead cost does not include any amount of repair & improvement cost and depreciation.

16. Repair and Improvement Costs: (1) While calculating Income from Business or Investment in an Income Year, a Person may deduct all the expenses incurred on the repair and improvement of the Depreciable Assets owned and utilized in that year in order to earn income from that Business or Investment.

(2) Notwithstanding anything contained in Sub-sec.(1), the expenses that may be deducted under the said Sub-Section shall not exceed seven percent of the depreciation-base of the pool of Assets at the end of that Income Year.

Provided, this ceiling shall not apply for the expenditure incurred for overhauling of aircraft as per standard recognized by Civil Aviation Authority of Nepal to Person having air-transport service.

(3) Any excess expenditure of repair and improvement or part thereof that may not be deducted as a result of the limit mentioned in Sub-sec.(2) may be added to the depreciation-base of the concerned pool of Assets in the beginning of subsequent Income Year.

17. Pollution Control Expenses: (1) While calculating Income from Business in an Income Year, a Person may deduct the pollution control expenses to the extent actually incurred to operate the Business in that year.

(2) Notwithstanding anything contained in Sub-sec.(1), the limitation of expenses that may be deducted shall be not more than 50 percent of Adjusted Taxable Income of all the Businesses of the Person.

(3) The excess expenditure that may not be deducted beyond the limit mentioned in Sub-sec.(2) or a part thereof shall be capitalized in the beginning of subsequent Income Year and may be depreciated according to Schedule 2.

Explanation: For the purpose of this Section, Pollution Control Expenses mean the expenses incurred by the Person expecting to controlling pollution or protecting or conserving the environment in any other way in connection with a process.

18. Research and Development Expenses: (1) While calculating Income from Business in an Income Year, a Person may deduct the research and development expenses to the extent actually incurred to operate the Business in that year.

(2) Notwithstanding anything contained in Sub-sec.(1), the limitation of expenses that may be deducted shall be not more than 50 percent of Adjusted Taxable Income of all the Businesses of the Person.

(3) The excess expenditure that may not be deducted beyond the limit mentioned in Sub-sec.(2) or a part thereof shall be capitalized in the beginning of subsequent Income Year and may be depreciated according to Schedule 2.

Provided, the expenses incurred for acquiring any Asset mentioned in S.1(3) of Schedule 2 shall not be included in such expenses.

Explanation: For the purpose of this Section, Research and Development Expense mean the expenses incurred by a Person in order to promote Business and improve Business products or processes.

19. Depreciation Allowances: (1) While calculating Income from Business or Investment in an Income Year, a Person requires to deduct depreciation allowances as mentioned in Schedule 2 in consideration of depreciation of the Depreciable Assets owned and utilized for earning income from Business or Investment in that year.

(2) Notwithstanding anything contained in Sub-sec.(1), in respect of depreciation of machines, equipment and other machinery installed in a public infrastructure built, own, operate and transfers to GON project, and a project relating to construction of a power house and generation and transmission of power, shall be taken as follows:

(a) In case the existing machines, equipment, and machinery have become old or obsolete and thus unworkable, so that new machines, equipment and machinery need to be installed to replace them, the value left in balance in the Income Year of such installation after deducting the depreciation of the old or obsolete and unworkable machines, equipment and machinery up to the concerned year from their cost shall be deducted as expenses.

(b) The value of remaining Assets at the time of transfer to GON by the Entity, other than the old Assets replaced out under Clause (a), if any, after deducting the depreciation of the Assets up to the Income Year from its cost by the Entity shall be deducted as expenses.

20. Loss From a Business or Investment: (1) A Person may calculate income from a Business or Investment in an Income Year by deducting the following losses:

(a) Any unrelieved loss of the year incurred by the Person from any other Business, and

(b) Any unrelieved loss of the previous seven income-years incurred by the Person from any business.

Provided, in the case of Entity operating public infrastructure projects to be built, own, operate and transfer to GON; projects relating to the construction of power houses, generation, transmission of electricity; and petroleum business according to Nepal Petroleum Act, 2040 any unrelieved loss of the past twelve years shall be deducted.

(2) A Person may calculate the Income from Investment in an Income Year by deducting any loss from any other Investment during the year or unrelieved loss from same or other Investments in last seven years.

(3) Subject to Sub-Sections (1) and (2), and for the purposes of the said Sub-Sections, any unrelieved loss incurred by a Person in respect of a foreign source may be deducted only while calculating income from a foreign source, and any unrelieved loss incurred by a Person while receiving a tax-free income may be deducted only while calculating such income.

(4) Subject to Sub-Sections (1) and (2), in case a Person suffers a loss in an Income Year in which a Long-Term Contract under International Competitive Bidding Procedure completes or otherwise disposes, or in case any unrelieved loss that may be carried forward to the next year under Clause (b) of Sub-sec.(1) is connected with such Long-Term Contract, the Department may permit to take following actions in respect of that loss by issuing a written notice:

(a) To carry back to the preceding Income Year or years, and

(b) While calculating the Income from Business connected with the Long-Term Contract during that year or those years, in case it is found that the amounts to be included in income exceed the amounts to be included in expenditure, to treat only the extent of such difference as an unrelieved loss.

(5) Following loss by a Person in Income Year shall be regarded as connected with Long-Term Contract(s), and allocated as:

(a) Loss from the Long-Term Contract or contracts connected with the Business, and

(b) Loss incurred for each contract, that the expenses to be deducted while calculating income from that Business exceed the amounts of inclusions from the contract.

(6) In the course of calculating the income of a Person from more than one Business or Investment in an Income Year, the Person is entitled to determine the priority to deduct any unrelieved loss incurred from more than one Business or Investment from which the loss or part thereof is to be deducted.

(7) In calculating the loss incurred by a Person from Business or Investment in an Income Year, the amounts to be deducted exceed those to be included in income calculating from the Business or Investment without applying this Section, the excess shall be taken into account.

Explanation: For the purpose of this Section, "unrelieved loss" means the extent to which a loss has not been deducted while calculating a Person's income under Sub-sec.(1), (2), or (4).

21. Non-deductible Expenses: (1) Notwithstanding anything contained elsewhere in this Act, a Person may not deduct the following expenses or amounts while calculating income from any Business, Employment or Investment in an Income Year:

  1. Expenses of domestic or personal nature.

(b) Tax to be paid under this Act, and fines and similar other amounts paid to the government of any country or any local body thereof for having violated any law or any rule or bye-rule framed under that law.

(c) Expenses to the extent incurred by a Person to get amounts exempt under S.10, or to get the amounts subjected to Final Withholding Tax Payment.

(d) Expenses incurred for Payments mentioned in Sub-sec.(2).

(e) Distribution of profit by an Entity, or

(f) Other amounts to the extent to which a deduction is not denied by Clauses (a), (b), (c), (d) and (e), except as provided for by this Chapter or Chapter 6, 7, 10, 11, 12, or 13.

(2) In case a Person with an annual Turnover of more than two million rupees in any Income Year makes a cash Payment of more than Rupees fifty thousand at a time in that Income Year in circumstances other than those mentioned below, shall not deduct the same:

(a) Payment to GON, a constitutional body, a corporation owned by GON, or a bank or financial institution.

(b) Payment to a farmer or a producer producing primary agricultural produce including its primary self-processing.

(c) Payment for Retirement Contribution or Retirement Payment.

(d) Payment in a place where banking services are not available.

(e) Payment on a day when banking services are closed, or Payment which had to be made in necessarily in cash.

(f) Amount deposited in the account of payee.

(3) No expenses of a capital nature, or amounts concerning Foreign-Tax, may be deducted, subject to the provisions of Sections 14, 15, 16, 17, 18, 19, 20 and 21.

Explanation: For the purpose of this Section:

(a) "Expenses of domestic or personal nature" mean following expenses:

(1) Following expenses incurred for any Natural Person, including Interest paid on loans, if any, to the extent of their use for personal reasons:

(i) Expenses incurred for a Natural Person, including those for providing for a place of residence, meals, refreshment, entertainment, or other recreational activities.

(ii) Expenses incurred by a Natural Person for travelling between home and the place of operation of Business or Investment, other than the expenses required for travelling in the course of conducting the Business or Investment.

(iii) Expenses incurred for purchasing clothing for a Natural Person, other than those that are not suited to be worn at times other than those of working.

(iv) Expenses incurred for education or training.

Provided, only the expenses incurred for the kind of education that is directly related to the Business or Investment and in consideration of which no degree or diploma will be provided may be deducted.

(2) Expenses incurred in relation to Payments made by a Person to a Natural Person, and expenses incurred for a third person, in circumstances other than those given below, and to that extent:

(i) In case the Payment is included in calculating the income of the Natural Person.

(ii) In case the Natural Person has made any Payment equal to the Market Price of the Payment has received, to the person.

(iii) In case the Prescribed types of small amounts, the maintenance of whose accounts is difficult or administratively impractical, are paid.

(b) Places where banking services are available mean places where the banking services are available within a radius of ten Kilometer.

(c) Cash Payment means a Payment other than that made through a bank or financial institution by using such means as letters of credit, account-payee cheques, drafts, money orders, telegraphic transfers and money transfers (hundis) or other kinds of transfers between banks or financial institutions.

(d) Expenses of a capital nature mean the following expenses:

(1) Expenses (outgoings) incurred on prospecting, exploration and development of natural resources.

(2) Expenses (outgoings) incurred on acquiring any Asset with a useful life exceeding 12-months, or Expenses (outgoings) incurred on the Disposal of a liability.

Concept Note and Enlightenment

  23. Key Concept and Key words - This Chapter deals for deduction of matching cost of income for Business and Investment. Most deduction are in transactional basis or based on generally accepted accounting principles, but some are allocation basis. Each deduction to pass two general test given in S. 21 and 13 to qualify as deduction. Once it passes these test, it is allowed as expense for the tax. Key-words: fruit and tree concept.

  24. Fruit and Tree concept\- Deduction is allowed if the Payment creates wealth to the Person or economy (wealth-creation rule or value-add rule). In case any Payment that creates wealth to the Person, is Deduction. By contrast, many Payments for a Business or Investment signify Payments for the transfer of wealth but not wealth created. This is similar as a Payment for a tree and Payment for fertilizer, labor or packaging of fruits from that tree. The cost of tree itself is not deductible expense rather outgoings for S. 38, whereas cost for growing fruit is deduction for S.13. Such segregation is called as Fruit and Tree concept.

  25. Deduction for Employment\- By virtue of provision of S.21(1), no deduction is allowed for Employment. Payment to labor creates a form of wealth (value added) to the Employer and oneself. But, matching expense for Employment-earners' are consumption or private cost in nature (non-deductible u/s 21).

  26. Disallowed/ Inadmissible/ no-recognition rule\- S.21 has a self-explanatory list of those expense which are not allowed for tax accounting. Consumption cost in form of personal or domestic cost is not admissible in tax accounting. Income tax itself and distribution after tax is also not a tax expense. Tax laws enforce banking payment to reduce the collusive tax planning hence payment of expense over Rs.50000 at a time is not deductible with reasonable exceptions u/s 21(2). Non-matching cost and penalty 'against law' are disallowed. Henceforward, food cost is non-matching for a person whereas a deductible expense for a restaurant because it produces consideration from the clients. Capital expense is disallowed u/s 21(3) based on fruit and tree concept. In case there is not a clear taxation provision vis-à-vis GAAP for any expense towards its allow or disallow, such expense is disallowed, example is inducement, bribe, supàri or illegal activity cost.

  27. General condition: Matching concept – S. 13 provides three conditions to qualify as a deduction. First is the person-matching concept, only the expense of tax-payer is allowed for deduction. Any expense relating to 3rd party is disallowed (for self S.21(1) disallows) irrespective of the generating income is subject of tax to that 3rd party or not. Second is the period-matching concept, as an expense relating to IY is allowed. Expense for earning income which is taxed earlier or to be taxed in future is not deductible. For this some SAAR provisions are there in the act. In the absence of such SAAR, GAAP is applied (now NFRS). Third is Inclusion-matching concept, means only those expense are deductible which may produce the income which is part of particular slice of tax accounting.

  28. Interest expense\- Interest (similar to borrowing cost for GAAP) is deductible if debt-obligation is used for generating income. In case of debt-obligation is utilized for procuring an asset, its Interest is allowed if so procured asset is generating income (year-end test for capitalization). The tax law is silence about thin-capitalization concept but S.14(2) has an anti-avoidance measures to Interest to Exempt-Controller is limited to the extent of Interest income plus 50% of ATI before any Interest but after full allowance for PCE and R&D (see ii 207). This provision is applicable for the Interest payment to significant Shareholders holding at least 25% of shares in any combination of Tax-Exempt Entity, Concessional Person or Non-Resident during any day of IY. In case, controlling starts or ends in any day during IY, then whole year Interest is qualify for this sub-section. Unrelieved Interest is carried forward to the next year and Interest limit is same as being Exempt-Controller, if the person retires from exempt-controlled even. Capitalization of Interest with compare to NFRS is slightly difference in tune of date of put-to-use and suspension of capitalization (for tax, no deduction for suspended period and interest is capitalized for whole year only). In addition to these capitalization and unrelieved Interest u/s14(3) may create temporary difference in financial accounting.

  29. Cost of disposed Trading Stock\- Any incoming from trading stock is includible in Inclusions at gross in accrual-basis of tax accounting. For the matching deduction of outgoings, cost to the extent of Disposal or reduction in the value is allowed. Closing stock at the minimum of cost or Market Price is carried to next year and unchanged in the case of any prior error or change in cost formulae. Interestingly, Person having cash-basis of tax accounting, require to compute this cost in accrual-basis under absorption costing or under prime costing method. In case of Disposal of trading stock is complex due to similarity of stocks or outgoings of Disposal cannot be determine easily, tax-payer opt for FIFO or Weightage Average as similar in GAAP. Since there are differences in tax accounting and GAAP, it creates temporary difference in financial accounting.

  30. Depreciation Expense\- S.19 and Schedule 2 deals on depreciation calculation. Depreciation expense in Depreciable Asset as treats in Tax and classical GAAP is totally different hence there is temporary difference. It covers all Depreciable Assets as in accounting as well as intangible assets and investment properties as Depreciable Assets and calculation is on almost pool basis. There is no asset-specific impairment provision for taxation. Depreciation calculation is formulated in iv 207.

  31. Repairs and Improvements\- Tax accounting is strict in repair and maintenance cost and makes it as capped item. Repair is allowed to the extent of 7% of Depreciation Base for that IY. It includes the improvement cost and reduces the debate of classification of semi-capital expense. For example, adding iron-grill in the window or door is not a maintenance cost (because window was working properly) nor a repair cost (because window was not damaged), hence not a classical repair and improvement. In the next hand, it has not contribute for additional capacity of room covered by window or door, so not a classical capital cost. Such expense are now classified into Repair and Improvement u/s 16 and limited to the extent of 7% of respective Depreciation Base. Only one exception in this specific rule is cost for overhaul for aircraft, which is fully deductible in transactional basis.

  32. Pollution Control Expense (PCE)\- Any expense either in classical revenue or capital nature incurred by Person within business process to control pollution or protect environment is deductible u/s 17 to the extent of '50% of ATI from Business after full deduction of expense except PCE itself'. For usable formulae for PCE see iii 207.

  33. Research and Development Expense (R&D)\- Any expense either in classical revenue or capital nature incurred by Person for business research and its commercial development is deductible u/s 18, to the extent of 50% of ATI from Business after full deduction of expense except R&D itself. In absence of this section, such expense is disallowed u/s21.

  34. Offset of loss from Business or Investment\- S. 20 deals with the deductibility of losses on Business and Investment. There is a clear Rule of Quarantine for an offset. Any loss from a Business for an IY may reduce any other income from a different Business or Investment for the same year (horizontal set off) but not income from an Employment. Any excess Business loss may be carried forward to reduce income from any Business or Investment of a future 7 years (Vertical set off) and same Rule of Quarantine is attractive (see v 208). S.20(2) provides losses from an Investment are treated in the same manner as losses from a Business except that they may only reduce income from an Investment. Foreign losses sourced in a particular country may only reduce foreign income sourced in the same country, so-called per-country basis. The source of income or a loss is determined in accordance with section 67, discussed below at para. 90 . Loss incurred in the long term contract that obtained from international competitive bidding procedure (so-called ICB contract in public procurement) is allowed to carry back has discussed in para below 44. Loss of one Person cannot be transferred to another Person except in case of merger of Banking or Insurance Business u/s 47A, any unrelieved loss can be transferred to the acquirer.

#### Chapter 6 Tax Accounting and Timing

22. Method of Tax Accounting: (1) The time when a Person receives any income or makes any expenditure shall be determined according to the generally-accepted accounting principles, subject to this Act.

(2) While calculating Income from Employment or Investment, a Natural Person shall be on cash-basis of accounting for tax purpose.

(3) Companies shall keep their accounts on an accrual-basis of accounting for the purposes of tax.

(4) Except when the Department prescribes otherwise by issuing a written notice, a Person may keep tax-accounts either on a cash-basis or an accrual-basis subject to Sub-Sections (1), (2), and (3).

(5) A Person may apply for changing the basis of tax accounting, subject to Sub-sec.(2) and (3). In case the Department feels that it is necessary to change the basis of tax-accounting adopted by the Person so as to clearly show income, it may grant permission to swap to another basis of tax-accounting.

(6) In case the basis of tax-accounting of a Person is changed under Sub-sec.(5), the income of the Person in the Income Year of such change shall be calculated by duly adjusting all the amounts included or deducted, or those to be included or deducted, while calculating Income, without omitting or duplicating any such amounts.

23. Accounting on Cash-basis: Subject to this act, a Person shall act as follows while keeping on a cash-basis of accounting of calculation of Income from Employment, Business or Investment:

(a) An amount shall be included in the calculation of Income by deeming it to have been received only when Payment is received or becomes available.

(b) An amounts in lieu of Payment shall be deducted, only when it actually makes the Payment.

24. Accounting on Accrual-basis: (1) While accounting on an accrual-basis for tax purposes, Income from a Business or Investment subject to this Act, a Person shall treat an amount as received and include it in that calculation when becomes entitled to the Payment.

(2) For the purpose of making deductions while calculating a Person's income as mentioned in Sub-sec.(1), the following expenses shall be treated as incurred:

(a) In the case where the Payment constituting the expenses is to be made in return for a Payment received from another person, the expenses shall be deemed to have been incurred in the following circumstances:

(1) In case the Person is obliged to make the Payment.

(2) In case the value of the obligation can be determined in an appropriate and realistic manner, and

(3) In case Payment is received from another person, or

(b) The expenses shall be deemed to have been incurred at the time of Payment in all circumstances other than those mentioned in Clause (a).

(3) Notwithstanding anything contained in the Sub-sec.(1), the Department may, to the extent of the Nepal Rastra Bank Act, 2058 and prevailing banking laws, approve the accounts maintained in the Banking Business in the form according to Nepal Rastra Bank.

(4) On computing Income from Business or Investment under accrual-basis by a Person, any change in the amount received or expense incurred due to any reason inter alia foreign exchange fluctuation in the already accounted Inclusions or deduction of expense, such difference to be adjusted accordingly.

25. Reverse of Amounts including Bad Debts: (1) In case a Person has accounted for an amount received or expense incurred in calculating Income from Employment, Business, or Investment, shall make appropriate adjustment in the following circumstances at the time when the refund, recovery, disclaimer, write-off, or forgiveness occurs:

(a) In case the Person later refunds the amount or recovers the expenses, as the case may be,

(b) In case the accounts has been kept under accrual-basis, for the inclusions, if the Person later disclaims an entitlement to receive the amount, or in case the amount constitutes Debt-Claim, if writes-off of the debt as bad, or

(c) In case the accounts of has been kept under accrual-basis, for the deduction of expense, if the Person later disclaims an obligation to incur the expense, or in case the expense is a Debt-Claim, if the Person to whom the debt is owed forgives the debt.

(2) A Person may disclaim entitlement to an amount, or write-off as bad Debt-Claim, only in the following circumstances:

(a) In the case of a Debt-Claim of a bank or financial institution, if the Debt-Claim becomes a bad debt as determined in accordance with the Prescribed standards, and

(b) In circumstances other than those mentioned in Clause (a), in case the Person has taken all reasonable steps in pursuing Payment and reasonably believes that the entitlement or Debt-Claim will not be satisfied.

26. Method of Calculating Average of Amounts to be Included or Deducted Under Long-Term Contracts: (1) For the purpose of assessing the income of a Person from any Employment, Business or Investment in an Income Year, estimated cumulative inclusions and deductions under a Long-Term Contract of the Person shall be treated as derived or incurred according to the percentage of the contract completed during the year.

Explanation: For the purpose of this Section, a Long-Term Contract means a contract of the following conditions:

(a) The term of the contract exceeds 12-months, and

(b) The contract is a contract for manufacture, installation or construction, or in relation to each, the performance of related services; or a contract with a deferred return that is not an excluded contract.

(2) Contract with a deferred return, cumulative deductions, cumulative inclusions, excluded contract, and percentage of contract completed, shall be As Prescribed.

Concept Note and Enlightenment

  35. Key Concept and Key words - This Chapter deals for timing for tax accounting and its method. Key-words: Accounting Standards, basis of accounting, bad-debt, long-term contract.

  36. Basis of Tax Accounting\- According to S.22, Employment and Investment Income of NP is to be accounted in cash-basis whereas tax Company need to account in accrual-basis. Remaining Person may keep their tax accounting as per their option showing best reflection of income. In case, the method is not reflecting income properly, IRD may direct to use specified representative basis of accounting. Either cash or accrual-basis of accounting have minor difference with classical GAAP. Cash-basis if tax accounting includes accrual part in terms of Incomings from Trading Stock or deemed cash in many cases, e.g. quantification u/s 27 or 38, stock dividend u/s 53, income from CFE u/s 69. In the contrast, accrual-basis is limiting to cash payment in some cases like dividend-cum investment, distribution by way of payment u/s 53, dividend-stripping, recovery of bad debt etc. There are Specific Anti-Avoidance Rule (SAAR) for tax accounting in various sections of the act. In case absence of any SAAR, NFRS is basis of tax accounting based on ITR8.

  37. Changes in basis of accounting\- If a Person having either of both option of basis of accounting may change its basis to another u/s 22(5) or IRD may direct to change it with the purpose of best reflection of income. In such changes, all the tax-base to be recomputed from initial recognition in the new method and any deviation is Inclusion or Deduction as the case may be. For example, cost of overheads in form of depreciation is allowed in the first year of asset use under cash-basis. In case the Person changes its accounting basis to accrual after 6 years from an asset would qualified for pool D to be re-characterize at 37.71% (cost less PVIFA for 6 Years @15%) of cost and same amount to be included in Inclusion. Similarly, Interest expense under cash-basis may create some accrual expense in earlier years.

  38. Cash-basis\- According to S.23, cash-basis is simple and mainly classical. Inclusions (equivalent to accrual Inclusions) are recognize when cash receipt and Deduction of expense is allowed when cash disbursed. Incomings and Outgoings for Treading Stock u/s 15, Banking accounting u/s 24(3), Interest income of Cooperative u/s 24(3), perquisites u/s27, stock dividend u/s 54 or CFE income u/s 69 are exception for general rule.

  39. Accrual-basis\- According to S.24, accrual-basis is near to classical. Inclusions are recognize when there is right to receive against from payment from Charging Person and Deduction of expense is allowed when obligation to pay for value receive to a specified person with specified quantification. Both Inclusions and Deductions, there must an entitlement to the underlying Payment. But, this entitlement or obligation must be able to be determined with accurately and economic performance of payment for the underlying Payment. Performance or one side payment is require to minimize the risk of definition of GAAP accrual, for example, a Person enter into sale contract of Stock to another Person in 30-days credit terms, then the purchaser entitle to asset and obliged to pay after 30-days from date of supply not from date of signing of contract. Both party are right to receive or obligation to pay, but cannot accounted as transaction before supply. Accrual income or expense is accounted only after one party pay for other. To tackle this problem, expense is allowed u/s24(2) with three tests viz. obligation to defined party, measurable fixed amount of obligation and payment from another party is received till accounting date. Because of these three-test, provisions are not deductible expense in tax accounting.

  40. Deviated quantum of Payment\- In any case of payment under accrual-basis, there is a risk of deviation of actual sum of settlement with quantified amount. For example a transaction of foreign currency is considered derived or incurred with certain credit period; at the time the actual Payment is made the exchange rate might be changed. This quantum deviates than earlier amount on transactional basis, according to S.24(4), the difference has to make an adjustment at the time of Payment. This is somewhat against with the provision of S.28 as well as GAAP and difficult after IY.

  41. Banking Tax Accounting\- According to S.24(3), banking tax account shall be same as it corporate accounting, if compatible with NRB directives. Keeping the provision of S.25,40 and 59, only deviation from accrual is Interest income. Similarly, cooperative Interest tax accounting may be in cash-basis. This rule is exception to general accounting rule of S.22.

  42. Bad debt\- Bad debt is accrual accounting concept where credit sales is taxed and the party, if fails to pay, is economic burden to the Person for cost, profit and on the top tax there on. If the recovery is remote after all reasonable steps of collection, the Person may write off credit and claim the expense as Bad Debt under S. 25. Later in case, it is recovered, is part of Inclusion in the year of recovery. Similarly, S.25 provides adjustments for the obligation on which person disclaim that payment by way of waiver as Inclusions. For example, Interest in the last quarter is deductible expense including any penal Interest. But the Person may negotiate with bank for waiver in penal part. If the bank allows so far, Person's obligation has reduced in next IY, then such amount need to be included in Inclusions. Similar example may be cited for write off of another party.

  43. Long-Term Contract\- Income is calculated for a particular IY, but in some of cases, it is difficult to calculate the exact amount of Inclusion of Deduction for a specified period (of one year). A contract having more than one IY may be structured such that deductions disproportionately fall within early periods and income disproportionately fall within later periods (front-loaded contract) or vice versa (back-loaded contract). It gives rise to the potential structuring so as to maximise tax deferral or unrealised loss set off or prologues of loss. Accrual-basis is not enough for tackling such complex issue. S.26 addresses such issue under cumulative procedure of a Long-Term Contracts, see vi 209 for its formula. As defined in S.26 a Long-Term Contract is contract having initial contract period more than 12-months for construction, installation or production relating to Employment, Business or Investment with deferred return (where exact estimation of income cannot made for span of 6-months) but excluding excluded contract (security purchase contract, Investment Insurance and Retirement Fund).

  44. Percentage of Completion Method\- For a Long-Term Contract, the percentage of completed method is used to determine for computing amounts are derived or costs incurred under the contract. It is computed to the ratio of actual site-cost up to the end of accounting period and sum of estimated cost (both already incurred and potential cost). Any realisation in form of interim payment is not accounted for tax. Theoretically, it accelerates profits to be derived under the contract. All the real transaction in cumulative basis is calculated in the year of completion or otherwise terminated. The loss, if any is allowed to set off under S.20 with another contract, other business, or with investment and unrelieved loss allows to carry forward. In the case of an ICB contract, the contractor cannot offset loss with probable source, and accelerated profit under Long-Term Contract, IRD allows such loss to carry back (if not reduced by other losses) and overpaid tax is refunded with Interest at 15% p.a.

  45. Transfer of Long-Term Contract\- S.26 is silence on tax accounting treatment for transfer to another person, but based on S.20 and general concept of tax accounting, it is similar to sale. Transferor treats the Long-Term Contract as completion and compute final income and cost. The proceeds from employer and transferee is deemed as actual income.

#### Chapter 7 Quantification, Allocation and Characterization of Amounts

27. Quantification of Amounts: (1) A Payment shall be quantified in equal to the following amounts:

(a) In case of Payments made by one Person to another through a transfer of Asset, the Market Price of the Asset transferred.

(b) In case of Payments made for having provided the following, the amount determined As Prescribed, or the amount determined according to Clause (e) in case the process of determining the amount is not prescribed:

(1) The vehicle used or available for use wholly or partly for the personal purposes of the payee, or

(2) The building made available to the payee.

(c) The balance left after deducting the contribution of the payee from the amount paid by the payer for providing the following facilities:

(1) Services of a housekeeper, cook, chauffeur, gardener, or other domestic assistant;

(2) Any meal, refreshment or entertainment; or

(3) Utility services such as water-supply, electricity, and telephone installed in the house of the payee.

(d) In case the Interest paid by the payee in an Income Year under a loan happens to be less than the Interest payable according to the prevailing Interest rate, the amount of shortfall, and

(e) In the case of Payments other than those mentioned in Clauses (a), (b), (c) and (d), an amount equal to the value of the benefit that could ordinarily be available in case any third person, instead of the payee, gets the Payment.

(2) In the case of Clauses (a) and (e) of Sub-sec.(1), the time of earning, receiving, giving, bearing or otherwise taking into account for tax purposes, the Payment shall itself be taken as the time of quantification of the amount.

28. Conversion into Rupees: (1) For the purposes of this Act, in case the Income of a Person and the amounts to be included or deducted while calculating that income are quantified in currencies other than the Nepali Rupees, they shall be converted into the Nepali Rupees.

(2) In case amounts to be included or deducted while calculating the income of a Person in an Income Year are quantified in currencies other than the Nepali Rupees, they shall be converted into the Nepali Rupees according to the exchange rate prevalent at the time of receiving, spending, giving, paying or otherwise calculating them for the purposes of tax.

(3) Notwithstanding anything contained in Sub-sec.(2), a Person may use the average exchange rate prescribed by the Department for that Income Year if the Department has granted permission to do so through a written notice for the purposes of the said Sub-Section.

29. Indirect Payments: In case any Person obtain any benefit from any Payment from payee or its associates, or directs other Person for benefits from a Payment, the Department may regard such payee or Person directing as the payee by issuing a written notice:

30. Jointly-Owned Investments: The amounts to be included or deducted while calculating the income earned by a Person from an Investment made under joint ownership with another Person shall be apportioned between the joint owners in proportion to their respective Interests in the Investment.

31. Characterization of Payments made as Compensation: In case any Person or Associated Person gets any compensation amount for the following considerations, including Payments in connection with insurance, the amount shall be included in calculating Income from Employment, Business or Investment, as the case may be, at the time of receiving it:

(a) Compensation for income from or an amount received or receivable to be included in calculating the person's income from a Business, Employment or Investment, or

(b) Compensation for a loss from or an amount paid or payable to be included in calculating the person's Income from Business or Investment, which has incurred or expects or expected to incur.

Provided, amount of compensation against the physical injury from an accident of a Resident Natural Person shall not be includible in Income; and cost of treatment for cure of such accident is not allowed medical tax credit for the purpose of S.51.

32. Characterization of Payments under Annuities, Instalment Sales and Finance Leases: (1) Payments made to a Person under an annuity, or by a Person who has acquired an Asset under an instalment sale, or use of an Asset under a Finance Lease, shall be regarded as Interest and repayment of principal under a Debt-Claim in accordance with this Section.

(2) All Payments mentioned Sub-sec.(1) shall be aggregated and the total divided into two parts as mentioned below:

(a) A capital portion, being equal to all Payments made for the annuity or the Market Price of the Asset at the time it is sold or Leased, as the case may be, and

(b) An Interest portion, being the total of all Payments mentioned in Sub-sec.(1), less the capital portion.

(3) At the time of concluding an agreement of annuity, instalment sale, or Finance Lease mentioned in Sub-sec.(2), shall be required to segregate the portions of Interest and capital while determining instalments and provide with a schedule of total payment. Those who cannot provide with the schedule shall be required to treat the Interest and capital portion of annuity, instalment sale, or Finance Lease as a blended loan with Interest compounded 6-monthly, and divide into Payments mentioned in Sub-sec.(1).

(4) A borrower under a blended loan mentioned in Sub-sec.(1) shall be required to make in part a Payment of Interest and in part a repayment of capital where the Interest part is calculated on capital outstanding at the time of each Payment so as to have an uniform rate of Interest over the term of the loan.

(5) Following conditions shall be satisfied while conducting a Lease under a Finance Lease under this Section:

(a) Arrangement is made in the Lease agreement for the transfer of ownership following the end of the Lease term, or the lessee has an option to purchase the Asset after the expiry of the Lease term for a fixed or pre-estimated price;

(b) The Lease term exceeds 75% of the useful life of the Asset;

(c) The estimated Market Price of the Asset after the expiry of the Lease term is less than 20% of its Market Price at the beginning of the Lease;

(d) In the case of a Lease that begins before the last 25% of the useful life of the Asset, the present value of the minimum Lease Payments equals or exceeds 90% of the Market Price of the Asset at the beginning of the Lease term; or

(e) In case the Asset is specially made for the lessee, and after the expiry of the Lease term the Asset will not be of any practical use to anyone other than the lessee.

(6) Each Payment mentioned in Sub-sec.(1) shall be divided into two portions as mentioned in Sub-sec.(3), and the Interest portion shall be treated as Interest paid or to be paid, and the capital portion shall be treated as a repayment of capital under a Debt-Claim.

(7) The lessee shall be treated as the owner of the Asset Leased to the lessee under a Finance Lease, and the lessor shall be as treated as the holder of a Debt-Claim against the lessee.

(8) Present value of Lease Payments shall be calculated by using a discount rate equal to the Standard Interest Rate.

Explanation: Lease term includes an additional period for which the lessee has an option to renew the Lease.

33. Transfer Pricing and other arrangements amongst Associates: (1) In case any arrangement has been made between Persons who are Associates, the Department may, by notice in writing, distribute, apportion, or allocate amounts to be included or deducted in calculating Income between the Persons as is necessary to reflect the Taxable Income or tax payable that would have arisen for them if the arrangement had been conducted at arm's length.

(2) While taking any action under Sub-sec.(1), Department may:

(a) Re-characterize the source and type of any income, loss, amount, or Payment, or

(b) Allocate costs, including head office expenses, incurred by a Person in conducting a Business to the associates based on the comparative turnovers of the Business, in case such costs have benefitted the Associated Person or persons.

34. Income Splitting: (1) In case a Person attempts to split income with another Person which is likely to cause any reduction in the amount of tax payable, the Department may, by notice in writing, adjust amounts to be included or deducted in calculating the income of each Person to prevent any such reduction in the amount of tax payable.

(2) Person having attempted to split income, in said Sub-sec.(1) includes, but is not limited to, a transfer of following amounts so as to reduce the tax payable by the Person or an associate, either directly or indirectly through one or more interposed entities, between the Person and Associate:

(a) Amounts to be received or costs to be incurred, or

(b) An amount received or enjoyed by the transferee of an Asset that is derived from the Asset, or an amount paid or expenses incurred in owning the Asset.

(3) While determining under Sub-sec.(2) whether a Person is seeking to split income, the Department shall consider the Market Price of any Payment made for the transfer.

35. General Anti-Avoidance Rule: For the purposes of determining tax liability under this Act, the Department may:

(a) Re-characterize an arrangement or a part of an arrangement that is entered into or sought to be entered into as part of a tax avoidance scheme,

(b) Disregard an arrangement or a part of an arrangement that does not have substantial economic effect, or

(c) Re-characterize an arrangement or a part of an arrangement that does not reflect its substance.

Explanation: For the purpose of this Section, tax avoidance scheme means any arrangement whose main purpose is to avoid or reduce tax liability.

Concept Note and Enlightenment

  46. Key Concept and Key words - This Chapter deals for quantification and characterization of tax transaction. Some of the valuations are given as indicative in nature. Key-words: Characterization and re-characterization, fringe benefits, joint income, fiscally transparent, compensation, lease, transfer pricing, arm-length price, indirect payment, income splitting, transfer pricing, general anti-avoidance rule.

  47. Market Price\- Default valuation of a transaction, if not in cash, is Market Price on the date of transfer as per S.27(1). This general valuation is inappropriate in a number of circumstances or impracticable too. For example, manager may live in congested and old own family house and may come to the business place by public vehicle or an ugly old taxi (due to governmental syndicate all taxies in Kathmandu are old only). But, a corporation cannot give accommodation or vehicle to same person of similar facility which s/he had. In such circumstances some other rules may be viewed as appropriate. In the circumstance where a Market Price rule may be inappropriate is with respect to 'unwanted' Payments valued at token fringe benefits. There are several S. for valuation other than Market Price in S. 27(1), e.g., S. 43, 47 or 56. In the absence of those Sections, valuation would be in Market Price.

  48. Token Fringe Benefits – Based on S.27 and Rule 13, accommodation facility is valued at 2% of salary (in case of basic and grade system, total of those two, in other system gross amount of remuneration) to employee and 25% of rent paid or would be paid to other. Vehicle for private purpose (fully or partially private use) is valued at 0.5% of salary (in case of basic and grade system, total of those two, in other system gross amount of remuneration) to employee and 1% of Market Price of vehicle p.a. In case of personal helpers, food or utility cost, or Interest on loan, the benefit is valued to the extent of cost incurred by the payer (Market Price) less any contribution. This group indirectly qualifies for Market Price. Remarkably, cost paid to driver is not qualified as personal helper if that 0.5% is taken into valuation.

  49. Tax Accounting in NPR only\- According to S.28, tax accounting to be done on Nepali currency (NPR) only. The transactions need to be converted into NPR which may create foreign currency gains and losses (inclusions and deductions). For those which has several cases of foreign currency transaction, foreign branch, CFE or similar, there is limited relief of average exchange rate u/s 28 on the approval of IRD.

  50. Indirect Payment\- In case any Person diverts any receipt of a Payment to another Person to avoid tax, IRD has the power to treat a Person diverting a Payment as the payee or payer of the Payment u/s29. This power may reduce any arrangement of tax reduction scheme or monitor anti-avoidance measure for value-shifting or back-to-back arrangements. Hence, IRD may case the income shifting to family members to avoid the tax, because each Natural Person of a family is separate taxing unit (except opted couple) and socio-economically there is practically effective joint family.

  51. Joint income\- There are 2-types of tax accounting and incidence for joint income from joint business (active-participation to earning) of (i) 2-19 Natural Person- Partnership, (ii) 20 or more Natural Person or any combination of entity- Company. Business income tax taxed in the joint form of Partnership, joint venture, consortium or association. In case of joint- model of investment (passive-participation to earning), S.30 provide a fiscally-transparent approach, i.e. prorate income is included in each investor as own income. Obviously, any tax withheld in case from joint income, imputation is allowed.

  52. Compensation- Compensation from anywhere against any loss is taxable. Gross amount is part of inclusion u/s31. To comply the provision of S.46, the Person if opt for apply S.46, the priority is for compensation and replacement for involuntary disposal. Another exception is compensation for personal accident u/s31 which is not taxable. The third exception is compensation for medical cost compensation to Natural Person, which is offset with the cost to determine Eligible Medical Cost.

  53. Finance Lease & Annuity- Tax on rent has of two types: gross amount as income or expense for so-called operating lease; and disposal of asset and deferred payment with interest in finance lease. Annuity is series of payments from deposited amount whereas lease of letting out of tangible asset (consider letting out of intangible asset is royalty). In case of finance lease, as defined in S.32, it is deemed as sale at market price (S.42), the purchase price is paying back to the lesser with interest. Interest is allowed deduction u/s 14 and principal portion reduces the payables. In the point of returning back of leased-asset to the lessor, it is again sales from lessee at Market Price (see for segregation in vii pg.209). Associated repairs and depreciation is deduction for lessee during the lease-term.

  54. Transfer Pricing – Tax avoidance arrangement due to allocation of amounts between Associated Person is transfer pricing. In transfer pricing, the income is transferred to non-taxed regime due to price of input (e.g. interest rate, capital cost, raw material cost, repairs, management cost or otherwise) other than Market Price. In this case IRD has power to reallocate amounts to be included or deducted in calculating income between the Associated Persons on Market Price (so-called arm's length price) basis.

  55. Income Splitting – Many cases, there is different tax rate on slice-to-slice approach or for different members of same family or near-about. This differences may be with partners or other Associated Persons too. In case a Person attempt to reduce income tax under such arrangement to splitting income with other Person, IRD may adjust amounts to be included or deducted in calculating income to disprove the tax-reduction. To re-characterize income splitting, Market Price is the basis.

  56. GAAR\- In case any Person avoid the tax mis-utilizing the law itself, then IRD re-characterize it based on power under GAAR.

#### Chapter 8 Calculation of Net Gains From Assets and Liabilities

36. Net Gains from Assets and Liabilities: (1) The net gains derived by a Person from the Disposal of the Business Assets or Liabilities in Business during an Income Year shall be calculated by deducting the following losses from the total of all the gains derived from the Disposal of the Business Assets or Liabilities in Business in that Income Year:

(a) Total of all the losses suffered during that year from the Disposal of Business Assets and Liabilities of the Business.

(b) Any unrelieved net loss suffered by the Person from any other Business during that year, and

(c) Any unrelieved net loss suffered from that or any other Business of the Person in any Income Year in the past.

(2) The net gain derived from the Disposal of the Non-Business Chargeable Asset of the Investment of a Person in an Income Year shall be calculated by deducting the following losses from the total of all the gains derived from the Disposal of the Non-Business Chargeable Asset of the Investment in that Income Year:

(a) The total of all the losses incurred that year from the Disposal of the Non-Business Chargeable Asset of the Investment.

(b) Any unrelieved loss from among the net losses that the Person suffered from any other Business or Investment that year.

(c) Any unrelieved loss out of the net loss that the Person suffered from that Investment, Business or any other Investment in any past Income Year.

(3) In the case of losses suffered from the Disposal of the Assets or liabilities of a foreign source, a Person may make a claim for deduction under Sub-sec.(1) or (2) only to the extent of the gains derived from the Disposal of the Assets or liabilities of a foreign source.

(4) In case a Person is entitled to deduct under Sub-sec.(1) or (2) the net loss suffered from a Business or Investment while making more than one calculation under Sub-sec.(1) or (2), may choose the calculations for the purpose of deducting the loss or a part thereof.

Explanation: For the purpose of this Section:

(1) Net loss means:

(a) In the case of a Business, in case the amount of loss suffered from the Disposal of Business Assets or Liabilities of the Business in Income Year exceeds the amount of gains derived from the Disposal of the Business Assets or Liabilities of the Business in that year, the excess amount.

(b) In the case of an Investment, in case the amount of loss suffered from the Disposal of the Non-Business Chargeable Asset of the Investment in an Income Year exceeds the amount of gains derived from the Disposal of the Non-Business Chargeable Asset or liabilities of the Investment in that year, the excess amount.

(2) Unrelieved net loss of a Business or Investment means:

(a) The amount of loss out of the net loss suffered by the Business or Investment in an Income Year which could not be deducted under Clause (b) or (c) of Sub-sec.(1), or Clause (b) or (c) of Sub-sec.(2), and

(b) The unrelieved loss of the Business or Investment under Sub-sec.(7) of S.20 which may no longer be deducted owing to the time limit mentioned in Sub-sec.(1) or (2) of S.20.

37. Gains and Losses from Assets and Liabilities: (1) The gains made by a Person from the Disposal of an Asset or Liability shall be the difference between the sum of incomings from that Asset or Liability and the sum of outgoings incurred for the Asset or Liability at the time of the Disposal.

(2) The loss of a Person from the Disposal of an Asset or Liability shall be the difference between the sum of outgoings incurred for the Asset or Liability and the sum of incomings from that Asset or Liability, at the time of Disposal.

38. Outgoings and Net Outgoings for Assets and Liabilities: (1) Subject to this Act, the following Payment shall be included in the outgoings of a Person for Assets or Liabilities:

(a) In the case of an Asset, the expenses incurred by the Person while acquiring the Asset, including the following expenses relating to that:

(1) Concerned expenses incurred while constructing or producing the Asset, and

(2) Any amount that is to be added to the income while determining the income of the Person as a result of the acquisition.

(b) The expenses incurred for acquiring the ownership of that Asset or Liability, including the expenses incurred for altering, improving, repairing and maintaining it, and in the case of an Asset, the expenses incurred for repairing and maintaining it.

(c) The expenses incurred while disposing of that Asset or Liability, and

(d) The incidental expenses borne while acquiring the Asset or incurring liability, and disposing of Asset or Liability.

Provided, the expenses coming under Clauses (a), (b), (c), (d), and (e) of Sub-sec.(1) of S.21, and those that may be deducted while assessing the income need not be added to such expenses.

(2) The net-outgoings concerning an Asset or Liability at a particular time shall be the difference between the sum of outgoings concerning that Asset or Liability and the sum of incomings from that Asset or Liability at that time.

(3) The amounts of expenses to be deducted while assessing the income under Chapters 6 and 7 shall be regarded as the expenses incurred in respect of an Asset or Liability, and shall be applicable in respect of the expenses incurred under Sub-sec.(1).

Provided, S.26 shall not be applicable in relation to the above-mentioned provision.

39. Incomings and Net Incomings from Assets and Liabilities: (1) Subject to this Act, following amounts shall be included in incomings of a Person in relation to Assets or Liabilities:

(a) Amounts received in respect of incurring the liability.

(b) Amounts received while acquiring the Asset or in respect to incurring the liability, including the amount received by altering or decreasing the value of Asset or increasing liability; and

(c) Amounts received or to be received in respect of the Disposal of the Asset or Liability

Provided, such incomings shall not include the tax exempt amounts, amounts subjected to Final Withholding Tax, or amounts to be included as inclusions while assessing income.

(2) The net-incomings concerning an Asset or Liability at a particular time shall be the difference between the sum of all incomings concerning that Asset or Liability and the sum of all outgoings for that Asset or Liability at that time.

(3) The amounts of incomes to be included while assessing the incomes under Chapter 6 and 7 shall be regarded as the incomings in relation to the Asset or Liability, shall be taken under Sub-sec.(1).

Provided, S.26 shall not be applicable in relation to the above-mentioned provision.

40. Disposal of Assets or Liabilities: (1) A Person shall be deemed to have disposed of Asset when it parts with its ownership, including when the Asset is distributed by it, merged with another Asset or Liability, sold under an instalment plan or Leased to another Person under a finance Lease, or cancelled, destroyed, lost, expired or surrendered.

(2) In case any Person parts with the obligations of a liability, shall be deemed to have disposed of that liability. The Disposal of a liability shall include such acts as its settlement, cancellation, release, expiry, and merger with any other liability or Asset.

(3) Notwithstanding anything contained in Sub-Sections (1) and (2), a Person shall be deemed to have disposed of an Asset or Liability in the following circumstances:

(a) In case of a Natural Person, immediately before death.

(b) In the case of an Asset, if the sum of incomings from that Asset exceeds the sum of outgoings for that Asset.

(c) In the case of an Asset subject to a Debt-Claim,

(1) In the case of a Debt-Claim of a bank or financial institution, if the Debt-Claim becomes a bad debt under the prescribed standards, and

(2) In any other case, if the Person is reasonably convinced that the Debt-Claim will not be recovered; provided that the Person shall have adopted all suitable measures to realize the Debt-Claim.

(d) In the case of an Asset that is a Business Asset, Non-Business Chargeable Asset, Depreciable Asset, or Trading Stock, immediately before the Person begins to use the Asset in such a way that it ceases to be an Asset of the type it was immediately before that use.

(e) In case of an Entity, in circumstances as per S.57, and

(f) Immediately before Person becomes a Non-Resident Person, except in the case of lands or buildings situated in Nepal.

(4) In case any Person disposes of any Asset by leasing it out under a Finance Lease under Sub-sec.(1), the lessee shall be deemed to have acquired the ownership of the Asset at the time of its Disposal.

(5) For the purpose of calculating the gains derived by any Person from the Disposal of an Asset and liability:

(a) The net-outgoings in relation to an Asset under the ownership of the Person at the time of commencement of this Act shall be deemed to be equal to the Market Price of the Asset prevalent at the time.

(b) The net-incomings in relation to a liability of the Person at the time of commencement of this Act shall be deemed to be equal to Market Price of liability prevalent at the time.

41. Disposal With Retention of Assets or Liabilities: Action shall be taken as follows in case any Person disposes of an Asset or Liability in any of the manners mentioned in Clauses (c), (d), (e) and (f) of Sub-sec.(3) of S.40:

(a) In respect to an Asset,

(1) The Person shall be deemed to have received in consideration of the Disposal an amount equal to the Market Price of the Asset at the time of Disposal and,

(2) For the purpose of subsequent Disposal, net-outgoings incurred in relation to the Asset until that (first Disposal) time shall be deemed to be equal to the amount received.

(b) In respect to a liability,

(1) The Person shall be deemed to have spent in consideration of Disposal an amount equal to Market Price of the liability at the time of its Disposal, and,

(2) For the purpose of subsequent Disposal, net-incomings received from the liability under Sub-Clause (1) until that (first Disposal) time shall be deemed to be equal to the amount of outgoings.

42. Disposal through Instalment Sale or Finance Lease: In case any Person disposes of any Asset through its sale under an instalment scheme or by leasing it out under a finance Lease to any other Person:-

(a) At the point of Disposal, the Person disposing of the Asset shall be deemed to have received Market Price of the Asset prevalent at the time of Disposal.

(b) Person acquiring the Asset from Disposal shall be deemed to have incurred a cost equal to the amount mentioned in Sub-Clause (a).

Provided, this provision shall not be applicable in circumstances when the provisions of S.45 are applicable.

43. Transfer of Asset to Separated or Ex-spouse: In case Disposal of Assets by a Natural Person made through transfers Assets to separated-spouse or ex-spouse, and in said spouse or former spouse chooses in writing to have this Section applied, then:

(a) The Person shall be deemed to have received through the Disposal an amount equal to the net-outgoings incurred in relation to the Asset immediately before the Disposal, and

(b) The Person acquiring the Asset through transfer shall be deemed to have incurred a cost equal to the amount mentioned in Clause (a).

44. Transfer of Asset after Death: In case ownership of Assets is disposed of through its transfer to any other person, due to death of Natural Person, shall be as follows:

(a) The Person shall be deemed to have received through the Disposal an amount equal to the Market Price of the Asset prevailing at the time of Disposal, and

(b) The Person acquiring the Asset through the transfer shall be deemed to have incurred a cost equal to the amount mentioned in Clause (a).

45. Transfers between Associated Persons and other Non-market Transfers: (1) In case a Person disposes of Asset through its transfer to any Associated Person or to any other Person without obtaining consideration, shall be as follows:

(a) The Person shall be deemed to have received through the Disposal an amount equal to the Market Price of the Asset immediately before its Disposal, or the net-outgoings incurred in relation to the Asset, whichever is higher, and

(b) The Person acquiring the Asset through the transfer shall be deemed to have incurred a cost equal to the amount mentioned in Clause (a).

(c) In case Asset transferred under Sub-Clause (5) of Clause (r) of S.2, the cost of transferor shall be deemed as cost of transferee (~for the point of inception for transferee-editor).

(2) Notwithstanding anything contained in Sub-sec.(1), in case any Person disposes Asset through transfer of ownership to any Associated Person being Business Asset, Non-Business Chargeable Asset, or Trading Stock, and in case the conditions mentioned in Sub-sec.(6) are met, shall be as follows:

(a) The Person shall be deemed to have received through the Disposal an amount equal to the net-outgoings incurred in relation to the Asset immediately before the Disposal, and

(b) The Person acquiring the Asset through the transfer shall be deemed to have incurred a cost equal to the amount mentioned in Clause (a).

(3) Notwithstanding anything contained in Sub-sec.(1), in case a Person disposes the ownership of any Depreciable Asset or in case the Asset comes under a pool of Depreciable Assets, through its transfer to an Associated Person by meeting conditions mentioned in Sub-sec.(6), shall be as follows:

(a) The Person shall be deemed to have received through the Disposal an amount equal to the written down value of the pool according to S.4 of Schedule 2 at the time of the Disposal, and

(b) The Person acquiring the Asset through the transfer shall be deemed to have incurred a cost equal to the amount mentioned in Clause (a).

(4) In case any Person disposes of any liability through its transfer to any Associated Person, or to any other Person without collecting any price, according to this Section, action shall be taken as follows:

(a) The Person shall be deemed to have incurred a cost equal to the Market Price of the Disposal, or the net-outgoings incurred in relation to the liability immediately before the Disposal, whichever is lower, and

(b) The Person to whom the liability has been transferred shall be deemed to have received an amount equal to the liability in connection with incurring the liability.

Provided, this provision shall not be applicable in circumstances when the provisions of Sections 43 and 44 are applicable.

(5) In case any Person meets the conditions mentioned in Sub-sec.(6) and disposes of through transfer to any Associated Person any liability incurred at the time of earning income from any Business, action shall be taken as follows:

(a) The Person shall be deemed to have incurred for the Disposal a cost equal to the net income earned from the liability immediately before the Disposal, and

(b) The Associated Person shall be deemed to have received an amount equal to the said amount in relation to incurring that liability.

(6) For the purposes of Sub-sec.(2), (3) and (5), the following conditions should have been met:

(a) The disposed of Business Assets, Trading Stock, or Depreciable Assets of a Business shall be the Business Assets, Trading Stock or Depreciable Assets of a Business of the Associated Person immediately after the transfer made by the Person.

(b) The disposed of Non-Business Chargeable Asset or the Depreciable Asset of an Investment shall be the Business Asset, Non-Business Chargeable Asset, Depreciable Asset or Trading Stock of the Associated Person immediately after the transfer made by the Person.

(c) In the case of a liability, the liability is transferred to the Associated Person in order to enable to earn income through any of Business or Investment.

(d) At the time of the transfer, both the transferor and the Associated Person are residents, and the Associated Person is not a tax exempt person.

(e) There is continuity of Underlying Ownership in the Asset or underlying obligation of the liability, as the case require, of at least 50 percent; and

(f) Both the Person and the Associated Person have requested in writing to apply the selection made under Sub-sec.(2), (3) or (5), as the case of required.

46. Involuntary Disposal of Assets or Liabilities With Replacement: (1) In case any Person involuntarily disposes of any Asset in any of the manners mentioned in S.40(1), acquires within a year another Asset of the same type as a replacement of that Asset, and requests in writing for the application of this Section, action shall be taken as follows:

(a) The Person shall be deemed to have received through the Disposal an amount equal to the sum of the following amounts:

(1) The net-outgoings in relation to the Asset immediately before the Disposal, and

(2) In case the amount received through the Disposal exceeds the expenses incurred while receiving the replaced Asset, the excess amount, and

(b) The Person shall be deemed to have incurred an amount equal to the sum of the following amounts while receiving the replaced Asset:

(1) The net-outgoings incurred in relation to the disposed Asset immediately before the Disposal, and

(2) In case the amount spent while receiving the replaced Asset exceeds the amount received through the Disposal, the excess expenditure.

(2) In case any Person involuntarily disposes of any liability in any of the manners mentioned in S.40(2), incurs within a year another liability of the same type as a replacement of that liability, and requests in writing for the application of this Section, action shall be taken as follows:

(a) The Person shall be deemed to have incurred in relation to the Disposal the balance left after deducting the amount mentioned in Sub-Clause (2) from the amount mentioned in Sub-Clause (1):

(1) Net-incomings in relation to the liability immediately before its Disposal.

(2) In case the amount spent at the time of the Disposal exceeds the amount received at the time of incurring the replaced liability, the excess amount.

(b) The Person shall be deemed to have received an amount equal to the total of the following amounts while incurring the replaced liability:

(1) Net-incomings in relation to the Disposal of the liability immediately before the Disposal, and

(2) In case the amount received at the time of incurring the replaced liability exceeds the amount incurred at the time of the Disposal, the excess amount.

(3) The circumstances in which the replacement of one security in an Entity with another security in the Entity as a result of conversion of the security or reconstruction of the Entity constitutes an involuntary Disposal, shall be As Prescribed.

47. Disposal Through Merger of Assets and Liabilities: (1) Action shall be taken as follows in case a Person acquires an Asset or incurs a liability and as a result another Asset owned or liability incurred is disposed of by way of expiry or merger;

(a) In case net-outgoings have been incurred in relation to the Asset or Liability to be merged immediately before the Disposal, the Person -

(1) shall be deemed to have received an amount equal to the net-outgoings in relation to the Disposal of the Asset or Liability to be merged.

Provided, such amount shall not exceed the amount received in relation to the merged liability.

(2) shall be deemed to have incurred expenses equal to that amount while holding the ownership of the merged Asset or incurring the obligations of the merged liability.

(b) In respect to the liability to be merged, in case there have been net incomes in relation to the liability to be merged immediately before the Disposal of the liability, the Person -

(1) shall be deemed to have spent in relation to the Disposal of the liability to be merged an amount equal to the net income.

Provided, in the case of a merged Asset, the amount shall not exceed the amount spent while acquiring the Asset.

(2) shall be deemed to have received an amount equal to that amount while holding the ownership of the merged Asset or incurring the obligations of the merged liability.

(2) Without prejudice to the provisions mentioned in Sub-sec.(1), the said Sub-section shall be applicable in the following circumstances as well:

(a) In case the Person engages in the acts of acquiring or selling an Asset.

(b) In case the Person acquires an Asset which had Leased out, and

(c) In case a liability guaranteed by the transferee is transferred.

47A. Special Provision Regarding Merger and Acquisition of Entities: (1) If entities of similar nature carrying on banking and financial business or insurance business are merged to each other, provisions of Clauses (a), (b), (d), (e), (f) and (g) of Sub-section (2) of Section 57 and Sub-section (3) thereof shall not apply.

Provided, if there is any unrelieved loss of merged-out Entity, such loss has to be offset in 7-years on pro rata basis. If the merged-in Entity that so offsetting loss by equal installments is demerged prior to the offset of loss wholly, tax on the amount so offset loss has to be paid at the rate of tax prevailing in the Income Year of merger or acquisition.

(2) If the disposal of assets and liability is made upon the merger of entities pursuant to Sub-sec.(1), the following shall apply:

(a) In the case of Disposal of Trading Stock and Business Asset:

(1) The amount equal to the net-outgoings immediately before the disposal shall be deemed to have been received by that Person [merged-out Entity] as consideration of disposal, and

(2) The amount equal to Sub-clause (1) shall be deemed to be cost incurred by merged-in Entity.

(b) In the case of Disposal of Depreciable Asset:

(1) The amount equal to the remaining value in the diminishing method of the pool pursuant to S.4 of Sch.2 at the time of Disposal shall be deemed to have been received as consideration for that Disposal, and

(2) The amount equal to Sub-clause (1) shall be deemed to be cost incurred by merged-in Entity.

(c) In the case of Disposal of liability:

(1) The amount which is minimum of the Market Price of the liability and the net-incomings immediately before the Disposal shall be deemed to be the cost incurred by merged-out Entity as consideration for Disposal.

(2) The amount equal to that set forth in Sub-clause (1) shall be deemed to be received by merged-in Entity bearing liability.

(d) In calculating the cost of merged assets and liability, the merged-in Entity calculates only the cost in consideration pursuant to Clauses (a), (b) and (c) for Assets and liability existed in the merged-out Entity at the time of merging.

(3) For the purposes of group retirement to the employees serving in the merged-in Entity or merged-out Entity under Sub-sec.(1), Withholding Tax at 50% rebate on the rate of tax, shall be made on the payment on the additional lump sum retirement payment (except the payment made through the retirement fund or the payment to be made as mentioned in the terms and conditions of employees).

(4) In case, the Shareholders of merged-out Entity pursuant to Sub-sec.(1) dispose, their shares by sale within 2-years from the merger, no capital gain tax shall be levied on the profits made on the shares so disposed.

(5) Tax shall not be levied on the Dividends distributed by the merged-in Entity pursuant to Sub-sec. (1) to the shareholders existing at the time of merger within 2-years from the date of merger.

(6) An Entity that intends to be merged pursuant to Sub-sec.(1) shall have to file a letter-of-intent to be merged to the Inland Revenue Department up to Ashadh-end of 2072.

(7) An entity that filed letter-of-intends for merger pursuant to Sub-sec.(1) shall have to complete the merger up to Ashadh-end 2073.

(8) The merged Entity after enactment of this Section but not benefited from the facilities herein, shall obtain the benefits according to this Section.

(8) The provisions of this Section shall not be deemed to be applicable to an entity that does not give a letter-of-intent within the period specified in Sub-sec.(6) and an entity that has not completed the process of merger by the date set forth in Sub-section (7).

48. Disposal of Assets and Liabilities By Splitting: In case the rights connected with any Asset whose ownership is acquired from any person, or the obligations connected with any liability that has been incurred, devolves on any other person, including by way of a Lease of an Asset or any part thereof, action shall be taken as follows:

(a) In case the rights or obligations are permanent, the first Person shall be deemed to have disposed of a part of the Asset or Liability but not to have acquired any new Asset or Liability, and

(b) In case the rights or obligations are temporary or contingent, the first Person shall not be deemed to have disposed of any part of the Asset or Liability.

Provided, (the Person shall be) deemed to have acquired a new Asset or incurred a new liability, as the case requires.

49. Apportionment of Outgoings and Incomings in Disposal: (1) The incomings or outgoings made by a Person while acquiring, incurring or disposing of each of Asset or Liability in the following circumstances shall be apportioned between the Assets and the liabilities according to their Market Price at the time of acquisition, incursion or Disposal, as the case requires.

(a) In case the Person acquires one or more Assets or incurs one or more liabilities at the same time, or

(b) In case the Person disposes of one or more Assets at the same time.

(2) In case a Person who owns an Asset or Liability disposes of part of the Asset or Liability, the net-outgoings or the net-incomings of the Asset or Liability immediately before the Disposal shall be apportioned between the part of the Asset or Liability disposed of and the part retained according to their Market Price immediately after the Disposal.

Concept Note and Enlightenment

  57. Key Concept and Key words - This Chapter deals for net gains from Business Assets or from NBCA. Majorly, it deals with some special valuations/quantification for tax purpose. Key-words:

  58. Misconception\- Many people say provision from S.36 to S.49 is relating to Business Assets and Business Liability (BABL), a full misconception with partially truth of fact. Only S. 36 and S.37 are for BABL/NBCA. From S.38 to S.49, the provision are applicable for all Assets and Liabilities (TS, DA, BA, NBCA and BL). Alternatively, some say they are for deemed disposal, again partially true, there are deemed as well as real disposal. Another misconception is derived from accounting-eyes for liability. Most cases, liability has to be interpreted based on definition of Assets in this Chapter and the rest of the Act. Some of the legal provisions, and hence are meaningless for liability having , because the word 'liability' joined there with the word for 'Asset'.

  59. Outgoings and Incomings – Outgoings as per S38 is the cost-base for an Asset or liability on transactional-basis. Outgoings (outflow of resources) include the amount paid for that asset/liability at its inception, during holding and at disposal with one exception of 'amount taxed against the receipt of asset or value enhanced. In the next hand, Incomings (inflows of resources) is the amount received for that asset/liability at its inception, during holdings and its disposal. The tax-base for an Asset at any time is, net-outgoings (same as net-cost in conventional accounting school), and for a liability s net-incomings. Deferred tax asset or liability for financial accounting purpose has to be computed in this tax-base (net-outgoings or net-incomings). In all cases of outgoings and incomings two points should be consider are – it includes inflows/outflows for tree-part under fruit & tree concept, and any cost if disallowed u/s21 is disallowed for outgoings also.

  60. Outgoings and Incomings of new tax-base– Some of the items of personal nature are covered under tax by this Act comparing repealed Income Tax Act, 2031. Securities, certain land and building of a Natural Person are example of this type. Many non-taxed Entity also covered for taxation by this Act. For those assets and liabilities which were beyond the tax-net earlier are valued at Market Price as on enactment of (on Chaitra 19, 2058 or April 1, 2002) this Act according to S.40(5). Hence, for those assets fell in tax-net on that day, outgoing is and liability incomings is Market Price of the same.

  61. Fruit & tree concept\- In case any outflow or inflow is for use of asset, then the same may not be part of incomings or outgoings but is part of inclusions or deduction. Only the portion of cost-base is to be consider for Outgoings and Incomings. This segregation is called fruit & tree concept. Fruit part is excluded from the outgoings for an asset or liability to avoid double dipping (no double benefit from single outflow).

  62. Gain from Disposal- For BABL and NBCA, only net-gain is taxed and any unrelieved loss to be offset with gain from same stream. Gain for the purpose of S.37 is to be computed in per-asset basis reducing Outgoings from Incomings and reversed for liability. Computation of net-gain is some tricky mathematics from gain and loss during the year. Total of four types of losses may be offset with gain and resulting figure, if +ve, is net-gain. The formula for computation of net-gain has given in viii pg. 210 for clarification. All the loss (except loss that are not expired to offset with business/investment inclusions) are eligible to offset without any time-limit, hence a loss that expired of 7 or 12 years from business may be offset here. This is required because, the loss created from allowed deduction u/s 13.

  63. Disposal\- Disposal are of two types: direct disposal and deemed disposal. In case ownership (not a title) of an asset or the obligations of a liability is ceased be existed with a Person it is Disposal for S.40. Many cases, it would be technically cease of ownership or physically too. This includes a sale, merger, surrender, lost, stolen, fired, flooded, matured, exchanged, transferred, distributed, cancelled, redeemed or otherwise expires.

  64. Deemed Disposal \- Second part of Disposal is deemed (asset with Person but deemed as Disposal for tax accounting). This includes 5 different approaches. Death of a Natural Person (just before death), all Assets and liability deemed to be disposed. For assets where the incomings for an asset exceed the outgoings for the asset, it deemed to be disposed. This approach recognize an additional wealth over its outgoings. An Asset cannot be with negative value and should with cost-base for traditional accounting scholars. Same concept has adopted here, to tax the excess on a cost-base. Real examples may be very remote for such case. Conversion of a good-debt to bad be another case of deemed disposal. In case of a banker, just classification to bad asset is enough for this. Practically, no one has adopted this provision. Change of form of Asset is another type of deemed disposal. It includes conversion of TS, DA, BA or NBCA to another form. This is somewhat same concept as self-consumption in VAT. Conversion of TS to another form or any form of asset to NBCA may have some logical parlance to this provision. Otherwise, some ambiguity must resolve to interpret this provision like in case a DA classified for held-for-sale or decision of winding up of an Entity may create tax income based on this provision.

  65. Departure tax or Exit tax\- Last two heads of deemed disposal is for departure or exit tax concept. In case controlling shareholders of an Entity replaced by others within a period of 3-years, the Entity deemed to be dispose all of its Assets and liabilities to same Entity having new control. This provision leads a pass-through approach for an Entity taxation and Entity are deemed separate person to the extent they are controlled by same group of shareholders. Second type of departure tax is for conversion of Resident to Non-Resident (of course from Non-resident to Resident also). Resident has global basis tax scope and tax-base, in case it converts its status to Non-Resident, then Nepal loose the tax scope to foreign source. Hence, departing from full-tax regime, the Person require to pay the tax assuming the disposal of all Assets and liabilities (exception to domestic land and building).

  66. Demerger- part disposal\- In case a part of an Asset or liability transfer to another person permanently, that part is disposal u/s48. Where that part is for temporary use or for contingent use, there is no disposal. There are suffix of "no new asset" or "with new asset" in both cases. Reason for this is payment received in form of cash is not asset for disposal. In case of temporary disposal, for example, rent receivable (an asset) may be created without any payment to acquire it.

  67. Quantification of deemed disposal\- All cases of deemed disposal are valued at Market Price at the time of disposal. The acquirer of asset deemed to be paid the same amount for its acquisition (second tax-base). Hence, deemed disposal by way of death, incomings>outgoings, conversion to bad-debt, change of form of asset, change of control in Entity or change of ownership have to be valued at Market Price. The deemed proceeds requires to adjust against specific rule of each type of asset (as, sale for TS, disposal proceeds for DA and incomings for BA).

  68. Installment sale or finance lease\- In case of installment sale or finance lease or hire purchase of asset, it shall be a disposal for lessor/seller u/s40(4) and quantification has to be done at Market Price u/s 42. In case of return of leased asset, it again require to value at Market Price on the date of returning.

  69. Quantification for transfer to ex-spouse \- In case a couple divorced or separated and settlement of compensation by way of transfer of asset. In this case, no consideration from transferee is sought so far. According to S.27(1), any transfer without any cash or equivalent consideration has to be valued at Market Price. But in this case, divorced spouse losing the spouse and asset simultaneously and tax-burden on the transferred asset is triplicate of loss. To avoid this loss, the person, by filing a written notice, values disposal at net-outgoing (net-incomings for liability), so that gain is zero u/s 43.

  70. Quantification for merger \- In case asset(s) and/or liabilities merged and formed a new asset or liability, earlier forms disposed. Again according to S.27(1), the disposal qualifies for valuation at Market Price and makes intermediary profit for tax. This situation creates no-sale income for production of finished goods from raw material, because raw materials merged to form a finished goods is disposal of raw material. To avoid this intermediary profit for tax, merger values disposal at net-outgoing (net-incomings for liability), so that gain is zero u/s 47. In S.47, there is a tag for 'not exceeding asset or liability'. Reason for it is generic, in case of merger between asset and liability (both involves 3rd party in form of debt-claim and debt-obligation) and if settlement is other than par-value, that is not a mere merger but disposal of asset as well as liability in form of two sells. For example, one bill of exchange as receivable having value of x amount of value with payable with y amount of value, there is two disposal with gain or loss.

  71. Quantification at death – On the death, quantification of transfers to be done at Market Price u/s 44. Characteristically, firstly such transfer will be to the deceased's estate, which will be administered by an executor or administrator, a Trust as an Entity. The Trust of deceased may realize gain or lose from disposal require to include in calculating the Trust inclusion at Market Price. Further transfer to a beneficiary of the deceased will be a real disposal from Trust (Entity) at market value, u/s27 resulting is likely to be no gain or loss.

  72. Quantification for transfer to Associates or other – In case any transfers between associates or for no consideration or with partial consideration, it to be valued in two separate situation u/s 45. A typical form of quantification 'profit but not loss' concept adopted in generic cases of such non-market transfer. For this, quantification has to do at Market Price to the transfer except where this would result in the recognition of a loss (taking higher of Market Price or net-outgoings for asset). This quantification shall discourage the transferor to transfer as part of tax-planning scheme. In the other hand, S.45(6) contain special rules that may allow a person transferring an asset or liability to its controlled-associate to not recognize a gain (valued at net-outgoings). The conditions u/s 45(6) contains a complex net to get this benefits as: i) either the transferor or the transferee is an entity and transferor is controller holding entity (holding company, holding partner, holding venture, &c.); ii) asset or liability remains in the tax-net, so that both should be Resident and the transferee should not be an Exempt Entity; iii) transferred asset should be in quarantined basis (see v in pg. 208) of Business and Investment, i.e. Asset in Business must be Asset in Business for transferee and likely Investment Assets may be use in Investment or Business; and iv) both the party elect for the non- recognition (valued at net-outgoings).

  73. Quantification in Involuntary disposal – In case any involuntary disposal of asset/liability realized gain, is it taxable on realization basis, if taxed, then it is against the open market policy. The person has unintended disposal and tax-burden, two type of unwanted burden come in the face. To avoid this situation, there is non-recognition treatment for involuntary disposal. Involuntary disposal shall be any time of act of government, act of God or any type of loss on asset/liability without option to dispose it. This provision is applied only if there is written application and substantiated by a compensation and use of compensation for cost of similar asset. Compensation may be sourced from any-type as from buyer, insurance, guarantor or other source. Non-recognition is available where a replacement asset or liability is acquired or incurred within one year from disposal (may spread in two IYs). In involuntary disposal with replacement of similar assets, it has two real transaction; first is real disposal with consideration and second purchase of new similar asset. In the first transaction of disposal, the disposal shall be valued at net-outgoings, so gain is nil on the disposal. In case there is savings from the compensation, of course saving is voluntarily saved, hence value of disposal is 'net outgoings+ saving, if any' basis. In case of cost-base of newly acquired asset, it shall be 'net-outgoings of disposed asset plus additional investment', if any. These situations may result in part recognition of any gain or acquisition. Furthermore, involuntary disposal of the exchange of securities in a merger, it is not practicable for each cases of shareholders and block approval from IRD is the way to get this benefits.

  74. Quantification for merger of Entities \- In case of merger or acquisition or amalgamation or absorption or similar cases of merger, there is disposal of assets and liabilities from disposing entity to merged entity. This shall be valued as Market Price and no deferral item transferred to merged entity. Hence, merger is mere case of purchase and losing of deferral items (as interest u/s 14(3), loss u/s20, forex adjustment u/s24(4), bad-debt recovery u/s25, any types of re-characterization u/s merged and formed a new asset or liability, earlier forms disposed. Again according to S.27(1), the disposal qualifies for valuation at Market Price and ma 29, 33, 34 or 35, net-loss u/s 36, replacement u/s46, foreign tax u/s 71, but creates dividend stripping u/s 58). There is special benefit of merger for banking business and insurance business u/s47A. The valuation of transfer is at net-outgoings and all deferral items can be deferred to merged entity at face value.

  75. Quantification for merger \- In case asset(s) and/or liabilities merged and formed a new asset or liability, earlier forms disposed. Again according to S.27(1), the disposal qualifies for valuation at Market Price and makes intermediary profit for tax. This situation creates no-sale income for production of finished goods from raw material, because raw materials merged to form a finished goods is disposal of raw material. To avoid this intermediary profit for tax, merger values disposal at net-outgoing (net-incomings for liability), so that gain is zero u/s 47. In S.47, there is a tag for 'not exceeding asset or liability'. Reason for it is generic, in case of merger between asset and liability (both involves 3rd party in form of debt-claim and debt-obligation) and if settlement is other than par-value, that is not a mere merger but disposal of asset as well as liability in form of two sells. Take one example, one bill of exchange in form of receivable having value of x amount of value with payable with y amount of value, there is two disposal with gain or loss.

  76. Cost segregation\- Tax law adopts valuation in asset basis, rather real transaction may be done on group or in part of an asset. For the valuation of amounts for group or for a part, S.49 provides a tool of mathematical formula as given in ix pg. 210.

#### Chapter 9 Special Provisions Concerning Natural Persons

50. Couples: (1) A Resident Natural Person and his/her resident wife/husband may, by jointly furnishing a written notice, elect to be treated as a single Natural Person for tax purposes for a particular Income Year.

(2) The husband or the wife belonging to a couple making an election under Sub-sec.(1) in relation to any Income Year shall be jointly and severally responsible to each other for the tax payable by either of them in that year.

51. Medical Tax Credit: (1) A resident Natural Person may claim for a medical tax credit for an Income Year for any approved medical expenses incurred for own by self or through any other person.

(2) The medical tax credit of a Person for an Income Year shall be calculated by applying the rate of 15 percent to the amount of eligible medical cost mentioned in Sub-sec.(1) for the year and adding to the result any amount mentioned in Sub-sec.(4).

(3) Notwithstanding anything contained in Sub-sec.(2), the medical tax credit claimed by a Natural Person for any Income Year shall not exceed the Prescribed limit.

(4) In the case of a Natural Person for any Income Year, the sum of any excess under Clauses (a) and (b) carried forward and added to the amount mentioned in Sub-sec.(2) for the next Income Year to the following extent:

(a) In case the amount mentioned in Sub-sec.(2) exceeds the limit mentioned in Sub-sec.(3), the excess amount, and

(b) The extent of the medical tax credit which the Person mentioned in S.3(a) cannot use because the amount of tax payable is low.

Explanation: For the purpose of this Section, the term "eligible medical cost" means the approved medical expenses As Prescribed.

#### Chapter 10 Special Provisions for Entities

52. Principles of Tax Applicable to Entities: (1) An Entity shall be liable for tax separately than its beneficiaries.

(2) Distributions to be made by an Entity shall be as mentioned in S.53, and in respect to such Distributions, tax shall be imposed on the beneficiaries according to S.54.

(3) Amounts received and expenses incurred by an Entity, whether or not received or incurred on behalf of another person, shall be treated as received or incurred by the Entity.

(4) Assets owned and liabilities incurred by an Entity shall be deemed to be owned and incurred by the Entity. No such Assets owned and liabilities owed by the Entity shall be deemed to be owned and owed by any other person.

(5) Foreign-Tax paid with respect to the income of an Entity shall be deemed to have been paid by the Entity, irrespective of whether its manager, Beneficiary, or the Entity itself has paid it.

(6) Transactions carried out between an Entity and its managers and beneficiaries shall be recognized subject to Chapter 7 and S.45.

53. Distributions by Entity: (1) Following shall be included in the Distribution of an Entity:

(a) Payment by Entity to any of Beneficiary in any capacity, or

(b) Capitalization of profits.

(2) Notwithstanding anything contained in Sub-sec.(1), any Payment mentioned in Clause (a) of the said Sub-section shall be deemed to be a Distribution only in the following circumstances:

(a) In case the amount of the Payment exceeds the amount of Payment made by the Beneficiary to the Entity in return for the Entity's Payment.

(b) In case the Payment does not include the following amounts:

(1) Amounts included in the calculation of the income of the Beneficiary,

(2) Payments subjected to Final Withholding Tax, except by reason of being a Distribution.

(3) In case a distribution made by any Entity reduces the net value of Assets and liabilities of the Entity, the distribution be regarded as a Distribution of Profits or a repayment of capital.

(4) Subject to S.55, a Distribution of an Entity shall be treated as a Distribution of Profits to the extent that -

(a) It is of the type mentioned in Sub-sec.(3) and at the time of the distribution, the Market Price of the Assets exceeds the Market Price of the liabilities and capital contributions including capitalization of profits.

(b) It is a capitalization of profits.

(5) A distribution of the type mentioned in Sub-sec.(3) shall be regarded as a repayment of capital to the extent that it is not a Distribution of Profits.

(6) A distribution of an Entity shall be regarded as a dividend of the Entity to the extent that it is not a repayment of capital.

Explanation: For the purpose of this Section, the term "capitalization of profits" by an Entity shall include a capitalization by way of issuing bonus shares or similar other Interests, or increasing the amount paid up on Interests in the Entity, or otherwise crediting profits to a capital or premium account of the Entity.

54. Tax on Dividends: (1) Dividends distributed by a resident Entity shall be taken as follows:

(a) Shareholders of a Company or partners of Partnership Firm shall be imposed tax according to Final Withholding Tax procedure.

(b) Distribution by other entities shall be exempt from tax.

(2) Dividends distributed by a Non-Resident Entity to a Resident Beneficiary shall be subjected to tax by including the amount in calculating the income of the Beneficiary.

(3) Notwithstanding anything contained in Sub-sec.(1), a dividend re-distributed from dividend income is tax-exempt.

55. Dissolution of an Entity: (1) During the dissolution of Interest-in-Entity, in case all of the following conditions are met, the Distribution shall be treated as partly a dividend and partly as a repayment of capital of the Entity in the proportion that the Beneficiary would be entitled to share in the profits and contributed capital of the Entity:-

(a) Under formal corporate instrument of prevailing law, the Entity has made a distribution in respect of the cancellation, redemption, or surrender of an Interest-in-Entity, including as a result of dissolution of the Entity, or buy-back of Interest;

(b) Except in complete liquidation, the distribution is not or may not be reasonably calculated to the rights of Beneficiaries to share in the profits; and

(c) After the Disposal, the Beneficiary to whom the Disposal is made is not an associate of the Entity.

(2) Notwithstanding anything contained in Sub-sec.(1), the said Sub-section and S.53 shall not apply to a distribution made by an Entity to one of its Beneficiaries in the course of purchasing an Interest-in-Entity by the Beneficiary in the ordinary course of Business at a stock exchange recognized under prevailing law.

56. Transactions between an Entity and a Beneficiary: (1) Subject to S.45, in case a distribution or otherwise by way of transfer of ownership an Asset Disposal between an Entity and its Beneficiary:

(a) The transferor of the Asset shall be deemed to have received through the Disposal an amount equal to the Market Price of the Asset immediately before the Disposal, and

(b) The transferee of the Asset shall be deemed to have incurred a cost equal to the amount mentioned in Clause (a) while acquiring the Asset.

(2) Subject to S.45, in case any liability is disposed of through its transfer between an Entity and its beneficiary.

(a) The transferor of the liability shall be deemed to have incurred a cost equal to the Market Price of the liability immediately before the Disposal, and

(b) The transferee of the liability shall be deemed to have received an amount equal to the amount mentioned in Clause (a) while incurring the liability.

(3) In case an Entity distributes a dividend to a Beneficiary without profit, the dividend shall be included in calculating the income of the Entity.

Provided this Sub-section shall not be applicable in Prescribed circumstances.

57. Change in Control: (1) In case control of an Entity changes by 50 percent or more within three years, the Entity shall be deemed to have disposed of all Asset owned or liability owed.

(1A) For the purpose of computing the change of control of 50 percent or more as specified in Sub-sec.(1), following shall be taken:

(a) The Interest by Shareholders having one percent or more control in total.

(b) The Interest by Shareholders having less than 1 percent by Associated Person of Shareholders having 1 percent or more.

(2) In case the control of an Entity changes as mentioned in Sub-sec.(1), after the change, the Entity does not permit for:

(a) To deduct Interest carried forward under S.14(3) which had been incurred by Entity before change in control;

(b) To set off the loss under S.20 suffered by the Entity before the change in control;

(c) To carry back loss suffered under 20(4) to any Income Year preceding the change in control;

(d) To make adjustments under S.24(4), in case any amount or expenditure has been taken into account under S.24(4)(a) before the change in control, and in case the amount or expenditure has been corrected under S.24(4)(b) after the change in control;

(e) To make adjustments according to S.25(1), in case any amount has been taken into account according to S.25(1)(b) before the change in control and in case the right to obtain that amount is given up after the change in control, or in case the amount constitutes a Debt-Claim of Person, if writes it off as a bad debt;

(f) To set off the loss suffered under S.36 on disposing of Assets or liabilities prior to the change in control from the gain derived from the Disposal of Assets or liabilities after the change in control;

(g) To claim as expenses, in case a premium has been taken into account under S.60(2)(b)(1) prior to the change of control, and the premium is refunded to the insured after the change in control, or

(h) To carry forward remaining foreign-tax-credit under S.71(3) in relation to foreign income.

(3) In case the control of an Entity changes in an Income Year in the manner mentioned in Sub-sec.(1), the parts of the year before and after the change shall be deemed to be separate Income Years.

58. Dividend Stripping Arrangement: (1) An Entity shall be deemed to have made arrangement of dividend stripping in case it distributes Dividends in the following manner:

(a) In case Entity has accumulated, current or expected profit;

(b) In case any Person acquires any Interest-in-Entity. The Person or Associated Person makes a Payment to the Person who is or was a Beneficiary in the Entity or to its Associated Person, irrespective of whether or not the Payment is connected with the acquisition of the Interest, and whether or not it was made at the time of acquiring the Interest;

(c) In case Payment is fully or partially reflected in the profit, or

(d) In case the Entity distributes a dividend to the Person acquiring the Interest-in-Entity, and in case the dividend fully or partially represents the profit.

(2) In case an Entity has distributed a dividend under the dividend stripping arrangement made according to Sub-sec.(1), such arrangement shall be treated as equivalent to the following:

(a) The Payment made by the Person or Associated Person acquiring the Interest shall not be treated as a Payment made by that Person, but instead, treated as the Distribution of a dividend by the Entity to the former or current Beneficiary mentioned in Clause (b).

(b) The dividend distributed by the Entity to the Person acquiring the Interest shall be deemed to be equal to the amount calculated by deducting the amount described as the Payment from the dividend mentioned in Clause (a).

Concept Note and Enlightenment

  77. Key Concept and Key words - This Chapter deals for Entity specific taxation. For taxation, entities in substance, create two levels at the entity level itself and at the beneficiary level.

  78. Principle of an Entity – Corporate-veil is the taxing principle for an Entity u/s 52 i.e. Entity is responsible to pay its tax and beneficiary are personally liable for that, exception is S.107. In case any person deposits tax on behalf of Entity, it is deemed paid by Entity. For tax accounting, Entity requires to maintain books for all transaction irrespective of income or expense.

  79. Capital and profit\- Profit for the tax purpose is tax base of profit, which is other than accounting profit and includes provisions from accounts. It is all named area of earning other than 3rd party payable or capital contribution and includes profit, reserves, funds, provisions, allocations, ear-marks &c. Similarly, capital contribution is any type of contribution either by way of equity, preference, premium or similar or bonus shares too.

  80. Distribution by capitalization\- For tax, distribution are of two type: capitalization of profit and payment to beneficiary. Distribution is taxable in the hand of beneficiaries. Capitalization of profit (not all bonus shares) is distribution. Capitalization of profit to paid-up capital or to security premium account is distribution for this purpose.

  81. Distribution by payment\- Any payment by an entity to a beneficiary is Distribution u/s 53; except for the payments that is –i) is taxed otherwise, ii) is repayment of payment receipt, iii) is not reducing value of net-worth at market value and iv) is not a capital-refund. In the contrast to traditional dividend, tax Distribution is not require to tie with distributable-profit. With exception with S.55, distribution and capital refund is segregated in profit-first rule. Any payment at market value to the extent of positive net-worth at market price is Distribution, see x pg. 211 for formula. The payment beyond this limit is capital-refund. For the payment as Distribution or capital refund under this provision per-head or per-share capital contribution is immaterial. So, if profit is 60% of capital and paid to a shareholder, same distribution treatment for person holding 1% or less to 100% of the capital even proportionate profit for 1% holder shall be 0.6% of capital only.

  82. Capital-first rule\- An exception to the profits-first rule given is S.53 is capital-first rule as per S.55. In case payment has made to beneficiary under formal-use of corporate vehicles and instrument reducing capital in line with prevailing law, then capital-first rule apply. Such corporate instrument may be termination of interests in entities including buy-back, redemption, forfeiture, surrenders, internal-reconstruction paying capital or similar vehicles of payments. In this arrangement, the entity must terminate sufficient of the beneficiary's interest in the entity that after the termination the beneficiary is no longer an "associate" of the entity.

  83. Treasury stock investment\- S.55(2) intend to account for any payment to beneficiary in case the payment has made by purchasing own shares through stock-exchange as regular investment (in treasury stock). Till now, such treasury stock investment is not allowed.

  84. Distribution without profit\- S.56(3) has a earmarking provision of payment of distribution with its profit. In case, an Entity pays to its beneficiary the Distribution as in para. above and formula x pg. 211, over its tax-base of profit, the over part has not taxed in the Entity for corporate tax. This has to be a part of Inclusions to the Entity. Henceforth, payment is indirectly link with tax-base of profit for distribution and taxing corporate income twice (once to Entity- corporate tax and second beneficiary- distribution tax).

  85. Use of Entity assets\- According to S.56(3), use of Entity assets by its beneficiary has two tax impacts- one that is tax-free income for beneficiary and associated expense is not allowed for Entity for tax purpose, e.g. if Entity allows beneficiary to use depreciable asset (not a transfer to), the notional income to the Entity as well as Beneficiary is nil and no associated depreciation or repair is allowed for deduction. Secondly, two cases it is taxed as notional income to the beneficiary and associated expense is allowed for Entity are- vehicle facility (1% of Market Price per year) and free accommodation (at 25% of rent paid or imputed rent).

  86. Change in controlling Shareholders\- Change of controlling shareholders creates tax on Entity itself as disposing of all Assets and liabilities at Market Price as discussed in S.40(3) and S.41 (see para. pg. 66). In such cases, no deferrals are transferred to the so-called newly controlled entity (see the list of deferrals in para. above in pg. 68). Furthermore S.57 provides the scenario of change to be apply. In case, shareholders holding 1% or more (as their Associates holding even less than 1%) change during any 3-years period (moving) at 50% of more with comparing to total share is change of control for an Entity (mathematical grey-area to compute this newly inserted portion of 1% in the law also in there). This provision seeks Entity is taxed with its shareholders on pass-through approach and contrary to corporate-veil as main principle for Entity. But reason behind this concept is taxing the Entity at the point of value-shifting. Expanding it, say a shareholder acquire a share in a company at Rs. 100 and dispose it to Rs.150, for the newly entered shareholder's pays Rs.150 for net-asset in the Entity at Market Price; if the buyer presumes there is value of Rs.150, then why not to take tax on that amount. To resolving this tax-arbitrage, S.57 is measures.

  87. Dividend-stripping\- In case any shareholder of an Entity having profit (for this accumulated profit, current profit or unrealized profit) disposes shares to another person and the latter distributes profit as Distribution. To the extent of such profit the Distribution is deemed to be taxed in the hand of outgoing shareholders. This concept of anti-abuse measure is called Dividend-stripping. Due to taxing share disposal gain u/s95A and misinterpreting S.67, the provision of S.58 is almost worthless for practically as well as theoretically. Originally, it is targeted at indirect removal of profits from an entity in a manner that avoids dividend tax that would occur if the profits were distributed. In case a foreign parent sells shares in a domestic subsidiary having profits hence no distribution tax without payment. Furthermore, there is no capital gain tax for foreigners holding shares in resident company because of S.67, so the gain will not have a domestic source. But in substance now, all the distribution are taxed at 5% as Final Withholding Tax and capital gain tax is levied for foreigner too.

  88. Distribution tax\- In all cases of Distribution for Company and Partnership, there is a tax at 5% to the Beneficiary and Final Withholding Tax for the purpose of S.92 also. In case, Entity is distributing profits from its tax-paid dividend income, no further tax on such re-distribution. Entity require to make dividend-imputation computation (see xi 211) to segregate the distribution from own general income or as re-distribution.

#### Chapter 11 Special Provision for Banking and Insurance Business

59. Banking Business: (1) The income earned or loss suffered in any Income Year from the banking Business operated by a Person shall be calculated separately by taking the banking business as a separate business from the other businesses.

(1a) Loan loss provision to the extent of 5% of the outstanding loan and advances including non-banking assets by the Person having banking business, according to Nepal Rastra Bank, may be deducted as expense.

(1b) Loan loss provision to the extent of 5% of outstanding loan of a co-operative business is deducted as expense.

(1c) No deduction is allowed for writing off the bad loan to the profit for the Person having loan loss provision. And if the loan loss provision is capitalized or allocated in the profit or distributed as dividend same shall be included in the inclusion in that year.

(2) .....[Repealed]

(3) .....[Repealed]

Explanation: For the purpose of this Section, the term "banking business" means a banking business being operated by a bank or financial institution which has received permission to do so according to prevailing law.

60. General Insurance Business: (1) The income earned or loss suffered in any Income Year from the General Insurance Business operated by a Person shall be calculated separately by taking the General Insurance Business as a separate business from other businesses.

(2) While calculating the income in an Income Year of a Person operating the General Insurance Business:

(a) In addition to the other amounts to be included under this Act, following amounts shall also be included in the income:

(1) Amount received as insurance premium, including reinsurance premium during the year, and

(2) Amount received against Payment in consideration of any contract relating to reinsurance, guarantee, security or indemnity under Sub-Clause (1) of Clause (b).

(b) In addition to expense deductible under this Act, following amounts, may be deducted:

(1) Payment made during the year by the Person as an insurer while operating the Business, and

(2) Premium refunded during the year to the insured which were included under Sub-Clause (1) of Clause (b) in calculating income during the year or preceding year.

(3) Sum of following amount in the unexpired risk reserve:

(i) Amount up to 50% of net insurance premium as per Income Statements, and

(ii) Amount up to 115% of outstanding claimed lodged at the year-end.

Provided, deduction under this Sub-Clause shall be included in inclusions of the following Income Year.

(3) .... [Repealed] (4) .....[Repealed]

Explanation: For the purpose of this Section, the term "a registered General Insurance business" means an insurance business operating the General Insurance Business after registration in Nepal according to prevailing law.

61. Investment Insurance Business: (1) The income earned or loss suffered in any Income Year from an Investment Insurance Business operated by a Person shall be calculated separately by taking the Investment Insurance Business as a Business separate from other businesses.

(2) While calculating the income in an Income Year of a Person operating the Investment Insurance Business:

(a) All amounts that may be included under this Act, other than the following, shall be included:

(1) The amount of premiums in respect of insurance, including premiums on reinsurance, received by the Person from conducting the Business.

(2) Amounts received during the year from Payments in consideration of any contract relating to reinsurance, guarantee, security or indemnity under Sub-Clause (1) of Clause (b).

(b) All amounts that may be deducted as expense under this Act, except the following amounts, shall be deducted:

(1) Payments made by the Person as an insurer while operating the Business, and

(2) Premiums refunded to the insured mentioned in Sub-Clause (1) of Clause (a).

(3) Amounts mentioned in Sub-Clauses (1) and (2) of Clause (a), and Sub-Clauses (1) and (2) of Clause (b), of Sub-sec.(2) shall not be included in the incomings or outgoings of Asset and liability of the Person.

(4) The contract of Investment Insurance of a Person's Investment Insurance Business shall not be treated as Asset or liability of that Person.

62. Amounts received from Insurance: (1) For the purpose of calculating the income of a Person, action in respect to amounts received from insurance shall be taken as mentioned in S.31.

(2) Notwithstanding anything contained in Sub-sec.(1), action in respect to gain made from Investment Insurance shall be as follows:

(a) In case such amount are paid by a Resident Person, Final Withholding Tax shall be imposed, and

(b) In case such amounts are paid by a Non-Resident Person, this amount shall be inclusions of insured person.

Explanation: For the purpose of this Section, the term "gains received from Investment Insurance" means the balance left after deducting the premium paid in respect to such insurance by a Person from the Payment received in lieu of such insurance.

#### Chapter 12 Special Provisions Relating to Retirement Savings

63. Approval of Retirement Funds: (1) In case a Resident Person desirous of establishing a Retirement Fund submits an application to the Department for permission to do so, Department shall grant permission As Prescribed.

Provided, the Citizen Investment Trust established under Citizen Investment Trust Act, 2047 opted to operate the Retirement Fund and Employee Provident Fund established under Employee Provident Fund Act, 2019 need not get approval.

(2) A Beneficiary Natural Person of an Approved Retirement Fund may claim to have the Retirement Contribution made to the fund in an Income Year reduced from Taxable Income .

(3) Notwithstanding anything contained in Sub-sec.(2), the amount claimed for reduction by any Person in any Income Year according to the said Sub-section shall not exceed the Prescribed limit of Retirement Contributions.

64. Tax on Retirement Fund: (1) The amounts to be included or deducted under this Act while calculating the income of a Retirement Fund shall be included or deducted while calculating its income. Provided that:

(a) Contributions made to the fund shall not be treated as income and such contributions shall not be included in the calculation.

(b) Retirement Payment shall not be treated as expenses and such Payments shall not be deducted while calculating income.

(c) The Interest of a Beneficiary in the Retirement Fund shall not be treated as the liability of the fund.

(2) The income of Approved Retirement Fund shall be exempt from tax.

(3) In case any Approved Retirement Fund ceases to be an Approved Retirement Fund, it shall be required to deduct the amount mentioned in Clause (b) from the amount mentioned in Clauses (a), and pay tax on the balance according to the rates as per S.2(1) of Schedule 1:

(a) All Retirement Contributions to the fund from the date of its recognition as an Approved Retirement Fund to the date of termination of such approval, and all incomes to be recognized as Taxable Income in case Sub-sec.(2) was not applicable.

(b) All Retirement Payment made by the fund from the date of its approval as an Approved Retirement Fund to the date of termination of such approval.

65. Retirement Payments: (1) For the purpose of calculating the income earned by a Natural Person from Interest in Approved Retirement Fund or the Retirement Payment from GON, following shall be taken:

(a) All Retirement Payment made by the fund in consideration of the Interest in the fund shall be included in income, and

(b) Notwithstanding anything contained in Clause (a), in case such a Payment has been made in a lump sum, 50 percent of the amount so paid, or Rs.500,000, whichever is higher, shall be deducted from the Payment, and the balance shall be treated as the gain made by the Natural Person from the Disposal of Non-Business Chargeable Asset.

(2) For calculating the gains made by a Natural Person from Interest in Unapproved Retirement Fund, following shall be taken:

(a) In case any amount has been paid by a Resident Person, the Beneficiary shall be required to pay tax on that amount as the Final Withholding Tax, and

(b) In case any amount has been paid by a Non-Resident Person, the amount shall be included in calculating the income of the Beneficiary.

Explanation: For the purpose of this Section, the term "gains from Interest in Unapproved Retirement Fund" means the balance left, if any, by deducting the Retirement Payment made by an Unapproved Retirement Fund to a Beneficiary Natural Person in consideration of Interest in it, from the Retirement Contributions made to the fund.

66. Expenses and Incomes in Consideration of Interest in Retirement Fund: [Repealed w.e.t. 2060.4.1]

#### Chapter 13 International Tax

67. Sources of Income, Losses, Gains, and Payments: (1) In case the amounts mentioned in Clause (a) exceed the amounts mentioned in Clause (b) in the sources of income made by any Person from any Employment, Business or Investment, shall be deemed to have sources of income in Nepal to the extent of such excess:

(a) Amount of Inclusions having sources in Nepal.

(b) Amounts of deduction of expense having sources in Nepal.

(2) In the case of a loss suffered by a Person from any Business or Investment, if the amounts mentioned in Clause (a) exceed the amounts mentioned in Clause (b), the excess amount shall be deemed to have sources in Nepal:

(a) Amounts of deduction of expense from a Business or Investments having sources in Nepal.

(b) Amount of Inclusions having sources in Nepal.

(3) Amounts to be included in calculating income shall be deemed to have sources in Nepal in the following circumstances:

(a) The net gains, according to S.7(2)(c) or S.9(2)(b), calculated by deducting the loss suffered from the Disposal of Assets or liabilities with sources in Nepal from the gains made from the Disposal of Assets or liabilities with sources in Nepal.

(b) In case the [Depreciable] Assets situated in Nepal or the liabilities to be incurred in Nepal have been included, the [balance charging] gain to be included in calculating income as mentioned in S.7(2)(d) or S.9(2)(c).

(c) Subject to Clauses (a) and (b), Payments having sources in Nepal.

(4) In case the Assets situated in Nepal or the liabilities to be incurred in Nepal have been included, the gains or losses from the Disposal of such Assets or liabilities shall be deemed to have their sources in Nepal.

(5) In case the following amounts have been included in the amounts deducted in calculating income, such amounts shall be deemed to have their sources in Nepal:

(a) Cost mentioned in S.15(1) in relation to Nepal-based Assets.

(b) Expenses as per S.16(1), and the extent of expenses that may be deducted under S.19, in relation to Nepal-based Assets, and

(c) Subject to Clauses (a) and (b), Payments having sources in Nepal.

(6) Following are the Payments having sources in Nepal:

(a) Dividends paid by a Resident Entity.

(b) Interest paid by a Resident Person.

(c) Payments for Natural Resources obtained from lands in Nepal, or Payments in consideration of natural resources which have been taken into account in connection with such sources.

(d) Rent paid in consideration of the use of any Asset situated in Nepal.

(e) Royalty arising from the use of, right to use, or forbearance from using an Asset situated in Nepal.

(f) Premiums for General Insurance paid to and proceeds from General Insurance paid by a Person in respect of the insurances of any risk in Nepal.

(g) Payments received as follows by a Person by operating any land, marine or air transport or charter service business in Nepal, except as a result of trans-shipment:

(1) Transportation of departing passengers, or

(2) Dispatch of mails, livestock, or other movable Assets.

(h) Payments received by a Person operating the Business of transmitting information or data through such means of communication as cable, radio, optical-fiber or satellite in consideration of transmission of information or data through equipment installed in Nepal, irrespective of whether or not such information or data has originated in Nepal.

(i) Payments, including fees, of a type not mentioned in Clause (g) or Clause (h) for or attributable to Employment exercised, service rendered, or a forbearance from exercising Employment or rendering service:

(1) In Nepal, irrespective of the place of Payment, or

(2) Where the payee is GON, irrespective of where such acts are performed.

(j) Amounts of annuities, proceeds of Investment Insurance, and Retirement Payment not coming under Clause (i) paid by a Resident Person and any premium or other Payment made to a Resident Person to secure such amounts.

(k) Gifts received in connection with a Business or Investment operated through Nepal-based Assets; and

(l) Following Payments, other than those mentioned in the above Clauses (a), (b), (c), (d), (e), (f), (g), (h), (i), (j), and (k):

(1) Payments made in relation to the Disposal of Nepal-based Assets or in relation to acquiring liabilities to be incurred in Nepal, or

(2) Payments made in relation to activities conducted in Nepal.

(7) Any income, loss, amount, gain or Payment other than that to be treated as having a source in Nepal as mentioned in the above Sub-Sections, shall be treated as having a foreign source, and, for the purpose of determining the foreign country where the source of such income, loss, amount, gain or Payment is located, the contexts in relation to which the term Nepal has been mentioned in this Act shall be recognized as equivalent to those mentioned in relation to any particular foreign country, and be applicable.

Explanations: For the purpose of this S.-

(a) Nepal-based Assets include land or buildings situated in Nepal, as well as a Resident Person's Assets, other than land or buildings, situated in a foreign country, or, in case the Person is associated to a Controlled Foreign Entity as mentioned in S.69, Interest-in-Entity.

(b) Liability to be incurred in Nepal means a liability of a Resident Person.

68. Foreign Permanent Establishments: (1) Notwithstanding anything contained in S.3, a Foreign Permanent Establishment of a Non-Resident Person in Nepal shall itself be responsible for Payment of tax payable on its income, subject to the other provisions of this Act.

(2) The income of the owner of a Foreign Permanent Establishment shall be allocated from the income of the establishment according to S.69.

(3) Incomes repatriated by a Foreign Permanent Establishment in Nepal of a Non-Resident Person shall be subject to the tax payable by Permanent Establishments as mentioned in S.3(b).

(4) The Repatriated Income to abroad in any Income Year by a Nepal-based Foreign Permanent Establishment of a Non-Resident Person shall be equal to the amount of dividend distributed by the Foreign Permanent Establishment during that year.

69. Controlled Foreign Entities: (1) Where, at the end of a tax year an Entity is a Controlled Foreign Entity, the Entity is treated as distributing to its beneficiaries at that time its unallocated income for the year-

(a) According to the beneficiaries' rights to the income upon Distribution, or

(b) In case such rights are not reasonably certain, according to the procedure deemed appropriate by the Department in the circumstances.

(2) No tax shall be imposed on Dividends other than those distributed under Sub-sec.(1) in any Income Year by an Entity which is a Controlled Foreign Entity at the end of the Income Year.

(3) Dividends treated by Sub-sec.(1) as distributed by a Controlled Foreign Entity to beneficiaries who are associated with it at the time of distribution shall be treated as -

(a) Having the same character as to type and source as the Entity's attributable income, and

(b) Made proportionately out of each type and source of the Entity's attributable income.

(4) A Beneficiary of a Controlled Foreign Entity that is associated with the Entity shall be required to be, at the time of distribution, allocated any tax paid by the Entity, including treated as paid under Sub-sec.(5) or S.52 (5), with respect to amount treated as distributed under Sub-sec.(3).

(5) The tax amount set aside under Sub-sec.(4) at the time of allocation shall be deemed to have been paid by the beneficiaries. In respect to such tax, the beneficiaries may obtain a tax credit as provided for in S.71.

(6) At the time of distribution, amounts which are to be treated as those distributed to the beneficiaries under Sub-sec.(1) shall be included in the outgoings relating to any Asset or Liability of the recipient Beneficiary existing in the form of Interest-in-Entity making such distribution.

(7) At the time of distribution, Dividends distributed to a Beneficiary that has not taxed under Sub-sec.(2) shall be included in the incomings of the recipient Beneficiary in relation to Asset or Liability existing in the form of Interest-in-Entity making the distribution.

(8) Foreign-Tax paid for the purpose of this Act or Foreign-Tax deemed to have been paid by a Controlled Foreign Entity under Sub-sec.(5) or S.52(5), shall be deemed to be the tax amount paid or deemed to have been paid by the Entity under this Act.

Explanation: For the purpose of this Section,

(a) Attributable income means the Taxable Income for the Income Year of that Controlled Foreign Entity as if the Entity were a Resident Entity for the Income Year.

(b) Controlled Foreign Entity means a Non-Resident Entity in which, a Resident Person owns an Interest directly or indirectly through one or more Interposed Non-Resident Entities. Or, where a Person is associated to that Entity, or would be if the Person and not more than four other Resident Persons were associated to that Entity, such an Entity shall also be regarded as a Controlled Foreign Entity.

70. Tax on Non-resident providing Water or Air Transport or Telecommunication Services in Nepal: (1) In the Taxable Income for an Income Year of a Non-Resident Person operating water transport, charter service, or air transport, the amounts derived from the following activities, excluding those received from trans-shipment, shall be included:

(a) Transportation of passengers departing from Nepal, or

(b) Transportation of mails, livestock, or merchandises dispatched from Nepal.

(2) The amounts received by a Non-Resident Person operating a cable, radio, optical-fiber or earth-satellite communication Business from the transmission of news or data through apparatus installed in Nepal, irrespective of whether or not the news or data has originated in Nepal, shall be included in Taxable Income of an Income Year.

(3) The amounts included in the Taxable Income of a Non-Resident Person under Sub-sec.(1) or (2) shall be subject to tax according to rates as per S.2(7) of Schedule 1.

Provided that: (a) Those amounts shall not be taken into account while calculating the tax on any remaining Taxable Income of that person.

  2. Expenses connected with the calculation of those amounts may not be deducted while calculating the remaining Taxable Income , and

  3. The Person shall not be entitled to any tax credit facility from the amount of tax payable in relation to those amounts under this Section.

Explanation: For the purpose of this Section, the term "Non-Resident Person" means a Resident Entity belonging to a group of associated entities with the head office located outside Nepal.

71. Foreign-Tax Credits: (1) A Resident Person may claim for a tax credit in consideration of a Foreign-Tax paid in an Income Year to the extent of the tax that has paid in respect of foreign Assessable Income for that year.

(2) Foreign-Tax credits claimed under Sub-sec.(1) shall be determined as follows:

(a) Foreign Assessable Income shall be calculated per-country basis, and

(b) With respect to each calculation, Foreign-Tax credit may be made in respect to a foreign Assessable Income shall not exceed than the average rate of tax of that Person in Nepal during the concerned Income Year.

(3) In respect unrelieved Foreign-Tax according to Sub-sec.(1) due to the limit provided for in Sub-sec.(2)(b) shall be as follows:

(a) May be carried forward to the next year, and

(b) Deemed to have been tax payment for foreign Assessable Income of future Income Year of that Person in that source country of foreign income.

(4) Notwithstanding anything contained in Sub-sec.(1), a Person may, in respect to any Income Year, relinquish the claim for a Foreign-Tax credit for the year and claim as deduction of expenses the amount in consideration of Foreign-Tax in respect to which such tax credit facility is available.

Explanation: For the purpose of this Section,

(a) Foreign Assessable Income means the following incomes of a Resident Person in an Income Year from any Employment, Business or Investment which is to be included in Assessable Income:

(1) Income from foreign sources, or

(2) Income of a Non-Resident Person which is to be regarded as having been distributed to the Resident Person under S.69 irrespective of its source.

(b) Average rate of Nepal tax means the rate of Nepal tax on the basis of which the amount of tax by a Person mentioned in S.3(a) in any Income Year is divided by Taxable Income during that year before adjusting any Foreign-Tax credit multiplied by 100.

Concept Note and Enlightenment

  90. Key Concept and Key words - This concept-note includes 3-Chapters- 11 to 13 and deals for some of the specific Business and some aspect of International Taxation.

  91. Banking Business\- Company requires it's tax-accounting in accrual basis u/s 24(1) and conventional accounting provision expense is not deductible for tax u/s 24(2). There are exceptions for banking and cooperative business against both Sub-sections. According to S.24(3), income of banking shall be as per NRB Directives, i.e. interest income is to be recognize in cash-basis (as per NRB, almost year it includes cash receipt after year-end too). Similarly, loan loss provision expense is allowed as expense to the extent of 5% of tax-base of loan. Formula and an example of banking LLP has given xiiibelow pg. 212. Banking business is taxed at 30% on its Taxable Income.

  92. Cooperatives\- except tax-rate (which is 20% and exempt for all agro-forestry based and rural-based saving and credit), all the banking provision are applicable to the cooperative societies and unions.

  93. General Insurance\- Apart from conventional income like commission, interest, forex-gain, &c., all the inflows relating to insurance business for the General Insurance are Inclusion u/s 60 and includes premium (less re-insurance cited) or re-insurance premium, compensation from re-insurer, &c. Apart from general expense like management cost, commission, forex loss, &c. (S13-21 qualified), all the outflows are deduction for tax accounting includes premium refund, compensation payment. There is a deduction for provision (widely known as unexpired risk reserve) to the extent of 50% of premium less re-insurance during the year and 115% of claim lodged but not finalize for compensation. This provision is inclusion in the next year.

  94. Investments Insurance\- None of the inflows and outflows relating to insurance business for the Investments Insurance are income or expense or asset or liability. These are somewhat similar as capital contribution (hence two layers of capital). Hence, premium or re-insurance (cited or accepted) compensation (from re-insurer or payment against claim), premium refund are not income/expense or incomings/outgoings. Tax accounting for these is similar as capital and no loss from investment acceptance is allowed for tax. Only general income like interest, commission or similar and general expense like management cost, commission, forex loss, &c. (S13-21 qualified) are inclusions and deductions. Appropriation to members' account for bonus or similar benefit has no tax impact until its payment.

  95. Compensation from Insurance\- Person obtaining compensation from insurance is subject to tax. Compensation from general insurance has four different tax impact- no tax for accidental compensation (S.31), may utilize for no-recognition u/s46, is part of Eligible Medical Cost for Medical Tax Credit u/s51 and gross amount is inclusion u/s31 or S.62 as residual. Compensation from Investments Insurance is taxed as simple return for investments, hence gain (payment less contribution) is taxed at 5% Final Withholding Tax basis.

  96. Retirement Fund and Tax Accounting- Retirement Fund are not the accounting fund rather an Entity for tax purpose. If it is Employees' Provident Fund or the Fund operated by Citizen Investment Trust, they are deemed statutorily approved and for other entity, if it is approved by IRD, they are classified as ARF. Remaining all are URF. Tax accounting for both type of Retirement Fund is similar- all the general income are inclusion and all the general expense qualified u/s 13-21 are deduction. Any contribution received from members or payments to members are not income or expense. From those inclusions and deductions, Taxable Income of ARF is not taxable whereas URF is taxed as Company.

  97. Conversion of ARF to URF- Since the income form ARF is not taxable as well as contribution to ARF is reduction and payment from ARF is token tax only. The situation may have bad impact of the approval. In case approval is ceased from ARF, it converts into URF and a wide-tax impact thereon. The impact of such conversion has given in xivbelow pg. 213.

  98. Tax on payments from RF\- S.65 describe the taxing point and quantification from RF and S.88 for the rate, which are final u/s88. In case of any installment payment, gross installment is subject of 15% FWHT u/s88. For lump sum payment from ARF, higher of Rs.5 lakh or 50% of gross payment is not taxed and remaining amount is taxed at 5% FWHT. For lump sum payment from URF, gain (gross payment less contribution) is taxed at 5% FWHT.

  99. Non-contributory RF\- In case a RF is non-contributory, no tax benefits for the beneficiary. Because contribution to RF is part of Assessable Income and for non-contributory, nothing contributed and a tax-avoidance scheme. Many practical ARF and URF are paying non-contributory payments and taxation authority has not acted as per this provision of S.65.

  100. Source of Income\- Income is computed on per-country basis and there should be a clear way for allocation of income for different countries. S.67 describes the segregation of a source, income, payment in country-source. The wordings are for Nepal only and to be used for vis-à-vis a particular country. There are 3-types of assets in business, the principle to allocate a geographical income is based on those assets. Inclusions or deduction (sales and cost of goods disposal) from the Trading Stock shall be in the place or country where, at the time of Disposal, the Person dispose it (location-based). Incomings from Depreciable Assets (Balance Charging too) or deduction as Depreciation or Repair shall be the place or country where it is use (location-based). For all tangible assets under Business Assets, the gain from disposal (vis-à-vis incomings and outgoings) shall be the place or country where, at the time of Disposal, the Person dispose it (location-based). Except income from these 3-types of assets, all the income or expense shall be in the place or country where the payment-base located (location-based) except in 2 cases of payment from Resident as Payment for government Employment and Investment Returns (resident payer-based). All types of investments returns (dividend, interest, annuity, investment insurance, mutual fund, retirement fund &c.) are deemed to be Nepal-source if paid by Resident. Only one case, gain from disposal of investment security itself is deemed as source having in the country of owner's resident, not country of issuer's resident. Based on this, gain on disposing shares in Nepal Company by a foreigner Non-resident, source not in Nepal, so advance tax u/s 95A is erroneous.

  101. Tax on Permanent Establishment\- In case a non-resident has fixed base for business in Nepal, that is PE for tax purpose. By type, there are 4 types as- i) Agency PE (business through dependent agent), ii) fixed base PE (as shop or selling outlet, factory, commercial godown, plantation, cattle farm or similar base for business but not for display only), iii) site-PE (construction site and working at least 90-days in any 12-months period), and iv) service PE (working by staff for 90-days or more in any 12-months period). For corporate tax PE is taxed as similar to Resident Company. For repatriating its tax-paid income PE requires to pay repatriation tax at 5% on repatriated income. Gross quantification of repatriable income, it is similar to distributable profit for a Resident Company. In case, PE is owned by a CFE, then repatriation and corporate tax to the extent of effective control of Resident has not to be paid. It is complex to determine the amount of repatriated income because of its internal transaction with head office and other associates. The quantification has shown in xvbelow pg. 214.

  102. Controlled Foreign Entity\- Any Foreign Entity controlled by Resident directly or indirectly through interposed entity, solely or with 4 other Resident Associates is Controlled Foreign Entity u/s 69. The form of entity may be of either type as company, trust or venture or any other structure. Income of each CFE has to be computed as a Resident Entity for IY in Nepali Rupees, but, to avoiding double dipping effect, dividend from lower CFE is not an income for this purpose. Being a Specific Anti-Avoidance Rule for foreign investment, Resident investor in CFE deemed to have received income from each CFE (and country) to the extent of its effective earning proportion (see xvibelow in pg. 214. The tax paid by each CFE is also qualify for Foreign Tax Credit for S.71. In the CFE the real earning dividend is not taxed and un-received business income is taxed makes a deviation in the tax-base. This deviation has neutralized by adding the taxed income as outgoings for investments and subtracting dividend income as incomings for same, see xvii for the formula for it.

  103. Cross-border transportation –In case a Non-Resident has any transportation business from Nepal (air, water, land), and the source of transportation income (passenger, documents, goods, livestock or plant) from initial depart from Nepal to final destination is deemed from Nepal. This income is separately taxable assuming the gross proceeds without any adjustment for deduction as Taxable Income. Any income from PE of that Non-resident is taxable separately as PE (see para. above). For this 5% tax is levied for the transportation initiated from Nepal (so-called online transport) and 2% tax is levied for transportation that has firstly initiated from Nepal but transhipped in foreign country (so-called offline).

  104. Cross-border data transmission –In case a Non-Resident has any device or equipment or similar installed in Nepal or sky of Nepal for data transmission from anywhere of its origination. The income from that device is separately taxable assuming the gross proceeds without any adjustment for deduction as Taxable Income. Any income from PE of that Non-resident is taxable separately as PE (see para. above). For this income 5% tax is levied.

  105. Foreign Tax Credit\- Resident Person has full-tax liability and need to pay the tax in Nepal earned from any source of country (cf. DTAAs for deviation). Then there is good chance that that income may be taxed in the source country (and other foreign country too) in the same hand of Person. In such case, if an income is taxed in the same hand more than one time, this is the case of judicial double taxation. To avoid judicial double taxation, S.71 has unilateral elimination provision for double tax. For this credit-method and expense-method has given by S.71 (there are minor cases of exemption method for income from DTAA countries also). Under credit-method, S.71 adopted limited credit as Nepal-tax allows a credit for source-country tax (no other than source-country) to the extent of average tax payable in Nepal for that foreign income on per-country basis calculation. Unused foreign tax paid than foreign tax credit may carried to next year. In the contrast, the Person may adopt expense-method for this tax payment as assuming a deduction for computing income.

#### Chapter 14 Tax Admin and Authoritative Documents

72. Department: (1) The Department shall be responsible for the implementation and administration of this Act.

(2) For the purpose of assisting the Department in fulfilling its responsibilities mentioned in Sub-sec.(1), GON may, by notification in the Nepal Rajapatra, establish Large Tax Payer Office, Medium Level Tax Payer Office, Inland Revenue Office or Tax Payer Service Office under Department and prescribe the jurisdiction of those offices. The offices with jurisdiction arranged in this manner shall be as part of the Department.

(3) The Department may have following Officers and other personnel:

(a) A Director-General.

(b) Deputy Director-General, Chief Tax Administrator, Director, Chief Tax Officer, Tax Officer, and other Officer in necessary numbers, and

(c) Other employees.

(4) Subject to the directives of GON, the Director-General may:-

(a) To exercise any of the powers assigned to the Department under this Act.

(b) To delegate the powers mentioned in Clause (a) to any other Officer so as to be exercised, subject to Sub-sec.(5) and (6).

(c) In places having no Inland Revenue Office, to designate any Officer of the civil service to exercise all or some of the powers mentioned in Clause (a), other than those of issuing public circulars under S.75, prescribing documents under S.77, staying or otherwise influencing any reviewable decision under S.115(5), fully or partially accepting or rejecting the matters mentioned in an application filed by any Person under S.115(7), compounding an offense under S.129, or granting authority to any Officer under S.82.

(5) Subject to the directives of GON or the Director-General, a Deputy Director-General, Chief Tax Administrator, Director, Chief Tax Officer or Tax Officer functioning as Chief of an office may:-

(a) To exercise the powers vested in the Department under this Act, other than those of issuing public circulars under S.75, prescribing documents under S.77, staying or otherwise influencing any reviewable decision under S.115(5), fully or partially accepting or rejecting the matters mentioned in an application filed by any Person under S.115(7), or compounding an offense under S.129.

(b) To delegate such powers to any other Officer of the Department so as to be exercised, subject to Sub-sec.(6).

(6) Any Officer of the Department, other than Director-General, Deputy Director-General, Chief Tax Administrator, Director, Chief Tax Officer or Tax Officer functioning as Chief of an office, may:-

(a) To exercise any of the powers delegated from among the powers of the Department, except the following powers:

(1) To issue public circulars under S.75, prescribe documents under S.77, stay or otherwise influence any reviewable decision under S.115(5), fully or partially accept or reject the matters mentioned in an application filed by any Person under S.115(7), or compound an offense under S.129, or

(2) To grant authority to any Officer under S.82, or to issue notices under S.109, and

(b) (The Officer) may not re-delegate any of the powers delegated to that Officer.

73. International Agreements: (1) In case provisions have been made under this Act or under prevailing law in force to impose tax on any income of a Person, and in case that income is subject to tax in any foreign country as well, GON may enter into an international agreement with the foreign government to avoid such double taxation.

(2) This Sub-section shall be applicable in case a competent authority of contracting state requests the Department to collect in Nepal any tax arrears payable by any Person under the tax law of that country according to any international agreement with Nepal.

(3) In circumstances in which Sub-sec.(2) is applicable, the Department may, for the purpose of sending the amount to the competent authority, notify the Person with tax arrears in writing to deposit at Department the amount within the date stated in the notice.

(4) In case any international agreement provides for Nepal to exempt any income or Payment or to apply reduced rates of tax on any income or Payment, this Sub-section shall be applicable.

(5) In circumstances of applicability of Sub-sec.(4), no tax exemption or tax reduction facility shall be available to any of the following entities:

(a) An Entity which is to be regarded as a resident of the contracting state to the agreement, and

(b) Fifty percent or more of the Underlying Ownership of the Entity has been acquired by Natural Persons or Entities in which no Natural Person has Interest, and, for the purposes of that agreement, those persons or entities are not Residents of the contracting state to that agreement or of Nepal [conduit entity].

Explanation: For the purpose of this Section, "international agreement" means any treaty or agreement which is applicable to Nepal and which has been signed with any foreign government to provide for the following arrangements:

(a) Avoidance of double taxation and prevention of fiscal evasion, or

(b) Exchange of mutual administrative assistance enforcing tax liabilities.

74. Rights of Tax-payers: (1) Tax-payer shall abide the duties as per this act.

(2) In respect to paying tax under this Act, a tax-payer shall have the following rights:

(a) Right to get respectful behavior.

(b) Right to information about matters relating to tax as per prevailing law.

(c) Right to get opportunity of submitting proof in own favor in relation to matters concerning tax.

(d) Right to appoint attorney or auditors for defense, and

(e) Right to prevent encroachment of confidential matters relating to tax, except as provided for in this Act.

Explanation: For the purpose of this Section, "tax-payer" means a Person from whom tax is to be collected after being imposed as per S.3.

75. Public Circulars: (1) The Department may, for the purposes of simplifying the tax administration by bringing about uniformity in the implementation of this Act and providing guidance to the Officers of the Department and persons affected by this Act, issue written public circulars along with interpretations in relation to the provisions contained in this Act.

(2) The Department shall make available at the Department or any other place or through any medium the circulars issued by it under Sub-sec.(1) for the information of the public.

(3) A circular issued under Sub-sec.(1) shall be binding to the Department until revoked.

76. Advance Rulings: (1) In case any Person applies in writing to the Department for the clarification of any confusion in regard to the applicability of this Act in relation to any arrangement proposed or followed by that person, the Department shall notify in writing its verdict in that connection through an advance ruling issued in the Prescribed manner.

(2) Notwithstanding anything contained in Sub-sec.(1), the Department may not issue an advance ruling under Sub-sec.(1) on any subject of confusion that has emerged in connection with the implementation of this Act in case it is presently before any court of law or in case the court has already given its decision on it.

(3) Advance Ruling issued under Sub-sec.(1) shall be binding to the Department until revoked, if the Person had performed following before issuing following:-

(a) Full factual details of the subject connected with the ruling submitted to the Department, and

(b) Arrangements have been made according to the facts mentioned in the application filed for such ruling.

(4) In the event of a conflict between a public circular issued under S.75 and an advance ruling issued under Sub-sec.(1), the matters mentioned in the advance ruling shall be given priority in respect to the Person to whom the advance ruling has been issued.

(5) Before issuing an advance ruling under Sub-sec.(1), the Department may grant an opportunity to the applicant to submit insufficient particulars, if any, either in Person or through a representative.

77. Forms of Documents: (1) The Department may prescribe the forms of necessary documents, returns of income and other particulars, procedure and forms of submitting Withholding Tax details, forms of records and forms of documents incorporating notices, particulars and information required according to this Act and the rules framed hereunder and for the effective implementation of this Act.

(2) The Department shall make available at the Department and other places and through other means determined by itself the forms mentioned in Sub-sec.(1) for the information of the public.

(3) The Department may prescribe the information or details or documents to be submitted to the Department through electronically.

78. Permanent Account Number: (1) Subject to this act, for the purpose of identifying a Person, the Department shall issue a Permanent Account Number, to the person. Provided, person authorized by the Department may issue such Permanent Account Number fulfilling the due procedures. The tax-payer having such Permanent Account Number cannot carry import or export business for the period prescribed by the Department.

(2) The Department may order any Person to mention Permanent Account Number in any return of income or other particulars, statements, or other documents to be used for the purposes of this act.

(3) Department may prescribe the situations in which any Person will have to show or mention Permanent Account Number.

(4) Notwithstanding anything in Sub-sec.(1), a Person designated under Sub-sec.(3) should obtain Permanent Account Number before carrying out any transaction.

(5) Notwithstanding anything in Sub-sec.(1) to (5), no immunity to pay tax shall be availed to any Person.

79. Service of Documents: (1) Any of the documents to be served or handed over to any Person under this Act shall be deemed to have been served or handed over in the following circumstances:

(a) If sent to the person's fax number or e-mail address.

(b) If personally handed over to the concerned person, or to the manager of Entity, in the case of an Entity, or

(c) If sent by registered post to the known residence, office, Business or other address of the person.

(2) A document issued, served or given under this Act shall be treated as shall be authentic if the name and designation of an authorized Officer of the Department is signed, encrypted or encoded by means of digital technology, stamped or written on the document.

80. Defective Documents: (1) None of the following documents issued under this Act shall be regarded as defective:

(a) In case it basically conforms to this Act, and

(b) In case the Person to whom the document is addressed is designated in it according to common understanding.

(2) In case there is any defect in any document issued by the Department under this Act, and in case it does not involve a dispute regarding the interpretation of this Act or facts concerning any particular person, the Department may amend the document for the purpose of correcting the defect.

#### Chapter 15 Documentation and Information Collection

81. Maintenance of Documents: (1) Person liable to pay tax under this Act shall maintain documents of the types and forms prescribed by the Department, audit authentication and or necessary certification including following documents in Nepal:

(a) Information and documents needed to substantiate the return of income or other documents to be submitted to the Departments under this Act.

(b) Documents which help to assess the tax payable.

(c) Documents substantiating deduction of expenses.

(2) Except when otherwise prescribed by the Department through written notices, documents mentioned in this Section shall retain safely for a period of five years from the date of expiry of the concerned Income Year.

(3) In case any of the documents mentioned in Sub-sec.(1) is not in the Nepali or English language, the Department upon issuing written notice, require to concerned Person to provide document authentically translated into the Nepali language at own expense.

(4) The Department may allow a Person to keep its records under Sub-sec.(1) in an electronic means.

82. Power of the Department to Access to Information: (1) An Officer of the Department may take following actions for the implementation of this Act:

(a) To have full or free access to any premises, place, document or other Assets situated in Nepal subject to prevailing law,

(b) To obtain electronic copies or any portion or copy of the documents to which access has been obtained under Clause (a),

(c) To take possession of any document to which access has been obtained under Clause (a) in case the concerned Officer feels that it is an evidence of the type needed to determine the tax liability of a Person under this Act, and

(d) In case a Person having access to the documents has been requested to make available copies of those documents, and in case the Person does not do so, the concerned Officer may, if s/he feels that the documents have been kept in any asset in any form, take under custody such asset so as to gain access to them under Clause (a).

(2) No Officer may exercise any of the powers under Sub-sec.(1) without getting in writing the authority to do so from the Department. In case the Person as occupier of the premises or place, or Person having access to any of the concerned document or Asset, desires the Officer entering into any premises, or place in exercise of the power conferred by Sub-sec.(1) to show the authority granted by the Department, the concerned Officer shall show such authority.

(3) If so requested by an Officer of the Department entering into any premises or place in exercise of the power conferred by Sub-sec.(1), the Person occupying the premises or place, or the Person having access to the concerned document or asset, must provide all appropriate facilities and cooperation for an effective exercise of the power

(4) The Department may keep under its possession until the following period the document or asset taken into possession under Clause (c) or Clause (d) of Sub-sec.(1):

(a) Any document that has been taken into possession under Sub-sec.(1)(c), until the time needed to assess the tax liability of a Person, or until the time needed to take any other action under this Act, and

(b) Any asset that has been taken into possession under Sub-sec.(1)(d), until the time when access is gained to the disputed documents and they are taken into custody.

(5) The Person whose documents have been seized under Sub-sec.(4) may examine those documents. At own expense, may also obtain copies thereof during office hours subject to supervision as the Department prescribes .

(6) In regard to obtaining access to documents needed for the implementation of this Act, the provisions contained in this Section shall be prevailed, irrespective of whether provisions concerning privileges or public Interest have been made in that connection.

Explanation: For the purpose of this Section, "Occupier" in relation to a premises or place means the Person owning the premises or place, or the manager or any other Person on the premises or place there.

83. Power to Obtain Information by Servicing Notice: (1) The Department may issue the following orders through written notices to any Person with or without a liability to pay tax under this Act:

(a) To furnish any information specified in the notice, even by preparing a document, within the time-limit stated in the notice.

(b) To be presented at the time and place in the Department as specified in the notice for being examined by an Officer in relation to tax-related matters concerning to that Person or any other person.

(c) To submit document mentioned in the notice which is under control, at the time of examination under Clause (b).

(2) Any Person who is to be examined under Sub-sec.(1)(b) shall have the right to have appoint an attorney or otherwise representation during the period of such examination.

(3) In regard to obtaining access to documents needed for the implementation of this Act, the provisions contained in this Section shall be prevailed, irrespective of whether provisions concerning privileges or public Interest have been made in that connection.

84. Official Secrecy: (1) Every Officer or employee of the Department must keep secret all documents and information coming under his/her possession or knowledge in the course of fulfilling his/her duties under this Act.

(2) Notwithstanding anything contained in Sub-sec.(1), an Officer of the Department may disclose as follows before the following persons the documents or information mentioned Sub-sec.(1):

(a) To the extent needed for the fulfillment of the duties of the Officer under this Act.

(b) In case of an order from any court or tribunal in relation to administrative reviews or proceedings under this Act.

(c) To the Finance Minister.

(d) In case it becomes necessary to disclose them for the purposes of any other fiscal law.

(e) To any Person in the service of GON in case needs them for purposes relating to revenue statistical data.

(f) To the Auditor-General or any Person authorized in case it becomes necessary to submit them in connection with the fulfillment of the official duties, or

(g) To the competent authority of the government of a contracting state with which Nepal has signed an international agreement, to the extent provided for in that connection in the agreement.

(3) Any person, court, tribunal, organization or authority receiving documents and information under Sub-sec.(2) must keep such documents or information secret except to the minimum extent to which the disclosure is necessary.

#### Chapter 16 Payment of Tax

85. Time, Place and Procedure of Paying Tax: (1) Tax payable under this Act shall be required to pay at the Prescribed place and according to the Prescribed procedure, and the Department may prescribe such tax payment through electronic means.

(2) Subject to Sub-sec.(1), tax payable under this Act shall be paid at the following times:

(a) At the time mentioned in S.90(4) by the Withholding Tax Agent.

(b) At the time mentioned in S.94(1) by those who are required to pay tax in instalments.

(c) At the following time for the assessed tax -

(1) In regard to Tax Assessments under S.99, on the date when Income Tax Return to be submitted.

(2) In regard to Tax Assessments made under S.(2) of S.100, within the time-limit prescribed in the Tax Assessment notice served under S.102.

(3) In regard to Tax Assessments amended under S.101, within the time-limit prescribed in the Tax Assessment notice served under S.102.

(d) At the time prescribed in the notice in regard to amounts to be paid to the Department according to notices issued under S.104(8), S.109(1) or S.110(1).

(e) At the time when the Entity is required to pay tax, in regard to any liability established owing to the failure of any Entity to pay tax under S.107(2).

(f) In regard to any amount demanded under Sub-sec.(3) or (4) of S.108, within 7-days from the date of adjustment of the amount, or of the failure to do so, sale through auction, respectively, and

(g) At the date prescribed in the notice of assessment in regard to fees and Interest assessed under S.122.

(3) The date on which tax is payable shall not be affected in the following circumstances:

(a) Action is taken by the Department to realize tax under Chapter 20, or

(b) If any other action is initiated under this Act.

86. Proof of Tax to be Payable: A certificate signed by an Officer of the Department by mentioning the name and address of a Person and the amount of tax payable shall constitute the sufficient proof of the amount of tax payable for the following purposes:

(a) Actions taken by the Department to realize tax under Chapter 20, or

(b) Action taken in relation to any offence under Chapter 23.

#### Chapter 17 Withholding Tax from Payments

87. Withholding Tax by Employer: (1) Resident employer, while paying any amount with its source in Nepal that is to be included in the calculation of income received by any employee or worker from Employment, shall withheld tax at rates mentioned in Schedule 1.

(2) The obligation of an employer to deduct tax under Sub-sec.(1) shall not be reduced or terminated because of the following reasons:

(a) In case the employer has the right or duty to deduct or withhold any other amount from the said Payment, or

(b) In case the income earned by an employee or worker from Employment cannot be reduced according to other prevailing law.

88. Withholding Tax on Paying Investment Returns and Service Fees: (1) A Resident Person shall withhold tax at the rate of 15 percent of the gross amount of Payment having source in Nepal, while paying Interest, Payments for Natural Resources, Rent, Royalty, service fee, commission, sales bonus, other returns and Retirement Payment.

Provided, following Withholding Tax shall be withheld in the following cases of payment:

(1) 5% for Retirement Payment made from GON or Approved Retirement Fund, as calculated under S.65(1)(b).

(2) 5% for commission payment to Non-Resident Person from Resident Employment Company.

(3) 10% for air-craft Lease payment.

(4) 1.5% of Service Fee payment to VAT registered Resident Person or Resident Entity dealing VAT Exempt transaction.

(5) 10% of Rent by Resident Person having source in Nepal.

(6) 5% on the return from mutual fund to Natural Person.

(2) Resident Person shall withhold following Withholding Tax having source in Nepal:

(a) 5% of payment of dividend.

(b) 5% of payment of gain from Investment Insurance.

(c) 5% of payment of gain from Unapproved Retirement Fund.

(3) Notwithstanding anything contained in Sub-sec.(1), a Resident bank or financial institutions, entity issuing bond or listed Company under prevailing law shall withhold the Withholding Tax at the rate of 5% of the gross amount of Payment while paying the following Interest or amount having equivalent in nature of Interest to any Natural Person in consideration of deposits, bond, debenture, or governmental bond :

(a) Having sources in Nepal, and

(b) Not connected with the operation of a business.

(4) Notwithstanding anything contained in Sub-Sections (1), (2) and (3), this Section does not applicable while making the following Payments:

(a) Payment by Natural Person, other than those connected with the Business.

(a1)Payments for article in newspaper and payment for question paper setting as well as copy checking.

(b) Interest paid to a Resident bank or financial institution, or

(c) Tax-exempt Payments, or Payments on which tax is to be deducted under S.87.

(d) Inter-regional interchange fee payment to bank issuing credit card.

(e) Dividend and Interest payment to a mutual fund.

88A. Withholding Tax on Windfall-gain: (1) Withholding Tax at the rate of 25% shall be made to the payment of Windfall-gain.

Provided, by publishing notice in Nepal Rajpatra, GON may exempt the Windfall-gain as national or international prize connected with renovation to literature, arts, culture, sports, journalism, science, technology and public administration.

(2) Notwithstanding anything contained in Sub-sec.(1), the Windfall-gain as national or international prize connected with renovation to literature, arts, culture, sports, journalism, science, technology and public administration to the extent of Rupees five lakh shall be exempt.

89. Withholding Tax Paying for Contracts: (1) While paying more than Rs.50,000 for contracts or agreements, a Resident Person shall withhold Withholding Tax at the rate of 1.5 percent of the gross amount of Payment.

(2) The amount mentioned in Sub-sec.(1) shall be assessed by adding to it any other Payments made during the past 10-days to the payee or associate by a Person or associate under same contract.

(3) Notwithstanding anything contained in Sub-sec.(1), Withholding Tax shall be as follows from any Payment to a Non-Resident Person by a Resident Person under a contract or agreement:

(a) 5% on Aircraft repair and other contracts

(a) 1.5% on insurance premium payment to a Non-Resident.

(c) In case the Department has issued a written notice to the Resident Person, at the rate specified in the notice, or

(4) Notwithstanding anything contained in Sub-sec.(1), this Section shall not be applicable in respect to the following Payments:

(a) Payment by Natural Person, other than those connected with the Business, or

(b) Tax-exempt Payments, or Payments requiring Withholding Tax under S.87 or 88.

90. Statements and Payment of Deducted Tax: (1) Withholding Tax Agent shall file a Withholding Tax Return according to the procedure and in the form prescribed by the Department within 25-days from each month-end.

(2) The amount of Withheld Tax, or the amount which is deemed to be a Withholding Tax under Sub-sec.(3), shall be deposited to the Department along with the Withholding Tax Return mentioned in Sub-sec.(1) within the same time limit.

(3) Every Person who is required to withhold tax under S.87, 88 or 89 shall be deemed to have withheld at the time when the Withholding Tax has to be withheld even if has not withheld it.

(4) Withholding Tax Agent shall deposit the tax amount withheld under S.87, 88 or 89, or any tax amount which is to be deemed to be a withheld under Sub-sec.(3). In circumstances when Sub-sec.(5) is applicable, the Withholdee shall deposit [equivalent amount of Withholding] Tax within 25-days from the period mentioned in Sub-sec.(1).

(5) In the following cases Withholding Tax Agent and Withholdee shall be jointly as well as severally responsible for depositing the Withholding Tax at the Department:

(a) In case the Withholding Tax Agent has not withheld the tax from any Payment under S.87, 88 or 89, and

(b) In case the Withholding Tax Agent does not deposit the amount which is deemed to be a Withholding Tax under Sub-sec.(3) within the date by which it has to be deposited under Sub-sec.(4).

(6) In case a Person deducting Withholding Tax under S.87, 88 or 89 and deposits the same at the Department, and Person whose Withholding Tax has been withheld makes any claim in relation to that payments, the amount shall be deemed to have been paid to the Person whose tax has been withheld.

(7) In case a Person has deposited Withholding Tax at the Department any tax amount which has not been deducted under S.87, 88 or 89, may realize from the Person whose tax should have been withheld an amount equal to the amount so deposited.

(8) The Department, if convinced so far for non-deposition or short-deposition of tax, may order to file Withholding Tax Return and payment for the Withholding Tax according to Sub-sec.(1) or (2), or payment of tax under Sub-sec.(5) and Interest under S. 119.

Provided, a written notice having period of 15-days, for providing opportunity of hearing and submitting evidences, shall be sent to the respective person.

91. Withholding Tax Certificate: (1) Withholding Tax Agent shall issue Withholding Tax Certificate as follows to the Person whose tax has been deducted at the time specified in Sub-sec.(2):

(a) Certified according to the procedure prescribed by the Department, if any, and

(b) Explicitly mentioning the amount of tax deducted under S.87, 88 or 89, and the amounts paid.

(2) Withholding Tax Certificate explicitly mentioning the period of withholding shall be issued within 25-days from the withholding month.

(3) Notwithstanding anything contained in Sub-sec.(2), in the following circumstances, Withholding Tax Certificate under S.87shall be issued as:

(a) The certificate shall remain valid only for the period for which the employee remains in office during the Income Year.

(b) The certificate shall be issued within 30-days from the date of expiry of the concerned year, or in case the employee has terminated the Employment within 30-days from the termination date.

92. Final Withholding Payments: (1) Following Payments shall be deemed to be Payments subject to Final Withholding Tax:

(a) Dividends paid by resident companies.

(b) Rent paid for land or buildings and fittings and equipment connected with them with sources in Nepal to Natural Persons other than those relating to a business.

(c) Gains from Investment Insurance by a Resident Person.

(d) Gains paid by a Resident Unapproved Retirement Fund.

(e) Following Interest paid by a bank or financial institutions, entity issuing bond or listed companies under prevailing law as mentioned in S.88(3):

(1) Having source in Nepal and paid to Natural Person not connected with the operation of a business.

(2) Paid to Tax-Exempt Entity under S.2(s).

(f) Payments to Non-Resident Persons subject to Withholding Tax under S.87, 88, or 89.

(g) All types of Retirement Payment including those paid made from GON, Approved Retirement Fund or Unapproved Retirement Fund, excluding regular payments of pension.

(h) Meeting allowance, payment for part-time teaching.

(i) Windfall-gain payment.

(j) Distribution of return payment to Natural Person from mutual fund.

(2) In case the Withholding Tax Agent or the Withholdee deposits at the Department the tax amount deducted under S.87, 88 or 89, or the tax amount which is deemed to have been deducted under S.90(3), from Payments subject to Final Withholding Tax, the Person shall be deemed to have paid tax liability under S.3(c).

93. Inclusion and Credit for Withholding Tax: (1) For the purpose of calculating the amount of any Payment, the Withholding Tax, if any, shall also been taken as part of that Payment.

(2) In case Withholding Tax from Payments other than those not subject to Final Withholding Tax, the Person whose tax has been deducted shall be deemed to have paid tax as follows:

(a) The Withholding Tax from Payments under S.87, 88 or 89.

(b) The tax amount under S.90(3), or the tax amount which is to be deemed to have been withheld from Payments, deposited, if any, at the Department by the Withholding Tax Agent or Withholdee.

(3) The Withholdee under Sub-sec.(2) may claim for its adjustment only with the amount of tax payable in the Income Year in which the Payment has been made.

#### Chapter 18 Instalments and Advance Tax

94. Payment of Tax in Instalments: (1) Person who has or is going to have an assessable income in any Income Year from any Business or Investment shall pay tax in the following three instalments:

Tax Deposit to be Made Amount to be paid

By the end of Pousha 40% of estimated tax less already paid.

By the end of Chaitra 70% of estimated tax less already paid.

By the end of Ashadh 100% of estimated tax less already paid.

Explanation: For the purpose of this Sub-Section:

(a) Estimated Tax means the estimated tax payable by an instalment payer for the year at the time of the Payment as calculated under S.95.

(b) Tax already paid means the total of the following:

(1) The tax amount paid during the Income Year through prior instalments according to this Section before the date when the concerned instalment is to be paid.

(2) The Withholding Tax from Payments which are to be included in calculating the income of the Person during the Income Year according to Chapter 17 before the date when the concerned instalment has to be paid during the year.

(3) In case the Withholding Tax Agent or the Withholdee has deposited at the Department before the date when the instalment is to be paid any amount which is to be deemed to be a tax deducted amount under S.90(3) from Payments mentioned in Sub-Clause (2) during the year, such tax amount, and

(4) In regard to eligible medical cost incurred by the Person before the date when the instalment is to be paid, the medical tax credit which may claim under S.51.

(2) Notwithstanding anything contained in Sub-sec.(1), no amount as instalment need be paid under the said Sub-section in case sum of all instalment is less than Rs.5000.

(3) Person paying tax in instalments in an Income Year obtains the credit in the tax payable during the concerned year.

95. Estimated Tax Return to be Filed: (1) Person who is required to pay tax in instalments during any Income Year shall submit to the Department in the form prescribed by the Department and according to the prescribed procedure an Estimated Tax Return mentioning the estimates of the following amounts for the year within the date prescribed for payment of the first instalment during the year under S.94:

(a) Assessable incomes that the Person may receive during the year from each source of Employment, Business and Investment, and the sources of such incomes.

(b) Taxable Income during the year, and the tax amount to be paid under S.3(a), which has been calculated according to S.4 without deducting the medical tax credit.

(c) In respect to a Nepal-based Foreign Permanent Establishment of a Non-Resident Person, the income to be repatriated during the year, and the tax amount to be paid on that income under S.3(b) which has been calculated according to S.4(5); and

(d) Any other particulars prescribed by the Department.

(2) The total of the tax amounts mentioned in Clauses (b) and (c) of Sub-sec.(1) shall be the estimated tax to be paid during the Income Year by the Person mentioned in Sub-sec.(1).

(3) While calculating Foreign-Tax credits to be claimed under S.71 for the purpose of estimating the amount of tax payable during an Income Year under Sub-sec.(1)(b), only the amount of Foreign-Tax paid by the concerned Person during the year, or the amount of Foreign-Tax estimated to be paid during the year, shall be taken into account.

(4) Until the Person paying tax in instalments files to the Department a revised estimate in the form indicated in Sub-sec.(1) explicitly mentioning the reasons for revision along with necessary information, the estimate submitted under the said Sub-Section shall remain valid for the entire Income Year.

(5) Notwithstanding anything contained in Sub-sec.(2), the revised estimate filed by a Person under Sub-sec.(4) shall be applicable only in calculating the tax instalment payable under S.94 during the Income Year after the date of its submission.

(6) Notwithstanding anything contained in Sub-Sections (1) and (5), the Department may prescribe that any Person or class of persons required to pay tax instalments need not file estimates under Sub-sec.(1).

(7) Notwithstanding anything contained in Sub-sec.(2), in case any Person does not file estimated Tax Return under Sub-sec.(1), or in case the Department is not satisfied with the estimates or revised estimates in any Income Year, the Department may:

(a) To revise the estimated tax to be paid by the Person during the year on the basis of the tax to be paid during the preceding Income Year under Clause (a) or (b) of S.3; and

(b) The Department shall issue to the Person who is required to pay tax instalments a notice in writing mentioning the estimates made by it under Clause (a), the procedure adopted for preparing the estimates, and, in case the Department is not satisfied with the estimates submitted, the reasons thereof.

(8) In case the Department issues a notice under Sub-sec.(7) to a Person who is required to pay tax instalments, the amount of estimated tax payable by the Person during the year shall be equal to the tax amount estimated by the Department.

95A. Collection of Advance Tax: (1) An Entity operating the commodity future market shall collect advance tax at 10% on the profits and gain earned by a Person trading under the commodity future market from that Business.

(2) If a Person, other than a Resident Entity having business of purchase and sale of securities under prevailing laws in force, derives gain on the Disposal of Interest in Resident Entity, advance tax on the gain computed under S.37 shall be collected as:

(a) For the gain from the Disposal of Interest-in-Entity listed in the Securities Exchange Board of Nepal, the Stock Exchange shall collect advance tax of 5% of gain from Resident Natural Person or 10% of gain in other cases.

(b) For the gain from the Disposal of Interest-in-Entity that is unlisted in the Securities Exchange Board of Nepal, the entity whose security has disposed shall collect advance tax of 10% of gain from Resident Natural Person and 15% of gain in other cases.

Provided, this Sub-section is not applicable for the Disposal of the Interest-in-Entity by Mutual Fund.

(3) At the time of registration of transfer, on the capital gain made from the Disposal of the land or personal building of any Natural Person, the Màlpot Office shall collect the advance tax as follows:

(a) At the rate of 2.5% if the ownership of Disposed Non-Business Chargeable Asset (land and building) is for 5-years or more,

(b) At the rate of 5% if the ownership of Disposed Non-Business Chargeable Asset (land and building) is for less than 5-years,

(4) Even though a Person who is to collect advance tax pursuant to Sub-sections (1), (2) and (3) has not collected the advance tax, the tax shall be deemed to have been collected at the time when it has to be recovered.

(5) A person who is to collect advance tax has to furnish the Advance Tax Returns with the Department in such manner and form as specified by the Department within 25-days of the expiration of every month.

(6) The amount of the advance tax collected or the amount deemed to have been collected pursuant to Clause (a) of Sub-sec.(3) has to be furnished to the Department along with the returns as referred to the time-limit under Sub-sec.(5).

(7) The Person who has to pay the advance tax and the Person who is collecting agent for advance tax shall be jointly and severally liable for payment of the advance tax in the following circumstance:

(a) In the event of failure to collect advance tax by the Person who is collecting agent, and

(b) The Person who is collecting agent fails to pay the amount deemed to have been collected pursuant to Sub-sec.(4) to the Department.

(8) A Person who is to pay the advance tax pursuant to Subsection (7) has to pay the tax within 25-days after the expiration of the time limit set forth in Sub-sec.(5).

(9) If a person who is collecting agent has deposited to the advance tax not recovered to the Department pursuant to Sub-sec.(6), the Person shall be entitled to recover the amount equal to the amount of tax so paid from the Person who is to pay that tax.

(10) A Person who has to pay the advance tax that has been paid pursuant to this Section shall be entitled to credit the same from the annual tax liability.

#### Chapter 19 Returns of Income and Assessment of Tax

96. Returns of Income: (1) Subject to Sections 97, 98 and 100, every Person shall file an Income Tax Return of income during Income Year within 3-months from year-end, at the place prescribed by the Department.

(2) Income Tax Return as mentioned in Sub-sec.(1) shall be:

(a) It shall have been prepared according to the procedure and in the form prescribed by the Department mentioning followings:

(1) Assessable income of the Person during the year from each Employment, Business or Investment, and sources of such income;

(2) Taxable Income of the Person during the year, and the tax payable on that income under S.3(a);

(3) Repatriated Income to abroad during the year by a Nepal-based Permanent Establishment of a Non-Resident Person, and the tax payable on that income; and

(4) [Repealed]

(5) [Repealed]

(6) Any other particulars or information prescribed by the Department.

(b) Signed by the Person or the manager with self-declaration regarding accurate, true, and complete.

(c) Following documents shall be attached to the return of income:

(1) [Repealed]

(2) Statement made available to the Person under Sub-sec.(4).

(3) Evidence for choice made under S.4(4), and

(4) Any information as prescribed by the Department.

(3) In case any Person has prepared or helped to prepare the Income Tax Return of any other Person or the documents or statements to be attached to such income returns, by obtaining any Payment, except as an employee, shall certify the following:

(a) that s/he has examined the documents maintained by the concerned Person under S.81, and

(b) that the return or information truly reflects the real circumstances.

(4) In case any Person who is required to certify the return under Sub-sec.(3) refuses to do so, s/he must inform the Person whose return is to be certified by mentioning in writing the reasons for such refusal.

(5) In the following circumstances, the Department may, subject to S.100, require any Person to submit Income Tax Return for an Income Year, or any part thereof, within the time-limit mentioned in a written notice, before the time-limit prescribed to submit Income Tax Return for the year:

(a) In case the Person becomes bankrupt, insolvent or winding up.

(b) In case the Person is to leave Nepal for an indefinite period.

(c) In case the Person is about to relinquish activity in Nepal, or

(d) In case the Department deems so appropriate for.

97. Return of Income need not be filed: Except when ordered in writing by the Department, none of the following persons shall be required to file return of income for any Income Year under S.96:

(a) A Person who has no tax under S.3(a) for the Income Year.

(b) A Person mentioned in S.3(c) for the Income Year,

  2. A Resident Natural Person in respect to whom S.4(3) is applicable for the Income Year or

  3. Individual owner of the vehicle who have paid the tax according to S.1(13) of Schedule - 1, such individual.

98. Extension of Time-Limit for filing of Returns of Income: (1) In case any Person who is required to file return of income under S.96 applies in writing to the Department for an extension of the time-limit for doing so within the time-limit prescribed for doing so. In case the Department finds the reasons thereof to be appropriate, the Department may extend the time-limit for submitting the return of income. Information about the decision taken by the Department on the application filed for an extension of the time-limit shall be given in writing to the applicant.

(2) The Department may extend the time-limit for submitting the return of income under Sub-sec.(1) for not more than 3-months either singly or in together.

99. Assessment of Tax: (1) In case any Person has filed the return of income during an Income Year within the prescribed date mentioning the following amounts, the tax in respect to the return of income shall be deemed to have been assessed:

(a) The tax amount mentioned in the return of income by the Person mentioned in Clauses (a) and (b) of S.3 as the tax amount payable during the Income Year, and

(b) The outstanding amount of tax payable for the year which has been mentioned in the return of income.

(2) In case any Person does not file the return of income in any Income Year, the tax shall be deemed to have been assessed as follows on the date prescribed for the filing of the return of income until the submission of the return of income:

(a) The tax amount payable by the Person for the year shall be deemed to be equal to the total of the Withholding Tax from the amounts received under Chapter 17 and the tax amount paid in instalments during the year under Chapter 18; and

(b) No tax shall be deemed to be outstanding as per Tax Assessment.

100. Jeopardy Assessment of Tax: (1) Action shall be taken as mentioned in S.99 in case it becomes necessary to file a return of income for an Income Year or any part of an Income Year under S.96(5).

(2) Notwithstanding anything contained in Sub-sec.(1), in circumstances mentioned in S.96 (5), the Department may, assess the tax of the concerned Person for the Income Year or its part on the judiciable basis based on amounts under Sub-Clauses (1), (2) or (3) of Clause (a) of S.96(2).

(3) Following provision shall apply in case of such tax has been assessed under Sub-sec.(1) or (2):

(a) A Person whose tax for the entire Income Year has been assessed need not file Income Tax Return for that Income Year under S.96(1); or

(b) A Person whose tax for a part of an Income Year has been assessed shall file Income Tax Return for [whole of] the Income Year under S.96(1).

(4) The tax amount paid according to the Tax Assessment made for any part of an Income Year may be credited against the tax payable at the time of assessing the tax for the whole Income Year.

(5) While assessing tax under this Section, the Department shall provide a time-limit of 7-days to submit proof in own favor.

101. Amended Tax Assessment: (1) For the purpose of adjusting income according to the objectives of this Act the tax liability of a Person whose tax has been assessed under S.99 or 100, the Department may make an Amended Tax Assessment on the judiciable basis.

(2) In case the Department deems it appropriate to make a fresh revision of the Amended Tax Assessment made under Sub-sec.(1), it may do so any number of times on the basis of its justification.

(3) While assessing tax under Sub-sec.(1) or (2), the Department shall make amendment within four years from the following dates:

(a) If tax has been assessed under S.99, the date when the return of income is to be filed.

(b) If tax has been assessed under S.100(2), the date when the notice of Tax Assessment is given to that Person under S.102.

(c) In case tax has been assessed under Sub-sec.(1) or (2), the date mentioned in Clause (a) or Clause (b) related to the original Tax Assessment which has been revised under Sub-sec.(1).

(4) Notwithstanding anything contained in Sub-sec.(3), in case the assessment of tax payable by a Person has been made wrongly due to fraud, the Department may revise it at any time. Such revision shall be made within a year from the date of receipt of information regarding fraud.

(5) Notwithstanding anything contained in Sub-sec.(3), in case the assessment of tax has been revised or the assessed tax has been reduced by the Revenue Tribunal or any other authorized court, the Department may not revise such Tax Assessment to that extent.

Provided, no obstruction shall be deemed to have emerged for a revision in case an order for fresh investigation has been issued.

(6) While revising an assessment of tax under this Section, the Department shall furnish a written notice to the concerned Person mentioning the grounds for doing so and providing a time-limit of 15-days to submit proof in own favor in connection with such Tax Assessment.

102. Notice of Tax Assessment: The Department shall furnish written notices of tax assessed under S.100(2) or S.101 to the tax-assessed persons mentioning the following:

(a) The assessed tax payable and still to be paid by persons mentioned in Clauses (a) and (b) of S.3 for the concerned year or for the period related to Tax Assessment.

(b) The procedure adopted to calculate the assessment of tax mentioned in Clause (a).

(c) Reasons for the Department to assess tax.

(d) Time-limit for paying the outstanding assessed tax, and

(e) Time, place and procedure of filing complaints in the event of dissatisfaction with the assessment of tax.

#### Chapter 20 Collection, Remission and Refund of Tax

103. Security for Tax to be Deducted and Deposited: (1) Withholding Tax Agent shall give preference to Withholding Tax under Chapter 17 over any other Payment to be made according to a court order or any other law or otherwise.

(2) In respect to Withholding Tax deducted under Chapter 17 by a Withholding Tax Agent, following shall be:

(a) Tax withheld and any Asset acquired in consideration of such tax shall be deemed to have been held for GON.

(b) The tax amount so deducted may not be attached to any debt or liability of the person, and

(c) In case the Withholding Tax Agent becomes bankrupt or goes into liquidation, the tax deduction amount shall not be deemed to be a part of the estate in liquidation or bankruptcy, and the Department shall have the first lien over the tax deduction amount or the Assets while making any Distribution due to liquidation or bankruptcy.

104. Charge over Assets: (1) Notwithstanding anything contained in prevailing law, in case any Person fails to pay Tax within the due date, the charge of GON over Assets shall be deemed to have emerged.

(2) While charging an Asset over which a charge created under Sub-sec.(1), the Department shall serve written notice to the Person mentioning:

(a) Particulars of the Assets charged.

(b) The extent of the charge as mentioned in Sub-sec.(3).

(c) The Tax to which the charge relates, and

(d) Other matters, if any.

(3) While creating charge on an Asset under Sub-sec.(2), the charge shall be deemed to have emerged only to the extent of the amount of tax to be paid by the person, the amount of Interest to be paid in relation to the tax amount under S.119, and the expenses incurred while creating the charge and selling the Asset through auction.

(4) Charge made under Sub-sec.(2) shall not be effective until the following actions are taken:

(a) In respect to lands and buildings, until the Department furnishes information for the registration of the charge under Sub-sec.(6).

(b) In respect to other tangible Assets, until the Department possession such Assets under S.105(3).

(c) In any other circumstances, until a notice is furnished to the Tax-debtor under Sub-sec.(2).

(5) The Asset created charge under Sub-sec.(2) shall be released in case the Tax-debtor pays to the Department the entire amount mentioned in Sub-sec.(3) which is secured by the charge.

(6) In case the Department makes a charge over any land or building under Sub-sec.(2), it must furnish information thereof to the concerned Màlpot Office. The Màlpot Office shall then stoppage the land or building in such a manner that it is not sold to anybody, or its ownership is not transferred to anybody.

(7) In case it becomes necessary to release any land and building from a charge under Sub-sec.(5), the Department shall furnish information thereof to the Màlpot Office. On receipt of such information, the Màlpot Office shall release the land and building.

(8) In respect to the expenses incurred under Sub-sec.(3), the Department shall furnish as soon as possible information to the Tax-debtor mentioning the following:

(a) The expenses incurred by the Department before issuing such a notice for the charge on and the auction of the Asset of the Tax debtor, and

(b) Date by which such expenses are to be paid to the Department by the Tax debtor.

Explanation: For the purpose of this Section, "expenses incurred for charge and auction" mean the following expenses incurred or to be incurred by the Department:

(a) The expenses incurred or to be incurred by the Department under this Section in connection with the creation and release of charge; or

(b) The expenses incurred or to be incurred by the Department under S.105 in connection with the possession, maintaining and auctioning the charged Asset.

105. Auction of Charged Assets: (1) The Department shall furnish a notice to the Tax-debtor about its intention to auction of charged Assets.

(2) The notice issued under Sub-sec.(1) may be included in or attached to the notice issued under S.104(2). Such notice shall be issued to the Tax-debtor mentioning:

(a) The charged Assets, and the procedure and time of its auction or sale, and

(b) In respect to tangible Assets, the procedure and time of taking them into its custody.

(3) The Department may take the following actions after issuing a notice under Sub-sec.(1) or (2) to the Tax-debtor:

(a) To take into custody the tangible Assets at any time as mentioned in the notice.

(b) To enter into any premises mentioned in the notice under Sub-sec.(1) at any time for the purpose of taking into custody the tangible Assets, and

(c) In respect to tangible Assets other than lands or buildings, to keep such Assets at any place deemed appropriate by the Department at the expense of the Tax-debtor.

(4) In case the Department has issued a notice as mentioned in Sub-sec.(1) to any Tax-debtor, it may publicly auction the charged Assets or sell or otherwise dispose of or use them in the manner deemed appropriate by it at the following times:

(a) In case the charged Asset is a land or building, after 30-days from the date when it is taken into custody under Sub-sec.(3).

(b) In case the charged Asset is a perishable Asset, one day after the day when it is taken into possession under Sub-sec.(3).

(c) In case the charged property is a tangible Asset other than those mentioned in Clause (a) or (b), after 10-days from the date when it is taken into possession under Sub-sec.(3).

(d) In the case of any other Asset, after 10-days when it is taken into custody under Sub-sec.(3).

(5) The expenses incurred in the process of creating charge on the Asset and auctioning it shall first of all be deducted from the proceeds of the auction carried out under Sub-sec.(4). Thereafter, the amount of tax payable and the Interest to be paid thereon under S.119 shall be deducted. In case any balance is left thereafter, the same shall be refunded to the Tax-debtor.

(6) After crediting the proceeds of the auction as mentioned in Sub-sec.(5), the Department shall furnish a written notice to the Tax-debtor mentioning the process adopted for such credits.

(7) In case the proceeds of the auction are found to be insufficient to pay in full the expenses, tax and fine mentioned in Sub-sec.(5) according to the procedure mentioned in the said Sub-Section, the Department must initiate fresh actions under S.104 S.111, or this Section to realize the shortfall.

Explanation: For the purpose of this Section:

(a) Claimed Asset means an Asset held by an advance tax deducting Person under S.103(2), or the Asset of a Tax-debtor mentioned in S.104(2).

(b) Expenses incurred while claiming or auctioning mean the expenses incurred while claiming or auctioning (an Asset) under S.104.

(c) Tax-debtor includes an advance tax deducting Person mentioned in Sections 103 and 104.

106. Power to impose Ban on Going Outside from Nepal: (1) In case any Person fails to pay Tax within the due date, the Department may, by furnishing a written notice to the concerned office of GON, issue an order- of-stoppage the concerned Person from going outside the country for 72 hours from the date of expiry of the period provided in the notice.

(2) Department may extend this period in the prior approval of Appellate Court, in case necessary to extend the period as per Sub-sec.(1),

(3) In case the Person mentioned in Sub-sec.(1) pays Tax or in case the Department feels that s/he has made satisfactory arrangements for the Payment of Tax, Department may withdraw such order by notifying the concerned office as mentioned in Sub-sec.(1).

107. Officer of an Entity to be held Responsible: (1) In case any Entity fails to comply with any matter to be complied with this Act, every Person working at the time as Officers of the Entity shall be held responsible for that.

(2) In case any Entity commits an offense by not paying Tax within the date on which it has to be paid, every Officer currently in office or who were in office until 6-months ago shall be held jointly or severally responsible for paying the Tax.

(3) Notwithstanding anything contained in Sub-Sections (1) and (2), the said Sub-Sections shall not be applicable:

(a) In case the Entity has committed that offense without the knowledge or consent of the person, and

(b) In case the Person has exercised the degree of care, diligence and skills that a reasonably prudent person would have exercised in similar circumstances to prevent the commission of the offense.

(4) In case a Person pays the Tax under Sub-sec.(2), s/he may:

(a) To recover from the Entity the amount so paid.

(b) To keep under custody that Entity's Assets, including money, in or coming into possession, in such a manner that they do not exceed the amount so paid, for the purpose of Clause (a).

(5) In case a Person takes into custody any Asset under Sub-sec.(4)(b), the Entity or any other Person may not make any claim against that person.

Explanation: For the purpose of this Section, "Officer of Entity" means the manager of the Entity or a Person working in that capacity.

108. Recovery from Receiver: (1) Within 15-days from the date of appointment to the post of receiver or from the date when takes custody of any Nepal-based Asset, whichever is earlier, Receiver shall notify the Department about the same in writing.

(2) In respect to the Tax to be paid by a Tax-debtor, the Department shall furnish a written notice to the Receiver.

(3) On receipt of a notice under Sub-sec.(2), the Receiver shall:

(a) Repay loans, if any, having priority over tax payable under Sub-sec.(2), subject to S.103(2)(c), from the proceeds of the sale of the necessary portion of the Assets that have come under the Receiver's custody, and set aside the amount notified by the Department under the said Sub-Section, and

(b) Pay to the Department the amount so set aside on behalf of the Tax-debtor in consideration of tax liability.

(4) To the extent of the amount not set aside by the receiver under Sub-sec.(3), the receiver shall be personally liable for Payment of an equal amount to the Department on account of the Tax-debtor's tax liability.

Provided, the Receiver may realize from the Tax-debtor such amount paid.

Explanation: For the purpose of this Section,

(a) Receiver means any of the following persons:

(1) A liquidator.

(2) In respect to any Asset or Entity, a Person appointed by the court or from outside the court as a Receiver.

(3) A bailer for an Asset under custody.

(4) An heir to, or an executor or administrator of the estate of a deceased Natural Person, or

(5) A Person conducting the affairs of an incapacitated Natural Person.

(b) Tax-debtor means a Person whose Assets have come under the custody of a receiver.

109. Recovery from Debtor of Tax-debtor: (1) In case any Tax-debtor does not pay Tax within the date on which it has to be paid and thus keeps the tax outstanding, the Department may notify any of the following payers in writing and order to pay to the Department on behalf of the Tax-debtor the extent of the amount of tax to be paid by the Tax-debtor within the time-limit mentioned in the notice:

(a) Persons who owe money to the Tax-debtor.

(b) Persons who hold money for or on behalf of the Tax-debtor.

(c) Persons who hold money on behalf of any third Person so as to be paid to the Tax-debtor, or

(d) Persons who are authorized to pay money to the Tax-debtor on behalf of a third person.

(2) The Department shall serve the Tax-debtor with a copy of the notice served by it to a payer under Sub-sec.(1).

(3) Notwithstanding anything contained in Sub-sec.(1), the date mentioned in the notice mentioned in the said Sub-section cannot be a date before the dates mentioned in Clauses (a) and (b):

(a) The date on which the money is to be paid to the Tax-debtor, or the date on which the money is held on behalf of the Tax-debtor, and

(b) The date on which the notice under Sub-sec.(2) is served with.

(4) For the paid amount, the payer as per Sub-sec.(1) shall be deemed to have paid to the Tax-debtor. No such amount may be claimed from the payer by the Tax-debtor or any other person.

110. Recovery of Tax from Agents of Non-Resident Person: (1) In case any Non-Resident Tax-debtor does not pay Tax within the date on which it has to be paid and thus keeps the tax outstanding, the Department may, in relation to the tax liability of the third person, issue a notice in writing to any Person keeping under custody any Asset owned by the Tax-debtor and order to pay tax within the date mentioned in the notice on behalf of the Tax-debtor up to the Market Price of the Asset but not exceeding the amount of tax payable by the Tax-debtor.

(2) In case any Person pays the Tax amount according to the order issued under Sub-sec.(1), may:

(a) To realize the Payment from the Tax-debtor.

(b) For the purpose of Clause (a), to take under charge any Asset or money belonging to the Tax-debtor which is or coming under custody, to the extent of the amount so paid.

(3) In case Person takes any Asset under custody under Clause (b) of Sub-sec.(2), claim cannot be made by the Tax-debtor or any other person.

110A.Recovery of Tax in Instalments: Before filing a lawsuit to recovery under S. 11, if the Tax-debtor apply in writing to pay in instalment, the Officer may allow reasonable time to pay the tax arrears.

111. Lawsuits to be filed for Non-Payment of Tax: The Department may file lawsuits at the concerned District Court in order to realize Tax from persons who have failed to pay it within the due date of such payment.

112. Remission: (1) In case the tax payable by any Person cannot be realized, GON may fully or partially waive it.

(2) Notwithstanding anything contained in Sub-sec.(1), GON may fully or partially waive the fees and Interest imposed under Chapter 22.

113. Tax Refund and Adjustment: (1) In case any Person has paid tax in excess of tax liability, the Department may direct the deduction of the excess amount from any tax amount payable under this Act. The Department must shall the remainder, if any, to the concerned person.

(2) The Department shall refund the Interest paid under S. 119 if the tax on which the Interest is refundable..

(3) In case a Person applied in the Prescribed manner to the Department, it shall refund of the amount within 60-days from date of application.

(4) A Person, under Sub-sec.(3), shall apply within two years from the latest of the following dates. The amount as per Sub-sec.(1) shall not be refunded in case an application is not filed within the said time-limit:

(a) The date of expiry of the Income Year in which the reason for Payment of the excess amount occurred.

(b) The date of Payment of the excess amount, or

(c) The date of decision of the lawsuit.

(5) The Department must give a written notice to the concerned Person about the decision taken by it on the application filed under Sub-sec.(3).

(6) While refunding to anyone any amount on the orders of the court or for any other reason, the Department shall also pay Interest at the Standard Interest Rate for the following period:

(a) In case the tax refund is connected with the excess tax credits available in any Income Year to any Person under S.93, 94 or 100, for the period from the date on which the return of income has to be submitted under S.96 to the date of refund of the tax, and

(b) In any other circumstances, for the period from the date of Payment by the Person of the tax which is to be refunded to the date of refund.

(7) Tax credits that may be claimed under S.51 or 71 in any Income Year, and such tax credit may not be provided as adjustment facility or refunded under this Sub-Section.

Provided, such tax credits during the year may be dealt with as provided for in S.4(2), S.51(4), and S.71(3).

#### Chapter 21 Review and Appeal

114. Administratively Reviewable Decision and Procedure: (1) For the purposes of this Act, the following decisions may be administratively reviewed:

(a) An advance ruling issued by the Department under S.76.

(a1) Order or decision held under S.90(8).

(b) An amended estimated Tax Return under S.95(7) and the decision thereto.

(c) A decision by the Department to issue an order to a Person to file Income Tax Return under S.96(5) or S.97.

(d) A decision by the Department on an application filed by a Person to have the time-limit extended for filing Income Tax Return under S.98.

(e) An assessment of tax payable by a Person for any year under S.100 or 101,or an assessment of expenses of the auction under S.105(5) or an assessment of fees and Interest payable by a Person under S.122.

(f) A notice issued by the Department requiring that an amount be set aside by a Person as a Receiver under S.108(2).

(g) A decision by the Department to issue an order to a Person having any amount payable to a Tax-debtor to pay that amount to Department under S.109(1).

(h) A decision by the Department to issue an order to a Person to pay tax on behalf of a Non-Resident Person under S.110(1).

(i) A decision by the Department on an application filed by a Person to get the refund of tax under S.113(5), and

(j) A decision by the Department on an application filed by a Person for an extension of the time-limit for registering a complaint under S.115(3).

(2) In case any decision has taken in matters mentioned in Clauses (d), (i) and (j) of Sub-sec.(1), and the Department fails to furnish a notice thereof within 30-days from the date of application to the Person applying under S.98, S.113(3), or S.115(3), (the Department) shall be deemed to have decided to refuse the application, and the decision may be subjected to an administrative review under Sub-sec.(1).

(3) In case any applicant fails to receive the notice about the decision within the time-limit mentioned in Sub-sec.(2), and registers a notice thereof at the Department, the Department shall be deemed to have served the decision taken by it to refuse the application and the notice thereof on that date to that person.

115. Application for Administrative Review: (1) Any Person who is dissatisfied with any decision which may be subjected to an administrative review under S.114 may apply to the Department against that decision within 30-days from the date of receipt of the notice about the decision.

(2) Applications to be filed under Sub-sec.(1) must clearly state the reasons and grounds for such review.

(3) In case any Person applies for the extension of the time-limit for filing an application under Sub-sec.(1) within 7-days from the date of expiry of the time-limit, the Department may take the following actions:

(a) Extend the time-limit for not more than 30-days from the date of expiry of the time-limit for filing applications under Sub-sec.(1) having reasonable reasons for extension, and

(b) Provide written notice to the applicant about the decision taken by the Department on the application.

(4) Filing of an application under Sub-sec.(1) shall not be deemed to have affected the implementation of the decision mentioned in S.114(1).

(5) Notwithstanding anything contained in Sub-sec.(4), the Department may, until a final decision is taken on the application filed by any Person under Sub-sec.(1), keep the decision taken under Sub-sec.(1) of S.114 pending or otherwise influence it.

(6) Notwithstanding anything contained in Sub-sec.(5), the provision of the said Sub-Section shall not be applicable until payment of undisputed tax fully and one third of disputed tax.

(7) The Department may take action as follows on an application filed by any Person under Sub-sec.(1):

(a) To fully or partially accept or reject the matters mentioned in the application, and

(b) To provide a written notice about the decision taken on the application to the concerned person.

(8) In case the Department does not furnish to the applicant a notice about its decision on the application filed under Sub-sec.(1) within 60-days from the date of application, the applicant may register a declaration that Department to have refused the application.

(9) The applicant shall notify the Department in writing about the application as being refused under Sub-sec.(8). The Department shall be deemed to have decided to refuse the application and notified the applicant accordingly on the date of registration of such information at the Department.

116. Appeal to the Revenue Tribunal: (1) Person who is dissatisfied with the decision on the application filed at the Department under S.115 may file an appeal to the Revenue Tribunal under the Revenue Tribunal Act, 2031.

(2) The Person filing an appeal under Sub-sec.(1) shall register a copy of the notice of the appeal at the Department within 15-days from the date of filing of appeal.

(3) Filing of an appeal under Sub-sec.(1) shall not be deemed to have affected the implementation of the decision under S.114(1).

(4) Notwithstanding anything contained in S.114(1), an appeal may be filed at the Revenue Tribunal in case the Director-General has taken a decision under the said Sub-section which can be subjected to an administrative review.

#### Chapter 22 Fees and Interest

117. Fees to failure to Documentation or filing Returns: (1) Following fee shall be levied to the following shortfalls:

(a) In case tax return has not filed under S.95(1), Rs.2,000 per case.

(b) In case any Advance Tax Collecting Agent does not file Advance Tax Return as mentioned in S.95A(5), shall be imposed a fee at the rate of 1.5 percent per annum of the amount of tax to be withheld for each month and part thereof from the date when it is required to file the return to the date until the filing of such return.

(c) In case Income Tax Return has not filed, Rs.100 per month for the presumptive tax payer under S.4(4) and Rs.100 per month or 0.1% p.a. on the Assessable Income without calculated without deducting any amount that may be deducted but including any amount to be included in calculating income for an Income Year, whichever is higher, for other Person.

(d) In case Tax-Exempt Entity has not file its financial statements, 0.1% p.a. of income shown thereon.

(2) In case any Person does not keep the documents for any Income Year which are to be kept under S.81, shall be imposed a fee to be calculated at the rate of Rs.1,000 or at the rate of 0.1 percent of Assessable Income calculated without deducting any amount that may be deducted but by including any amount to be included in calculating income for an Income Year, whichever is higher, for the concerned year.

(3) In case any Withholding Tax Agent does not file Withholding Tax Return as mentioned in S.90(1), shall be imposed a fee at the rate of 1.5 percent per annum of the amount of tax to be withheld for each month and part thereof from the date when it is required to file the return to the date until the filing of such return.

118. Interest in Short Estimated Tax by Instalment Tax Payer: (1) In case an installment tax paid by a Person under Clause (a) is less than the instalment tax payable under Clause (b), Interest shall be charged on the shortfall as mentioned in Sub-sec.(2):

(a) Each instalment tax payment in the Income Year by the Person.

(b) Each instalment tax calculated at the rate of 90 percent of estimated or revised estimated tax, if it was exact with tax payable or exact tax payable under Clauses (a) and (b) of S.3.

(2) Interest shall be collected at the Standard Interest Rate from the Person mentioned in Sub-sec.(1) for each month and part thereof from the date to the following date:

(a) Submission deadline for the Person assessed tax under S.99(1).

(b) For the non-filer under S.99(1), date of S.102 notice under first reassessment by the Department under S.101.

Explanation: For the purpose of this Section, "Instalment tax" means the Tax calculated under S.94(1)- from the estimated tax return that has not revised or revised by the Taxpayer applicable under S.95(5) or estimation by the Department under S.95(7) for those has not filed estimated tax return, or revised estimation by the Department under S.95(7) where the Department is not satisfy with the estimated or revised estimated tax return applicable under S.95(5).

119. Interest to be Charged on Failure to Pay Tax: (1) In case any Person fails to pay tax within the due date, Interest shall be charged at the Standard Interest Rate for every month and part thereof for which the tax is outstanding.

(2) For the purpose of calculating Interest to be paid under Sub-sec.(1), no remission in Interest shall be granted for the time extended under S.98.

(3) Interest payable by an advance tax deducting Person due to failure to comply with S.90(4) may not be realized from the Person whose advance tax is deducted.

(4) In case tax has not paid within the date allowed under S.110A, additional interest at 5% p.a. is levied on tax arrears.

119A. Fee to be levied: Except as otherwise provided in this Act, a Person who fails to comply with the provision of this Act or the Rules framed hereunder shall be liable to pay fees equivalent to the fine specified pursuant to Section 128.

120. Fees on those who submit False or Misleading Statement: In case any Person submits false or misleading statements in relation to any matter, or in case the said statements become misleading because of failure to provide information about anything or any matter, or by removing information thereof from, shall be imposed fees as follows:

(a) In case the statements have become false or misleading by error and not due to willful actions or negligence, 50 percent of the tax amount reduced as a result.

(b) In case the statements have become false or misleading due to willful actions or negligence, cent percent of the tax amount reduced as a result.

Explanation: For the purpose of this Section, the term "statements submitted at the Department" means the particulars submitted in writing to the Department or to the Officer authorized by the Department in connection with the fulfillment of duties under this Act, and the particulars submitted as follows:

(a) Applications, notices, details, complaints, statements, or other documents submitted, prepared, handed over or presented under this Act.

(b) Documents presented before the Department or any of its Officers in any manner other than those mentioned in this Act.

(c) Answers to questions asked to any Person by the Department or any Officer, or

(d) Information supplied to the Department or any Officer through any Person by any Person possessing appropriate information about matters concerning particulars to be submitted.

121. Fee for Aiding and Abetting: Accomplices who help, assist, instigate or advise either knowingly or through negligence, persons who commit any of the offenses mentioned in Chapter 23 shall be imposed fees equal to 100 percent of the amount by which such persons have underpaid the tax.

122. Determination of Fees and Interest: (1) Fees and Interest to be paid by anyone under this Chapter shall be determined by the Department.

(2) While calculating liability under this Chapter in consideration of fees and Interest payable for failing to complete any specific task, or in relation to any statement, separate calculations shall be made in relation to each Section of this Chapter.

(3) Fees and Interest to be imposed under this Section shall be added to the tax payable, if any, under this Act, and mere Payment of such fees and Interest shall not be deemed to have freed the concerned Person from the liability relating to criminal proceedings mentioned in Chapter 23.

(4) In case fees and Interest have been determined under this Section, the Department shall furnish written notices thereof to the concerned persons explicitly mentioning the following particulars. Such notices may be sent together with the notices to be issued under S.102.

(a) Reasons for the Department to determine fees and Interest.

(b) Amounts to be paid in consideration of fees and Interest.

(c) Procedure adopted to calculate the amount, and

(d) Time, place and procedure of filing complaints against the determination.

(5) Action shall be taken as follows while determining fees and Interest under this Section:

(a) Provisions contained in Sub-sec.(1), Sub-sec.(2), Clause (b) of Sub-sec.(3), Sub-sec.(4), and Sub-sec.(5) of S.101 shall also be applicable while determining fees and Interest under this Section.

(b) Provisions contained in Clauses (b) and (c) of Sub-sec.(3) and Sub-Sections (4) and (5) of S.101 and S.102 shall also be applicable to Sub-sec.(4) of this Section.

#### Chapter 23 Offenses and Penalties

123. Punishments to failure to Pay Tax: Any Person who fails, without any appropriate reason, to pay tax payable within the due date shall be punished with a fine from Rs.5,000 to Rs.30,000, or with imprisonment from 1-month to 3-months, or both.

124. Punishments to False or Misleading Information: In case any information or particulars submitted by any Person to the Department are found to be false or misleading because s/he has submitted them as such through willful actions or negligence, or in case such particulars have become misleading because of failure to mention in them any information about any specific matter or subject or because of having removed from such particulars any such information, s/he shall be punished with a fine from Rs.40,000 to Rs.160,000, or with imprisonment from 2-months to 2-years, or both.

Explanation: For the purpose of this Section, the term "statements submitted at the Department" means the particulars submitted in writing to the Department or to the Officer authorized by the Department in connection with the fulfillment of duties under this Act, and the particulars submitted as follows:

(a) Applications, notices, details, complaints, statements, or other documents submitted, prepared, handed over or presented under this Act.

(b) Documents presented before the Department or any of its Officers in any manner other than those mentioned in this Act.

(c) Answers to questions asked to any Person by the Department or any Officer, or

(d) Information supplied to the Department or any Officer through any Person by any Person possessing appropriate information about matters concerning particulars to be submitted.

125. Punishments to impede or coerce Tax Administration: (1) Any Person who takes any of the following activities shall be punished with a fine from Rs.5,000 to Rs.20,000, or with imprisonment from 1-month or 3-months, or both:

(a) In case any Officer of the Department is obstructed or opposed while discharging duties under this Section.

(b) In case action is not taken according to the notice issued under S.83, or

(c) In case the implementation of this Act is obstructed or opposed in any other way.

(2) Any Person who attempts to take any of the actions mentioned in Sub-sec.(1) shall be punished with half of the punishment mentioned in the said Sub-Section.

126. Punishments for Offenses by Authorized or Unauthorized Persons: (1) Any authorized Person who acts in contravention of S.84 shall be punished with a fine up to Rs.80,000, or with imprisonment up to 1-year, or both.

(2) In case any Person not authorized under this Act collects or attempts to collect tax or any amount in the name of tax, shall be punished with a fine from Rs.80,000 to Rs.240,000, or with imprisonment from 1-year and 3- years, or both.

127. Punishments to Aiding and Abetting: Any Person who intentionally helps, advises or instigates any other Person to commit any offense under this Act shall be punished with half of the punishment due to the offender.

Provided, in case any such accomplice is a government employee, shall be punished with the same punishment as is due to the offender.

128. Punishments not to abide by the Act: Except when otherwise provided in this Act, Person who fails to abide by any provision of this Act or the rules framed hereunder shall be punished with a fine from Rs.5,000 to Rs.30,000.

129. Power of the Department to Order for Fines: (1) Notwithstanding anything contained elsewhere in this Chapter, in case any Person admits in writing to have committed any one or more of the other offenses mentioned in this Chapter, excluding the offense mentioned in S.126, before the initiation of court proceedings, the Department may order to pay a fine not exceeding the amount of fine payable for having committed such one or more offenses.

(2) While issuing an order under Sub-sec.(1), the Department shall explicitly mention the offense, the amount of fine payable, and the date by which the amount of fine has to be paid.

(3) Any order issued by the Department under this Section shall be final, and no appeal may be filed against it.

130. GON as Plaintiff: GON shall be the plaintiff in all cases under this Chapter.

131. Investigations and filing of Lawsuits: (1) The seconded Officer shall investigate into lawsuit relating to offenses punishable under this Chapter. The case shall file to the concerned District Court within 35-days from the date of completion of such investigations.

(2) The Investigating Officer may seek the opinion and advice of the government lawyer while conducting investigations under Sub-sec.(1).

#### Chapter 24 Miscellaneous

132. Power to acquire Experts' Services: GON may acquire the services of the concerned experts for functions relating to tax audit. The provisions concerning official secrecy contained in S.84 shall be applicable also in respect to such experts.

133. Departmental Action to be taken: In case any Tax Assessment is proved to have been made in a negligent manner, and in case this has caused an increment or a reduction in the tax liability of the concerned tax-payer, the Director-General may initiate departmental action to punish the concerned Officer who made the Tax Assessment, or the concerned Officer who failed to make a revised Tax Assessment within the time-limit mentioned in S.101(3), according to prevailing law relating to service conditions.

134. Identity Cards of Officers: Every Officer must keep an identity card As Prescribed. S/He must show it if anyone asks to do so in the course of fulfilling duties.

135. (Department) to have Powers Equivalent to those of a Court: For the purpose of this Act, the Department shall have powers equivalent to those of a court under prevailing law in force in relation to summoning the concerned persons, recording their statements, examining evidence, and having documents submitted.

136. No Liability for Functions Performed and Actions Taken with bona-fide Motives: Notwithstanding anything contained elsewhere in this Act, no Officer shall be held personally liable for any function performed or action taken with bonàfide motives while discharging duties.

136A. Reward and Informer Expense: (1) A person who provides information with evidence showing that a Taxpayer has evaded or attempted to evade all or some portions of tax may, on the decision of DG, be awarded as reward the amount equal to 20% of the amount of tax collected on the basis of that information.

(2) If there is more than one informant, the allotment of reward between or among them shall be as proportionate.

(3) Notwithstanding anything content in Sub-sec.(1), on examining the reliability and accuracy of the information received against revenue leakage, informant expense to the extent of Rs.10,000 may be awarded based on the procedure prescribed by the Department.

(4) Name and address of such informer under Sub-sec.(1), (2) or (3) shall be kept confidential.

137. Power of GON to Issue Orders or Directives: GON may issue necessary orders or directives to the Department in order to make the tax administration effective.

138. Power to frame Rules: GON may frame necessary rules in order to implement the objectives of this Act.

139. Power to frame and Issue Manuals: The Department may frame and issue necessary manuals subject to this Act or the rules framed hereunder.

140. Changes and Alterations in Schedules: GON may, by notification in the Nepal Rajapatra, make necessary changes and alterations in the Schedules, except Schedule 1.

141. Police to Cooperate: It shall be the duty of the Police to extend cooperation sought by the Department in connection with the implementation of this Act or the rules framed hereunder.

142. Superiority Act in Respect to Tax-Related Matters: Notwithstanding anything contained in prevailing law in force, no law may amend or change any tax-related provisions contained in this Act, or make other tax-related provisions, except when the Finance Act to be brought into force on an annual basis makes provisions for imposing, assessing, increasing, reducing, remitting or exempting tax by amending this Act.

143. Repeal, Amendment and Saving: (1) Income Tax Act, 2031 and House Rent Tax Act, 2023 have been repealed.

(2) Following Acts have been amended as follows:

(a) [Repealed].

(b) Amendment in the Karmachari Sanchaya Kosh Act, 2019: The words "no tax shall be levied", occurring in Clause (b) of S.18 of Karmachari Sanchaya Kosh Act, 2019, have been replaced by the words "no tax other than income tax shall be levied."

(c) Amendment in Nepal Petroleum Act, 2040: Clause (c) of S.13 of the Nepal Petroleum Act, 2040has been deleted.

(d) Amendment in S.29 of Retirement Fund Act, 2042: The words "shall be exempt from any similar other tax", occurring in S.29 of the Retirement Fund Act, 2042 have been replaced by the word "shall be exempt from any other tax, excluding the income tax".

(e) Amendment in S.51 of Citizen Investment Trust Act, 2047: S.51 of Citizen Investment Trust Act, 2047 has been repealed.

(f) Amendment in S.30 of Nepal Academy of Science and Technology Act, 2048: S.30 of the Nepal Academy of Science and Technology Act, 2048 has been repealed.

(g) Amendment in S.15 of Industrial Enterprises Act, 2049:

(1) Clauses (c), (d), (e), (j), (l), (p), (q), (r) and (s) of S.15 of Industrial Enterprises Act, 2049 have been deleted.

(2) The words "in income tax for ten years from the date of operation at the rate of 30, 25 and 20 percent respectively, and", occurring in Clause (f), have been deleted.

(h) Amendment in Foreign Investment and Technology Transfer Act, 2049: Sub-sec.(1a) of S.5 of the Foreign Investment and Technology Transfer Act, 2049 has been deleted.

(i) Amendment in B.P. Koirala Institute of Health Sciences Act, 2049: The term "income tax', occurring in the second line of S.21 of B.P. Koirala Institute of Health Sciences Act, 2049 has been deleted.

(j) Amendment in Tribhuvan University Act, 2049: Sub-sec.(2) of S.33 of Tribhuvan University Act, 2049 has been deleted.

(k) Amendment in S.12 of Electricity Act, 2049:

(1) The term "income tax", occurring in the Section Heading of S.12 of Electricity Act, 2049 has been deleted.

(2) Sub-Sections (1), (2), (3), (4), (5) and (6) have been deleted.

(l) Amendment in S.36 of Pokhara University Act, 2053: Sub-sec.(2) of S.36 of Pokhara University Act, 2053 has been deleted.

(m) Amendment in S.18 of B.P. Koirala Memorial Cancer Hospital Act, 2053: The term "income tax", occurring in Sub-sec.(1) of S.18 of B.P. Koirala Memorial Cancer Hospital Act, 2053 has been deleted.

(n) Amendment in Town Development Fund Act, 2053: S.24 of Town Development Fund Act, 2053 has been repealed.

(o) S.34(1) of Telecommunication Act, 2053 has been repealed.

(3) All functions performed and actions taken under the Acts or the Sections of the Acts repealed or amended as mentioned in Sub-sec.(1) or (2) shall be deemed to have been performed or taken under this Act.

(4) The provisions contained in Income Tax Act, 2031 shall be applicable in respect to the assessment and collection of income tax of the Income Years preceding the commencement of this Act.

*******

Schedule 1

(Pertaining to S.4)

Rates of Tax

1. For Natural Persons: (1) Tax shall be imposed at the following rates on the Taxable Income of a resident Natural Person in an Income Year subject to Sub-Sections (2) and (4) of this Schedule:

(a) Taxable Income up to Rs.250,000 from employment – 1%

(b) Taxable Income exceeds Rs.250,000 and up to Rs.350,000- Rs.2,500 for income Rs.250,000 as per Clause (a) and 15% on remaining income.

(c) Taxable Income exceeds Rs.350,000- Rs.17,500 for income Rs.350,000 as per Clause (b) and 25% on remaining income.

(d) In case the Taxable Income exceeds Rs.2500,000- surcharge of 40% of tax on rate as per Clause (c) on so exceeded amount.

Provided, tax under Clause (a) is not levied for sole-proprietorship firm.

(2) Tax shall be imposed at the following rates, subject to Sub-sec.(4) of this Schedule, on the Taxable Income of a couple filing jointly under S.50 in an Income Year:

(a) Taxable Income up to Rs.300,000 from employment – 1%

(b) Taxable Income exceeds Rs.300,000 and up to Rs.400,000- Rs.3,000 for income Rs.300,000 as per Clause (a) and 15% on remaining income.

(c) Taxable Income exceeds Rs.400,000- Rs.18,000 for income Rs.350,000 as per Clause (b) and 25% on remaining income.

(d) In case the Taxable Income exceeds Rs.2500,000- surcharge of 40% of tax on rate as per Clause (c) on so exceeded amount.

Provided, tax under Clause (a) is not levied for sole-proprietorship firm.

(3) The provisions contained in Sub-sec.(4) of this Schedule shall be applicable in the following circumstances:

(a) In the case of a Resident Natural Person with an Taxable Income exceeding Rs.250,000 in the Income Year, or in the case of a Resident couple that has not made an opted under S.50 with an income exceeding Rs.300,00 in the Income Year, and

(b) The net-gains made through the Disposal of Non-Business Chargeable Asset are included in the calculation of the income and the Taxable Income of that Natural Person or couple.

(4) Tax shall be imposed as follows on the following Person subject to Sub-sec.(3) of this Schedule:

(a) Tax shall be imposed at the rate mentioned in Sub-sec.(1) or (2) of this Schedule on whichever is higher of the following amounts by treating the Natural Person or couple as having only such Taxable Income:

(1) The amount left after deducting the amount of gain from the Taxable Income of the Natural Person or couple, or

(2) Rs.250,000 in the case of a Natural Person, or Rs.300,000 in the case of a couple.

(b) Tax shall be imposed at the rate of 10 percent on the balance of that Taxable Income.

(5) The tax as per this Section, is levied by reducing an amount up to Rs.50,000, in the case of Natural Persons residing in the remote are as prescribed by GON.

(6) The tax as per this Section, is levied by reducing an amount of 75% of foreign allowance for the employee working in the abroad based diplomatic missions of the Nepal.

(7) The amount of tax under S.4(4) of this Act shall be as follows:

(a) Rs 3,500, in the case of a Natural Person engaged in Business in a Metropolitan City or Sub-Metropolitan City.

(b) Rs.2,500 in the case of a Natural Person engaged in Business in a Municipality area.

(c) Rs.1,500 in the case of a Natural Person engaged in Business in any other area.

(8) Tax shall be imposed at the rate of 25 percent on the Taxable Income in an Income Year of a Non-Resident Natural Person.

(9) Notwithstanding anything contained elsewhere in this Section, in case Resident Natural Person has a pension income, tax shall be assessed under this Section only on the balance left after reducing from the Taxable Income an 25 percent of the amount mentioned in Clause (a) of Sub-sec.(1) in the case of a Natural Person, or in Clause (b) of Sub-sec.(2) in the case of a couple. Provided, the limit of such reduction shall be As Prescribed.

(10) Notwithstanding anything contained elsewhere in this Section, for an Incapacitated Resident Natural Person, tax shall be assessed under this Section only on the balance left after reducing from the Taxable Income an 50 percent of the amount mentioned in Clause (a) of Sub-sec.(1) in the case of a Natural Person, or in Clause (b) of Sub-sec.(2) in the case of a couple.

(11) Notwithstanding anything contained elsewhere in this Section, if Resident Natural Person is a female having Taxable Income from Employment only, 10% rebate from the Tax is allowed.

(12) Notwithstanding anything contained elsewhere in this Section, Investment Insurance premium upto Rs.20,000 by a Resident Natural Person, shall be reduced from the taxable income.

(13) Notwithstanding anything contend in this section, the following tax shall be collected from the owner of the rented vehicle. If the owner is the individual such tax shall be final.

 | Type of the vehicle | Annual tax per vehicle

---|---|---

 | Minibus, mini-truck, truck and bus | Rs. 1,500.00

 | Car, jeep, van, microbus | Rs.1,200.00

 | Three wheeler, auto riksà tempo | Rs. 850.00

 | Tractor and power tiller | Rs. 750.00

(14) Notwithstanding anything contained elsewhere in this Section, if a Natural Person is engaged in the operation of a Special-Industry mentioned in S.11 of this Act throughout the year, tax shall be levied by 20% in place of 25% of the Taxable Income.

(15) Tax shall be charged by 15% in place of 25% of the Taxable Income earned by any Natural Person from exports in an Income Year.

2. For Entities: (1) Tax shall be imposed at the rate of 25% on the Taxable Income of an Entity in an Income Year, subject to Sub-Sections (2), (3), (4), (5) and (7) of this Section.

(2) Tax shall be imposed at the rate of 30% on the Taxable Income in an Income Year of a bank, financial institution, or General Insurance Business or business for cigarette, bídí, cigar, chewing tobacco, khaíní, liquor and beer, or petroleum operations under Nepal petroleum Act, 2040.

Explanation: The term "Taxable Income" in the case of petroleum operations means the Taxable Income assessed according to the procedure mentioned in the petroleum agreement and this Act and the rules framed hereunder.

(3) Tax shall be imposed at the rate of 20% on the Taxable Income made as follows in an Income Year by an Entity having sources in Nepal:

(a) In case the Entity is engaged throughout the year in the operation of a Special-Industry mentioned in S.11 of this Act.

(b) In case the Entity -

(1) Builds and operates any road, bridge, tunnel, ropeway or overhead bridge,

Explanation: Ropeway means erection for transport of goods and mankind and includes a cable-car.

(2) Operates any trolley bus or tram, or

(3) Transaction other than tax-exempt by a Cooperative Society registered under Cooperative Act, 2048.

(3a) Tax shall be levied at 20% on the Taxable Income from exports in an Income Year of Entity having source in Nepal.

(4) In case any Entity a project relating to public infrastructures to be built, operated and transferred to GON [BOOT], or those relating to the construction of power houses and generation and transmission of electricity, in an Income Year, tax shall be imposed at the rate of 20 percent on its Taxable Income .

(5) Tax shall be imposed according to Sub-Sec.(1) and (4) of S.1 of this Schedule on the Taxable Income of the estate of a deceased Resident Natural Person, or the Taxable Income of the Trust of an Incapacitated Resident Natural Person, in an Income Year by treating the estate or the Trust as a Resident Natural Person.

(6) Tax shall be imposed at the rate of 5% on the Repatriated Income to abroad in an Income Year by a Nepal-based Foreign Permanent Establishment of a Non-Resident Person.

(7) Tax shall be levied by 5% on Taxable Income of any Non-Resident Person in relation to the income according to S.70 in any income year.

Provided, in case, Non-Resident Person providing telecommunication, air transport or water transport service, which does not so depart from Nepal to a foreign country, tax shall be levied by 2%.

Schedule 2

(Pertaining to S.19)

Calculation of Depreciation

1. Blocking and Pooling of Depreciable Asset: (1) Depreciable Assets shall be classified as follows:

Block Particulars of Assets

"A" Buildings, structures, and similar works of a permanent nature.

"B" Computers, data analyzing equipment, furniture, fixtures, and office equipment.

"C" Automobiles, buses, and mini-buses.

"D" Construction and earth-moving equipment and any Depreciable Asset not included elsewhere, including S.17(3), S.18(3), and Sub-sec.(3) of this Schedule.

"E" Intangible Assets other than the Depreciable Assets mentioned in Class D.

(2) Any Depreciable Asset owned by a Person and used for the generation of income through a Business or Investment in an Income Year shall be placed in the following pools at the time of its coming under ownership or of its use for the first time. Those pools shall be treated as the pools of that Person's Depreciable Assets in that year:

(a) In respect to similar Assets owned or used by the Person, Depreciable Assets of Class A, B, C, or D in the same pool of other Assets of the same Block.

(b) In respect to Depreciable Assets of Block E, even if the Assets are of the same class, they shall be placed in separate pools.

(3) The cost of operations relating to the excavation of natural resources and extraction of minerals in the course of earning income from a Business, and the cost incurred for the development thereof, shall be treated as similar to the cost incurred while purchasing Assets for the Business connected with that income.

2. Depreciation Allowance: (1) A Person may, in consideration of pools of Depreciable Assets in an Income Year, deduct expenses equal to depreciation in that year in the Assets of each pool which has been taken into account under Sub-Sections (2) and (6) of this Section.

(2) A Person shall calculate the depreciation each pool of Assets in Income Year by using the following formulae:

a x b

Where -

"a" means the depreciation base amount of the pool of Assets at the end of the concerned year.

"b" means the rate of depreciation mentioned in S.3 of this Schedule which is applicable to that pool.

(3) At the end of an Income Year, the depreciation base amount of the Depreciable Assets belonging to Block A, B, C, or D shall be determined by deducting the amount mentioned in Clause (c) from the total of Clauses (a) and (b), provided, the amount so deducted shall not be less than zero.

(a) The balance after deducting depreciation of the pool calculated according to Sub-Sections (2) and (6) from the depreciation base amount of the pool at the end of the preceding year.

(b) Amounts added to the depreciation base amount of the pool during the Income Year under S.5 of this Schedule in respect to expenses for Assets in or added to the pool.

(c) Amounts received, if any, through the Disposal of any Assets belonging to the pool during that year.

(4) The depreciation base amount of every Depreciable Asset in Block E at the end of an Income Year shall be the total of the following amounts:

(a) Depreciation base amount of the Depreciable Assets of the pool at the end of the preceding year, and

(b) Amounts added to the depreciation base amount of the pool during the Income Year under Sub-sec.(5) in respect of expenses for the Assets in the pool.

(5) Costs that are an outgoing for a Depreciable Asset included in a person's pools of Depreciable Assets are added to the depreciation basis of the person's relevant pool in two portions as follows:

(a) The first portion is added at the time the asset is added to the pool in accordance with S.1 of this Schedule or the cost is incurred, whichever is later, and calculated in accordance with the following formula:

A/3 x B

For the purpose of this Clause, "A " shall have the following value for the following periods:

(i) 3 if the portion to be added from the beginning of the IY to the end of Pousha shall be three.

(ii) 2 if the portion to be added from Magh to Chaitra, and

(iii) 1 if the portion to be added from Baisakh to Ashadh.

"B" is the amount of the cost; and

(b) The remaining portion of the cost is added during the IY following that in which the first portion is added, but not if the pool has been dissolved under S.4(2) of this Schedule in the meantime.

(6) In case the balance left after deducting depreciation calculated under Sub-sec.(2) of this Section from the depreciation base amount of the Depreciable Assets of Class A, B, C, or D amounts to less than Rs.2000, the entire balance shall be taken into account in consideration of additional depreciation.

3. Rates of Depreciation: (1) Subject to Sub-sec.(2), the rates of depreciation applicable to each pool mentioned in Sub-sec.(2) of S.2 of this Schedule shall be as follows:

Block Rates

"A" 5 percent

"B" 25 percent

"C" 20 percent

"D" 15 percent

"E" Rate in percent calculated as divided by the useful life of the Asset in the pool at the time the Asset is most recently acquired by the Person and rounded to the nearest half year.

(2) The projects mentioned in Sub-sec.(2) of S.19 of this Act, and the entities mentioned in Sub-Sections (3) and (4) of S.2 of Schedule 1, shall be entitled to an accelerated depreciation rate added by one-third in the rates of depreciation applicable to Depreciable Assets in Classes A, B, C, and D, and mentioned in Sub-sec.(1) of this Schedule.

(3) Depreciation of 50% of cost of capital expenditure for power generation for the factory by a manufacturing industry may be claimed in that Income Year.

(4) Lump sum cost of fiscal printer and cash machine (Electronic Cash Register) may be claimed as Depreciation by a Person in case billing by Electronic Cash Register.

4. Disposal of Depreciable Asset: (1) In case it is found while calculating income earned through the Disposal of one or more Depreciable Assets used in the Business or Investment during an Income Year of a Person that the amount under Clause (a) exceeds that under Clause (b), the excess amount shall be added to the inclusions:

(a) Incomings received during the year from the Disposal of Depreciable Assets of a Person coming under pools of Assets in Class A,B,C, or D.

(b) The depreciation base amount of the pool at the end of the year under S.2(3) of this Schedule without including the Incomings received through the Disposal.

(2) In case any Person disposes of all Assets belonging to a pool of Depreciable Assets before the expiry of an Income Year, the pool shall be deemed to have been dissolved, and action shall be taken as follows:

(a) In calculating depreciation according to the following formulae of the Assets coming under the pool of Depreciable Assets that the depreciation exceeds the depreciation base amount of the pool, the Person shall be deemed to have received the excess amount during the year [balance charging]:

A \- B

or,

(b) In calculating depreciation according to the following formulae of the Assets coming under the pool of Depreciable Assets that the amount of depreciation exceeds the depreciation base amount of the pool, the Person shall be granted exemption of the excess amount of expenditure during the year [terminal depreciation].

B \- A

Explanation: For the purpose of this Section,

(1) "A" means incomings received or to be received by the Person during the year from the Disposal of the Assets.

(2) "B" means the total of the amounts of outgoings mentioned in Clauses (a), (b) and (c).

(a) The written down value of the pool during that year.

(b) Outgoings of the year added to the depreciation base amount of the pool, and

(c) Outgoings to be added during the next year to the depreciation base amount of the pool according to Sub-sec.(5) of S.2 of this Schedule.

(3) For the purpose of this Schedule, the term "written down value" of a pool of Depreciable Assets in an Income Year means the following amounts:

(a) In the case of Class A,B,C or D of the pool, the amount derived by deducting depreciation of the pool, if any, calculated according to Sub-Sections (2) and (6) of S.2 of the Schedule, from the depreciation base amount of the pool at the end of the preceding Income Year.

(b) In the case of Class E of the pool, the amount derived by deducting all expenses of the preceding Income Years that are allowed to the Person to be deducted under Sub-sec.(1) of S.2 of the Schedule from the depreciation base amount of the pool at the end of the preceding year.

# INCOME TAX REGULATION, 2059

First publication | 2059.02.24

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First Amendment | 2059.09.22

Second Amendment | 2064.03.28

Third Amendment | 2067.08.04

Fourth Amendment | 2071.04.12

In exercise of the power conferred by S.138 of the Income Tax Act, 2058, Government of Nepal has framed the following rules.

Chapter 1 Preliminary

1. Short Title and Commencement: (1) These rules may be called the Income Tax Regulation, 2002.

(2) These rules shall come into force at once.

2. Definitions: Unless the subject or context otherwise meant, in these rules:

(a) "Act" means the Income Tax Act, 2058.

(b) "Permanent Account Number" (PAN) means the account number assigned by the Department to a person for identification for tax purpose.

Chapter 2 Tax Exemption

3. Application for Tax Exemption: (1) An Entity entitled to tax exemption under S.2(s) of the Act shall submit an application to the Department along with the following particulars to get such exemption:

(a) Copy of the certificate of registration of the entity

(b) Copy of Constitution relating to its establishment.

(c) Copy of the certificate of PAN of the entity.

(d) Copy of Audit Report, if it would have.

(2) The Department shall conduct necessary examinations into the application filed for exemption under Sub-rule (1), register the entity as a Tax-Exempt Entity, and grant a certificate thereof.

(3) Notwithstanding anything contained in Sub-rules (1) and (2), any entity entitled to tax exemption may be designated as one not requiring registration [for exemption].

4. Entities entitled to Tax Exemption under Advance Rulings: The Department may issue advance rulings of tax exemption under S.76 of the Act in the case of entities set up without the objective of making profits, other than those mentioned in S.2(s)(1) of the Act.

5. Financial Statements to be submitted: Every entity registered under Rule 3(2) must submit to the appropriate office on a mandatory basis its audited annual financial statements within 3-months from the date of expiry of each fiscal year. No entity that fails to submit such statements shall be entitled to tax exemption until it submits them.

Chapter 3 Calculation of Income

6. Payment of Small Accounts: While paying small amounts mentioned in S.8(3)(d) and Clause (a) (2) (iii) of the Explanation contained in S.21 of the Act, the payer may pay not more than Rs.500 at a time in consideration of tea, stationary, tips, rewards, emergency medical treatment and similar other payments prescribed by the Department.

7. Not to be included in Depreciation Base: While calculating the depreciation base of any pool of assets at the end of Income Year for the purpose of calculating the limit under S.16(2) of the Act, the excess expenditure or part thereof calculated under S.16(3) of the Act shall not be included [in the same IY].

8. Method of Accounting: (1) Accounts to be kept for the purposes of tax under S.22 of the Act shall be kept according to the accounting standards under prevailing law, if any.

(2) In case an accounting standard has not been prescribed under Sub-rule (1), accounts shall be kept according to the accounting standard prescribed by the Department on the basis of international principles.

9. Criteria for Conversion (of Debt) into Bad Debt: For the purposes of S.25(2)(a) and S.40(3) of the Act, a debt of a bank or financial institution shall be deemed to have become a bad in case it meets the directives prescribed for the purpose by Nepal Rastra Bank.

10. Contracts with Deferred Returns: In case any party to a contract unable to show the particulars prescribed by the Department in respect to estimated gains and estimated losses during every six-month period after the commencement of the contract, the contract shall be deemed to be a contract with a deferred return.

11. Excluded Contracts: Contracts of the following nature shall be deemed to be excluded contracts:

(a) Contracts resulting from Interest-in-Entity, or from acquisition of membership of any retirement fund, or

(b) Any contract of Investment Insurance.

12. Long-Term Contracts: (1) [For the purpose of Long-Term Contract], the income earned by a person at any time from investment, Employment or business, generally does not calculate for IY, thought the total of amounts to be included in calculating income at the time or at any time before that shall be cumulative inclusions.

(2) In case the income earned by a person at any time from business or investment, the amounts that may be deducted while calculating income at that time or at any time before that shall be the cumulative deductions.

(3) The percentage of completion at any given time of a contract mentioned in S.26(2) of the Act shall be determined as follows:

(a) In respect to contracts relating to manufacturing, construction or installation, or services thereto, by comparing the amounts to be deducted according to the total of the cumulative amount upto that point of time with the [estimated] amounts to be deducted at the time of completion of the contract, or

(b) In circumstances other than that mentioned in Sub-Clause (1), as prescribed by the Department subject to the said Sub-Section.

(4) In the case of a person who is not required to submit a statement of estimated tax for an IY under S.95 of the Act, the provisions made under S.26 of the Act shall not be applicable.

(5) Provisions made under S.26 of the Act shall be applicable to the following contracts:

(a) Contracts relating to manufacturing, construction or installation, or services thereto, at the time of the commencement of the Act, and

(b) Contracts according to the time and circumstances prescribed by the Department in circumstances other than those mentioned in Clause (a).

13. Provisions Concerning Vehicles and Buildings of Personal Purposes: (1) In respect to a vehicle used or available for use wholly or partly for the personal purposes of any beneficiary, including employees or workers, the amount shall be determined as follows for an Income Year for the purpose of S.27(1)(b)(1) of the Act:

(a) In case the vehicle has been made available to an employee, worker, or any other person receiving remuneration on a monthly basis, the amount calculated at the rate of 0.5 percent of the salary being drawn.

(b) In circumstances other than those mentioned in Clause (a), the amount calculated at the rate of one percent per annum of the current Market Price of the vehicle.

Explanation: For the purpose of this rule, the term "vehicle" shall include motor cars, jeeps, and similar other vehicles.

(2) In respect to a building used or available for use for the personal purposes of any beneficiary, including employees or workers, the amount shall be determined as follows for an Income Year for the purpose of S.27(1)(b)(2) of the Act.

(a) In case the person making the building available has done so to an employee, worker or any other person receiving remuneration on a monthly basis, amount at the rate of 2 percent of the salary.

(b) In case the person making the building available has rented the building and made it available to anyone other than those mentioned in Clause (a), amount at the rate of 25 percent of the amount paid as rent.

(c) In case the person making the building available has made available the building for which rend does not have to pay, to anyone other than those mentioned in Clause (a), amount at the rate of 25 percent of the prevailing house rent.

14. Fractions of a Rupee not to be taken into account: While quantifying any payment or converting any amount into the Nepali rupee under S.27 and S.28 of the Act, fractions of a rupee shall not be taken into account.

15. Advance Pricing Agreement (APP): (1) The Department may issue written notices as mentioned below in case one or more persons request it in writing for clarification in respect to distribution, apportionment or allocation to be made by the Department on the basis of at arm's length of the amounts to be included or deducted in calculating the income of a person for the purpose of S.33(1) of the Act.

(a) The term of the written notice must not exceed five Income Years at a time.

(b) Notwithstanding anything contained in Clause (a), the said written notice may be renewed.

(2) The written notice mentioned in Sub-rule (1) shall be binding on both the Department and the other party making the request.

(3) The written notice mentioned in Sub-rule (1) may be made inoperative in case the concerned applicant in respect to whom it has been issued requests for it, and in case the Department agrees to it.

16. Circumstances of Involuntary Disposal with Replacement: (1) In the event of the unification or restructuring of an entity, the Interest of a person in that entity shall be replaced by any other Interest in the same entity or by an Interest in any other entity, shall be treated as Involuntary Disposal.

(2) In case the circumstance mentioned in Sub-rule (1) arises and an involuntary Disposal is going to happen, the entity or the person must submit an application to the Department for approval.

(3) The Department may permit the application filed under Sub-rule (2).

Chapter 4 Special Provisions for Natural Persons and Entities

17. Eligible Medical Cost, and Limit: (1) For the purpose of tax credit in consideration of approved medical expenses under S.51 of the Act, the following medical expenses shall be deemed to be eligible medical cost:

(a) Insurance premium paid by a Natural Person for a health insurance.

(b) Amounts according to bills paid, including those for medicines, by a Natural Person while being treated by a recognized hospital, nursing home, health center or doctor.

(2) Notwithstanding anything contained in Sub-rule (1), the following cost shall not be recognized as approved medical expenses:

(a) Expenses incurred on cosmetic surgeries, and

(b) Expenses mentioned in Sub-rule (1)(b) for which compensation has been received from the insurance mentioned in Sub-rule (1)(a).

(3) The limit of tax credit for S.51(3) of the Act shall be Rs.750.

18. Dividends need not be included in calculating Income of Entity: (1) For the purpose of the explanatory clause of S.56(3) of the Act, in case any entity distributes for the following purposes to a beneficiary a dividend that is not a Distribution of Profits for any reason other than that connected with the operation of its business, the dividend need not be included in calculating the income:

(a) Services made available by the entity to the beneficiary, or

(b) Availability of the asset owned by the entity for the use of the beneficiary.

(2) In the circumstances mentioned in Sub-rule (1), no depreciation or any other expenses of the concerned service or asset may be deducted.

19. Deduction of Losses From Incomes of Previous Income Years of Banking or General Insurance Business: [Repealed]

Chapter 5 Special Provisions Concerning Retirement Savings

20. Approval of Retirement Funds: (1) In case an application for the approval of a Retirement Fund is received, the Department may grant its approval subject to Sub-rule (2).

(2) The Department may grant its approval under Sub-rule (1) by specifying that the Retirement Fund must comply with the following conditions:

(a) Amounts credited to or received by the fund shall be invested only in recognized investments.

(a1) Minimum paid up capital is at least Rs.1 crore.

(a2) Minimum beneficiaries or workers is at least 1000 of the Entity operating retirement fund.

(b) In case the fund is to accept retirement contributions from an employer on behalf of its employees or workers, the fund must have been managed independently from the employer.

Provided, this clause shall not be applicable in respect to the employees or workers of the concerned fund.

(c) In case the Retirement Fund Contribution have been debited in the month of Ashadh, it is required to be deposited within one month, and in case they have been debited in any other month, they is required to be deposited within 15-days.

(d) Retirement Payment may be made to the beneficiaries of the Retirement Fund only in the following circumstances:

(1) In case the employees or workers retire from the service.

(2) In case the beneficiary attains 58 years of age, or

(3) In case the beneficiary dies or becomes permanently disabled.

(e) Arrangements must be made to have the accounts and records of the Retirement Fund audited every year by an auditor ..

Explanation: For the purpose of this rule, the term "recognized investments" means investments made as follows:

(a) Investments made in the Citizen Investment Trust;

(b) Investments made in bonds issued by GON;

(c) Investments to be made in banks managed under prevailing law in force. relating to banks;

(d) Investments under co-financing with banks; and

(e) Investments to be made in the Interest of beneficiaries other than its own Shareholders.

(3) The Department may cancel the approval given by it to an Approved Retirement Fund in case it fails to comply with the conditions mentioned in Sub-rule (2).

(4) Notwithstanding anything contained in Sub-rules (1), (2), and (3), all the provident funds, gratuity funds or citizen investment trust which were in operation at the time of the commencement of the Act shall be deemed to be Approved Retirement Funds for the period until 2060 Ashadh-end.

(5) The funds mentioned in Sub-rule (4) shall secure approval under this rule within the time-limit mentioned in the said Sub-rule. In case any Retirement Fund fails to secure approval within the said time limit, it shall turn into an Unapproved Retirement Fund after the said time limit.

(6) Notwithstanding anything contained in this Rule, action shall be taken as follows in respect to the following amounts:

(a) Retirement contributions deposited before the commencement of this Act, and the total amount credited owing to such contributions, shall be exempt from tax, and

(b) Medical expenses not more than Rs.180,000 to be paid at the time of retirement according to the rules of Employment to employees or workers who were in service at the time of the commencement of the Act shall not be included in calculating the income of the concerned employees or workers.

21. Limit of Retirement Contributions: A Natural Person may contribute not more than Rs.300,000, or one-third of the assessable income of the contributing beneficiary, whichever is lower, while making contributions to a retirement fund.

Chapter 6 Tax Administration and Documentation

22. Procedure for Advance Rulings: (1) Persons requesting for advance rulings for the purposes of S.76 of the Act shall file an application in the form prescribed by the Department.

(2) After the registration of an application under Sub-rule (1), the Department shall give a decision on the concerned matter within 45-days.

(3) In case no advance ruling is received from the Department within the period mentioned in Sub-rule (2), the applicant may submit an application under S.115, or a petition under S.116(4), of the Act.

(4) The Department may, if it so deems necessary before taking a decision under Sub-rule (2), form a Committee comprising of Officers and other experts in order to seek its opinions and suggestions, and seek the opinions and suggestions of the Committee.

23. Permanent Account Number: (1) Any person who has not obtained a PAN at the time of the commencement of these Regulations, and any person who wishes to earn assessable income and prescribed by the Department to take PAN or who is required to withhold tax under Chapter 17 of the Act, may submit an application to the Department.

(2) Those who is not compulsion to obtain a PAN under Sub-rule (1), and those who have yet to obtain such number, may also apply to the appropriate office for the same.

(3) On receipt of an application under Sub-rule (1) or (2), the Department shall register the applicant and grant a PAN.

24. Amendment in PAN: (1) In case any change occurs in the particulars mentioned in the certificate of PAN of a person who has obtained such a certificate, shall furnish information thereof to the Department within 15-days from the date of such change.

(2) Upon receipt of such application under Sub-rule (1), the Department shall make necessary amendment in the PAN.

25. Change in the Place of Business of a Person: (1) In case the place of business of a person is changed, shall submit an application to the Department.

26. Tax Clearance Certificate: (1) Any person apply along with the documents as mentioned in S.96(2), to the Department to obtain a certificate having fully paid the tax payable under the Act for up to a specified date.

(2) Upon receipt of such application under Sub-rule (1), the Department shall conduct necessary mathematical calculation and payment of tax, fees, Interest, and withholding tax including Interest and shall issue the Tax Clearance Certificate.

27. Certificate of Tax Exemption: (1) Any person who is entitled to tax exemption may submit an application to the Department in order to request for a certificate of tax exemption.

(2) Upon receipt of an application under Sub-rule (1), the Department shall, if it finds the person is entitled to tax exemption, issue a certificate thereof.

28. Identity Cards of Officers: The format of identity card of an Officer shall be as indicted in Schedule 1.

Chapter 7 Payment of Tax

29. Place and Procedure of paying Tax: (1) Tax to be paid by a person under the Act shall be paid at the following place in the following manner:

(a) At the place informed by the Department.

(b) In circumstances other than mentioned in Clause (a), at the bank for governmental transaction or at the Department.

(2) In case any person has paid tax at a bank recognized for conducting governmental transactions under Sub-rule (1), it shall furnish a notice thereof to the Department.

(3) Tax to be paid under Sub-rule (1) may be paid as follows:

(a) While paying tax at the Department, it may be paid in cash up to the prescribed limit, and if the amount of tax exceeds that limit, by cheque or draft, or

(b) While paying tax at a bank recognized for conducting governmental transactions, it may be paid in cash or by cheque or draft.

(4) In case tax has been paid by cheque as mentioned in Sub-rule (3), and in case the cheque bounces for any reason, the payer shall pay to the Department the amount specified by the Department in consideration of the expenses incurred by the Department for receiving payment by cheque. In prescribing such expense, the Department shall include the Interest, fee and fine upto the date of payment.

30. Order of Payment: In case any person who has to pay up arrears of taxes due for several Income Years or for several sources fails to pay the entire amount, the Department shall take a decision on the Income Year or the source in respect to which the amount that has already been paid is to be regarded as paid.

31. Procedure of Withholding Tax by Employers: An employer shall act as follows while deducting (withholding) advance tax from Employment under S.87(1) of the Act:

(a) To adjust any amount that may be adjusted under S.51 of the Act.

(b) To make advance deductions on a monthly basis in proportion to the tax payable on annual remuneration of the employee or worker.

32. Instalment may be offset only after submitting Evidence: Only the amounts verified on the basis of the following evidence submitted to the Department may be offset from the instalment amount calculated under S.94(1) of the Act, and the balance paid as instalment amount:

(a) In case withholding tax under Chapter 17 of the Act, the certificate of WHT issued under S.91(1).

(b) In case a medical tax credit has been claimed, bills and receipts of eligible medical cost incurred on medical treatment.

33. Estimated Tax Return not Required: For the purpose of S.95(6) of the Act, the Department may prescribe that no statement of estimated tax need be submitted under S.95(1) of the Act in respect to the following persons:

(a) Persons who are not required to submit a return under S.96 of the Act.

(b) Persons who have assessable income only from Employment in Nepal.

(c) Persons mentioned in S.4(4) of the Act.

34. Estimated Tax Return: Persons who are required to submit their statement of estimated tax for an Income Year shall do so to the concern office under S.95 of the Act in the form indicated in Schedule 2.

Chapter 8 Auction and Refund

35. Procedure to be adopted for Auction: (1) Assets possessed under S.105(4) of the Act, shall be auctioned in the place determined by the Department according to the type of possessed assets too.

(2) Assets possessed under S.105(4) shall be auctioned as follows:

(a) Publish a notice of auction in at least one newspaper of the place mentioned in Sub-rule (1) with an advance notice of at least 15-days, as far as possible. Provided, this provision shall not be applicable in respect to perishable assets.

(2) Fix the Market Price of the asset to be auctioned in the presence of a representative of the local administration nearest to the place mentioned in Sub-rule (1) and a representative of any other governmental office located nearby.

(3) While auctioning the assets, bids shall be invited in the presence of a representative of the local administration nearest to the place mentioned in Sub-rule (1), and the assets shall not be sold until a bidder proposes to buy them at the Market Price fixed under Sub-rule (2)(b).

(4) While auctioning the assets under Sub-rule (3), the assets for which an amount lower than the Market Price fixed under Sub-rule (3) has been bid shall be offered for auction for the second time by publishing a 7-day notice under Sub-rule (2)(a).

(5) In case an amount lower than the Market Price fixed under Sub-rule (2)(b) is bid even at the time of auctioning the asset under Sub-rule (4), the asset may be sold through an auction organized for the third time irrespective of the price it fetches, by publishing a three-day notice under Sub-rule (2)(a).

(6) The office shall issue an entitlement certificate to the person whose bid is accepted in the course of an auction.

36. Procedure of Requesting for Refunds: While requesting for the refund of an amount under S.113(3) of the Act, the Person shall submit an application along with documents substantiating that the amount requested for refund is an excess amount and other documents prescribed by the Department.

Chapter 9 Miscellaneous

37. Officer Investigating Lawsuit: The specified Officer shall investigate lawsuit relating to offenses punishable under Chapter 23 of the Act.

38. Limits of Remote Area Allowances: For the purpose of S.1(5) of Schedule 1 of the Act, the following shall be the amounts of remote area allowance to be added to the tax-exemption limit of a person:

(a) In Class "A" Areas, Rs 50,000 (Rupees Fifty Thousand)

(b) In Class "B" Areas, Rs 40,000 (Rupees Forty Thousand)

(c) In Class "C" Areas, Rs 30,000 (Rupees Thirty Thousand)

(d) In Class "D" Areas, Rs 20,000 (Rupees Twenty Thousand)

(e) In Class "E" Areas, Rs 10,000 (Rupees Ten Thousand)

40. Pension Income: The amount to be calculated under S.1(9) of Schedule 1 of the Act shall not exceed the pension income itself.

41. Repeal and Savings: (1) Income Tax Regulation, 2039 (1982) has been repealed.

(2) All actions taken and functions performed under the Income Tax Regulation, 2039 (1982) shall be deemed to have been taken and performed under these rules.

Schedule 1

Officer's Identity Card

Schedule 2

Estimated Tax Return

*******

# VALUE ADDED TAX ACT, 2052

ACT ENACTED FOR LEVY AND COLLECTION OF VALUE ADDED TAX

Preamble: Whereas, for increasing revenue mobilization by making effective the process of collecting revenues required for the economic development of the country, it is expedient to impose a value added tax on all transactions including the sale, distribution, delivery, importation, exportation of Goods or Services and to collect revenues effectively by regulating the process of collection.

Now, therefore, parliament has made this act.

1. Short Title and Commencement: (1) This Act may be called the "Value Added Tax Act, 2052".

(2) This Act shall come into force on such date as GON may specify by notification published in the Nepal Gazette.

2. Definitions: Unless the subject or context otherwise requires, in this Act;

(a) "Tax" means the Value Added Tax imposed by this Act;

(b) "Transaction" means the act of supplying any Goods or Services;

(c) "Taxable Transaction" means a transaction mentioned in S.5(1);

(d) "Taxable Amount" means the Value of Goods or Services to be determined pursuant to S.12 or S.12A;

(e) "Goods" means any kind of property whether movable or immovable;

(f) "Services" means anything other than goods;

(f1) "Group of Company/Entity" means the group of companies or entities having under following circumstances:

(1) Conducting a business by an associated person or representative of the group;

(2) Permanent address of two or more entity in the same place; or

(3) Having a direct or indirect control in the entity by a person or persons.

(g) "Supply" means the act of selling, exchanging and delivering any Goods or Services, or the act of granting a permission thereto or of contract thereof for a consideration;

(g1) "Loan Agreement" means hire-purchase or finance Lease agreement.

(h) "Consideration" means anything to be received for the value of Supply;

(i) "Import" means the act of importing any Goods or Services into Nepal pursuant to prevailing laws;

(j) "Export" means the act of exporting any Goods or Services outside from Nepal pursuant to prevailing laws;

(k) "Market Price" means the price as determined pursuant to S.13;

(k1) "Electronic Media" means computer, internet, email, facsimile, Electronic Cash Register, fiscal printer or similar approved media. This phrase covers any media prescribed by the Department having similar characteristics;

(l) "Person" means any individual mankind, firm, company, association, institution, partnership firm, cooperative, joint business, religious endowment, or fund; and the term also includes any government body, any religious organization charitable trust or similar other bodies and branches or sub-branches there engaged, with or without the objective of profit, in Taxable Transactions;

(m) "Registered Person" means any person who is registered for transactions pursuant to S.10 or S.10A;

(n) "Registration Number" means the number assigned pursuant to S.10 to a Registered Person;

(o) "Supplier" means a person who supplies any Goods or Services;

(p) "Acquirer" means a person who receives any Goods or Services.

(q) "Taxpayer" means any Person who is engaged in a Taxable Transaction as per this act or a Person liable to pay tax;

(r) "Department" means Inland Revenue Department (IRD);

(s) "Director General" means the Director General (DG) of the Department;

(t) "Tax Officer" means any Tax Officer or Chief Tax Officer or Chief Tax Administrator appointed by the GON. This word includes any other Officer designated by GON empowering to use the power of a Tax Officer in accordance with the provisions of this Act or Section Officer of Director or Deputy Director General of Department.

(u) "Prescribed" or " As Prescribed" means prescribed or as prescribed in the Rules made under this Act.

3. Tax Officer may be Appointed or Designated: GON for the purpose of this Act, may appoint Tax Officers in the required number and if deems it necessary, may designate any Officer of GON to act as a Tax Officer.

4. Jurisdiction of Tax Officer: (1) The jurisdiction of a Tax Officer shall be as specified by GON.

(2) DG may seconded the Tax Officer to inspect, monitor and assessment of transaction of Taxpayer in addition to own jurisdiction.

5. Imposition of Value Added Tax: (1) Except otherwise provided for in this Act, a Value Added Tax shall be imposed on the following transactions:

  1. Goods or Services supplied within Nepal;

  2. Goods or Services imported into Nepal;

  3. Goods or Services exported from Nepal;

(2) Tax shall be levied on the Taxable Amount of every transaction.

(3) Notwithstanding anything contained in Sub-sec.(1), no tax shall be levied on the transactions of Goods or Services set forth in Schedule 1, provided that any tax applicable on such Goods or Services at the time of purchase shall not be offset pursuant to S.17 and shall not be refunded pursuant to S.24.

5A. No Tax on Business Transfer: (1) Notwithstanding anything elsewhere in this Act, no tax is levied in the transfer of business of Registered Person by sale to another Registered Person or transferred ownership of the business to heir after death. Such transfer or sale of business to be informed to the Department As Prescribed.

(2) Notwithstanding anything contained in Sub-sec.(1), tax obligation of so transferred industry of business, either registered or requires to be registered, shall be borne by the transferee.

(3) Subject to Sub-sec.(2), transferee shall retain the documents of industry or business to the prescribed period including pre-transfer.

5B. Force Registration Order: Tax Officer, if persuade a Person to be Registered having business without registration, may order that Person to register.

Provided in case such Person urge to not to get registration due to threshold under S.9, need to present such evidences within 30-days from receipt of such order.

6. Place and Time of Supply: (1) For the purpose of assessment and collection of tax under this Act, the determination of the fact whether the Supply of any Goods or Services has taken place within or outside of Nepal shall be As Prescribed.

(2) For the purpose of assessment and collection of tax under this Act, Supply of any Goods or Services shall be considered to have taken place at the earliest time of the following times:

(a) When an invoice is issued by a supplier;

(b) In the case of Supply of Goods, when the Acquirer removes or possesses of the goods from the supplier's transaction place;

(c) In the case of Supply of Services, when the service rendered; and

(d) When Supplier receives a consideration for Goods or Services.

(3) Notwithstanding anything contained in Sub-sec.(2) the following time shall be considered as the time of supply in the following cases :

(a) In the case of services which are continuously provided, namely, telecommunication services or similar other public services, when the invoice is issued;

(b) Where there is a contractual provision for paying partially the value of Goods or Services in more than one day on an installment basis, the supply time shall be the earliest day on which the payment is made or the day on which the payment is to be made according to the contract;

(c) In the case of Goods or Service which are so used as not to be allowed an offset under this Act, the time when such Goods or Services are used;

(4) In the case of a transaction for which more than one provisions of Sub-sec.(2) is applicable at once, the supply time shall be as prescribed by the DG on an objective basis.

7. Rate of Tax: (1) The rate of a tax to be levied under this Act shall be single rate of 13 percent.

(2) Notwithstanding anything contained in Sub-sec.(1), tax on supply of Goods or Services set forth in Schedule-2 shall be levied at Zero rate.

8. Tax Assessment and Collection: (1) A Registered Person shall assess and collect tax at the Taxable Amount in accordance with the provisions of this Act and Rules thereunder.

(2) The Acquirer of services in Nepal, even Registered Person or not, from a unregistered Person from outside Nepal shall have to assess and collect tax at the Taxable Amount at the time of payment in accordance with this Act and Rules thereunder.

(3) In case of construction of building or apartment or shopping complex and similar structure as prescribed by the Department for business purpose constructed by unregistered Person and value more than Rs.50 lakhs, tax shall be deposited as if construction has done by a Registered Person. In failure to deposit such tax, it shall be recovered from the owner of such structure.

Explanation: For the purpose of this Sub-Section, "business purpose" means construction of building, apartment, shopping complex or similar structure as prescribed by the Department to sale or accounted as current or permanent asset to use.

8A. Provision for Bank Guarantee: (1) Tax on Import of Goods for raw material for producing exportable goods by the industry having export more than 60% of total sales in last 12-months or import of Goods for duty-free shop under Bonded Warehouse may be made by providing Bank Guarantee in the concern Customs Office.

Provided, except for export from duty-free shop under bonded warehouse, there should be value add of at least 10 percent on exporting finished goods from those raw materials.

(2) Imported liquor and cigarette under bonded warehouse facility under Sub-sec.(1), shall be sold to the diplomats and duty-privileged person accredited by Ministry of Foreign Affairs of GON.

(3) Liquor and cigarette in stock at duty-free shop in Tribhuvan International Airport, at the time of enactment of this Section, may be transferred to own bonded warehouse or may be sold paying tax.

(4) The bank guarantee under Sub-sec.(1) shall be released by the Customs Office as per the procedure prescribed by the Department.

(5) The facility [of refund] under S.24(4) shall not be availed to the Person obtaining facility under this Section.

9. Exemption for Small Vendor: Notwithstanding anything contained in other provisions of this Act, an exemption may be provided to a small vendor, having a prescribed annual Taxable Transaction threshold, from the requirements of registration and filing of Tax Returns and from such requirements as may be prescribed.

Provided, a small vendor may, if desires to be registered voluntarily, get registered in the process of S.10.

10. Registration: (1) Person desiring to involve in business shall apply to a Tax Officer in the prescribed form for registration.

(2) In case the Goods [or Services?] under the transaction is taxable or for following transaction, an application for registration has to be filed to Tax Officer in prescribed format within 30-days from date of taxability of transaction or date of business operation:

(a) Transaction of bricks production, liquor distributor, wine-shop, software, trekking, rafting, ultra-light flight, paragliding, tourist transport, and stone-based industry as crosser or slate; or

(b) Person conducting business of hardware, sanitary, furniture, furnishing, automobiles, motor-parts, electronics, marble, educational-consultancy, discothèque, catering service, health club, party palace, parking service, dry cleaners using machinery equipment, restaurant with bar, color lab, boutique, tailoring business along with suiting and shirting, education institution or medical institutions or business of preparing uniform for other organizations and ice-cream industry .

(3) Notwithstanding anything contained in Sub-sec.(1) and (2) a Person who carries out the transactions of Goods or Services mentioned in Schedule 1, shall not be required to be registered.

(4) The Tax Officer shall register each Person who has duly submitted an application under Sub-sec.(1) or (2) and shall issue to such person a certificate of registration number, in the prescribed form and time, together with a registration number.

(5) The Registered Person shall display the registration certificate in a conspicuous place at principal place of transactions. If there is more than one place of transaction, it shall display in a conspicuous place at each place, other than the principal one, a copy of the registration certificate attested by a Tax Officer.

(6) A Registered Person shall have to use registration number for all transactions related to Value Added Tax, Excise Duty and Customs and to other transactions As Prescribed as well.

(7) Every Registered Person shall inform the Tax Officer within 15-days of any changes in the information pertaining to the application for registration as required under S.S(1) and (2).

10A. Temporary-registration Special: (1) Sponsor and unregistered business dealing temporarily Taxable Transaction of Goods and Services in exhibition, fair and similar shall be registered prior to such event As Prescribed.

(2) Registered Person may transfer Goods in the events for the purpose of event under Sub-sec.(1).

(3) Temporarily Registered Person under Sub-sec.(1) shall cancel its registration upon filing its Tax Return and payment of tax within 7-days from closure of exhibition or fair.

11. De-registration: (1) The Tax Officer may cancel the registration of a Registered Person in any of the following grounds:

(a) In the case of body-corporate, if closed down, sold or transferred the institution or if body-corporate otherwise ceases to exist;

(b) In the case of an individual proprietorship, if the owner dies;

(c) In the case of a partnership firm, if it is dissolved or death of any partner;

(d) If a Registered Person ceases to be engaged in Taxable Transactions.

(d1) In case zero-return or non-filer continuously for one year;

(e) If a person is registered in error.

(1a) Except in the grounds given in Sub-sec.(1), a voluntarily Registered Person cannon [apply for] deregistration within one-years from date of Registration. After completing of one-year, small vendor may apply to the Tax Officer for deregistration As Prescribed. If such applied, Tax Officer require to deregister.

(1b) Within 15-days from date of filing Tax Return for deregistration, Taxpayer require to submit accounts for tax audit. Within 3-months, Tax Officer require to inform Taxpayer deregistration or deny for that after tax audit. In case, Tax Officer has not decide to deregistration or deny for it, Tax Return does not require to file then-after.

(2) The cancellation procedure shall be As Prescribed.

(3) All the Goods (including capital goods) remain at the time of the cancellation of registration on which an offset had already been taken, tax shall be assessed and collected at Market Price.

Explanation: For the purpose of this Sub-section, capital goods means any asset or part of asset and assets usable for Taxable Transaction.

(4) Due to deregistration itself, Taxpayer is not waived for the act that is not complied with or tax liability while in registration.

12. Taxable Amount: (1) Except otherwise provided in this Act, when only the money is consideration, the Taxable Amount shall be the price the supplier charges for the recipient.

(2) The following amounts shall be included in a Taxable Amount:

(a) The amount of all expenditures related to transportation and distribution which was borne by a supplier in connection with the transactions, and the amount of profit; and

(b) Excise duty, ownership duty and all other [transaction basis] taxes excluding the tax imposed under this act.

Explanation: Other taxes for the purpose of this Clause shall be tariffs, charges, other fees as levied by annual fiscal acts.

(3) Taxable Amount does not include the amount of discount, commission or other similar commercial rebate granted on value in supplying Goods or Services.

(4) The Taxable Amount of any Goods or Service exchanged shall be equal to the Market Price of the Goods or Services so exchanged.

(5) Except otherwise provided in this Act, the Taxable Amount for any imported goods shall be its customs value including transportation, insurance, freight, commissions of agents and other persons, customs duties, countervailing duties and any other taxes if levied on imports, but it shall not include VAT itself.

(6) Where the value of any Goods or Services is found to be much lower than the prevailing Market Price, the Taxable Amount of such Goods or Services shall be equal to the Market Price.

(7) The Taxable Amount of Goods or Services supplied for partial consideration shall be equal to the Market Price.

(8) A deposit, given in respect of Goods or Services, shall not be held to be Taxable Amount until the supplier applies the deposit as consideration for the Supply.

12A. Taxable Amount in case of Log-Wood: (1) At the earliest of date of auction, release or logging order for the log from national forest, tax to be levied and collected at the higher of auction price of royalty.

(2) An equivalent tax as per Sub-sec.(1) is levied in the log from private cultivated, private forest or community forest, even royalty is not levied.

13. Market Price: (1) The Market Price of Goods or Services shall be determined as the consideration of a supply freely offered and made between persons who are unrelated.

(2) For the purpose of this section the method for the determination of Market Price shall be As Prescribed.

(3) Where the Market Price of Goods or Services could not be determined under Sub-sec.(1) and (2), it shall be determined in accordance with a process determined by the DG.

14. Invoices to be issued: (1) Registered Person supplying any Goods or Services, requires to issue an invoice to the Acquirer, except As Prescribed.

(2) The format of an invoice shall be As Prescribed.

(3) It shall be the duty of the recipient to obtain an invoice.

(4) Tax invoice shall be accompanied for transporting Goods outside of range prescribed by the Department with value more than Rs.10,000.

(5) Department may order to issue invoices from cash-machine or computer [ECR]. The procedure to issue such invoice shall be as prescribed by the Department.

(6) Person notified by Department through public notice or a written order, shall publish the retail price of any notified goods for the period of such notice or order. In case such notice published or order received, such Person cannot sale or transfer Goods without publishing retail price.

(7) Notified Person as per Sub-sec.(6) requires to issue the invoice in form of collecting tax at consumer level at the published price in sale to unregistered person. Provided, any Person even not notified under Sub-sec.(6) may issue invoice as per this Sub-Section voluntarily.

15. Unregistered Person not to collect Tax: (1) A person who is not registered shall not issue an invoice or other document showing the collection of tax and shall not collect tax.

(2) If a person who is not registered collects tax, the tax so collected shall be assessed and recovered.

(3) Notwithstanding anything contained in Sub-sec.(1) or (2), tax to be collected on sale of taxable Goods or Services by local authority or International Institution situated in Nepal or GON or public enterprises mainly dealing with tax exempt Goods.

16. Books of Accounts to be maintained: (1) A Taxpayer shall maintain an up-to-date books of account of transactions of the Tax Period under S.18 and such accounts wherever placed shall be made available for inspection to a Tax Officer upon request.

(2) The accounts kept by a Taxpayer shall also include:

  1. The date of transactions;

  2. The value of each transaction;

  3. If the other party of the transaction is registered, registration number; and

  4. Other matters related to transactions As Prescribed.

(3) A Registered Person shall use, for the purpose of accounts, the purchase book and sales book certified by the Tax Officer.

(4) Every Taxpayer shall preserve the accounts of transactions for a period As Prescribed.

(5) Until otherwise evidenced, the books of accounts maintained as per this Act and Regulation shall be deemed valid and acceptable.

16A. Computer Processed documents are acceptable: (1) Notwithstanding anything contained in prevailing laws, records maintained in the computer database of Department or offices are as valid evidence for tax purpose.

(2) Upon publishing notice, the Department may prescribe issuing invoice, accounting, filing Tax Return or payment through Electronic Media.

16B. Tax Credit on Lost Goods: For the goods those damaged either by fire, theft, accident, breakage or terror tax-credit is allowed As Prescribed.

17. Tax Offset: (1) A Registered Person can offset the amount of tax collected against the tax paid or due in importing or receiving Goods or Services related to own Taxable Transactions.

(2) Notwithstanding anything contained in Sub-sec.(1), no offset or only a partial offset shall be granted As Prescribed in the case of the Goods that can be used for personal purposes as well as for business purposes:

(3) If the entire portions of Goods or Services transacted in a month were not used for Taxable Transactions the tax previously paid on the Goods or Services shall be offset As Prescribed for the portion that was solely used for Taxable Transaction of the Goods or Services.

(4) If Goods or Services for which offset privileges pursuant to this Section have been allowed cease to be used for taxable taxation before the end of its useful life, such Goods or Services shall be treated as sold at the immediate Market Price and tax shall be collected As Prescribed.

(5) Notwithstanding anything contained in Sub-sec.(1), offset privileges to be provided for a Registered Person who deals with the used goods shall be As Prescribed.

(5a) Subject to Sub-sec.(2), tax paid on importation or purchase of capital goods under Loan Agreement of a finance Lease is allowed for credit for concern Taxpayer.

(5b) Tax offset is allowed for tax paid under S.8(2), 12A and 15(3).

(6) The offset privileges under this Act shall be provided only when a claim is substantiated by documents As Prescribed.

(7) The provision of offset on tax paid or payable on goods, which has remained unused at the time of the registration and is for use in making Taxable Transactions, shall be As Prescribed.

(8) Notwithstanding anything in this Section, name of the non-flier Taxpayer for continuous 6-month shall be published. The credit, if any shall be suspended and its Registration may be suspended too.

18. Tax Returns to be filed: (1) Every Taxpayer shall self-assess the amount of tax that is required to pay every month and shall file, or service through register-post, Tax Return to Tax Officer As Prescribed within 25-days after the close of that month. Such return shall have to be filed whether or not a Taxable Transaction was carried out in that month.

(1a) Notwithstanding anything in Sub-sec.(1), Taxpayer from the district not having an Inland Revenue Office may file Tax Return and pay tax to District Treasury Comptroller Office (DTCO) within 15-days from closure of month. Within 7-days, DTCO requires to send the details of Tax Return and tax payment to Inland Revenue Office.

(1b) The procedure for filing or sending of Tax Return under Sub-sec.(1) or (1a) shall be as the Department prescribes.

(2) Notwithstanding anything contained in Sub-sec.(1), Taxpayers, As Prescribed, may submit a return of a period that is longer or shorter than one month.

19. Tax Payment: (1) A Taxpayer shall have to pay the tax within 25-days of the closure of the Tax Period.

(2) If a Taxpayer does not pay the tax within the time limit specified under Sub-sec.(1), an additional duty of 10 percent per annum shall be imposed on the tax due until its payment.

(3) [...repealed].

(4) If a Taxpayer applies to the DG for exemption of the additional duty provided by Sub-sec.(2) stating the reason of the failure to make a timely payment was caused by extraordinary circumstances beyond the control, the DG may, if finds the reason reasonable, exempt such additional duty.

(5) The additional duty pursuant to Sub-sec.(2) and the Interest pursuant to S.26, shall be charged from the date on which the tax first became due.

(6) No additional duty and Interest is levied on the assessment by Tax Officer under S.20 if, the credit of tax is more than tax to be paid for the particular Tax Period of assessment.

(7) Tax payable under Sub-sec.(1) shall be paid through a good-for-payment cheque as well. In case payment is made through good-for-payment cheque, the date of tax payment deemed to be the date of acceptance of cheque by the office.

(8) No Interest is levied over Interest, additional duty or fine.

20. Tax Officers may Assess Tax: (1) A Tax Officer may make an assessment in any of the following cases:

(a) If a return is not filed within the time limit [non-filer];

(b) If an incomplete or erroneous return is filed;

(c) If a fraudulent return is filed;

(d) If the Tax Officer has a reason to believe that the amount of tax was understated or otherwise incorrect.

(e) If the Tax Officer has a reason to believe for under-invoicing.

(f) If Supply within Group of Company at under-invoicing.

(g) If dealing business without Registration by the Person who requires to be registered.

(h) If sales without issuing invoice.

(i) If Tax recovered by unregistered Person.

(j) If Tax has not deposited levied under S.8(2) or S.8(3).

(k) In the case of circumstances under S.17(4).

(2) The assessment of tax pursuant to Sub-sec.(1) may be made on one or more of the following basis:

(a) Proof of transaction;

(b) A tax audit report on transactions submitted by a concerned Tax Officer; and

(c) Tax paid on a similar transaction by another person.

(3) Notwithstanding anything contained in Sub-sec.(2), the burden of proof shall lie with the concerned Tax Officer while assessing tax in accordance with the above provisions.

(4) The assessment of tax under Sub-sec.(1) shall have to be made within 4- years from the date filing of Tax Return. If the stipulated time expires the return so filed shall be considered to be true and valid.

(4a) Notwithstanding the Sub-sec.(4), the Department may order for a reassessment anytime if the tax has evade by fraud or falsified invoice, accounts or other documents.

(5) While assessing the tax pursuant to this Section, the Tax Officer shall provide a period of 15-days to the concerned Person to submit clarification.

21. Tax Recovery: (1) If the tax due by any Taxpayer is not paid within specified period, the Tax Officer, with the prior-approval of the DG, may collect the tax by using any or all of the following methods:

  1. By offsetting the amount, if any, to be refunded to the Taxpayer;

  2. By seizing movable and immovable property of the Taxpayer;

  3. By selling through auctioning all or some part of the Taxpayer's assets at single time or in series through sealed-bid or public auction;

  4. By causing to deduct amounts from the taxpayer's bank account or other financial institutions;

  5. By causing to deduct amounts due the Taxpayer by GON, or a corporate body owned by the GON, or local bodies;

  6. By claiming amounts a third party owes to the Taxpayer; and

  7. By suspending imports, exports, and other transactions of the Taxpayer.

(2) ... [Repealed].

(3) Any amount below Rupee 1 shall not be considered for calculation as payable or recoverable.

22. Jeopardy Assessment: Notwithstanding elsewhere in this Act, whenever there is a reason to believe that the collection of tax is in inaccessible because any person is about to leave Nepal or to transfer property to anybody or to remove or conceal assets, a Tax Officer, with the approval of the DG, may immediately assess and collect the tax due, or about to become due.

22A. Measures against Tax-Evade: In case a Person planned for any of following actions having intend to avoid tax, notwithstanding elsewhere contained in this act, DG may order Tax Officer to assess and recovery of the tax:

(a) Preparing any scheme to avoiding tax or act for reducing tax liability by mis-utilizing the provision of the act.

(b) Performance of any act or agreement with other person intending to reduce tax obligation.

23. Powers of Inspection and Audit: (1) A Tax Officer may examine, if there is a reasonable ground to believe that a Taxpayer required to be registered under this Act has been involved in a Taxable Transaction without being registered.

(2) In order to examine as per Sub-sec.(1), verify the Tax Return filed by a Registered Person under S.18 and assess the tax under S.20 a Tax Officer shall have the following powers;

  1. To inspect all goods, premises, documents, records books and accounts relating to the liability for tax;

  2. To search a Taxpayer's place of transaction and other places, if grounds for suspecting to possess evidence related to any offence under this Act;

  3. To require, in pursuance of discharging own duties, information from a person who prepares any records, books, accounts or other documents or makes entry therein;

  4. To take possession of, remove and transfer any documents, books and records from the Taxpayer's transaction place and other transaction places related thereto; and

  5. To perform audits at the Taxpayer's place of transaction, at a tax office, or at any other appropriate place.

(3) If a Tax Officer requests any person, including a bank or financial institution for access to any information about Taxpayer's transactions, it shall be the duty of such person to furnish such information to Tax Officer.

23A. Local Administration or Police to help: In case the Tax Officer seek any assistance to the local administration or police to implement this Act, it is the duty to provide appropriate help.

23B. Superiority Act in Respect to Tax-Related Matters: Notwithstanding anything contained in prevailing law in force, no law may amend or change any tax-related provisions contained in this Act, or make other tax-related provisions, except when the Finance Act to be brought into force on an annual basis makes provisions for imposing, assessing, increasing, reducing, remitting or exempting tax by amending this Act.

23C. Acquisition of Under-invoiced Goods: (1) If any Person shows the sales at reduced value than Market Price as under-invoicing scheme, Tax Officer may suspend to further sale of remaining stock of Goods. The Department or Office may acquire or may be made acquired such stock at the under-invoiced price.

(2) In case the Person, having such stock of Goods, denied to sell at under-invoice price, the Department or the Office may seize such Goods and compute the price at under-invoiced price. So computed price to kept separately and to pay at the time of claim so far.

(3) Acquired or made to acquired Goods under Sub-sec.(1) or (2) shall sale or make to be sold at the price and process determined by the DG.

23D. Imprisonment, Seizer or Bail: (1) If the Tax Officer finds that any person, firm, company or organization has done transaction by evading tax and there is a possibility that the accused may go away or the evidence and proof of offence may disappear, the Tax Office may, with the approval of the DG, do or cause to be done any of the following acts:

(a) To seal the place of transaction,

(b) To take custody of the Electronic Media or records thereof,

(c) To demand cash deposit or mortgage of assets (jèthà-jàmaní) in a sum equivalent to the tax evaded from the person believed to have committed the offence, by executing a memorandum to that effect,

(d) To withhold the bank account in the name of taxpayer for up to 3-months. Provided, further 3-months may be withhold during the ongoing assessment process on the approval of the DG.

(e) To imprisonment of 15-days at a time and maximum upto 45-days in case no deposit or guarantee under Clause(c).

(2) The Tax Officer shall have the same powers as the police may exercise under the laws in force in relation to the investigation of offences pursuant to this Act.

24. Treatment of Offsets Exceeding Tax Liability: (1) If input tax-credit exceeds collected tax in any months of a Registered Person, the excess may be offset against any outstanding amount under this Act.

(2) The remainder of the excess offset under Sub-sec.(1) may be available as an offset for the next month.

(3) A Registered Person may file a claim to a Tax Officer for a lump sum refund, As Prescribed, of the amount of the remaining excess after offsetting for a continuous period of 6-months under this section.

(4) Notwithstanding anything contained in Sub-sec.(2) and (3) any Registered Person whose export sales for a month is more than 40 percent of total sales for that month, and files a claim following the procedures underlined in this section for the refund of the amount pertaining to S.17 shall be entitled to a refund of the remaining excess after offsetting any outstanding amount.

(5) On submission of a claim pursuant to Sub-sec.(3) or (4), the amount eligible for refund shall be paid. If it is not refunded within 60-days of the submission of application under Sub-sec.(3) and within 30-days of the submission of application under Sub-sec.(4), GON shall have to provide Interest on that amount As Prescribed.

(6) Where a Registered Person who has filed a claim for a refund under sub-sections (3) and (4) the amount claimed shall not be available for offset against tax liability for the next month.

24A. Tax not to be refunded: Notwithstanding anything contained in Section 24, if an application is not made for the refund of the amount refundable pursuant to this Act within 3- years after the date of expiration of the period of tax, such refund shall not be made.

25. Other Refunds: (1) Following amounts collected as tax shall be refunded, if the application for refund is submitted within 3-years from the date of the transaction on which the claim for refund is based:

  1. To the extent of tax paid on consumption within Nepal by a diplomat to Nepal of a foreign country, recognized by the GON, Ministry of Foreign Affairs, if the foreign country grants, on reciprocal basis, the tax exemption privileges to Nepalese diplomats to that country or to diplomatic privileged person working in Regional or International Organization/Mission;

  2. Tax amount paid by an international institution for which GON, Ministry of Finance, has granted the privileges of tax exemption;

  3. Tax paid in carrying out a project in Nepal conducted under a bilateral or multilateral agreement for which GON, Ministry of Finance, has approved to grant a tax exemption; and

  4. Any tax amount collected by mistake.

(1a) Notwithstanding contend on Sub-sec.(1), no refund on tax paid will be made on purchase of Goods or Services for value less than Rs.5,000 by diplomatic mission or diplomat.

(2) Refund under clause (d) of Sub-sec.(1) shall be made only to or for the person who borne the real burden of the amount collected as tax.

25A. Refund of Tax to Tourist: If a foreign tourist, visiting Nepal and returning by air, purchases taxable Goods of more than Rs.25,000 and takes them accompanied, the tax paid on such Goods shall be refunded in accordance with the procedures specified by the Department. A service charge of 3% shall be deducted from such refund.

25B. Refund from Customs on Re-export: If any Goods are re-exported, the concerned Customs Office shall, on the basis of the evidence of re-export of the goods, make refund of the deposit amount in consideration for the value added tax with the Customs Office by the concerned person.

26. Interest: (1) If any amount of tax under this Act is not paid when due, the Taxpayer shall be charged Interest for the period during which such tax remains unpaid. Such Interest shall be charged even where an application is filed for administrative review under S.31A or appeal under section 32.

(2) For the purpose of Sub-sec.(1), rate Interest shall be 15% annually.

27. To be treated as Tax: Any penalty, charge or Interest to be levied under this Act shall be treated as a Tax payable under this Act.

28. Provision Relating to Imports: (1) Except otherwise specified by the Ministry of Finance, the Customs Officer shall collect tax under this Act from Goods which are imported.

(1a) If any goods manufactured or prepared within Nepal, after the completion of export procedures by the Customs Office or after reaching a foreign country, are re-imported because of rejection by the concerned party or other reason, and the same goods are to be exported within 3- months of the import, the goods may be released against the deposit of the value added tax at the time of such return, and the deposit shall be refunded after the re-export of such goods. The Customs Office shall provide the details of amount so furnished as a deposit and refunded to the Inland Revenue Office.

(2) A Customs Officer may use the power under this Act or other prevailing customs act to collect tax with respect to Goods which are imported.

29. Penalties: (1) A Tax Officer may impose the following fines if a person commits the following offences:

(a) On infringement of force registration order of Tax Officer under S.5B or Sub-sec.(1) or (2) of S.10 or not registered under S.10(1), Rs.10,00 for each Tax Period;

(b) On infringement Sub-sec.(5), (6) or (7) of S.10, Rs.1,00 for each event;

(b1) Not keeping tax-plate or not in prescribed place, Rs.2,000 per event;

(c) On infringement Sub-sec.(1) or (4) of S.14, Rs.5,00 for each event;

(d) On infringement S.15, cent percent of collected tax;

(e) On failure to keep an up-to-date account of transaction, pursuant to S.16(1), Rs.10,000; and, on denial of inspection of the books and accounts, Rs.20,000 for each event;

(f) On infringement of S.16(2), up to Rs.5,000;

(g) On infringement of S.16(3) or (4), Rs.10,000;

(g1)On infringement of S.16(3a), Rs.1,000 per event;

(h) On infringement of S.18, 0.5% per day of payable tax and Rs.1,000 whichever is higher;

(i) On obstruction to the Act pursuant to S.23, Rs.5,000 for each event;

(j) For under-invoicing, Rs.2,000 per invoice or fine under Sub-sec.(2) whichever is higher;

Provided, if office thinks necessary to purchase or make be purchase, under-invoiced Goods may be purchased.

(k) On infringement of this Act and Rules thereunder Rs.1,000 for each event;

(l) Use of editable software in approved computerized billing or unapproved, Rs.500,000.

(1a) In the event of reducing tax liability without compliance with this Act or the Rules framed under this Act, the Tax Officer may fine up to 25 percent of the amount of tax, on the grounds as specified by the Department.

(2) If a person commits any of the following offences a Tax Officer may impose a fine 100% of the amount of tax or an imprisonment up to 6-months, or both the fine and the imprisonment :

(a) On preparing false accounts, invoices or other documents;

(b) On committing a fraud for evasion of tax;

(c) If an unregistered Person acts as if was a Registered Person;

(d) Infringement of S.23C; and

(d) Carrying out a transaction by infringing S.30.

(3) Accomplices who help, assist, instigate or advise either knowingly or through negligence, persons who commit any of the offenses mentioned in this Act shall be imposed fine equal to 50 percent of the amount by which such persons have underpaid the tax.

29A. Power of Department to order to furnish the amount of fine: (1) Notwithstanding anything contained elsewhere in this Act, if any person, prior to the commencement of proceedings of action, admits in writing that s/he has committed offence or more than such offence set forth in Sub-section (2) of Section 29, the Department may order such a person to furnish the amount of fine not exceeding the amount of fine imposable for the commission of such an offence.

(2) In issuing order as referred to in Sub-sec.(1), such an order has to set out the details of such offence, amount of fine to be paid and date for payment of the amount of fine.

(3) An order issued by the Department pursuant to this Section shall be final.

29B. Officer of an Entity to be held Responsible: (1) In case any Entity fails to comply with any matter to be complied with this Act, every Person working at the time as Officers of the Entity shall be held responsible for that.

(2) In case any Entity commits an offense by not paying Tax within the date on which it has to be paid, every Officer currently in office or who were in office until 6-months ago shall be held jointly or severally responsible for paying the Tax.

(3) Notwithstanding anything contained in Sub-Sections (1) and (2), the said Sub-Sections shall not be applicable:

(a) In case the Entity has committed that offense without the knowledge or consent of the person, and

(b) In case the Person has exercised the degree of care, diligence and skills that a reasonably prudent person would have exercised in similar circumstances to prevent the commission of the offense.

(4) In case a Person pays the Tax under Sub-sec.(2), s/he may:

(a) To recover from the Entity the amount so paid.

(b) To keep under custody that Entity's Assets, including money, in or coming into possession, in such a manner that they do not exceed the amount so paid, for the purpose of Clause (a).

(5) In case any Person takes into custody any Asset under Clause (b) of Sub-sec.(4), the Entity or any other Person may not make any claim against that person.

Explanation: For the purpose of this Section, "Officer of Entity" means the manager of the Entity or a Person working in that capacity.

30. Suspension of Business: If a Registered Person commits twice or more of any of the offences mentioned in S.29, the DG may order to Tax Officer to suspend such person's place of transactions up to 7-days so that transactions are not carried out.

30A. Order for Reassessment: (1) In cases where, before tax is assessed, it appears from the information received by the DG that any action relating to the assessment of tax is about to be irregular or has been irregular, the DG may, by executing a memorandum [Pàrchà kĥadà] clearly setting out the reasons, give direction to the concerned Tax Officer to make reassessment of tax or order any other Tax Officer to do that act.

(2) In cases where it appears that tax liability has increased because of tax assessment made by the Tax Officer recklessly or with mala fide intention, the DG may give order to amend such tax assessment order within 4-years after the date of initial tax assessment.

31. Power Equal to a Court: For the purpose of this Act, a Tax Officer may issue a summons, record the statements of persons, receive evidence and cause to submit documents in the same manner as a court is empowered.

31A. Application may be made for administrative review: (1) A person who is not satisfied with any decision of tax assessment made by the Tax Officer may make an application to the Department against the decision within 30-days of the date of receipt of a notice of decision.

(2) In cases where the time limit for making application pursuant to Sub-sec.(1) expires and any person makes an application for the extension of time limit within 7-days from the date of expiration of the time limit, the Department may extend the time limit for a period not exceeding 30-days from the date of expiration of the time limit.

(3) If the claim of the applicant appears to be true upon examining the evidence and documents including the application made by the taxpayer pursuant to Sub-sec.(1), the DG may, by executing a memorandum [Pàrchà kĥadà] setting out the clear reasons, void that tax assessment order and direct the concerned Tax Officer to make re-assessment of tax or order any Tax Officer to do that act.

(4) The Department shall make decision on the application within 60-days after the date of making of application pursuant to Sub-sec.(1).

(5) If the Department does not give decision within the time limit as referred to in Sub-sec.(4), the concerned person may make an appeal to the Revenue Tribunal pursuant to S.32.

(6) The taxpayer who makes an application pursuant to Sub-sec.(1) has to pay undisputed amount of tax, out of the amount of tax assessed, and furnish a cash deposit of One Third of the amount of disputed tax.

(7) In cases where excess of the amount to be furnished pursuant to Sub-sec.(1) has been furnished prior to the making of application, only the remaining amount upon deduction of the amount covered by that amount may be furnished as deposit.

(8) The deposited amount under this Section shall not be refunded until finalization of the lawsuit.

32. Appeal in the Revenue Tribunal: (1) A person who is not satisfied with an order of suspension made by the Director General pursuant to S.30 or a decision made by the Department pursuant to S.31A(4) may file an appeal in the Revenue Tribunal.

(2) The person who files an appeal pursuant to Sub-sec.(1) has to inform the Department by registering a copy of the appeal within 15-days of the date of filing appeal.

32A. Advance ruling: (1) If any person makes an application in writing to the Department for the removal of any confusion as to the application of this Act, the Department may issue its version by an advance ruling as prescribed, by notifying the person in writing.

(2) Notwithstanding anything contained in Subsection (1), the Department shall not be entitled to issue an advance ruling referred to in Sub-section (1) on any matter of confusion occurred in the implementation of this Act in cases where such matter is sub-judice in the court or has already been decided by the court.

32B. Public Circulars: (1) The Department may, for the purposes of simplifying the tax administration by bringing about uniformity in the implementation of this Act and providing guidance to the Officers of the Department and persons affected by this Act, issue written public circulars along with interpretations in relation to the provisions contained in this Act.

(2) The Department shall make available at the Department or any other place or through any medium the circulars issued by it under Sub-sec.(1) for the information of the public.

(3) A circular issued under Sub-sec.(1) shall be binding to the Department until revoked.

33. To be Deposited: While filing an appeal under this Act, the disputed amount of the assessed tax due shall have to be deposited and the rest of the amount of the tax due plus the whole amount of the fine shall have to deposited or a bank guarantee for the same has to be ensured.

34. Delegation of power: (1) Except for the authority of tax assessment and penalties, a Tax Officer may delegate all or any of the authority conferred on by this Act to subordinate staff.

(2) No authority specified in this Act as to be used only by the DG shall be delegated.

34A. Power to have expert's service: GON may obtain the service of the concerned expert for the act related to tax auditing; and the provision on governmental secrecy mentioned in S.37 shall also apply to such an expert.

35. Identity Card of Tax Officers: Tax Officer shall keep with an identity card As Prescribed and if asked, in pursuance of duty, shall produce it.

36. The Serving of Notice: Any notice, order or document issued by the DG or a Tax Officer shall be considered to have been served upon a Taxpayer As Prescribed.

37. Rule of Privacy: Documents or other information related to tax received from any person cannot be disclosed or published except in following cases:

  1. To inform a revenue collecting Officer in connection with the protection of the revenue of GON;

  2. As evidence in a court of law dealing with the Taxpayer's liability under revenue laws; and

  3. To keep as a part of public record in the proceedings of a revenue tribunal or a court of law.

38. Tax Officers to be Punished: If the DG decides that a tax assessment was so made maliciously or negligently so that the tax amount was reduced or increased, s/he shall initiate a departmental action against the assessing Officer in accordance with the prevailing civil service rules provided that a reasonable time shall be allowed to the Tax Officer to submit clarification.

39. No Responsibility for the act carried with Good Faith: Notwithstanding anything contained in other places of this Act, a Tax Officer shall not be individually responsible for the act s/he had carried out in pursuance of discharging duties with good faith.

40. Reward and Informer Expense: (1) A person who provides information with evidence showing that a Taxpayer has evaded or attempted to evade all or some portions of tax may, on the decision of DG, be awarded as reward the amount equal to 20% of the amount of tax collected on the basis of that information.

(2) If there is more than one informant, the allotment of reward between or among them shall be as proportionate.

(3) Notwithstanding anything content in Sub-sec.(1), on examining the reliability and accuracy of the information received against revenue leakage, informant expense to the extent of Rs.10,000 may be awarded based on the procedure prescribed by the Department.

(4) Name and address of such informer under Sub-sec.(1), (2) or (3) shall be kept confidential.

41. Power to Make Rules: GON may frame rules to implement the purpose of this Act.

42. Changes in the Schedules: GON may make required changes in the schedules by publishing a notification in the Gazette.

43. Other Prevailing Laws to Prevail: This Act and Rules thereunder shall prevail to the extent of the provisions, and in other cases other prevailing laws shall prevail.

44. Repeal and Safeguard: (1) The following Acts are hereby repealed:

  1. Sales Tax Act, 2023;

  2. Hotel Tax Act, 2018;

  3. Contract Tax Act, 2023; and

  4. Entertainment Act, 2017.

(2) The acts and proceedings carried out under the repealed acts pursuant to Sub-sec.(1) shall be deemed to have been carried out under this Act.

****
Schedule-1

(Relating to Sec.5(3)

List of VAT exempt Goods or Services

  1. Basic Agricultural Products

  2. Goods of Basic Needs:

  3. Live Animals and animal products

  4. Agricultural inputs

  5. Medicine, Medical and Similar Health services

  6. Education

  7. Books, Newspapers etc.:

  8. Artistic and cultural Goods or Services, carving services

  9. Passengers and goods transportation services

10. Personal or Professional service

  11. Other Goods or Services:

  12. Land and Building

  13. Betting, casinos, lotteries.

[Detail names under Sch.1 are intentionally omitted in this edition.  
Please update the details from Nepali Version Book (this schedule is in dual language thereon) or from supplementary book from same publisher.]

Schedule-2

(Relating to S.7(2))

Zero Rated Goods or Services

1. Goods exported from Nepal: If it is proved that goods are supplied as follows:

(a) Goods exported outside Nepal, or

(b) Goods shipped for use as stores on an international flight of which destination is outside Nepal, or

(c) Goods put on board an international flight of which destination is outside Nepal for retail sale or supply or consumption.

2. Services to be supplied to persons outside Nepal:

(a) A supply of services by a person residing in Nepal to a person outside Nepal, who has no business transaction, business representative or legally recognized agent in Nepal.

(b) A supply of goods or services by a person who is residing and is registered in Nepal to a person who is residing outside Nepal.

3. Goods or services imported by a person or mission enjoying diplomatic privileges and a person serving in a diplomatic mission enjoying tariff privileges, on the recommendation of the Ministry of Foreign Affairs, Government of Nepal.

4. If any previous treaty or agreement provides for the sales tax exemption on imports, and local purchase is made from the registered taxpayers, on the recommendation of the concerned project, the facility of zero rate shall be provided on such supplies, so long as such treaty or agreement is in effect.

5. Sale of raw materials to and goods manufactured by industries established pursuant to the laws in force for operated in special economic zone.

6. If, on the recommendation of the Alternative Energy Promotion Centre, the battery used in the equipment generating energy from solar power is produced by any native industry and is to be supplied by that industry, the facility of zero rate shall be provided to that industry on that transaction on the recommendation of Alternative Energy Promotion Center and in accordance with the procedures specified by the Department.

7. If any machinery, equipment, tools and their spare parts, penstock pipes or iron sheets used in making thereof required for hydro-power projects are produced by any native industry and are to be supplied by that industry, the facility of zero rate shall be provided to that industry on that transaction, on the recommendation of the Alternative Energy Promotion Centre, in the case of a project that is operated with the approval of that Centre, and on the recommendation of the Electricity Development Department, in the case of one other than that operated with the approval of the Alternative Energy Promotion Centre and in accordance with the procedures specified by the Department.

8. If painting, handicrafts, carving and similar other handicrafts produced a cottage and small scale industry within Nepal are exported through an approved export-trading house of Nepal, the value added tax paid on the raw materials used in the manufacture of such goods shall be refunded after fulfilling the procedures specified by the Inland Revenue Department.

9. The value added tax paid on the import or local purchase of scooters used by persons with disabilities shall, if such scooters are registered in their name in the Office of Transport Management, be refunded on the recommendation of the Ministry of Women, Children and Social Welfare or the Chief District Officer of the concerned district, and in accordance with the procedures as specified by the Department of Inland Revenue. If such goods are sold to any persons other than the persons with disabilities, the refunded value added tax shall be recovered.

# VALUE ADDED TAX REGULATION, 2053

In exercise of the power conferred by Section 41 of the Value Added Tax Act, 2052 GON has framed the following Rules.
Chapter 1

Preliminary

1. Short Title and Commencement: (1) These Rules may be called "the Value Added Tax Rules, 2053".

  2. It shall come into force on such date as GON by publishing a notice in the Nepal Gazette may appoint.

2. Definitions: Unless the subject or context otherwise requires, in these Rules,-

  1. "Act" means the Value Added Tax, 2052.

  2. "Tax Period" means the period for which a Taxpayer is required to furnish Tax Return.

  3. "Tax Return" means a return furnished by a Taxpayer in regard to the tax payable for transactions carried out during the Tax Period.

Chapter 2

Provisions Relating to Registration

3. Application for Registration: (1) Any person engaged in any business at the time of the commencement of the Act shall submit an application for registration to the TO, in the format as set forth in Schedule -1 within 90-days of the commencement of the Act.

(2) A person intends to engage in business after the commencement of the Act shall submit an application for registration to the TO, in the format as set forth in Sch.1 prior to the commencement of such transaction.

(3) In case a person making application for registration pursuant to Sub-rule (1) or (2) is a partner, the application must be submitted along with the details of the partnership in the format as set forth in Sch.2.

4. Examination of Application: (1) The TO may ask an applicant to produce such other additional details and the documents which are deemed necessary in making examination into the details and documents attached with the application submitted pursuant to Rule 3. It shall be the duty of the applicant to submit such additional details and documents to the TO within 7-days of such demand.

(2) In cases where anyone has happened to submit an application for registration of the transaction which is not required to be registered as set forth in S.10(3) of the Act, the TO shall give a notice setting out that not to be registered, to the applicant within 7-days of the receipt of the application.

5. Certificate of Registration: The TO shall, if deems it proper to register, upon making examination pursuant to Rule 4 into the application submitted for registration pursuant to Rule 3, register the business which the applicant has carried out or intends to carry out the transaction and grant the certificate of registration bearing Registration Number as well in the format as set forth in Sch.3 to the applicant, within 30-days of the date on which the application was submitted.

6. Small Vendor need not to be registered: (1) Notwithstanding anything mentioned in Rule 3, any person carrying out transactions not exceeding 2- million Rupees and for Services or mix of Goods and Services not exceeding 1-million Rupees within the last 12-months as set forth in Section 9 of the Act need not have registered transactions. Such small vendor shall fix a notice in the place showing to all stating VAT registration not required due to transactions not exceeding 2- million Rupees and for Services or mix of Goods and Services not exceeding 1-million Rupees.

Provided, any person who imports into Nepal goods valued more than Rs.10,000 except for own consumption have to get registered.

(2) Notwithstanding anything contained in Sub-rule (1), any person carrying out small transactions may submit an application pursuant to Rule 3 if wishes to register voluntarily. If an application has been submitted to register voluntarily, the TO shall register by completing the procedures of examination referred to in Rule 4.

6A. Contract Special: Paying the tax to the respective contractor, the contracting governmental institutions, public institutions or Registered Person shall inform the IRO regarding the contract entered into and payment of tax. On contracting more than Rs.2 million or service more than Rs.1 lakh, such governmental institutions, public institutions or Registered Person shall purchase from Registered Person only.

6B. Construction Works Special: In case of construction of building or apartment or shopping complex and similar structure as prescribed by the Department for business purpose, any person require to construct through Registered Person.

7. Special Conditions of business to be Registered: (1) In case any person has reason to presume that the transactions shall exceed 2-million rupees in upcoming 3-months, shall submit an application setting out such conditions, to the TO in the format as set forth in Sch.1 for the registration of the transactions.

(2) If the amount of the transactions carried out by any person exceeds 2-million rupees where presumption could not be made as set forth in Sub-rule (1), the person carrying out such business shall submit an application to the TO in the format set forth in Sch.1 for registration within 30-days of the date on which such excess occurs.

(3) [... repealed].

(4) Person, dealing the Goods or Services those to be registered under S10(2), shall apply within 30-days from enactment of this Sub-rule.

(5) Notwithstanding anything elsewhere in this Regulation, the business in the Office shall register if dealing taxable Goods or Services and in the following cases:

(a) In the inspection by TO, if excess stock than prescribed limit found.

(b) Expense per year on telephone and rent is more than Rs.1 lakh.

(c) Business place in the prescribed market or road with specified area occupied as prescribed by the Department.

(d) Obtaining business loan from any bank more than Rs.1 million.

(6) If any Person found doing business without registration, TO shall issue an order for registration within 30-days with stating basis and reasons for that. In case such order received, the business has to be registered by the Person.

7A. Special Provision for Temporary Registration: (1) An application from the Unregistered Person involving for exhibition, fair or similar event under S.10 with the recommendation of host for shall be filed the concerned IRO or TSO.

(2) The estimated transaction from the event shall be disclosed with the application under Sub-rule (1) along with 2% of it as dhàrauti.

(3) Upon receiving such application under Sub-rule (1), TO of IRO or TSO shall register and certificate with registration number shall be issued.

(4) Within 7-days from closure of event, Person registered under Sub-rule (3) shall file VAT Return and pay tax along with original certificate of registration and tax-clearance letter to IRO or TSO for cancellation.

(5) Within 15-days from receipt of such application for cancellation, TO shall inform Taxpayer for deregistration after examining the return and other documents.

(6) Dhàrauti under Sub-rule (2) can be adjusted with tax payable under Sub-rule (4).

(7) A 3-days' notice shall be issued to pay additional tax after examining the documents under Sub-rule (5). In case, not pay within that stipulated period, it may be offset with dhàrauti and balance, if any shall be recovered from the host.

8. Determination of Amount of Transactions: The amount of any transactions shall, for the purpose of the registration, be determined on the basis of the value of purchase or sale in the last 12-months, whichever is higher. Any Registered Person shall maintain the records setting out the amount of the transactions in the place of transactions and produce them as and when required by the TO.

9. Notification of the Change of Place: (1) Any Registered Person who has to change the place of business shall inform the TO thereof prior to 15-days of such change.

(2) The TO shall, upon receipt of the information referred to in Sub-rule (1), if the place of business going to be changed falls within the scope of another Tax Office, notify the office thereof within 7-days of the receipt of such information.

10. Notification of the Change of Nature or Objective: (1) Any Registered Person shall, prior to 15-days of the change of the nature or objective of the business, notify the TO thereof.

(2) Upon receipt of the notice referred to in Sub-rule (1), the TO shall change the nature or objective of the business of the Registered Person and inform such Registered Person thereof.

11. Transfer of Transaction: (1) In case any Registered Person has fully or partially transferred the business to any person, shall inform the TO all the details in the format set forth in Sch.4 within 7-days of so transfer.

(2) In case the transaction has been transferred pursuant to Sub-rule (1), the rights, powers and obligations of the transferor shall be transferred to the transferee.

(3) The TO may, get both the parties related to a transfer in presence to give them necessary instructions in regard to the obligations to be fulfilled by them under the Act and these Rules. It shall be their duty to follow the directions so given.

12. Deregistration Process: (1) In case the registration of any Registered Person be cancelled due to the conditions referred to in S.11(1) of the Act, the Registered Person or successor in the event of absence submits to the TO an application, setting out the conditions for deregistration. Application shall be accompanied by the Tax Return referred to in Sch.11 as well as the payable tax amount, within 30-days of the date on which the condition for cancellation of registration occurred, or the TO is satisfied that the registration of a Registered Person in existence of the conditions set forth in S.11(1) is to be cancelled. The TO shall cancel the registration of such person, upon getting to pay the remaining tax amount, and give notice thereof to the Registered Person or successor and the Department.

(2) After filing application for deregistration, Tax Return upto date of information of deregistration or upto 3-months shall be filed.

(3) It is the duty of TO that decision of deregistration or deny to it to be given within 3-months form date of application.

13. Use of Registration Number: A Registered Person shall use registration number in the following documents related to the transactions which carries out, in addition to the transactions referred to S.10(6) of the Act:

(a) Documents relating to income tax;

(b) Documents relating to applications to be submitted to banks and financial institutions for loans exceeding one hundred thousand rupees for commercial and industrial purposes;

(c) Documents relating to import and export.

14. To Issue Duplicates: (1) In case the certificate of registration of transaction obtained by a Registered Person under Rule 5 be torn, lost or otherwise destroyed, shall submit to the TO accompanied also by one hundred rupees for the duplication fees payable to obtain such certificate, to obtain a duplicate copy of such certificate.

(2) Upon receipt of an application pursuant to Sub-rule (1), the TO must give a duplicate copy of the certificate of registration of transaction within 15-days of receipt of the application.

14A. Tax-plate: Within 30 days from commencement of this rule, Taxpayer shall fix a tax-plate in the openly place.

Chapter 3

Place and Time of Supply

15. Determination of the Place of Supply of Goods: The following places shall be deemed to be the place of Supply of goods:-

(a) In the case of movable goods transferred by sale, the place where such goods were sold or transferred,

(b) In the case of any immovable goods where location can't be transferred even if change in ownership, the place where such goods are located,

(c) In the case of imported goods, the customs point in Nepal through which such goods are imported into Nepal,

(d) In case any producer or vendor supplies the goods to self, the place where the producer or vendor of such goods resides.

16. Determination of the Place of Supply of Services: The place of Supply of a service shall be the place where the benefit of that service is received.

Chapter 4

Provisions Relating to Invoices and Market Price

17. Tax Invoices: (1) In supplying any Goods or Service by a Registered Person, if otherwise provided by TO, shall issue tax invoices to the recipient, in the format as set forth in Sch.5 or Sch.5A. On invoicing for Goods, its type, size, model or brand, if any have to be disclosed.

(1a) Notwithstanding anything in Sub-rule(1), tax-invoice as per Sch.5B has to be issued in sale of Goods of Services as in S.14(7) of the Act.

(2) The word 'Tax invoice' shall be written clearly on the front page of the invoice to be given to the recipient under Sub-rule (1). Such tax invoice shall be prepared in triplicate. The original copy shall be issue to the recipient, the second copy to be separately recorded so that it can be produced as and when asked for by the Office and the third copy be recorded by the Registered Person for the purpose of documentation in the business.

18. Abbreviated Tax Invoice: (1) Notwithstanding anything contained in Rule 17, in case any Registered Person is to conduct a retail-sale of Goods and submits an application to the TO in this respect. TO may grant permission so that such Registered Person may while conducting retail-sale of Goods issue an abbreviated tax invoice in the format referred to in Sch.6 to the recipient, instead of the tax invoice as set forth in Rule 17.

(2) Where several low-priced goods have been sold, instead of separately mentioning the names of all the goods, the expression of 'various goods' may grossly be mentioned in the abbreviated tax invoice to be given pursuant to Sub-rule (1).

(3) A recipient who receives an abbreviated tax invoice under Sub-rule (1) on purchasing the Goods shall not allow tax-credit under S.17 of the Act.

(4) A Registered Person issuing abbreviated tax invoice to the recipient pursuant to Sub-rule (1), shall maintain records thereof as:

(a) Maintaining a duplicate copy of the original invoice,

(b) Where a transaction recorded in the till-roll, the total of duplicated copy thereof shall calculate every day,

(c) Maintain records of the value, including tax, of each transaction.

(5) In case a Registered Person is found not to have maintained the required records under Sub-rule(4), the TO may cancel the permission granted to issue an abbreviated tax invoice under Sub-rule (1).

(6) Notwithstanding anything contained in these Rules, where a transaction of value exceeding Rs.5,000, an abbreviated tax invoice shall not be allowed. Despite having carried out a transaction of value less than that amount, it shall be the duty of a Registered Person to provide a recipient who asks for the tax-invoice referred to in Rule 17 with such a tax invoice.

(7) The total figure of tax shall be calculated from an abbreviated invoice by multiplying the invoice price by the tax-factor.

Explanation: For the purpose of this Sub-rule, the term tax-factor means the quotient derived by   .

19. No Need to issue Tax Invoice: A person who carries out transactions of used goods of a value exceeding Rs.10,000, for the purpose of S.14(1) of the Act, need not issue a tax-invoice in such cases where the selling price is less than the buying price of the Goods.

20. Credit or Debit Note: (1) Where a Registered Person issues a credit or debit note owing to a change in the value of the Goods or Services supplied, must clearly provide the following:

  1. Serial Number,

  2. Date of issue,

  3. Name, address and registration number of the supplier,

  4. Recipient's name, address, and registration number if a Registered Person,

  5. Number and date of the tax invoice connected with the transaction,

  6. Particulars of the Goods or Services and reason of credit or debit,

  7. Amount credited or debited,

  8. Tax amount credited or debited.

(2) Registered Person shall maintain a monthly record of credit or debit notes referred to in Sub-rule (1).

21. Payment in a Foreign Currency: While giving the tax invoice of a Supplier upon receiving payment from the recipient in a convertible foreign currency as consideration of the Supply of any Goods or Services, shall issue the invoice by mentioning therein the amount in Nepalese rupees equivalent to the foreign currency according to the rate of exchange prescribed by the Nepal Rastra Bank for the day of transaction.

22. Process of Market Price determination: (1) While determining the Market Price under S.13 of the Act, the TO shall determine the Market Price by studying the transactions and value of other vendors registered in regard to the transaction of the same nature.

(2) In cases where the Market Price of any Goods or Services cannot be determined as set forth in S.13(3) of the Act, the DG shall determine the value on the basis also of the information received in that regard from the Registered Persons of the same nature.

Chapter 5

Records of transactions

23. Documentation: (1) For the purpose of the Act and Rules, Registered Person shall maintain records of the following information, documents and details:-

  1. Information as referred to in Sch.7.

  2. Records relating to trade, accounts, receipts and payments.

  3. Tax invoices and abbreviated tax invoices issued.

  4. Tax invoices and abbreviated tax invoices received.

  5. All documents relating to imports and exports,

  6. All debit and credit notes substantiating the fluctuations in the values of goods purchased or sold and other documents pertaining thereto.

  7. Books of purchase and sale as referred to in Sch.-8 and 9.

(2) Notwithstanding anything contained in Sub-rule(1), Department may so prescribe that a Registered Person shall maintain only business specific records among those referred to in that Sub-rule.

(3) A Registered Person may, with the approval of the Department, maintain the records required to be maintained under this Rule by using computers or another similar machine-driven system or the method prescribed by the Department.

(4) The TO may inspect the records maintained by a Registered Person under this Rule at any time during working hours.

Explanation: For the purpose of this Rule, "working hours" means the period between the time of opening and closing of the transactions, except on public holidays.

(5) A Registered Person shall make available the details and documents relating to the records demanded by the TO in the course of inspecting the records pursuant to Sub-rule (4), by having them printed at own expense.

(6) It shall be the duty of a Registered Person to provide necessary staff in order to assist the TO in inspecting the records pursuant to Sub-rule (4).

(7) A Registered Person shall retain the records maintained under this Rule up to 6-years.

24. Complementary or Sample or Free Goods: In addition to the records mentioned in Rule 23, a Registered Person shall also maintain the following particulars relating to business.

(a) Details of the Goods distributed in the form of samples for the promotion of business.

(b) Particulars of the goods received free of cost.

25. Certification of Books of Sales and Purchases: While certifying the books of sales and purchases by the TO pursuant to S.16(3) of the Act, it shall certify as follows:

(a) In case a tax-payer submits an application to the office for certification of the books of purchases and sales,

(b) During the period of tax inspection or audit,

(c) At the time of inspection.

Chapter 6

Tax Return and Collection

26. Tax Return of Tax Period: (1) A Registered Person shall file Tax Return of month according to the Bikram Sambat, in the format referred to in Sch.10, within 25-days of the expiry of that period to the TO.

Provided, Taxpayer having turnover more than Rs.2 million to Rs.10 million in last 12-months shall file its Tax Return within 25th day of Shrawan, Ashwin, Marga, Magh, Chaitra and Jestha.

(2) Notwithstanding anything contained in Sub-rule (1), in case any Registered Person applies to the TO to have the Tax Period fixed for a Tax Period other than the Tax Period mentioned in Sub-rule (1), due to maintaining the accounts using a computer system, the TO may, if so deems proper after investigations, allow, as per necessity, a separate Tax Period in respect of such Registered Person.

(3) The Tax Period of a Taxpayer who has registered voluntarily under S.9 of the Act and whose annual turnover is up to Rs. 2 million or brick-industry shall file Tax Return in 25th day of Shrawan, Marga and Chaitra.

(3a) In case hotel or tourism entrepreneur intend for, the Department may fix their Tax Period of two-month.

(3b) In case news-paper or its publisher opted for trimester tax period, the Department may allow.

(4) Registered Person whose Tax Period has been so fixed to be more or less than 1-month shall submit Tax Return of that period to the TO in the format of Sch.10 within 25-days from the closure of such Tax Period.

(5) A Taxpayer shall, when submitting the Tax Return for the first time, submit the Tax Return for the remainder of the period as if the remaining period was the full Tax Period.

27. Filing Tax Return through the Heir or Legal Representative: In case any Registered Person dies or becomes mentally or physically incapacitated to submit the Tax Return, the TO may, considering him/her to have supplied the Goods or Services till the day preceding death or becoming mentally or physically unable, require the heir or legal representative to submit a Tax Return for that period.

28. Filing Tax Return Individually or Jointly: The following persons shall submit the Tax Return individually or jointly in the following circumstances:

  1. In cases where any Taxpayer becomes incapable to submit a Tax Return or dies, his/her heir or guardian;

  2. In cases where any Taxpayer is a legal person, any director, executive-chief or any employee appointed by the management, on behalf of such a Taxpayer;

  3. In case any Taxpayer is a legal person and such legal person is dissolved or liquidated by the liquidator;

  4. In other circumstances other than those mentioned above, the person concerned with the Taxpayer and prescribed by the TO.

Chapter 7

Assessment and Recovery of Tax

29. Assessment by Tax Officer: (1) In cases arising from circumstances referred to in S.20(1) of the Act, the TO may assess tax on the basis of as per S.20(2) as well as Market Price or any other information and notices related to the transaction of which tax is to be determined and issue [preliminary] tax assessment notice in the format of Sch.12.

(2) The Taxpayer shall be given a time limit of 15-days to submit evidence and clarification against the tax assessment order issued by the TO pursuant to Sub-rule(1).

(3) The TO, if deems any evidence submitted by the concerned Taxpayer within the time limit set forth in Sub-rule (2) to be appropriate, shall assess the tax pursuant to Sub-rule (1) on the basis thereof and issue [final] tax assessment order. While so issuing the tax assessment order, the order shall also indicate the additional charges chargeable pursuant to Sub-sec.(2) and (3) of S.19 of the Act up to the date of issue of the order as well as the Interest amount chargeable pursuant to S.26.

Explanation: In calculating Interest, it shall be calculated on the basis of one- twelfth part per month.

30. Payment of Tax, Additional Duty and Interest: The Taxpayer shall deposit the amount referred to in the tax assessment order within prescribed time in that order to the concerned Office.

31. Procedure of sending Notices of Tax Assessment Order: (1) Notwithstanding anything mentioned in the prevalent laws, while issuing a tax assessment order by the TO to a Taxpayer pursuant to Rule 29, if the order is sent by telefax, telex or other similar electronic media installed at the address of such Taxpayer or such order is delivered to itself or at office or through registered post to its address, it shall be deemed to have been duly delivered.

(2) In case the tax assessment order could not be delivered under Sub-rule (1), the TO may inform the Taxpayer thereof by broadcasting or publishing a notice of such order through radio, television or in any national newspaper. In such a situation such information shall be deemed to have been received by the Taxpayer.

32. Assessment and Recovery of Tax Collected by an Unregistered Person: (1) In case an unregistered Person collects tax, the assessment of tax under S.15(2) of the Act shall be done by the procedures as per Rule 29.

(2) The tax assessed under Sub-rule (1) shall be paid by the unregistered Person having collected such tax within 15-days of the issue of the tax assessment order.

33. Method of Tax Assessment of Used-Goods: (1) Tax Assessment of the used- goods shall be done only on the gain between the selling and cost price of such goods. The vendor of such goods shall maintain a permanent record as mentioned below at the very time of the buying or selling of such goods:-

(a) Relating to Purchase:

  1. Date of Purchase,

  2. Particulars giving full information of the goods,

  3. Buying price excluding tax,

  4. Rate of tax,

  5. Amount of tax,

  6. Total amount paid.

(b) Relating to Sale:

  1. Date of sale,

  2. Selling price, excluding tax.

  3. Difference between the buying price and the selling price,

  4. Rate of tax,

  5. Amount of tax,

  6. Total amount received.

(2) The buying price referred to in Sub-rule (1) means the price including tax.

(3) In case the buying price of every item of used-goods exceeds ten thousand rupees, separate records of buying or selling shall be maintained.

(4) In case a Registered Person is found not to have satisfactorily maintained the records referred to in Sub-rules (1), (2) and (3), tax shall be imposed on the total selling price of goods sold by such Taxpayer, and the TO may issue a written order to pay such tax along with the next Tax Return.

34. Filing Tax Return Prior to Filing Appeal: Prior to filing an appeal by a Taxpayer against a tax assessment order made pursuant to Rule 29, Tax Return shall be filed to TO up to that period.

35. Circumstances Beyond Control: (1) Following situations shall be deemed to be circumstances beyond control for the purpose of S.19(4) of the Act:

  1. In case the Person required to pay tax becomes disabled due to falling ill; up to 7-days of the date of recovery.

  2. In case the Person required to pay tax is in obsequies; up to 7-days of the end of the obsequies,

  3. In case a woman required to pay tax delivers a child; up to 35-days of the date of delivery,

  4. In case the Person required to pay tax dies or becomes insane or disappears and his/her heir or guardian submits an application within 35-days of the date of such incident; up to 7-days of receipt of such application,

  5. In circumstances when the Person required to pay tax has not been able to come to the Tax Office because of the closure of a path due to floods, landslides or similar other reasons; up to 7-days of opening of the road,

  6. In circumstances when Person cannot come due to transport stoppage; up to the next day of the end of such stoppage.

  7. In circumstances beyond control created by the act-of-God like fire, earth-quake, within 30-days from such calamity.

(2) In case an additional time limit shall be required to be requested due to circumstances beyond control referred to in clauses (a), (b), (c), (d), (e) and (g) of Sub-rule (1); the recommendation of the concerned Village Development Committee or Municipality shall be submitted.

(3) While requesting for an additional time-limit due to the circumstance referred to in clause (f) of Sub-rule (1), the recommendation of the Village Development Committee or Municipality concerned with the place where the stoppage of means of transport has taken place, shall be submitted.

36. Time -Limit for Applying for Remission of Additional Charges: (1) For the remission of the additional charges S.19(4) of the Act, an application shall be submitted to the DG within 30-days of the expiry of time-limit prescribed for payment of tax in the format set forth in Sch.13.

(2) In case application is not submitted within the time-limit referred to in Sub-rule (1), the waiver of additional charges shall not be granted.

37. Tax Assessment Period: While calculating the period referred to in S.20(4) of the Act, in case a petition has been filed with any court in regard to tax, and a stay order has been issued, the period shall be calculated by deducting the period until which the petition is decided.

38. Time -Limit for Collection of Tax: [Repealed.]

Chapter 8

Provisions Concerning Tax Deductions and Tax Refund

39. Input Tax Credit: (1) A credit for tax paid by a Registered Person on importing or purchasing any taxable Goods or Services during the concerned month or before that month from the tax collected on supplying any Goods or Services all be allowed, in the following circumstances:-

(a) In case the Goods or Services in respect of which a tax-credit has claimed, directly related with the taxable business.

(b) In the case of domestic purchases, tax-invoices referred to in Rule 17 have been received.

(c) In the case of imports, there are import documents evidencing the payment of tax at the time of import.

Explanation: For the purpose of this Clause, "import documents" means import declaration forms, cash receipts, invoices of goods and such other prescribed documents relating thereto by the Department from time to time.

(2) Tax credit under this Rule, is allowed only once. When making a tax-credit, there shall be invoices or the import documents up to one year before the date of making the claim.

(3) When filing the Tax Return of each Tax Period, Registered Person shall deposit to Tax Office, the balance amount after offsetting tax paid on purchasing or importing the Goods from the collected tax on selling.

(4) In case tax paid purchasing or importing by Registered Person is higher than the tax collected on selling, the excess amount can be carried to the next Tax Period. In a case it remains balance in the next Tax Period and continuous for 6-months consecutively, may submit an application to the TO in the format as per Sch.14 for refund. The TO shall upon receipt of such application refund the remaining tax pursuant to Rule 45.

(5) Registered Person exporting more than fifty percent of total monthly sale, may submit an application to the TO, enclosing therewith necessary export documents in the format as set forth in Sch.15 for refund of the excess amount of tax credit for the month. The TO shall upon receipt of such application refund the remaining tax pursuant to Rule 45. While making a decision to refund the remaining tax, the TO shall take the following matters into account :

(a) Whether the tax has paid on purchases or imports or not.

(b) Whether earlier Tax Return has filed or not. And if so filed, whether or not the claim of tax refund is substantiated by such Tax Return.

Explanation: For the purpose of this Chapter, "export documents " means export certificates, certificates of receipt of goods, letter of credit or import certificate in case of barter of Goods, certificates of payment, letters of credit, certificates of receipt of Goods, certificate of export in case of [regular] export.

39A. Tax Credit on Damaged Goods: (1) For tax-credit on writing off from the stock ledger for the damaged goods either by fire, theft, accident, breakage or terror or selling it at reduced rate, an application to be filed to the IRO within 30-days with evidences thereto.

(2) The TO may allow tax-credit on the damaged Goods upon scrutinizing the application [and evidences]. Provided, Taxpayer may offset the credit to the extent of compensation received against insured goods.

(3) & (4) [Repealed].

40. Other Provisions Regarding Tax-Credit: (1) In case the Goods of which tax-credit has made are in stock, such Goods are to be shown or allowed to be counted if the TO desires to observe or count such Goods. While observing or counting such Goods by the TO, found that the Goods are not to have been used in Taxable Transactions or not in stock, such Goods shall be deemed to have been sold at the Market Price.

(2) The TO may order the tax-payer to pay the tax payable on the Goods sold pursuant to Sub-rule (1). Such tax amount shall be paid together with the Tax Return of the month recommended by the TO.

Provided, if the TO feels that there is a situation where the tax cannot be realized if it is not realized immediately, may require the Taxpayer to pay the tax immediately.

(3) In case any Taxpayer has carried on both the transactions of taxable Goods or Services and tax-exempt Goods or Services such Taxpayer may credit only the tax paid on purchases or imports directly related to the taxable Goods or Services.

(4) In case a Taxpayer carrying out the transactions of both taxable and tax-exempt Goods or Services fails to establish the direct relationship of the purchased or imported goods with the taxable Goods or Services, such Taxpayer may obtain tax-credit on the purchases or imports by calculating the proportion of Taxable Transaction to the total sales.

(5) While calculating tax pursuant to Sub-rule (4), if the TO feels that it cannot be calculated proportionally, may seek direction from the Department to calculate it through alternative method.

41. No-credit Goods or Services: (1) For the purpose of S.17 of the Act, tax may not be deducted in respect of the following Goods or Services:

  1. Beverages,

  2. Alcohol or alcohol mixed beverages such as liquor and beers;

  3. Light petroleum (Petrol) fuel for vehicles,

  4. Entertainment expenses.

(2) Tax-credit on the following Goods may be on the following proportion:

  1. [Repealed].

  2. On automobiles, 40 percent of purchase value.

  3. [Repealed].

Explanation: For the purpose of Clause (b), 'automobile' means any motor vehicle with three or more wheels used on a road for carriage of passengers.

(3) In case a Registered Person carries on a business of those Goods referred to in Sub-rules (1) or (2) as the principle business, it shall not stoppage the tax-credit according to the procedures in these Rules.

42. Credit for Sales Tax: Only the sales tax paid on the following goods left in stock before the commencement of the Act shall be allowed to be deducted:

  1. On goods bought by a Taxpayer for resale,

  2. On Goods or Services partially produced or ancillary goods for the business,

  3. On raw materials, auxiliary raw materials, and packing materials.

43. Application to be Submitted: (1) A Taxpayer may submit an application to the TO in the format set forth in Sch.16 to have tax-credit paid on stock of Goods at the time of Registration.

(2) While making a claim for tax-credit under Sub-rule (1), the Taxpayer shall submit invoices and other documentary evidence within 15-days of Registration. In absence of the documentary evidence referred to in this Rule, tax-credit shall not be allowed under Sub-rule (1).

(3) In case the claim made pursuant to Sub-rule (1), is amended or rejected by the TO, or in case it is found that such tax has already been credited, the TO may take action against such Taxpayer pursuant to the Act and these Rules.

(4) In case the claim made under Sub-rule (1) is accepted by the TO, the Taxpayer may adjust tax-credit according to Rule 39(4).

44. No Tax-Credit in Respect of Used Goods: For the purpose of S.17(5) of the Act, tax paid on the purchase of used goods from a person not registered and even if from a Registered Person, tax paid on the goods referred to in Section 17 of the Act, and those brought for personal use, shall not be allowed for tax-credit.

45. Provision Regarding Refund of Tax: (1) When refunding the amount of tax for the purpose of Sub-sec.(3) and (4) of S.24 or S.25 of the Act, the TO shall immediately investigate the evidence submitted by the Taxpayer for the refund of tax and refund the tax within 30-days of the date of registration of the claim.

(2) If it shall be necessary to reinvestigate the evidence so received under S.24(3) or S.25 of the Act, it shall be done without delay and refund given within 15-days. If the amount to be refunded exceeds Rs. 20,000, it shall be so refunded to bank account.

(3) While making a claim for a tax refund by a person not registered for the purpose of S.25(1), it shall directly apply to the Department in the format referred in Sch.17 for Clause (a), and Sch.18 for Clause (b) and (c).

46. Not to be Refunded: Copies of the decisions, orders, judgments, memos or other documents where copies need to be obtained under the Act and these Rules, shall not be provided in cases where an application was submitted after three years from the expiry of the Tax Period.

47. Rate of Interest: For the purpose of S.24(5) of the Act, the rate of Interest to be paid by GON shall be 15% p.a. Such Interest amount shall be calculated only after 60-days from the date of the application for refund pursuant to sub-sections (3) and (4) of S.24 of the Act.

Chapter 9

Provisions on Imports and Exports

48. Tax on Imports: (1) Goods or Services imported into Nepal shall be subject to tax at the rate payable on Goods or Services supplied within Nepal.

(2) When determining the value for the purpose of the determination of tax on imported Goods or Services, it shall be determined by following the process referred to in Sub-sec.(5) and (6) of S.12 of the Act.

(3) In case the value of any imported Goods cannot be determined at the time of import, such Goods shall be allowed to be imported into Nepal only upon obtaining a deposit sufficient to meet all types of taxes or charges payable on such Goods. Until the value of the Goods or Services imported by a Registered Person is determined, tax-credit on such Goods or Services is not allowed.

(4) In case any goods have been imported by furnishing a deposit, a claim for a tax-credit may be made only within a year from the date of determination of the value.

49. Provisions Regarding Temporary Imports: (1) In case of goods temporarily imported with the condition of taken-back latter on a duty-free basis, permission shall be granted to import such goods upon obtaining a deposit of the tax payable on them on the basis of the estimated value determined by the customs with provision to refund it at the time of taken them back.

(2) Tax shall be imposed on the import duty itself on the goods or articles imported on a temporary basis subject to temporary import duty.

50. Supervision and Management by the DG: Supervision and management of the tax to be collected pursuant to S.28 of the Act is to be carried out by the DG. For the purpose of monitoring of Goods or Services imported, the DG may, if deems it necessary, instruction to the TO for actions as follows,:

  1. To take a sample of the goods or articles imported and ensure that tax has been imposed sufficiently; and return the sample to the Taxpayer within a reasonable time,

  2. To enter into, inspect, search at a reasonable time in places, buildings, godowns, shops etc. connected with the transactions and make enquiries of the concerned person,

  3. To take custody of the documents connected with the purchase, sale or imports, obtain copies of them, inspect, remove and return documents removed within a reasonable time if deems it reasonable upon the request of the concerned Taxpayer.

51. Special Provision for Tax collected from Importation: (1) For the purpose of S. 24 and 25 of the Act, the entire tax amount collected at the customs point shall be deposited into an account of Value Added Tax Fund on a daily basis. The Customs Office shall send statements thereof to the nearest Value Added Tax Office within 3-days.

(2) The balance after refunding the amounts ordered by the Department out of the amounts to be deposited into the fund referred to in Sub-rule (1) shall be deposited into the prescribed Revenue Account on a daily basis.

(3) Office of the Financial Comptroller General shall prescribe the procedures of the operation of the fund, opening of bank account, expenditures out of fund and depositing into the Revenue Account.

Chapter 10

Stoppage of Belongings, Auction, and Searches

52. Provision on Stoppage of Belongings: (1) In case the Taxpayer fails to pay the tax, charges and Interest to be paid under the Act and these Rules within the time-limit set forth in Rule 30, the TO shall pursuant to S.21 of the Act, by obtaining permission from the DG in the form as mentioned in Sch.20, realize the tax arrears, charges, penalties and Interest.

(2) When taking into possession of or auctioning any belongings of a Taxpayer for the purpose of Sub-rule (1), the procedure shall be as follows:

  1. Furnishing notice in writing to the concerned office to stop movable or immovable property of the Taxpayer from its sale, distribution or transferal of its entitlement until the payment of tax.

  2. In case the TO finds that any belonging to the Taxpayer is being kept with or under the custody of any particular person, TO shall, subject to this Rule, issue an order to the concerned person to stop such custody of the property.

53. Provision on Auction: (1) In case the tax is not realized even after taking action under Rule 52, the TO may realize the tax by auctioning, wholly or partially the property of the Taxpayer, by fulfilling the following procedures:

  1. To identify the property to be auctioned and publicly publish notice indicating the reason for auction, as well as venue and date of auction at least 15-days before the date of auction.

  2. To conduct the auction, with a witness of one representative of the VDC or Metropolis/ sub-metropolis/ Municipality of the place where the goods in the auction are located or a representative of the nearest government office and if possible the Taxpayer or representative.

(2) All the expenses incurred on the auction shall first of all be borne out of the amount realized from the auction pursuant to Sub-rule (1); tax, charges, penalties and Interest payable by the Taxpayer shall then be realized from the balance; and the surplus, if any, shall be refunded to the Taxpayer.

(3) Notwithstanding anything contained in Sub-rules (1) and (2), where the Taxpayer, prior to the conduct of the auction of belongings, comes forward to pay the entire amount including all the expenses relating to the auction, tax, charges, penalties and Interest, the same shall be collected and the auction shall be stopped.

(4) Notwithstanding anything contained in Rule 52, when the TO receives information before fully realizing the tax payable by the Taxpayer that the Taxpayer has amounts deposited with a bank or financial institution, and where such amount is realized the remaining actions of the auction shall be stopped.

(5) In case realization is likely to be made partially, it shall be made in the order-expenses relating to auction, Interest, charges, penalties and tax.

54. Immediate Auction: In case the belongings stopped is likely to decay, rot or wear out because of prolonged period of stoppage resulting from the filing of a petition or appeal in any court in respect of the stoppage of the property, the TO shall conduct the auction of such goods or articles immediately and credit the proceeds thereof; and in case the amount stopped is later decided to be refundable to the Taxpayer according to a court decision, only the amount obtained from the auction shall be refunded. The Taxpayer shall not be entitled to claim for the return of the goods or articles.

55. Search Procedures: In case it becomes necessary to conduct searches pursuant to S.23(2) of the Act, following procedures shall be adopted.

(a) Where there are reasonable grounds to believe that any documents or goods related to the subject in respect of which the searches are to be conducted are likely to be found in any house or in any other place, and there is a possibility that such goods or articles cannot be found if that house or place is not searched immediately, or it is necessary to search immediately the TO may her/himself search or cause to be searched or deputize an employee to search such house or place.

(b) By setting out the reason for the searches the person conducting a search shall notify the owner or custodian of the house or place and those who are living in such house or place that the house or place is to be searched under clause (a); and such person shall upon receipt of such notice allow the person conducting the search to enter in such house or place.

(c) In case the person living in or owner or custodian of the house to be searched under Clause (b) does not allow the person conducting the search to enter in such house or place, the person conducting the search shall give notice and reasonable time to the women living in the house or place to go away from there, and may search therein by entering by opening or breaking any window or fastener as per necessity.

(d) In conducting the search under Clause (c), it shall be witnessed by at least one member of the concerned Village Development Committee, Metropolis/Sub-metropolis or Municipality, or two local people or house-owner or representative or any person.

(e) In case any person is not found as witness or refuses to become a witness under Clause (d) the process referred to in Clause (c) shall be deemed to have been completed after taking the signature of the person conducting the search, with indicating remarks to that effect.

(f) In conducting a search under this Rule, if the body of any person is to be searched, such search may be conducted and if the person to be searched is a woman, she shall be searched by a woman.

(g) The details of the goods or items or documents obtained while conducting the search under these Rules shall be prepared and submitted to the Department within 3-days.

Chapter 11

Miscellaneous

56. Provision Regarding Supply of Goods or Services within Nepal: While purchasing or acquiring the Goods or Services having value more than Rs.5,000 is payable at a time within Nepal by GON or GON owned association, organization or office or constitutional bodies, such Goods or Services shall be purchased or acquired only from a Registered Person.

57. Regarding Diplomatic Privileges: For the purpose of S.25(1)(a) of the Act, a person enjoying diplomatic privileges shall submit an application to the Department for the refund of tax amount accompanied with the note given by the Ministry of Foreign Affairs,

58. Free Cooperation and Information: GON shall provide following cooperation and information at cost-free basis:

  1. Information regarding the process to be adopted for the purpose of tax,

  2. Publications on Taxpayer's education.

58A. Hiring of Tax-facilitator: (1) Taxpayer may hire Tax-facilitator to assist on tax related supports and information.

(2) Qualification and expertize of such Tax-facilitator under Sub-rule(1) shall be as suggested by the Department.

59. Pleadings on Matters Concerning Value Added Tax: In case it becomes necessary to plead any case concerning tax, it shall be done by the government attorney.

60. Format of Identity Card: The format of the TO identity card shall be as set forth in Schedule 21.

61. To Issue Manual: GON, Ministry of Finance may make and issue necessary manuals in order to implement the Act and these Rules.

62. Alterations and Changes in the Schedules: GON may by publishing notification in the Nepal Gazette effect necessary alterations or changes in the Schedules.

63. Repeal and Saving: (1) The following Rules are hereby repealed:

  1. The Entertainment Tax Rules, 2018 (1961).

  2. The Sales Tax Rules, 2024 (1967).

  3. The Contract Tax Rules, 2024 (1967).

(2) Acts done or actions taken under the Rules mentioned in Sub-rule (1) shall be deemed to have been done or taken under these Rules.

********

##  Formulae used in Income Tax Act, 2058.

  1. ######  _Assessable Income_

 | ######  | ######

---|---|---

###### _Section 6_ | Income From Employment | A |   
 | S. 8 | Inclusion

Income From Business | B | i | S.7 | Inclusion

 |   
 | ii | S.13-21 | Deduction of Expenses

 |   
 | iii | S.20 | Deduction of Losses

Income From Investments | C | i | S.9 | Inclusion

 |   
 | ii | S.13-21 | Deduction of Expenses

 |   
 | iii | S.20 | Deduction of Losses

Income from Casual Income | W |   
 |   
 | Foreign Source only

Total of Income | D=A+B+C+W | S.6 |

Less: Concession | E |   
 | S.11/64 |

Assessable Income | F=D-E |   
 | S.6 |

Less: Reduction | G | i | S.64 | Contribution to ARF u/s64

 |   
 | ii | S.12 | Donation u/s12

 |   
 | iii | S.12A | Sorts and Heritage U/s12A

Taxable Income | T=F-G |   
 | S.5 |

Tax Rate | R |   
 | Sch.1 | Schedule 1

Tax | T*R |   
 |   
 |

  2. ######  _Interest by Exempt-controlled_

---

###### Section 14 (2) | Interest Payment (paid or payable to Exempt Controller | A

Less: Interest During Construction (IDC) | B

Interest Expense for Sec. 14(2) | C= A-B

Comparable Interest Expense | D= C+ G' of last year

Interest Income+ 50% of Adjusted Taxable Income without any Interest income or expense- full expense for Pollution control expense and R&D Expense | E

Allowed Interest Expense | F= Minimum of D or E

Remaining Interest deferred to next IY | G

  3. ######  _Pollution Controlled Exp. of Business_

---

###### Section 17(2) | Pollution Controlled Expense (recurring and capital cost both) | A

50% of Adjusted Taxable Income from Business without expense for Pollution control expense but full expense for Interest expense and R&D Expense | B

Allowed Pollution Controlled Expense | C= Minimum of A or B

Remaining expense is deferred to next year opening depreciation base of pool D | D

For R&D similar treatment of tax accounting. |

  4. ######  _Tax accounting Depreciation_

 | ###### Sec. 19/Sch 2

---|---

Opening Depreciation Base

Less: terminal depreciation base. | A

Absorbed Addition | B

Disposal Proceeds (including deemed) | C

Depreciation Base (Balance Charging) | D=A+B-C

Depreciation Rate (normal/accelerated) | d%

Depreciation expense (normal/accelerated) | E=D*d%

Terminal Depreciation (BOOT/Power/, Rs.2000) | F

ECR (100%), Generator (50% for manufacturing) | G

Depreciation deduction | H=E+F+G

Tax base for Depreciable Assets | I=J+K+L

Remaining Amount + Unabsorbed additions | J=D-E+ unabsorbed

50% of Generator | K

Unabsorbed Repair/PCE/R&D | L

  5. ######  _Rule of Quarantine_

---

###### Section 20, 36, 45 | Business to Business | Loss or transfer

Investments to Business or Investment | Loss or transfer

Nepal Source to Nepal Source | Loss or transfer

Foreign source to Nepal source or foreign source (per-country basis) | Loss

  6. ######  _Long Term Contract_

---

###### Section 26 | Initial Contract Amount | A

Variation Orders | B

Value Engineering | C

Contract Amount | D=A+B+C

Estimated Cost (incurred + to be incurred) | E

Cumulative Site-cost | F

Percentages of Completion | G=F/E*100%

Cumulative Revenue | H=D*G%

Cumulative Expense | F

Cumulative Gain | G=H-F

Less: Prior Year Cumulative gain | G'

Current year site-gain | H=G-G'

  7. ######  _Installment of Finance Lease_

---

###### Section 32

For Interest rate r% p.a. and 6 months compunding, Inst.= Installment and Mkt Price= Market Price at the end of Lease term.

 |   8. ######  _Calculation of Net Gain from BA/BL_

---

###### Section 36 | Total of Gain during the year u/s 37 | A

Less: |

1. Total of loss during the year u/s 37 | B

2. Unrelieved loss from BA/BL - earlier years | C

3. Unrelieved loss from business, lapsed time of set off u/s 20- 7 of 12 years | D

4. Other Business loss as above | E

Net Gain | F= A- B to E

** take always assets itself not use of asset- Fruit and Tree concept.

  9. ######  _Cost segregation formula for group or part of assets_

 | ###### _Sec. 49_

---|---

  10. ######  _Distributable Profit_

---

###### Section 53/55

In case of payment to beneficiaries using corporate instruments formally (like, buy-back, redemption, forfeit, surrender, liquidation), capital-first rule u/s 55, otherwise, profit-first rule.

 |   11. ######  _Dividend_

 | ###### Imputation | ###### Sec. 54

---|---|---

 | Dividend

income | Other

income | Total Retained Earnings

Opening Balance | M | n | A= m+n

This year profit after tax | o | p | B= o+p

Distributable profit |   
 |   
 | C=A+B

Distribution | Q | r | D=q+r

Distribution tax@5% | - | r*5% |

Closing Retained Earning | m+o-q | n+p-r | E=C-D

  12. ###### _Distribution without Profit_

 | ###### Sec. 56(3)

---|---

In case distribution has made from the distributable profit (see x above) is higher than tax base of retained earnings, then over paid distribution is part in Inclusions for the entity u/s 56(3).

Inclusion= Payment of dividend distributable profit-tax base of retained earnings.

  13. ######  _Bank & Cooperative Loan Loss Provision_

---

###### Section 59

Banking business and cooperatives are allowed to claim loan loss provision expense to the extent of 5% of outstanding loan and Non-banking assets.

Allowed expense is based on limit of provision as.

  1.

  2. Tax Base of Loan loss provision= (Opening) + current net LLP expense+ current year write off

If A>B, all the net LLP expense and write off is allowed. If A<B, then, LLP is allowed to the extent of A- Opening Tax base of LLP; then the case, current year written off of loan has not to be reduced from tax base of outstanding loan and bills. From the next year, opening tax base to be computed as follows (example): |   
 |   
 | Year x | x+1 | x+2 | x+3

---|---|---|---|---|---

 | Tax Base of: (not carrying amount) | Tax base

 | Tax base

 | Tax base

 | Tax base

 | Loan and bills Opening base  
(if not tax base, Opening as per B/S+ Previous written off net of allowed) | 1,000.00 | 1,201.75 | 1,514.96 | 1,634.96

 | This year loan and bills addition net of refund | 200.00 | 300.00 | 100.00 | 150.00

 | This year loan and bills written off | 5.00 | 14.00 | 20.00 | 10.00

 | Recovery of written off (-) | - | - | - | -

 | Tax base of loan before Write off | 1,205.00 | 1,515.75 | 1,634.96 | 1,794.96

 |   
 |   
 |   
 |   
 |

 | Opening LLP (allowed upto last year) | 48.00 | 57.00 | 75.00 | 81.75

PL | This year LLP expense (write off separate) | 9.00 | 18.00 | 15.00 | 10.00

PL | This year LLP written off on last year (if any) or written off | 5.00 | 14.00 | 20.00 | 10.00

PL | Less: reversal of LLP | - | - | - | -

 | Tax base of LLP before write off | 62.00 | 89.00 | 110.00 | 101.75

 |   
 |   
 |   
 |   
 |

 | 5% limit | 60.25 | 75.79 | 81.75 | 89.75

 | Allowed LLP as tax expense | 12.25 | 18.79 | 6.75 | 8.00

 | LLP | 9.00 | 18.00 | 6.75 | 8.00

 | Write off | 3.25 | 0.79 | - | -

 |   
 |   
 |   
 |   
 |

 | Closing Tax base | For deferred tax and next year Opening

 | Loan and bills | 1,201.75 | 1,514.96 | 1,634.96 | 1,794.96

 | LLP | 57.00 | 75.00 | 81.75 | 89.75

  14. ######  _Conversion of ARF to URF_

---

###### Section 64

Income Year= Date approval to Date of withdrawn of approval

Inclusions = All income for whole period + contribution from members

Deductions /expense = All deduction for whole period+payment to members

Income is taxed at default corporate rate (till date 25%)

 |   15. ######  _Income Repatriation_

 | ######

---|---

###### Section 68 | Head Office and Associates a/c

Distributable Profit | See above | A

Opening tax-base of HO & Associates | Payable | B

Cost of Inputs (service charge, goods, loan, Interest etc at arm-length price) | Payable | C

All Payments during the year |   
 | D

Closing Balance | Payable | E=B+C-D

Payments for the inputs | If E>B | D

Repatriation of Income -taxed @5% Remaining is refund of HO or Associates. | If B>E | B-E to the extent of A

  16. ######  _Tax accounting from CFE Income_

 | ######

---|---

###### Section 69 | Income from Business calculated as per Income Tax Act, 2058 for each CFEs |   
 | A

Less: Dividend income from lower CFE |   
 | B

Income from Business for attributable income |   
 | C

Effective Percentage of control in income |   
 | D%

Income from Business (per-country basis) |   
 | E=C*D%

  17. ######  _Tax base of investments in CFEs_

 | ######

---|---

###### Section 69 | Initial Investments made |   
 | A

Add: Income recognized from each CFEs during holding of such investments |   
 | B

Less: Dividend actually received |   
 | C

Net Outgoings for Investment (tax-base) |   
 | D=A+B-C

***

 See Rule 3 for Application to obtain the exemption and Rule 4 for advance ruling. According to Rule 5 Return to be filed within 3 months by Exempted Entity with audited financial statement. No exemption is granted until and unless such Return is filed.

 Purchased Goodwill is not a separate tax asset vide S.49. But brand, name, logo or similar is assets in Block E.

 Sec. 10- exempt income, S. 54- non-taxable and imputed dividend, S. 69- CFE dividend.

 For leave payment, Medical expense and retirement payment accrued before enactment of this Act, see press release dated 2059/3/20 and Rule 20 and 21.

 For tea, stationary, tips, prize, emergency medical cost or items prescribed by the Department to the extent of Rs. 500 at a time- Rule 6.

 NRB and SEBON required to take tax exemption certificate to obtain this facility.

 Allowed interest = interest income+ (inclusions –interest income- full deduction except interest)*50%

 Rs. 500.00 vide Rule 6.

 If the standard is prescribed under prevailing law that standard, if not as prescribed by Department vide Rule 8, so NAS prevails except in Specific Anti-Avoidance Rule.

 Many items without cash received are income under cash basis of tax accounting e.g. S. 15, 27-29, 34, 35, 41, 43-47, 53, 58, 69.

 See Rule 9 for Bad debt of a Bank and Financial Institution.

 If defined return cannot be fixed for each 6-month that is Deferred Return Contract- Rule 10 and Excluded Contract are Security-in Entity, Retirement Fund and Investment Insurance- Rule 11

 See rule 13; for salaried accommodation-2% of salary, vehicle facility-0.5% of salary; for other- accommodation-25% of rent paid/imputed rent, vehicle-1% of Market Price p.a.

 Fraction of a rupee not to be taken into account. See Rule 14.

 See Rule 15 determination of the value in advance.

 As prescribed by NRB vide rule 9.

 See Rule 16- Circumstances in Which Involuntary Disposal With Replacement Happens

 Self-application by Beneficiary or Entity for approval –Rule 16.

 See Chapter 4 of the rules regarding Special Provisions for Natural Persons and Entities

 Rs. 750.00 vide Rule 17.

 See Rule 18.

 See Rule 20 about Approval of Retirement Funds

 See rule 21 about Limit of Retirement Contributions

 See Rule 22.

 See Rule 23 and 24.

 See Rule 29- Identity Cards of Officers and Rule 30 - Place and Procedure of Paying Tax

 See Rule 31- Order of Payment

 See Rule 32- Procedure of Deducting (Withholding) Tax By Employers

 See Rule 34 - No Statement of Estimated Tax Required

 See rule 33.

 Wrong reference, it should be Sub-sec.(4).

 For auction procedure see Rule 35.

 For refund procedure See Rule 36.

 See Rule 37.

 The word 'not' to be deleted.

 Rule 11, application to partial transfer too. Sch.4 Form to be filed within 7 days.

 Place of Supply of Goods- Rule 15, of Services- Rule 16.

 Now, this provision is redundant because this provision has enacted on 2065.06.03.

 Form as per Sch.1 and in case partnership Sch.2 also- Rule 3.

 Tax Payer's Identification Number, so-called TPIN, now a days PAN since 2058.

 Income Tax related documents and bank loan application more than Rs.1 Lakh – Rule 13.

 Changes in place – Rule 9; changes in business objective of nature- Rule 10.

 Application in Sch.11 Form and procedure of deregistration – Rule 12.

 Based in identical goods by TO, based on similar Taxpayer by DG- Rule 22

 For sale in loss by used-goods dealer selling at more than Rs.10,000- Rule 19

 Rule 23

 Upto 6 years- Rule 23(7).

 Process and Credit- Rule 39A.

 Soft or hard drinks, petrol for fuel, entertainment cost- no credit; automobiles as motor car- partial credit of 40%; dealer of these goods allow for full credit- Rule 41.

 If directly used in VAT-attractive Supply- full credit; in case commonly use- proportionate credit - Rule 40.

 Some treatments prescribed in- Rule 33.

 Taxable Amount is selling price before VAT and cost including VAT- Rule 33.

 Tax invoice or import document and to be claimed within 12-months &c.- Rule 39.

 To be filed format as per Sch. 16- Rule 43.

 Within 25 days in Form as per Sch.10- Rule 26, by heir or representative- Rule 27, jointly filing- Rule 28

 On Registration or deregistration- less than one month, bi-monthly or trimester- Rule 26.

 Procedures and other- Rule 45

 At 15% per annum- Rule 47 (rule ultraviolet in case of Sub-Sec.(4) .
