How Income Tax is Calculated in Nepal

Income tax in Nepal is calculated based on the taxpayer’s taxable income. Here are the steps to calculate income tax in Nepal:

1. Calculate Total Income: The first step in calculating income tax in Nepal is to determine the taxpayer’s total income. This includes all sources of income, such as salary, wages, bonuses, tips, commissions, rental income, and other types of income.
2. Deduct Allowable Expenses: Once the total income is determined, allowable expenses can be deducted. These may include expenses such as rent, utilities, transportation, and other business-related expenses. Some of the allowable deductions are specified by the tax law and others are based on the taxpayer’s actual expenses.
3. Calculate Taxable Income: After allowable expenses are deducted from the total income, the result is the taxable income.
4. Determine Tax Rate: The tax rate depends on the taxpayer’s income level. For fiscal year 2079/80 (Mid-July 2022 to Mid-July 2023), the tax rates are as follows:

• Income up to NPR 400,000 is taxed at 1%
• Income between NPR 400,000 and NPR 1,000,000 is taxed at 10%
• Income between NPR 1,000,000 and NPR 2,000,000 is taxed at 20%
• Income above NPR 2,000,000 is taxed at 30%

5. Calculate Income Tax: To calculate the income tax liability, multiply the taxable income by the applicable tax rate.

For example, if the taxable income is NPR 1,500,000, the income tax would be calculated as follows:

• Income up to NPR 400,000 is taxed at 1%, which is NPR 4,000.
• Income between NPR 400,000 and NPR 1,000,000 is taxed at 10%, which is NPR 60,000 (NPR 600,000 – NPR 400,000 = NPR 200,000 x 10%).
• Income between NPR 1,000,000 and NPR 2,000,000 is taxed at 20%, which is NPR 100,000 (NPR 1,500,000 – NPR 1,000,000 = NPR 500,000 x 20%).
• Therefore, the total income tax liability is NPR 164,000 (NPR 4,000 + NPR 60,000 + NPR 100,000).

It’s important to note that certain types of income may be subject to different tax rates or may be exempt from income tax in Nepal. It’s always recommended to consult with a tax professional for personalized guidance.