It may not be always possible for all the Entrepreneurs to have proper Knowledge of Tax Laws applicable in the Country in which they have started their Business. Moreover, For few Complex Tax Issues it is always advisable to consult with their Auditors, Accountants or Tax Consultants. But Gaining Knowledge about few Important Tax Aspects/Issues helps entrepreneurs to save lot of money and time.
1. Advance Tax
Liability to Pay Advance Tax arises if the Estimated Tax Liability after giving credit to the Withholding Tax is Rs. 5,000 or more. Estimated Tax Liability should be paid in the following installments to the Inland Revenue Department:
Within Poush End:40% of Total Estimated Tax Liability
Within Chaitra End:70% of Total Estimated Tax Liability
Within Ashad End:100% of Total Estimated Tax Liability
Estimated Tax should not be less than 90% of Annual Tax to be paid for Income Year. Further Estimated Tax Return should be submitted within Poush End of Income Year.
Failing to pay Advance Tax leads to Interest u/s 118 (i.e. 15% p.a.) of Income Tax Act of Nepal.
2. Withholding Tax
Withholding Tax is payment of Tax at the point of received deducting tax from gross received. It is deducted by the payee at the point of payment and paid to IRD. As per Income Tax Act 2058, only resident payer paying any payments covered by Section 87 to 89 having source in Nepal need to withhold Income Tax.
List of Payments covered by Section 87 to 89 of Income Tax Act 2058 are as follows:
- Withholding Tax on Salary Payments : Slab Rate
- Withholding Tax on Services Payment : VAT Invoice:1.5% otherwise 15%
- Withholding Tax on Interest Payment Paid by Bank FI to Natural Person : 5%
Paid by Any Person to Resident Bank FI :No WHT
- Withholding Tax on Contract Payment : 1.5% (If payment within 10 days is more than Rs. 50,000)
- Withholding Tax on Rent : 10%
- Withholding Tax on Dividend : 5%
- Withholding Tax on Payment of gain from Insurance Investment : 5%
- Withholding Tax on Gain from Unapproved Retirement Fund : 5%
3. Filing Income Tax Return
As per Section 99 of Income Tax Act 2058, Income Tax Return should be filed within 3 months from the date of closure of Income Year. This period can be extended up to 3 Months upon written request and due approval of IRD before closing of the time to filing or extended time to filing return.
As per Section 117(1)(b), In case of delay in submission of Final Tax Return under Section 96 of the Income Tax Act, penalty will be imposed as under:
- In case of presumptive taxpayers as specified by Section 4(4), Rs. 100 per month of delay.
- For other taxpayers 0.1% of assessable income without deducting any amount or Rs. 100 per month of delay whichever is higher.
4. Tax Rate
On the Taxable Income computed as per Income Tax Act, Tax will be calculated using the Tax Rates specified in Schedule 1 of Income Tax Act, 2058. Schedule 1 has two sections:
Section 1 : Tax Rate applicable to Natural Person
Section 2 : Tax Rate applicable for Entity
Tax Rate for natural Person:
A Progressive Tax Rates will be applicable to the resident natural person. The Slab Rate for Natural Person is as under:
Tax Rate for Entity
Normal Tax Rate of 25% is applicable.
5. Value Added Tax
In case of transactions of Vatable Goods/Services 13% VAT is required to be charged. VAT paid on the purchase of Vatable Goods/Services will be allowed to be deducted/set off from the VAT payable on Sale of Goods/Services.
VAT payable should be paid within 25th from end of Month/Trimester in such transactions has happened. And within such time, VAT Return should be submitted.
For further information, Please contact NBSM Office.