Income Tax Act 2058 in Nepal: Provisions, Sections & Scope (2026)

Most Nepali businesses, salaried staff, and NRN investors only encounter the Income Tax Act 2058 the moment a notice from the Inland Revenue Department lands — by then the room to argue residency, source, or deductions has already narrowed.

Enacted on 19 Chaitra 2058 BS (1 April 2002 AD) and operative through every Finance Act since, the Act is the spine of Nepal's direct-tax system: it sets out who is taxed, on what income, at what rates, with what deductions, and through which compliance mechanism.

Below is the working brief our tax team uses with clients in Kathmandu — the chapter map, the load-bearing sections, the residency test, the TDS regime, and how Finance Act 2082 interacts with the parent Act in 2026.

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Our tax practice handles the Income Tax Act 2058 from both ends — corporate compliance, residency planning, tax-clearance and depreciation work for businesses, and contested assessments, audit objections, and Revenue Tribunal appeals for individuals and companies. As a full-service law firm in Nepal, we see the same friction repeatedly: a foreign consultant who triggers Nepal residency without realising it, a private company that misreads Section 11, or a salaried employee who never paired the Act with the Finance Act 2082 amendments.

What Is the Income Tax Act 2058?

The Income Tax Act 2058 (Aaykar Ain, 2058) is the principal Nepali statute on direct taxation of income. It was authenticated on 19 Chaitra 2058 BS (1 April 2002 AD) and replaced the older Income Tax Act 2031 with a modern, self-assessment-driven framework. The full Nepali and English text is published on the Nepal Law Commission portal; an authoritative English version with consolidated amendments is also hosted by the Inland Revenue Department.

The Act spans 28 chapters and over 140 sections. Its scheme is straightforward: definitions and charging rules, computation of income and deductions, TDS and advance tax, returns and assessment, recovery and penalties, international tax, and administration. Schedules 1 and 2 carry the slab rates and depreciation classes — these are the parts that change every year through the annual Finance Act.

Administered by the Inland Revenue Department (IRD) under the Ministry of Finance, the Act covers every person — resident or non-resident — with Nepal-source income, plus residents on their worldwide income. For the slab-by-slab numbers and FY 2082/83 deadlines, see the sister guide on the income tax rate in Nepal; this article keeps the focus on the structure and provisions of the Act itself.

When Was the Act Enacted and How Has It Been Amended?

The Income Tax Act 2058 was passed by Parliament and authenticated on 19 Chaitra 2058 BS, with operative effect from FY 2059/60 once the Income Tax Rules 2059 were framed. Since then the parent Act has been amended in two main ways: through stand-alone amendment acts, and — far more frequently — through the annual Finance Act that accompanies each Budget Speech.

The Finance Act mechanism is the operational reality of Nepali income-tax law. Every year in Jeth (mid-June), the Minister of Finance presents the Budget Speech to Parliament, and the Finance Act is enacted to revise Schedule 1 slab rates, tweak Section 11 concessions, adjust threshold figures, and occasionally insert new sections. This is why citing "Section 1 of the Income Tax Act 2058" in 2026 is incomplete without the words "as amended by Finance Act 2082".

The Ministry of Finance posts each year's Budget Speech and Finance Act on its official portal; the IRD then issues circulars and a fresh consolidated text after each cycle.

Key takeaway: The Income Tax Act 2058 is a living statute — its rates and several thresholds reset every year through the Finance Act. For any 2026 question, read the Act 2058 alongside the Finance Act 2082 and the IRD circular for FY 2082/83.

Structure of the Act — Chapters, Sections, and Schedules

The chapter scheme of the Act maps onto five functional pillars: definitions and chargeability, computation, withholding and payment, assessment and dispute, and international tax. Almost every advisory or audit question under the Act traces back to one of these five pillars.

A salaried employee asking how much tax to pay sits inside Chapter 3 read with Schedule 1; a private company optimising deductions sits inside Chapter 8; a non-resident consultant invoicing a Kathmandu client sits inside Chapter 15 and Section 70 in particular. Knowing which chapter applies is the first step in every Income Tax Act 2058 matter.

Need help mapping your specific transaction onto the right chapter? Our tax team handles these every week →

Key Definitions Under the Act — Residency, Taxable Income and Source of Income

Section 2 is the gateway to the entire Income Tax Act 2058. It defines "person", "resident", "income", "assessable income", "taxable income", "Nepal-source", and around fifty other terms that the rest of the Act runs on. Three definitions are particularly load-bearing in practice.

The residency test for individuals under Section 2(ka) is satisfied if the person is in Nepal for 183 days or more in any 365-day period that ends in the income year, or if the person is an employee of the Government of Nepal posted abroad. Companies are resident if incorporated in Nepal or effectively managed in Nepal during the income year. Residents are taxed on worldwide income; non-residents are taxed only on Nepal-source income, plus a flat 25% on certain payments under Section 70.

Nepal-source income is defined section by section across Sections 67 to 73 — employment exercised in Nepal, business carried on through a Nepal PE, dividends paid by Nepal-resident companies, interest from Nepali payers, royalties for use of property in Nepal, gains on Nepal-situate assets, and so on. Pinning the source of every income stream is the first step in any cross-border filing — it determines both the rate and whether a tax-treaty article applies.

Key takeaway: Residency under the Act 2058 is mechanical, not intentional. A consultant who spends 184 days in Nepal across two visits becomes a Nepal resident — taxable on worldwide income for that year — even if their employer, contract, and bank account are all foreign.

How Income Tax Is Charged — Section 3 and the Computation Rules

Section 3 is the charging section. It imposes income tax for each income year on every person who has assessable income, plus a few special charges — final withholding payments, presumptive tax under Section 4, and certain windfalls. The income year runs from Shrawan 1 to Asar end (mid-July to mid-July), tracking Nepal's fiscal year.

Computation under Section 5 starts from "assessable income" — the sum of income from employment (Sec. 8), business (Sec. 7), and investment (Sec. 9) — minus the deductions allowed by Chapter 8 to give "taxable income". Tax is then applied at the Schedule 1 rate, set fresh each year by the Finance Act. Section 4 carves out a presumptive tax track for very small businesses with annual turnover under prescribed limits, who pay a flat fee instead of computing income.

• Sec. 3 — charging section: tax on every person with assessable income
• Sec. 4 — presumptive tax for small natural-person businesses (D-class)
• Sec. 5 — assessable income = employment + business + investment
• Sec. 6 — taxable income = assessable income minus allowable deductions
• Sec. 7–9 — heads of income: business, employment, investment
• Sec. 10 — exempt amounts (diplomatic income, certain pensions)
• Sec. 13–19 — deductions: general business expense, repair, depreciation, interest, bad debts
• Sec. 20 — loss set-off and carry-forward (typically up to seven years)

For the actual slab numbers — single, married, corporate, banks/insurance — see our companion guide on the income tax rate in Nepal. This article keeps the focus on how Section 3 and the computation rules work; the rate tables sit there.

Sources of Income Under the Act — Employment, Business, Investment, Windfall

The Act recognises three primary heads of income, plus a residual category. Each head has its own inclusion rules, deductions, and timing — confusing them is one of the most common assessment errors we see at the IRD.

For salaried employees, Section 8 captures everything the employer pays or grants — including provident fund and SSF contributions, vehicle allowances, housing perks, and bonuses. The Section 13 to 19 deductions are largely unavailable to pure-employment cases; instead, the headline reliefs are the basic exemption slab, the 1% Social Security Tax deduction for SSF-registered staff, and the 75% deduction on retirement payments.

For business taxpayers, the deduction architecture in Sections 13 to 19 — general business expenditure, depreciation under Schedule 2, interest, repair and maintenance, bad debts — is where the real planning happens. Aggressive but legitimate use of these deductions is the legal floor of corporate tax planning under the Act.

Withholding Tax (TDS) Under Section 63 and the Section 87–95 Regime

Withholding tax — known in practice as TDS — is the cash-flow engine of the Income Tax Act 2058. The withholding architecture sits in Sections 87 to 95: Section 87 covers payments on employment, Sections 88 and 89 cover investment-type and contract payments, Section 90 fixes the timing of remittance to IRD, and Section 92 distinguishes final from non-final withholding. Section 63 specifically governs withholding on retirement payments and the related employer obligations.

The withholding payer must deduct tax at the prescribed rate on covered payments, deposit it with the IRD within 25 days of the end of each Nepali month, and file an e-TDS return. The receiver claims the TDS as a credit when filing the annual return under Section 96 — unless the deduction is "final" under Section 92, in which case no return is needed for that income stream. Common final-withholding categories include dividend, rent on land and building paid to a natural person, and interest from banks.

For the operational side — registration, e-TDS filing, payment cycle and certificates — see our dedicated guide on TDS in Nepal and the linked compliance guide on company compliance in Nepal.

Key takeaway: Almost every B2B payment in Nepal triggers a TDS obligation under Sections 87–95 of the Act. Missing the 25-day remittance window attracts interest under Section 119, and unrecorded TDS rolls forward as the payer's liability — not the receiver's.

Annual Return and Self-Assessment — Sections 96 and 97

Section 96 imposes the annual income return obligation on every person whose tax liability for the year is not exhausted by final withholding. Resident natural persons earning only salary that has been correctly withheld under Section 87 are exempt from filing — but D-class business taxpayers, sole proprietors, partnerships, and all companies must file regardless.

Filing is electronic through the IRD Taxpayer Portal at ird.gov.np. The return is due within three months of the income-year end — for FY 2082/83 ending Asar 31, 2083, the deadline falls at Ashoj end (mid-October) 2083 BS. A three-month extension is available on application under Section 98, after which interest and late-fee penalties begin to run.

Self-assessment is the heart of Section 99. The taxpayer's filed return is treated as the assessment unless the IRD issues a notice of amended assessment under Section 101 within four years of filing — extended where there is suppression or fraud. The IRD audits a sample of filings each year, and amended-assessment notices are the most common trigger for our administrative-review and Revenue Tribunal work.

Concessions, Exemptions and Deductions Under Section 11

Section 11 of the Act is the industrial-policy lever inside an otherwise neutral tax statute. It carves out concessional rates and partial exemptions for specified industries — special industries, agriculture, exports, hydropower, infrastructure of national priority, and IT/BPO operations in designated zones — typically expressed as a percentage rebate against the standard rate.

The concession menu is updated each year through the Finance Act, but the headline pattern is stable: a special manufacturing industry employing a defined number of Nepali workers gets a rebate; a hydropower project commissioned within a target window gets a 10–15-year exemption; an export-oriented industry gets a partial reduction; women-led, Karnali-based, or backward-area enterprises get an additional uplift. Section 12 then provides for donation deductions to listed charities up to a percentage cap.

Section 11 is the most-litigated section in our corporate-tax practice. The IRD reads the qualifying conditions strictly — employee numbers must be Nepali nationals on a verifiable payroll, "commissioning" needs documentary evidence, and concession years are counted from the precise statutory trigger. Drafting Section 11 claims in the annual return is best done with a tax-clearance review (see our tax clearance certificate in Nepal guide).

Key takeaway: Section 11 concessions are powerful but condition-heavy. Claiming them without paper-trailed compliance — payroll records, commissioning certificates, location proof — is the single most common reason an IRD audit results in a Section 101 amended assessment.

Penalties and Interest Under Sections 117–119

Chapter 21 of the Act runs from Section 117 to Section 124 and houses the interest, fee, and penalty regime. Three sections do most of the heavy lifting: Section 117 (failure to maintain documents and file returns), Section 118 (failure to pay tax on time), and Section 119 (interest on outstanding tax). Sections 120 to 124 add false-statement, aiding-and-abetting, and offence-related penalties on top.

The penalty structure is largely formulaic — late-filing fees scale with annual turnover, and Section 119 interest accrues at 15% per annum on unpaid tax from the original due date until payment. False-statement penalties under Section 120 can run from 50% to 100% of the tax shortfall where understatement is proved.

Administrative review under Section 115 is the first remedy against any of these — file within 30 days of receiving the IRD order. From there, appeal lies to the Revenue Tribunal and onward to the Supreme Court on questions of law.

Relationship Between the Act and the Finance Act 2082

The Finance Act is to the Income Tax Act 2058 what an annual amendment is to a constitutional code — it does not replace the parent, it edits it. Each year's Finance Act, including Finance Act 2082, sets the new Schedule 1 slab rates, may insert or delete sections, tweaks Section 11 concessions, adjusts withholding rates, and revises thresholds.

For FY 2082/83, the Finance Act 2082 retained the progressive personal-tax structure — 1% Social Security Tax, 10%, 20%, 30%, 36%, 39% — and the standard 25% corporate rate, with 30% for banks, insurance, telecom, tobacco, and alcohol. The 10% additional tax on listed shares' capital gains for natural persons was retained. Industry-specific concessions under Section 11 saw modest tweaks consistent with the 2082/83 Budget Speech.

What this means in practice: a question like "what is the corporate tax rate?" must be answered as "Section 3 charging section + Schedule 1 of the Income Tax Act 2058 + Finance Act 2082" — three instruments, read together. For the consolidated FY 2082/83 numbers, see the income tax rate in Nepal guide.

How the Income Tax Act Connects to Other Nepal Tax Laws

The Act 2058 sits at the centre of Nepal's tax system but does not stand alone. A live business interacts with at least four other statutes and registration regimes — and an Income Tax Act question often lands you in the Value Added Tax Act 2052, the Excise Act 2058, or the PAN/TIN registration framework before it is fully resolved.

• Value Added Tax Act 2052 — VAT on supply of goods and services at 13%; mandatory registration above the prescribed threshold. See overview of VAT in Nepal and the operational steps in VAT registration in Nepal.
• Excise Act 2058 — separate excise duty on specified products; the same IRD administers it alongside the Income Tax Act.
• PAN registration — every taxpayer needs a PAN to file under the Act. Walk-through in PAN card registration in Nepal.
• TIN allocation — Taxpayer Identification Number allocated through PAN registration. See TIN number in Nepal.
• Social Security Fund — the SSF contribution sits next to the Section 87 employer-withholding obligation. See Social Security Fund in Nepal.
• Tax clearance — annual certificate driven by Income Tax Act compliance. See tax clearance certificate in Nepal.

For a fully integrated compliance calendar — PAN, VAT, TDS, SSF, and the Income Tax Act 2058 return — talk to our team early in the fiscal year, not three weeks before the Ashoj deadline.

Common Compliance Mistakes Under the Act

Across the Income Tax Act 2058 work our team handles for sole proprietors, private limited companies, banks, and NRN investors in Kathmandu, a small set of recurring mistakes accounts for most disputes. They are easy to fix in advance and very expensive to fix once an IRD notice arrives.

• Filing under last year's slabs — using FY 2081/82 rates for FY 2082/83 returns is the single most common error in salaried filings; the Finance Act resets Schedule 1 every year.
• Missing the residency trigger — a foreign consultant or NRN spending 184+ days in Nepal becomes a resident and is taxable on worldwide income, not just Nepal-source.
• Treating final TDS as non-final — claiming a credit for dividend or bank-interest TDS that is final under Section 92 leads to amended assessment and Section 119 interest.
• Section 11 claims without payroll evidence — concessional rates fail at audit when the employee count, location, or commissioning date cannot be papered.
• Confusing the income year with the calendar year — the Act runs Shrawan to Asar end (mid-July to mid-July), not January to December.
• Skipping the Section 95 instalment — businesses with estimated tax above the threshold must pay instalments in Poush, Chaitra, and Asar; missing them triggers interest.
• Missing the Section 96 e-filing window — Ashoj-end deadline is hard; the Section 98 extension must be applied for in writing before the deadline, not after.
• Claiming worldwide foreign-tax credit blindly — Section 75 caps the credit at the Nepali tax on the same foreign-source income; over-claims lead to amended assessment.

For the operational compliance product itself, our company compliance service handles annual filings under the Act day to day.

Key takeaway: The single most expensive Income Tax Act 2058 mistake is filing without confirming the current year's Finance Act numbers. Last year's slab rates, last year's concession menu, and last year's withholding rates are all unsafe defaults — every return cycle starts with a fresh check against Finance Act 2082 and the IRD circular for FY 2082/83.

Related Questions About the Income Tax Act 2058

These are the questions our tax team is asked most often during Income Tax Act 2058 consultations — short answers below, with links to deeper guides.

Is the Income Tax Act 2058 Still in Force in 2026?

Yes. The Income Tax Act 2058, enacted on 19 Chaitra 2058 BS (1 April 2002 AD), remains in force in Nepal as of April 2026. Each year's Finance Act amends rates and thresholds without replacing the parent Act. For FY 2082/83 numbers, see the income tax rate in Nepal guide.

How Many Sections Does the Income Tax Act 2058 Have?

The Act runs across 28 chapters and over 140 sections, plus Schedule 1 (slab and corporate rates) and Schedule 2 (depreciation classes). The most-cited sections are 2 (definitions), 3 (charge), 11 (concessions), 63 and 87–95 (TDS), 96–99 (returns and self-assessment), and 117–119 (interest and penalties).

What Is the Difference Between the Income Tax Act and the Finance Act?

The Income Tax Act 2058 is the parent statute — definitions, charging section, computation, deductions, returns, recovery, penalties. The Finance Act is enacted every year alongside the Budget Speech to revise Schedule 1 slab rates, tweak Section 11 concessions, and adjust thresholds. Both must be read together for any current question.

Does the Income Tax Act 2058 Cover Capital Gains?

Yes. Capital gains on land, buildings, listed and unlisted shares are taxed under Section 95(A) read with Sections 38 to 40 on disposal of business and investment assets. The applicable rate depends on the asset type and holding period, set out in Schedule 1 and refreshed annually by the Finance Act.

Where Can I Read the Full Text of the Act?

The Nepali and English text of the Income Tax Act 2058 is published on the Nepal Law Commission portal; the IRD hosts a consolidated English text incorporating Finance Act amendments at ird.gov.np.

Conclusion

The Income Tax Act 2058 is the foundation of every direct-tax obligation in Nepal — from a salaried employee's monthly payroll deduction, through a private company's annual self-assessment, to a non-resident consultant's permanent-establishment exposure. Read with the Finance Act 2082 and the Income Tax Rules 2059, and applied through the Inland Revenue Department, the Revenue Tribunal, and ultimately the Supreme Court, the Act remains the controlling statute in 2026.

The two failure modes we see most often are equally avoidable. On the compliance side, businesses file using outdated Schedule 1 numbers and learn at audit that the Finance Act 2082 reset the rates. On the structuring side, individuals and NRNs cross the Section 2 residency threshold without realising it and find their global income suddenly inside the Nepali tax net. Both are fixable with a structured Income Tax Act 2058 review at the start of each fiscal year, paired with a fresh look at the current year's slab rates.

For end-to-end help with Income Tax Act 2058 compliance, residency planning, Section 11 concession claims, TDS design, annual return filing, IRD audit defence, and Revenue Tribunal appeals, speak with our lawyers today → — Alpine Law Associates is a full-service law firm in Kathmandu whose tax, corporate, and litigation teams handle Income Tax Act matters daily for individuals, startups, banks, and NRN investors across all seven provinces of Nepal.

Last reviewed: April 2026