Income Tax Law in Nepal 2026: Scope, Assessment & Filing

The Income Tax Act 2058 is Nepal’s main direct-tax law, administered by the Inland Revenue Department (IRD) and operating from FY 2058/59. It sets the rules for residency, taxable income, deductions, withholding, returns, assessment and appeals. For practical help, see our tax compliance and advisory service in Nepal.

Key Takeaways

• The Income Tax Act 2058 was enacted on 19 Chaitra 2058 BS, or 1 April 2002 AD, and became operative from FY 2058/59.
• The Act contains 28 chapters, supported by Schedule 1 for rates and Schedule 2 for depreciation, with annual changes made through the Finance Act.
• Section 2(ka) contains the residency definition, including the 183-day test for an individual within a 365-day window.
• Section 3 imposes income tax, while Section 4 addresses the scope of taxation by residency status.
• Section 5 identifies employment, business, investment and casual income heads.
• Sections 95 to 100 address returns, self-assessment and installment payments; Section 105 concerns amendment of assessment.
• Sections 115 and 116 provide the administrative review and Revenue Tribunal appeal framework, while Sections 117 and 119 address penalty and interest.

What is the Income Tax Act 2058 in Nepal?

The Income Tax Act 2058 is Nepal’s principal direct-tax statute. It replaced the Income Tax Act 2031, was enacted on 19 Chaitra 2058 BS, or 1 April 2002 AD, and became operative from FY 2058/59. The Act covers the charge, computation, collection, assessment and recovery of income tax for persons within its scope.

The Act is not read alone. The Income Tax Rules 2059 provide procedural detail. The annual Finance Act can change rates in Schedule 1 and add or amend operative provisions. The Inland Revenue Department administers the system through its central office, large-taxpayer units and field offices. It also issues circulars and public rulings that may matter in day-to-day compliance.

For a business owner, the practical point is simple: the parent Act explains the legal structure, but the current year’s Finance Act and applicable administrative material may affect the result. In 2026, corresponding to 2083 BS, you should not rely on an old rate table without checking the applicable year.

How is the Income Tax Act Nepal organised?

The Act is organised into 28 chapters, with provisions moving from definitions and charging rules to computation, withholding, returns, assessment, appeals and offences. Schedule 1 contains rates that may be updated annually, while Schedule 2 contains depreciation rates by asset class. The Income Tax Rules 2059 supplement the statutory framework.

This map is a starting point, not a substitute for reading the provision that applies to your transaction. A company, employee, investor, partnership and non-resident may reach different results from the same broad income-tax framework.

What is the residency test under Section 2(ka) in Nepal?

Section 2(ka) defines residency for income-tax purposes. An individual is treated under the stated test as present in Nepal for 183 days or more in any 365-day window, while an entity may be resident if incorporated in Nepal or centrally managed in Nepal. The residency result affects the tax scope applied under Section 4.

The 183-day rule is therefore not a casual travel question. You need to examine the relevant 365-day period and the person’s actual presence. For an entity, incorporation and central management are separate facts that may matter. A company incorporated in Nepal and an entity centrally managed in Nepal should not be analysed in the same way as a temporary visitor without checking the statutory definitions.

Residency also matters for NRN investors, foreign nationals, employees working across borders and businesses receiving foreign income. Sections 67 to 73 address international tax matters, including source rules, foreign tax credit and allocation issues. A treaty or other international arrangement may also affect the analysis where applicable, so the documents and current position should be checked before filing.

What income is taxed under Section 5?

Section 5 groups taxable income into employment income, business income, investment income and casual income. The correct income head matters because the Act applies different computation and deduction rules to different sources. A payment’s label alone does not settle its treatment; the underlying activity and source must be examined.

Employment income

Employment income concerns amounts connected with employment. Salary records, benefits and withholding documents may need to be considered together. An employee should not assume that a payroll description answers every tax question, especially where the person has side income, foreign income or investment receipts.

Business income

Business income applies to commercial activity. Businesses should connect revenue records with expenses, assets, related-party dealings and withholding obligations. The computation is not simply total receipts less every payment. Sections 17 to 25 contain the deduction framework, including rules relating to interest, depreciation, repairs, contributions and bad debts.

Investment and casual income

Investment income and casual income are separate heads in the statutory framework. The source, timing and character of the receipt may affect its treatment. If one payment could be described in more than one way, obtain a written analysis before placing it in the return.

Which deductions are allowed under Sections 17 to 25?

Sections 17 to 25 provide the deduction framework for business and investment income. The central rule is that expenses must be connected with producing the relevant income, subject to the Act’s specific rules and limitations. The provisions also address interest, depreciation, repairs, contributions, bad debts, research expenditure and pollution-control expenditure.

That does not mean every business payment is automatically deductible. You should separate private spending, capital spending, income-producing expenses and payments that have special statutory treatment. Depreciation is not the same as an ordinary repair expense. Interest may require a separate review. Contributions, bad debts, research expenditure and pollution-control expenditure each need to be tested against the applicable provision.

Keep the records that explain the commercial purpose of an expense and its connection with the income source. The Act’s deduction rules are about legal eligibility, not only bookkeeping. A ledger entry may show that money was paid, but it may not by itself establish that the statutory deduction conditions are satisfied.

How do transfer pricing and international tax rules work?

Sections 33 and 34 address related-party transactions and allow arm’s-length adjustments. Sections 67 to 73 address international tax matters, including foreign tax credit, source rules and allocation of expenses across jurisdictions. These rules can matter where a Nepal business deals with an associated enterprise or earns income connected with another country.

Arm’s-length pricing means considering whether a related-party transaction reflects conditions that would apply between independent parties. The concern is not limited to the invoice amount. The relationship, transaction terms, services, assets, risks and supporting records may all affect the analysis.

International tax work also requires a clear source analysis. A resident or non-resident position can change the scope of Nepal taxation. Foreign tax credit questions should be examined with the foreign tax records, the Nepal return and the applicable statutory provisions together. Do not treat a foreign payment as outside Nepal’s tax system merely because the money was received abroad.

What are the withholding, return and self-assessment rules?

Chapter 17, covering Sections 87 to 95, provides the withholding-tax framework for payments to residents and non-residents. Section 95 concerns the annual return, while Sections 96 to 100 address self-assessment and payment matters, including installment payment under Section 100. Section 93 should also be read within this withholding and return framework.

Withholding tax, often called TDS, is tax retained from a payment and dealt with through the statutory system. It is not always the final tax position. Whether withholding is final or creditable depends on the applicable provision and the nature of the payment. A payer should not assume that issuing a payment completes every compliance duty.

Section 95 is especially important for Nepal return filing. A return should reflect the relevant income heads, deductions, withholding records, payments and supporting information. Section 96’s self-assessment framework means the taxpayer’s filing is part of the assessment process, not merely an information form.

1. Identify the person, entity, income year and likely residency position.
2. Classify each receipt under the relevant income head in Section 5.
3. Separate business and investment expenses from private or capital items.
4. Check withholding obligations under Chapter 17, including the relevant payment type.
5. Reconcile withholding, installments and other tax records before preparing the return.
6. File under the applicable Section 95 and self-assessment framework, after checking current Finance Act changes.
7. Keep the records supporting income, deductions, residency, withholding and payments.

The IRD administers e-filing and related tax operations. You can review the department’s official information through the Inland Revenue Department. Portal functions and filing requirements can change, so verify the current position with the IRD or obtain advice before submission.

How does Section 105 Nepal assessment work?

Section 105 concerns amendment of an assessment. The assessment framework also includes self-assessment review under Section 101 and deemed assessment under Section 102. The IRD’s assessment powers must be read with the relevant notice, facts, records and statutory procedure; a taxpayer should respond to an assessment issue rather than assume the original return ends the matter.

An assessment is the legal determination of tax payable. A self-assessment begins with the taxpayer’s return, but the Act contains further assessment machinery. The distinction between self-assessment review, deemed assessment and amended assessment matters because each may involve different facts and procedural questions.

If you receive an IRD communication, preserve the envelope or electronic record, the return, financial statements, invoices, withholding certificates and correspondence. Do not respond only with a broad disagreement. Identify the income head, deduction, residency point or procedural issue that is disputed, then match it with the relevant section and evidence.

What are the Nepal tax appeal routes under Sections 115 and 116?

Section 115 provides the IRD administrative review route, while Section 116 provides appeal to the Revenue Tribunal under the Revenue Tribunal Act 2031. The assessment, notice and review record determine the next step. Further appeal to the Supreme Court may lie on a point of law, as stated in the existing framework.

Administrative review is not the same as a general complaint. It is part of the statutory dispute process and should address the legal and factual basis of the assessment. A taxpayer should check the notice, the assessment order, the disputed amount, the supporting documents and any applicable procedural requirement before choosing a route.

The Revenue Tribunal is outside the ordinary IRD administration. That distinction matters for representation, record preparation and litigation strategy. If the matter reaches a tribunal or court, a tax lawyer or advocate can help organise the assessment record and identify whether the dispute concerns evidence, statutory interpretation, procedure or calculation.

What penalties, interest and offences does the Act cover?

Sections 117 to 124 address consequences for non-compliance. Section 117 concerns penalty, Section 119 concerns interest, Section 122 concerns false statements, and Section 124 concerns offence and prosecution. The result depends on the conduct, the notice, the assessment history and the applicable statutory conditions; these provisions should not be treated as interchangeable.

Interest and penalty are different legal consequences. Interest may relate to the time or amount of unpaid tax, while a penalty may respond to a specified failure or conduct. A false statement issue under Section 122 can raise a different question from an ordinary late or incomplete compliance issue.

Section 124 places serious conduct within the offence and prosecution framework. You should not destroy, alter or casually recreate tax records after receiving a notice. If the IRD alleges a false statement or other offence, obtain legal advice promptly and preserve the original records.

How should a business owner use the Act in practice?

A business owner should use the Act as a linked compliance system rather than a list of isolated sections. Start with residency and income source, then test deductions, withholding, return filing, assessment exposure and appeal rights. The current Finance Act and Income Tax Rules 2059 should be checked alongside the parent Act.

For a Nepali company, the review usually begins with the business activity, accounting records, related-party payments, payroll, withholding and annual return. For an NRN or foreign investor, the residency and source analysis comes first. For a salaried person, employment income may not be the only relevant head if investment or casual income also exists.

The IRD’s role is administrative, but the taxpayer remains responsible for understanding the position reported. If your business receives an assessment notice, the response should be based on the Act, the notice and the evidence. Our team can help review tax records, explain the relevant provisions and assist with compliance or a dispute through our tax law practice in Nepal.

What documents and records should you review before filing?

The Income Tax Act does not reduce compliance to one universal document list for every taxpayer. The records needed depend on the person, income head, residency, deductions, withholding, assessment history and transaction type. You should therefore verify the applicable filing requirements with the IRD and match every reported figure to an underlying record.

• Income records for employment, business, investment and casual receipts.
• Accounting records supporting revenue, expenses, assets and liabilities.
• Records supporting interest, depreciation, repairs, contributions and bad debts.
• Withholding and payment records connected with Section 87 to Section 95 obligations.
• Travel, incorporation and management information relevant to the Section 2(ka) residency test.
• Related-party agreements and transaction records relevant to Sections 33 and 34.
• Foreign tax and income records where Sections 67 to 73 may apply.
• Returns, notices, assessment orders and correspondence relevant to Sections 101 to 116.

This is a practical review list, not a universal statutory checklist. The receiving IRD office or current filing system may require information specific to your return. Verify the position before filing, particularly where records concern a non-resident, foreign income, related-party transaction or disputed assessment.

What changes through the Finance Act and Income Tax Rules 2059?

The Finance Act provides the annual update layer for Nepal’s income-tax system. It may amend rates in Schedule 1 and add operative provisions, while the Income Tax Rules 2059 supply procedural detail. The parent Income Tax Act 2058 remains the central statute, but current-year compliance requires checking all applicable instruments together.

This is why a rate table from an earlier year can mislead. The 2026 tax year context is 2083 BS, and the relevant Finance Act may contain changes affecting the year under review. The statutory structure can remain familiar even when a rate, concession or operative rule has changed.

The Nepal Law Commission’s prevailing-law materials help identify the statutory framework. Use the current official material and verify the applicable Finance Act before relying on a rate or procedural position.

What should you do after receiving an IRD notice?

After receiving an IRD notice, preserve the notice and identify whether it concerns a return, withholding, self-assessment, deemed assessment, amended assessment, penalty, interest or offence. The correct response depends on the document and statutory stage. You should not assume that a routine clarification and a Section 105 assessment issue require the same response.

1. Record the date and method by which the notice was received.
2. Identify the tax year, taxpayer, income head and provision mentioned.
3. Collect the relevant return, accounts, invoices, withholding records and prior correspondence.
4. Compare the IRD position with the filing and the underlying evidence.
5. Check whether administrative review under Section 115 or a Revenue Tribunal route under Section 116 may apply.
6. Obtain tax-law advice before making admissions, submitting revised figures or allowing a response period to pass.

Alpine Law Associates advises and represents clients; it is not the IRD, the Revenue Tribunal or another government office. We cannot promise an assessment result, filing acceptance or processing time. We can help you understand the position and prepare a response based on the available facts. For a current review, contact our Nepal tax-law team.

In short: the Income Tax Act 2058 supplies Nepal’s core direct-tax framework. Section 2(ka) addresses residency, Section 5 classifies income, Sections 17 to 25 govern deductions, Chapter 17 covers withholding and returns, Section 105 concerns amended assessment, and Sections 115 to 116 provide review and appeal routes. Always check the current Finance Act, Income Tax Rules 2059 and IRD position.

People also search for

• What are the income tax rates in Nepal?
• What tax changes were made in Nepal’s Budget 2082/83?
• What tax changes apply under Budget 2083/84?
• How does vehicle tax work in Nepal?
• How does the Social Security Fund affect Nepal tax compliance?
• What tax issues affect foreign investment in Nepal?

This article is general legal information, not advice on your specific return, assessment or appeal. Our team can help you review the income tax act 2058 nepal, residency, deductions, Section 95 filing or Section 105 assessment issues through our tax compliance and advisory service. Contact us for a current, fact-specific assessment.