NOTE Final Withholding Payment in Nepal
Table of Contents
Readers are strongly advised to have a better understanding on topics of TDS on Service Fee and Investment Return Section 88, TDS on payment of Windfall Gain Section 88A, TDS on Contractual Payments Section 89 and TDS on Payment of Employment Income Section 87 before proceeding this Section. Final withholding payment is not an isolated section & it should be studied along with above section for full understanding.
Understanding Final Withholding Payment & Final Withholding Tax
What are Final Withholding payments?
Final Withholding Payments are those payments that do not form any part of Assessable Income from business, employment and investment. These payments are not included as income for Detailed Income Tax Calculation purposes.
What are Final Withholding Tax? (Definition)))
Final Withholding Taxes are the Taxes withheld in respect of Final Withholding Payments and unlike Advance Tax it can not be used to set off the Final Tax Obligation.
Example of Final Withholding Payment in Nepal.
Let us Suppose ABC Pvt. Ltd. provides meeting allowances Rs 5,000/- to each Members of its Executive Committee. As per Income Tax provision, TDS @ 15% is required to be deducted while making payment and Meeting Allowances are included as Final Withholding Payments. Altogether, there were 30 Meetings Conducted in the Fiscal year 77.78.
In this case, ABC Pvt. Ltd. has to deduct 5000*0.15= Rs 750/- and make the payment of Rs 5000-750= Rs 4,250/- to each members. ABC Pvt. Ltd also has to submit the deducted Tax of Rs 750 to Inland Revenue Office. Executive Members should not include 5000*30= Rs 1,50,000/- as their Assessable Income. Similarly the members cannot use the Tax deducted earlier 750*30= Rs 22,500/- to set off Final Tax Obligation from other Income.
However If Meeting allowance was not a Final Withholding Payment then, Members of Executive Committee should have included 5000*30= Rs 1,50,000/- in their Assessable Income and could set off Rs 750*30= Rs 22,500/- from their Final Tax Obligation.
Payments Categorized as Final Withholding Payments (Section 92)
|SN||Withholding Payments ( Final Withholding Payment in Nepal)|
|1||Dividends paid by Resident Company or Resident Partnership to a Person.|
|2||Payment of Rent related to leasing of land or equipment attached to such land like( building) to Natural Person other than related to operation of business.|
|3||Payment of Gain on Investment Insurance from a Resident Person. ( NOTE: No Tax will be withheld if the payment is made due to the death of Investment Insured)|
|4||Retirement payments from Nepal Government, Approved or Unapproved Retirement Fund|
|5||Payment of all types of Retirement Payments provided on a wholesome basis.|
|6||Payment of Interest by resident bank, financial institution, cooperatives, or any other institution issuing debenture & bond to Natural Person or Tax Exempt Organization|
|7||Withholding payments made to Non- Resident Person under Section 87, 88 & 89 of the act.|
|8||Meeting Fee Allowance to the extent of Rs 20,000/- per meeting.|
|9||Occupational Lecture Fee, Question Preparation Fee, Checking Exam Answer Sheets.|
|10||Windfall Gain as per Section 88A|
|11||Payment of benefit by Mutual Fund to Natural Person.|
|12||Payment of Vehicle Rent or Transportation Fee to Natural Person by other than Private Firm.|
Payments that are Final Withholding.
How to Interpret Final Withholding Payments in Nepal.
As we all know that in case of Windfall Gain, TDS @ 25% is deducted while making the payment of such Gains as per Section 88A of the Act. As this payment is categorized as Final Withholding Payment by Section 92 of the Act ( List number 10 in the table above), the person receiving the payment only receives Net 75% of the Gain and he/she should not include these Gains in the Final Income Tax Computation Sheet. Similarly, he/she can not claim the TDS deducted @ 25% to set off its Final Tax Liability. This is how Final Withholding Payment in Nepal operates.
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Conclusion and Comment from the Author.
Differentiation of Advance and Final withholding payment is thus crucial for a taxpayer as this can dramatically influence tax calculation. Readers should learn this provision by heart to understand one of the fundamental taxation system of Final Withholding Payment in Nepal.