Income Tax Deductions in Nepal are the special provisions/facilities provided by the Income Tax Act 2058 that allows a taxpayer to deduct a certain portion of their Assessable Income if meets required criteria. These deductions are provided in the Act for the following reasons.
- To safeguard marginalized and the disabled persons of the society.
- To promote women empowerment.
- To promote saving in Provident Funds.
- To promote risk sharing and insurance habits.
- To attract professionals to serve in the remotest areas.
Practically, Income Tax Deductions are facilities that reduce the taxable income and ultimately reduce the tax liability. These are the tax planning schemes when applied appropriately helps to reduce tax liability significantly.
Types of Income Tax Deductions in Nepal.
There are 2 types of Income Tax Deductions in Nepal. These are:
- Income Tax deductions available to Natural Person.
- Income Tax Deductions available to Other than Natural Person.
We will be discussing Income Tax Deductions available to Natural person in-depth and in detail in this post.
Income Tax Deductions in Nepal available to Natural Person.
Below are the Income Tax Deductions available to Natural person.
- Income Tax Deductions in Nepal for working in the Remote Areas of Nepal
- Employees working in the Foreign Diplomatic Mission.
- Deductions for Incapacitated Persons.
- Deductions for Insurance Premium.
- Deductions or Pension Income.
- Deductions available to Women.
- Deductions Available for Contribution to Approved Retirement Fund.
Let us understand these income tax deductions in details.
1. Income Tax Deductions for working in the Remote Areas of Nepal.
Any natural Person working in the remote areas of Nepal prescribed by the Nepal Government can get deductions up to Rs 50,000/- for one Income Year. The area of work and the Deductions available are tabulated below:
|Remote Area Category||Deduction Amount( RS)|
Areas Included by the above category are as follows:
|Remote Area Category||A||B||C||D||E|
|Manang, Mugu, Humla, Bajura, Dolpa, Kalikot||All districts included.|
|Taplejung||Area of Olangchungola and VDCs in this area||Other VDCs not listed in Category B|
|Rasuwa||Timur VDC||Other VDCs not listed in Category B|
|Gorkha||(Manbu, Chhekampar, Keroja, Prok, Loha, Sirdiwas) VDC||Other VDCs not listed in Category B|
|Sankhuwasabha||(Walung, Simajor, Shyaksheela, Kimathanka, Hedangna, Chepuwa) VDC||Other VDCs not listed in Category B|
|Solukhumbu||(Namche, Chaurikharka, Khomjung) VDC||Other VDCs not listed in Category B|
|Baglung||(Bonga, Hukam, Nisi, Mekot, Ramma, Takwachhi) VDC||Other VDCs not listed in Category B|
|Mustang, Jumla, Bajhang, Darchula||All districts included.|
|Rukum, Dailekh, Jajarkot, Darchula||All districts included.|
|Doti||Areas above 900 feet in Khaptad Herbs Udhyan||Other VDCs not listed in Category B|
|Bhojpur, Terhathum, Khotang, Okhaldhunga, Myagdi, Rolpa, Salyan, Pyuthan, Dadeldhura, Baitadi||All districts included.|
|Lamjung||( Shrikali Katadhii, Thulibesi Patango, Thakan Falikadevi, Bahundanda Mahendrodaya) VDC||Other VDCs not listed in Category D|
|Dhading||( Lapa, Budathum, Fulkharka, Rigau, Salyankot, Salyantar) VDC||Other VDCs not listed in Category D|
|Sindhupalchok||( Tisundhagal Tinus Dhyagal, Baruwa, Baramcho, Matauda, Birata Golde, Guwa, Gunasa, Kiyul, Listikot, Mahankal, Dhagpalkot, Fulping Katti, Paag Taag) VDC||Other VDCs not listed in Category D|
2. Employees working in the foreign Diplomatic Mission
Any employee working in the foreign Diplomatic Mission the Foreign Nation gets the deduction of 75% on the “Foreign Allowances.“
3. Income Tax Deductions in Nepal on Pension Income.
A resident person deriving income from the regular receipt of Pension in any income year gets a deduction lower of :
- 25% of Basic Slab Limit
- Actual Amount of Pension Income.
Basic Slab Limit is the limit of Rs 4,00,000/- for individuals and Rs 4,50,000/- for couples as of Fiscal year 2077.2078
4. Income Tax Deductions in Nepal for Incapacitated Person
Resident Incapacitated persons i.e. those who cannot manage their basic day to day activities due to physical or mental problems get the deduction of 50% on their Basic Exemption limit.
5. Income Tax Deductions in Nepal for Non-life Insurance Scheme except House Insurance
A Resident person making the payment of insurance premium during any income year gets the deductions lower of:
- Rs 25,000/-
- Actual amount of Insurance Premium paid.
6. Income Tax Deductions in Nepal for Health Insurance Scheme.
A Resident Natural person making the payment of Health Insurance Premium to Resident Insurance Company during any income year gets the deductions on Assessable Income lower of:-
- Rs 20,000/-
- Actual Medical Insurance Premium paid during the income year.
7. Deduction for House Insurance Scheme.( Added by Finance Ordinance 78/79)
A Resident person making the payment of House Insurance Premium during any income year gets the deductions on Assessable Income lower of:-
- Rs 5,000/-
- Actual House Insurance paid during the year.
8. Deduction for Females.
A Resident Female who has the Income source of only from the Employment can get a tax credit of 10% on her final tax liability. Note that this credit is not applicable for Females who has Opted as Couples.
9. Deductions for Contribution to Approved Retirement Fund.
A Resident Person who contributes to Approved Retirement Fund other than SSF can deduct lower of following Income from Assessable Income:-
- Maximum of Rs 3 Lakhs
- One third of its Assessable Income
- Actual Contribution.
Conclusion & Comment from Author
Taxpayer are advised to develop the habits of practicing Tax Deducting & Saving Schemes as Stated above. This on one hand saves extra taxes and on other hand develops a practice of Financial Discipline which is crucial for Financial Freedom in Retiring Age. Similarly taxpayers are advised to understand Tax laws so that they can claim such benefits from the Tax Authority. This much for Income Tax Deductions in Nepal. Thank you!!!