Nepal Income Tax Guide 2026: Slabs, Rates & Deductions (FY 2082/83)

Most Nepali salaried employees overpay income tax every year — not because of higher rates, but because they miss deductions they are fully entitled to claim.

Under the Income Tax Act 2058 BS, administered by the Inland Revenue Department (IRD) at ird.gov.np, Nepal operates a progressive tax system. For FY 2082/83 (2025/26 AD), individual income tax rates range from 1% on the first slab to a maximum of 36% for high earners — with significant deductions available for insurance, retirement contributions, and more.

This guide covers every slab, deduction, and compliance rule — for salaried employees, freelancers, small businesses, and corporations operating in Nepal in 2026.

• Salaried employees — understand your TDS, deductions, and whether you need to file a return
• Freelancers earning in foreign currency — learn the 5% flat tax rule and PAN linking requirement
• Business owners and startups — find your correct corporate rate and available incentives
• Non-Resident Nepalis (NRNs) — understand what tax you owe on Nepal-sourced income

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What Is Income Tax in Nepal?

Income tax in Nepal is a direct tax levied on the earnings of individuals and entities. The Income Tax Act 2058 BS (as amended) is the governing legislation. Rates and thresholds are revised annually through the Finance Act announced with the national budget — typically in Jestha (May–June). The Inland Revenue Department (IRD) under the Ministry of Finance administers collection and filing through ird.gov.np and the Taxpayer Portal at taxpayerportal.ird.gov.np.

PAN (Permanent Account Number) is the mandatory tax identity for every individual and business. Without a registered PAN, you cannot file returns, claim deductions, or receive tax-exempt benefits. Nepal's fiscal year runs from 1 Shrawan to 31 Ashadh (mid-July to mid-July). FY 2082/83 BS corresponds to approximately July 2025 – July 2026 AD.

Key takeaway: Resident individuals are taxed on worldwide income; non-residents are taxed only on Nepal-sourced income.

Personal Income Tax Slabs for FY 2082/83

Nepal's progressive system taxes only the income within each band at the band's rate — not your full income at the top rate. Rates are identical for single and married filers, but the first threshold differs: married couples get a higher exempt base.

Source: Finance Act 2082 BS, Inland Revenue Department Nepal. Verify current rates at ird.gov.np before each fiscal year.

Social Security Tax (SST) note: The 1% SST on the lowest slab is waived for contributors to the Social Security Fund (SSF), since SSF contributions already fulfil the social security obligation.

Female Taxpayer Rebate

A woman filing individually with her own PAN is entitled to a 10% rebate on her computed income tax. Example: computed tax of NPR 30,000 reduces by NPR 3,000 to NPR 27,000 net payable.

Tax Calculation Example — Single Filer, NPR 1,800,000 Annual Income

• First NPR 500,000 → 1% SST = NPR 5,000
• Next NPR 200,000 → 10% = NPR 20,000
• Next NPR 300,000 → 20% = NPR 60,000
• Remaining NPR 800,000 (within the 30% band) → 30% = NPR 240,000

Total Tax = NPR 325,000. SSF contributors save NPR 5,000 (SST waived) → net NPR 320,000.

Use the Nepal Salary Tax Calculator to compute your exact tax liability for any income level under the current FY 2082/83 slabs.

Key takeaway: Married couples benefit from a NPR 100,000 higher first-slab threshold — filing jointly meaningfully reduces effective tax rates on lower incomes.

Tax Deductions and Allowances You Can Claim

These deductions reduce your taxable income before the slabs are applied. Every deduction you miss is money overpaid to IRD.

In our experience assisting clients with tax documentation, life and health insurance deductions are the most consistently missed — particularly by salaried employees whose employer handles TDS but does not account for separately held personal policies. Bring your premium receipts to your tax officer every year before filing.

Need help notarizing declarations or income-related affidavits for tax purposes? Our office can assist →

How Are Freelancers Taxed in Nepal?

Nepal simplified freelancer taxation for those earning in foreign currency. As of FY 2082/83, the process is straightforward if your income stays within the threshold.

Flat 5% Final Withholding Tax

When you receive foreign currency income through a Nepali bank, the bank deducts a flat 5% as final withholding tax at source. This is a full and final tax settlement — no further return filing is required if your total annual freelance income stays below NPR 4,000,000 (NPR 40 lakhs).

Example: You receive NPR 100,000 from a foreign client via bank transfer. The bank deducts NPR 5,000 (5%). You receive NPR 95,000. No further action needed for this payment.

PAN Linking Is Mandatory

Your PAN must be linked to your bank account for the 5% deduction to be correctly recorded in your IRD tax file. Without it, the bank deducts the tax but it may not credit to your PAN account — creating a compliance risk.

When Freelance Income Exceeds NPR 40 Lakhs

• File a tax return using Form D4
• Consider registering as a business entity
• Maintain proper financial records from that fiscal year forward

Key takeaway: The 5% flat rate is a legal privilege — not automatic. It only applies if income arrives through a PAN-linked Nepali bank account. Cash or informal receipts do not qualify.

Corporate Tax Rates for FY 2082/83

Standard Rates by Entity Type

IT Export Companies — Effective Rate

IT companies earning from exports (foreign currency) benefit from a 75% tax rebate on export income, applied to the 20% special industry rate:

• Standard IT rate: 20%
• 75% rebate on export earnings = tax on remaining 25% of computed liability
• Effective tax on export income: approximately 5%

Startup Tax Holiday

Startups with annual turnover under NPR 10 crore qualify for a 100% income tax exemption for 5 years from the date operations begin. Enacted under the Economic Act 2080/81, this benefit continues in FY 2082/83. IRD compliance (PAN registration, return filing) is still required during the holiday period.

Location-Based Corporate Rebates

Small Business Tax: Presumptive and Turnover-Based Rates

Presumptive Tax — Turnover Below NPR 30 Lakhs

Small businesses meeting all three conditions may use a fixed annual tax amount instead of filing a full return:

• Annual turnover below NPR 3,000,000
• Annual profit below NPR 300,000
• Not VAT-registered and not claiming tax credits

FY 2082/83 update: Businesses with zero transactions during the fiscal year pay zero presumptive tax.

Exclusions: Lawyers, doctors, auditors, chartered accountants, consultants, engineers, and professional athletes are excluded from presumptive tax — they must file under standard income tax rules regardless of turnover. See also: VAT registration thresholds and rules in Nepal.

Turnover Tax — NPR 30 Lakhs to NPR 1 Crore

How Are Non-Resident Nepalis Taxed on Nepal-Sourced Income?

Non-residents pay tax only on Nepal-sourced income and cannot claim the deductions available to residents. The following rates apply as final withholding tax (TDS) deducted at source by the payer in Nepal:

These withholding rates are final settlements for the listed passive income types — no further Nepal tax return is required on those amounts once TDS is deducted. Verify current rates against the Finance Act at ird.gov.np before each fiscal year, as rates can change with the annual budget.

NRNs managing property or business interests in Nepal often need notarized powers of attorney, declarations, or affidavits. Our office handles notarization of all supporting documents required for IRD compliance and property management from abroad.

Common Tax Mistakes — What We See in Practice

Across hundreds of client cases involving tax documentation, these are the compliance failures that come up most often:

• Not linking PAN to the bank account — freelancers who receive foreign payments through an unlinked account lose the 5% final tax benefit and create unrecorded income issues at IRD.
• Skipping insurance deductions — employees on employer TDS rarely claim their personal life and health insurance premiums separately, routinely overpaying by NPR 3,000–6,000 per year.
• Wrong filing category for professionals — doctors, lawyers, and consultants who incorrectly try to file under presumptive tax. IRD will reject the return and may apply penalties.
• Outdated PAN after name change — clients who change their legal name (e.g., after marriage or court correction) must update their PAN record at IRD to avoid TDS credit mismatches.
• Missing tax clearance for foreign employment — many foreign employers require a Nepal tax clearance certificate from IRD. Our office provides the notarization of supporting declarations required for this process.

Key takeaway: The most costly mistake is simply not claiming available deductions. Review your deductions with a tax officer before each fiscal year end (Ashadh, mid-July).

Income Tax Filing Deadlines in Nepal

The Income Tax Act 2058 BS sets these mandatory deadlines for FY 2082/83:

• Employer TDS returns: Monthly — due by the 25th of the following month
• Individual return (salary / freelance): By end of Poush (approximately mid-January 2026)
• Corporate return: Within 3 months of fiscal year end — by end of Ashwin (approximately mid-October 2026)
• Advance tax instalments: Three payments in Poush, Chaitra, and Ashadh

Late filing attracts 15% annual interest on unpaid tax plus administrative penalty under Section 118 of the Income Tax Act. Wilful evasion may trigger a 100% additional assessment.

Nepal Income Tax 2026 — What Has Changed from Previous Years

Under the FY 2082/83 budget, the key changes most affecting taxpayers are:

• Zero presumptive tax for zero-transaction businesses — businesses that were dormant during the year pay nothing.
• Startup 5-year tax holiday extended — turnover cap of NPR 10 crore confirmed for FY 2082/83.
• E-invoicing rollout — VAT-registered businesses face expanded e-invoice compliance requirements; see the full VAT compliance guide for details.
• IT export rebate continued — 75% export income rebate for IT companies confirmed valid through FY 2084/85.

Income Tax vs VAT in Nepal — Key Differences

Many small business owners confuse income tax and VAT obligations. They are separate taxes with separate thresholds, rates, and filing requirements.

Key takeaway: The VAT registration limit in Nepal is NPR 5,000,000 annual turnover for goods businesses — independent of income tax. A business can be VAT-registered and income-tax-exempt (e.g., during the startup holiday) at the same time. See the full VAT registration and compliance guide for details.

VAT Bill / Tax Invoice Format in Nepal

Every VAT-registered business in Nepal must issue a compliant tax invoice (कर बीजक) for each taxable sale. The format is prescribed under Rule 17 of the VAT Rules 2053 BS, with the latest updates from the 46th Amendment (2081 BS / 2024 AD).

Mandatory Fields on a Nepal VAT Bill

• Heading "Tax Invoice" or "कर बीजक" printed clearly at the top
• Supplier's registered name, address, PAN / VAT registration number
• Buyer's name, address, and PAN (mandatory for sales above NPR 10,000)
• Serial invoice number (continuous, printed)
• Invoice date (both AD and BS acceptable)
• Description of goods or services, with HS Code (first 4 digits minimum) for goods
• Quantity, unit, and unit price
• Taxable value (before VAT)
• VAT amount — shown separately at 13%
• Grand total (taxable value + VAT)
• Signature of authorised person / issuing officer

The invoice must be issued in triplicate: original to the buyer, duplicate for the supplier's records, and a third copy for tax audit. Records must be retained for at least 6 years under Section 16 of the VAT Act 2052 BS.

Abbreviated Tax Invoice

For small retail sales up to NPR 10,000 to non-registered buyers, an abbreviated tax invoice may be issued — without the buyer's PAN and with simplified particulars. Prior approval of the tax officer is required for its format.

Electronic Invoicing (E-Billing)

Medium and large VAT-registered taxpayers specified by IRD must issue invoices through an IRD-approved e-billing system and transmit invoice data to the Central Billing Monitoring System (CBMS) in real time. E-invoicing coverage continues to expand under FY 2082/83 compliance notices.

Penalty for non-compliant invoicing: Under Section 29 of the VAT Act, issuing a bill without the prescribed format can attract a fine of NPR 1,000 per invoice or 50% of the tax amount, whichever is higher, plus possible deregistration on repeat offences.

VAT-Exempt Goods and Services in Nepal

Schedule 1 of the VAT Act 2052 BS lists goods and services fully exempt from the 13% VAT. Suppliers of these items do not charge VAT, do not claim input tax credit on related purchases, and — unless they also deal in taxable items — are not required to register for VAT.

Source: Schedule 1, Value Added Tax Act 2052 BS (as amended). Verify the current list at ird.gov.np before issuing invoices, as the Finance Act can add or remove items annually.

Important: "Exempt" is not the same as "zero-rated." Exports of goods are zero-rated (0% VAT, but input credit claimable under Schedule 2), whereas Schedule 1 items are fully exempt with no input credit.

Is There Inheritance Tax in Nepal?

No. Nepal does not levy any inheritance tax, estate duty, or death tax. Property transferred to legal heirs under the Muluki Civil Code 2074 BS through natural succession, will, or court partition is not treated as taxable income under the Income Tax Act 2058 BS.

However, two related tax rules apply:

• Capital gains tax on subsequent sale: When heirs later sell inherited land or a house, 2.5% capital gains tax applies if the property was held for 5 years or more, and 5% if held for less than 5 years. For inherited property, the holding period is generally counted from the deceased's original acquisition date — not the date of inheritance.
• Gift tax: Nepal has no separate gift tax. Gifts are treated under Section 92 of the Income Tax Act 2058 BS — transfers between close relatives (parents, spouse, children) are exempt, while gifts from unrelated parties may be treated as income and taxed at regular slab rates.

NRNs and heirs managing inherited property in Nepal often need notarized succession certificates, partition deeds, and powers of attorney for title transfer at the Land Revenue Office. Our office handles these documents regularly for clients abroad.

Conclusion

Nepal's income tax system for FY 2082/83 is progressive, well-structured, and — for most individuals — manageable with basic planning. The progressive slabs top out at 36%. Freelancers have a clean 5% final-tax route. Startups benefit from a generous 5-year holiday. The biggest opportunity most taxpayers leave on the table is deductions — especially insurance premiums and retirement contributions.

File electronically through ird.gov.np, keep your PAN updated, and review your deductions every year before Ashadh.

For document notarization, certified translation, or affidavit preparation for tax-related purposes — including income declarations for foreign employers, NRN property matters, or business registration — contact our office today. Our Nepal Bar Council-registered advocates have handled 2,000+ cases since 2016.