Step 1 Computation of Assessable Income from Business/Profession of… for the year…

Particulars Rs. Rs.

Service Charge XX
Disposal of Trading Stock/Sales XX
Net Gain from disposal of Business Asset or Liability XX
Gain from disposal of pool of depreciable asset. XX
Excess depreciation on disposal of depreciable asset. XX
Prize/ Gifts received XX
Amt received for accepting restrictions. XX
Amt received from investment related to business.** XX
Amt received for compensation. XX
Amt received under long term contracts. XX
Interest received related to business XX
sale of old newspaper XX
Exchange rate gain XX
Bad debts recovered (only allowed) XX
Refund of custom duty or VAT. XX
Interest benefit (under payment of interest according to market rate). XX
Receivable amount paid to others. XX
Amt included due to change in accounting method, transfer pricing. XX
Gross Income from Business XX
Less: Allowable Deductions (before PCC & R&D)
 Business expenses (like interest exp,bad debts,rent etc) (XX)
 Office exp, Selling & distribution exp & operating exp. (XX)
 Cost of Trading Stock ( WN 1) (XX)
 Commission & discount allowed (XX)
 Allowable Depreciation (WN 2) (XX)
 Repair & Improvement Cost (WN 3) (XX)
(XX)
 Reserve Fund (only for Banks)
(XX) (XX)
 Foreign Tax paid( if not claimed for tax credit)
XX
Adjusted Taxable Income before loss adjustment

Less: Unrecovered Business loss (upto previous 7 years)

(XX)
Adjusted Taxable Income for PCC & R&D
XX
Less: Allowable PCC & R &D:
50% of ATI
OR (XX)
Actual PCC or R&D (wel )
Assessable Income from Business XXX

** Eg rent received by company that owns several flats & operates rental business.In such case
company has derived income from business (not from investment) because income is effectively
connected to business.

- R&D cost does not include cost of natural resource prospecting,exploration & development.

- In this note (wel) means whichever is lower.

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 Step 2: Computation of Taxable Income

Particulars Rs Rs
 Assessable Income from employment xx
 Assessable Income from Investment xx
 Assessable Income from Profession/business xx

Total Assessable Income (TAI) xx

Less: Allowable Reduction
I. Retirement fund contribution (wel) (xx)
- 1/3 of TAI
- Actual: Actual Contribution Amount + Citizen Investment Trust
- 3 lakhs
II. Donation (xx)
a. Simple Donation (WN 4a) (xx)
b. Donation to religious heritage.(WN4 b) (xx)
c. Donation to Prime Minister Relief fund & Reconstruction Fund of
Nepal. (Fully allowed) (xx)
d. Grant upto 1 lac as seed capital to max 5 start up business
(except to concerned person) [Actual or 1 lac (wel)]
Total Taxable Income xx
Less : Other Reduction ( Individual Only)
Life Insurance Premium (Nepal or any country)(only of taxpayer) (wel) (xx)
- Actual
- 40,000
(xx)
i. Health Insurance Premium (only Nepal) (only of taxpayer) (wel)
- Actual
- 20,000 (xx)
ii. Remote Area Exemption
(A=50,000 ; B =40,000; C=30,000; D=20,000 ; E = 10,000) (xx)
iii. Foreign allowance exemption
- 75% of Foreign allowance (xx)
iv. Exemption for disable tax payers
(xx)
- 50% of basic exemption [50% of 5lac (single) or 6 lac (couple)]
v. Pension exemption (wel)
- 25% of Basic Exemption
- Actual Pension Income (xx) (xx)
vi. Private building insurance (wel)
- Actual Premium paid
- 5000

Taxable income including Capital Gain XX

Less: Capital Gain (xx)
Taxable Income excluding Capital Gain (xx)

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 Step 3: Computation of Tax Liabilities

Slab Single Couple Rate Amount

First uptp 5 lac 6 lac - Nil
Next 2 lac 2 lac 10% 20,000
Next 3 lac 3 lac 20% 60,000
Next 10 lac 9 lac 30% ….
Balance >20 lac >20 lac 36% ….
Add: Capital Gain Tax XXX
Total Tax Liabilities XXX
Less:
 Advance Tax (TDS) (including Capital Gain Tax) (XXX)
 Rebate for woman(10% of tax liability) NIL
 Medical Tax Credit: (wel)
o 15% of medical expense (approved)
(XXX)
o 750 (XXX)
 Foreign Tax Credit (WN)
Total Tax Payable XXX

WN: Calculation of Foreign Tax Credit

Assessable Income from Foreign X Average rate of Nepal Income Tax XXX
OR
Actual Tax paid to Foreign Government XXX

Allowable Foreign Tax Credit (wel) XXX

Average rate of Nepal Income Tax = x 100

Notes:
 Rebate is only granted to resident woman having employment income only.
 An individual running special industry (factory) Business is taxed @20% instead of 30% and 24%
instead of 36%.He does not gets additional depreciation facility.
 Capital Gain means
o Gain on sale of shares/debentures of listed or not listed company.
o Gain on sale of non-business chargeable asset.eg land, building .
▪ Gain on disposal of Private building owned & resided for more than 10 year
exempt from tax.
Capital Gain Tax on disposal of Building,land of Individual owned
less than 5 year 5 year or more
7.5% 5%

Listed Share Not listed

more than 365 days less than 365 days -
Resident Individual 5% 7.5% 10%
Resident Entity 10% 10% 15%`

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 Tax Rate for Entity

 Entity Generally Taxed @ 25%

 Banks, financial institution, insurance business, liquor & tobacco industry, entity dealing in
petroleum product, telecom service, internet service, security business @ 30%.
 Special Industry @ 20%
(Special Industry- Manufacturing , agriculture,forestry & mining industry other than
liquor,tobacco.)
o Effective Tax rate for first 10 years of operation:
Region Tax rate
Highly undeveloped/Remote zone 2%
Undeveloped Zone 4%
Less developed/ Underdeveloped zone 6%

o An industry established in Special Economic Zone(SEZ) located at mountainous

district is exempt from tax for the first 10 year of operation and then taxed
@10% (50% relief)

Following points are excluded from Step 1.

 Balance gross profit b/d & c/d, net profit b/d & c/d, opening & closing cash balance.
 Gain on part disposal of asset is not included in income ( purai Pool of asset should be sold to
include in income)
 Loss on disposal of asset or liability is not allowed for deduction.
 Personal Expenses
 Provision for Tax/Provision for Bad Debts/ Provision for Dividend.
 Income tax paid last year.
 VAT collected or VAT paid.
 Salary/wages paid to employee having no PAN is not allowed for deduction.
 Dividend paid.
 P/L a/c
 Reserve for Contingency (Future loss), General reserve, Transfer to general reserve.
 Refund of Income Tax .
 Capital Nature Expenditures (eg purchase of fixed asset, expense incurred for raising loan,
expense related to disposal of business liability)

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  Capital nature receipts/Balance Sheet items (eg loan taken, sales of fixed assets, issue of share,
sale of share)
 Fines & Penalties.(excluding: water & electricity fines )
 Expenses for Income Tax Appeal
 Difference in Trail Balance, Excess balance
 Income without evidence.(Black Money,Black Marketing)
 Agriculture Income of Individual
 Drawings
 Suspense Account
 Petty expenses paid to staff(tea,tiffin), emergency medical treatment less than Rs 500.
 Cash paid to Supplier more than Rs 50,000 ( business firm whose sales revenue is more than 20
lacs)
o Allowed to pay only if payment made in place where banking services are not available
within 10 km area.

o Allowed if Payment made for retirement contribution.

(Cash payment means payment except payment by letter of credit,cheque,draft, money
order, telegraphic transfer, money transfer through financial institution or bank.)
 Amount exempt under Section 10.
o Disabled Allowance, widow allowance, senior citizen allowance.
o Pension received by Nepali citizen retired from army/police of foreign country.

 Final withholding income (FWI) Section 92

o Dividend received from resident company / firm.
o Return received from mutual fund by individual.
o Gain on sale of investment in insurance company
o Gain from unapproved retirement fund.
o Retirement money received from Govt,approved or unapproved retirement
fund.(Regular Pension Income Final withholding ma audaina)
o Interest credited to Provident fund.
o Interest on government bond.
o Director fee.
o Meeting allowance upto 20,000 per meeting.
o Lottery win
o Interest from fixed deposit/saving deposit. (individual only)
o Rent received from house/land. (individual only)
o Rent received from motor vehicle, carrier vehicle (individual only)
o Income from part time lectures.
o Income from checking exam copy and from setting questions
FWI Items to include in Income from Investment (for Company,firms).
 Rent received from house/land.
 Interest from fixed deposit/saving deposit.
 Rent received from motor vehicle, carrier vehicle
 Return received from mutual fund.

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 Working Notes:
1. Calculation of Cost of Trading Stock

Cost of Opening Stock of Raw Material XXX

Add: Purchased/Produced this year (less Returns) XXX
: Carriage Inward
: Royalty on production
( Trading A/c ko Dr side ma aune sabai item haru)
Less: Cost of Closing Stock of Raw Material (XXX)
Add: opening Stock of Finished Goods XXX
Less: closing stock of Finished Goods (XXX)

Cost of Trading Stock XXX

 (Closing Stock is valued at cost price or Market value whichever is lower)
 Purchase means purchase of goods or rawmaterials, it doesnot include purchase of Fixed Assets.

2. Calculation of Allowable Depreciation.

Particulars Rs.
Opening WDV for the year XXX

Add : Addition during the year [ Absorbed ] XXX

1st Shrawan – End of Poush (Cost X 3/3) XXX
1st Magh – End of Chaitra (Cost X 2/3) XXX
1st Baishakh – End of Ashadh (Cost X 1/3)
Less: Disposal value during the year(Sales value) (XXX)
Depreciation basis value (a) XXX
Rate of depreciation (b) [ as per Block] …%
Allowable depreciation (c = a x b) XXX

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 3. Computation of Allowable repair & maintenance

7% of depreciation basis amount xx

OR
Actual Repairs (given in Q) xx
(wel)

4. Donation.
a. Calculation of Allowable limit of Simple donation (Company and individual)

Adjusted Taxable Income for PCC & R&D XXX

Add: Assessable Income from Investment XXX
Assessable Income from employment XXX
Less: Retirement Contribution (allowable) (XXX)
Adjusted Taxable Income for donation XXX
Allowable Donation ( wel )
5% of ATI for Donation XXX XXX
Actual Donation XXX
Max Limit 1 lac

b. Calculation of Allowable Limit of Donation to conservation of Religious Heritage &

Sports Development .(Approved by IRD) – (Only For Company).

Allowable Donation ( wel ) XXX

10% of Total Assessable Income XXX
Actual Donation XXX
Max limit 10 lac

 Donation not allowed for reduction.( Donation to)

o Staff
o Student Union
o Poor Student
o Private Boarding School
o Beggar
o Private Nursing Home

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 5. Calculation of Allowable Interest paid to controlling entity.

Gross Income excluding interest income XX

Less: Total deduction excluding interest expense
Less: Business Loss
Add: Assessable Income from Investment excluding interest income & expense
Adjusted Taxable Income for Interest XX
50% Adjusted Taxable Income for Interest XX
Add: Interest Income XX
Maximum Allowable Limit XX
or or
Actual Interest paid (wel) XX

Depreciation Rates:

1 month - 5 month – Ignore months eg. 5years 3 months = 5 years

6month - 11 months = 0.5 year eg. 5 years 8 months = 5.5years

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 Special Entities

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