Income Tax in Nepal: A Guide for Salaried People

This guide explains how personal income tax works in Nepal for people who earn a salary: who is taxed, what is taxable, how TDS reaches the government, and what you are expected to file. For the numbers, use the salary tax calculator and the current slabs.

Who pays income tax in Nepal?

Residency drives the whole system. A resident individual is taxed on income from all sources, including foreign income, subject to relief for tax already paid abroad. A non-resident is taxed only on income with a Nepali source. Residency is a question of presence and ties over the fiscal year, not of citizenship — a Nepali working abroad long-term and a foreigner posted to Kathmandu can each end up on the opposite side of the line from what they expect.

Nepal’s fiscal year runs from mid-July to mid-July (1 Shrawan to 31 Ashad). Every threshold, slab, and deadline is tied to that year, not the calendar year.

How employees actually pay: TDS

Salaried people rarely pay income tax in a lump sum. The employer estimates your tax for the year, divides it across the payroll cycle, deducts it from each payslip, and deposits it against your PAN. That deduction is tax deducted at source.

Two consequences are worth understanding:

• Monthly TDS is an estimate. If your salary changes, you receive a bonus, or you submit insurance receipts late, your employer recalculates and adjusts the remaining months.
• The deduction is credited to you. Your annual salary certificate shows the tax withheld, which is what you rely on if you file a return or claim a refund.

Because monthly TDS is annual tax divided across the year, a “TDS calculator” and a “salary tax calculator” are the same tool for an employee. Ours shows both figures together.

What is taxable, and what reduces it

Assessable employment income includes basic pay, allowances, overtime, commission, bonuses, gratuity-type payments, and the taxable value of benefits provided by the employer. From that, the main reliefs for a salaried person are contributions to an approved retirement fund — SSF, EPF, or CIT — and premiums for life and health insurance, each subject to a limit. The current limits are on the tax slabs page.

What is left after those deductions is your taxable income, and that is what the slabs are applied to.

PAN, returns, and deadlines

A Permanent Account Number is the identifier for everything you do with the tax administration, and employers report withholding against it. Many salaried people whose only income is employment income, fully taxed at source, are not required to file a separate individual return. You do generally need to file when you have income beyond a single employment — rent, business or consulting income, more than one employer in the year — or when you want to claim a refund.

Individual returns are due within three months of the end of the fiscal year, and the tax administration can grant an extension on application. Late filing and late payment attract interest and fees, so the cost of ignoring a return is not just the tax.

Common situations that trip people up

• Changing jobs mid-year. Each employer withholds against its own estimate of your annual income, so the combined deduction can be short. Give your new employer your earlier salary certificate.
• Two employers at once. Only one should treat you as the primary employer for slab purposes; otherwise you get the lower bands twice and end up underpaying.
• Insurance receipts submitted in Ashad. The deduction still applies for the year, but your earlier months were over-withheld, and the correction lands in your final payslips.
• Foreign income as a resident. It is within scope. Look at the relief available for tax already paid overseas rather than assuming it is invisible.
• Assuming the calculator is your return. It estimates liability. It does not file, and it cannot see benefits your employer has valued.

Frequently asked questions

Is TDS refundable if too much was deducted?

Excess withholding is dealt with through your return or an adjustment by your employer. Keep your salary certificate and contribution receipts — without them a refund claim is difficult.

Do I pay tax on my Dashain allowance?

Festival and similar allowances paid in cash are part of assessable employment income. Add them to your annual figure in the calculator, typically alongside your bonus.

Does SSF membership reduce my tax?

It removes the 1% social security charge on the first slab, and your contribution counts toward the deductible retirement limit. Both effects are modelled in the calculator.

What if I only worked part of the year?

Enter the months you were actually employed. Slabs are annual, so a part-year salary is usually taxed at a lower effective rate than the same monthly pay over twelve months.

Sources and scope

This guide summarises the Income Tax Act and the annual Finance Act as published by the Inland Revenue Department. It is general information for salaried individuals in Nepal, written to help you understand your payslip and plan — not tax advice for your specific circumstances. Please read our disclaimer and consult a licensed practitioner before filing.