Income Tax Rates 2077-78 (2020-21)

August 6, 2020


Introduction

Finance Act 2077-78 (2020-21) ("Finance Act") was passed by the Parliament and received Presidential assent on June 29, 2020. Finance Act came into effect from the beginning of fiscal year 2077-78 (2020-21) i.e., Shrawan 1, 2076 (July 16, 2020). A Finance Bill is introduced by the GON annually at the Parliament and encompasses all amendments required in various tax legislations.

With respect to income tax, the Income Tax Act 2058 (2002) ("ITA") forms the framework law. This Briefing highlights major aspects of ITA as amended by Finance Act.

Major Highlights

  • Tax relief for COVID-19 affected person: Finance Act which came in the backdrop of the coronavirus ("COVID-19") pandemic and resultant economic slowdown, has proposed several income tax reliefs to the affected persons, namely:
    • 20 percent exemption in income tax for hotels, transportation and trekking businesses with an annual turnover of more than NPR 10 million
    • 75 percent exemption in income tax for resident individuals with income not exceeding NPR 100,000 or business turnover not exceeding NPR 2 million
    • 50 percent exemption in income tax with annual turnover exceeding NPR 2 million but not more than NPR 5 million
    • 25 percent exemption in income tax with annual turnover exceeding NPR 5 million but not more than NPR 10 million
       
  • Tax amnesty to regularize tax compliances: Tax amnesty scheme purposed under the Finance Act states that a taxpayer shall get a complete waiver of applicable fees, penalties and charges in the event such taxpayer withdraws an appeal filed prior to Ashad 2075 (July 16, 2018) at the Inland Revenue Department ("Department"), the Revenue Tribunal or in courts and pays disputed tax amount along with the interest by Falgun, 2077 (March 13, 2021). However, this scheme shall not be applicable in cases of fake invoice.

    Tax payer who have not paid their tax by registering the Permanent Account Number ("PAN"), register PAN and submits all applicable taxes for fiscal year 2074-75 (2018-19) and 2075-76 (2019-20), then interest or penalty to be paid for such fiscal year including earlier tax, charges and penalty shall be waived. Further, in case PAN registered tax payer who had failed to pay applicable tax, submits tax for fiscal year 2073-74 (2017-18), 2074-75 and 2075-76 by the end of Falgun, 2077 along with interest of 25 percent, then any additional charges, fees and penalty for these fiscal years along with taxes, penalty and charges of earlier years shall be waived.
     
  • Tax rate remains unchanged: Finance Act has made no changes to the existing tax slab and applicable tax rate on personal and commercial income.
     
  • Deduction on contribution to COVID-19 fund: Contribution made to the COVID-19 fund established by the federal, province or local government shall be construed as deductible expense during the computation of income tax.


The following tables provide rates of income taxes, withholding taxes, advance taxes, and details of tax exemptions and tax concessions.

1. Personal Income Tax

Schedule 1(1) of ITA as amended by the Finance Act prescribes progressive income tax rates which are applied on the income falling within each tax bracket.....

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