According to the budget speech for the budget of the year 2022/23 by the Finance Minister of the Government of Nepal, there will be a revision to the individual income tax rate in Nepal. As stated in that speech, the base block of the income tax will be Rs. 500,000 per annum under individual assessment and Rs. 600,000 annum under couple assessment will be subject to 1% income tax. Note: Annum refers to the income year which is the same as the Nepali fiscal year.
This rate will be applicable from the beginning of the Nepali fiscal year 2079/80. The fiscal year in Nepal starts on the 1st of Shrawan month. Shrawan month starts at mid of the July. So, the Nepali fiscal year 2078/79 will start from the mid-July of 2022 as per the Georgian calendar.
In addition to that, the finance bill 2079 (Finance Act) also contains other changes in the slabs of the taxable income. According to it, any income above Rs. 500,000 per annum in case of individual assessment and Rs. 600,000 per annum in case of couple assessment up to an additional 200,000 will be subject to 10% income tax.
The 10% block covers income up to Rs 700,000 in case of individual assessment and Rs 800,000 in case of couple assessment. For the next Rs, 300,000 income above 10% block will be subject to 20% income tax.
If any individual natural person crosses Rs 1,000,000 income per income year or individual under couple assessment cross annual income Rs 1,100,000 they are subject to pay 30% income tax on the income above that amount and below Rs 2,000,0000.
Then any income above Rs 2,000,000 per annum will be subject to 36% income tax. That is what is summarized in the finance bill for the income tax rate in Nepal.
The income tax rate in Nepal is not used as flat for all income just because it reaches the limit. We have to pay the higher rate of tax only for the part of the income that crosses the set limits.
The following table will demonstrate the blocks of taxable income and the relevant rate of the income tax for an individual.
Income Tax Rate in Nepal for Natural Person (under individual assessment)
| Income Range | Tax Rate | Maximum Tax |
|---|---|---|
| Upto Rs. 500,000 | 1% | Rs. 5,000 |
| Rs. 500,000 to Rs. 700,000 (Next Rs. 200,000) | 10% | Rs. 20,000 |
| Rs. 700,000 to Rs. 1,000,000 (Next Rs. 300,000) | 20% | Rs. 60,000 |
| Rs. 1,000,000 to Rs. 2,000,000 (Next Rs. 1,000,000) | 30% | 300,000 |
| Above Rs. 2,000,000 | 36% | Maximum |
Income Tax Rate in Nepal for Natural Person (under couple assessment)
| Income Range | Tax Rate | Maximum Tax |
|---|---|---|
| Upto Rs. 600,000 | 1% | Rs. 5,000 |
| Rs. 600,000 to Rs. 800,000 (Next Rs. 200,000) | 10% | Rs. 20,000 |
| Rs. 800,000 to Rs. 1,100,000 (Next Rs. 300,000) | 20% | Rs. 60,000 |
| Rs. 1,100,000 to Rs. 2,000,000 (Next Rs. 900,000) | 30% | Rs. 270,000 |
| Above Rs. 2,000,000 | 36% | Maximum |
That is what a natural taxpayer has to pay in terms of tax. But there are many concessions and facilities that different natural persons can claim. For example, there will be a 0% tax instead of a 1% tax bracket if such income is derived from business or as social security benefits like pension.
What change did the finance bill bring in terms of the income tax of a natural person?
By changing the tax slabs, it has reduced the total amount of tax payable in a year. The following table will show the differentiation between the previous provision and the current provision.
| Tax Rate | Previous Tax Slabs (individual) | Current Tax Slabs (individual) | Previous Tax Slabs (couple) | Current Tax slabs (couple) |
|---|---|---|---|---|
| 1% | Upto Rs. 400,000 | Upto Rs. 500,000 | Upto Rs. 450,000 | Upto Rs. 600,000 |
| 10% | Next Rs. 100,000 | Next Rs. 200,000 | Next Rs. 100,000 | Next Rs. 200,000 |
| 20% | Next Rs. 200,000 | Next Rs. 300,000 | Next Rs. 200,000 | Next Rs. 300,000 |
| 30% | Next Rs. 1300,000 | Next Rs. 1,000,000 | Next Rs. 1,250,000 | Next Rs. 900,000 |
| 36% | Above Rs. 2,000,000 | Above Rs. 2,000,000 | Above Rs. 2,000,000 | Above Rs. 2,000,000 |
The changed tax slabs will help to cut the income tax liability. It will be more benificial to those earning lesser income.
Also, read Commission and taxes on share transactions in Nepal.
