Navigating taxes can seem complex, but understanding your obligations clearly can help you save money and avoid penalties. Let’s break down the income tax rates for resident Nepali citizens for the fiscal year 2024-25 (2081-82 BS) and explore some valuable deductions and exemptions.

Income Tax Rates for Individuals:

The Government of Nepal has structured the income tax into progressive bands:

For Single Taxpayers:

• First Rs 500,000: 1% (Social Security Tax)*
• Next Rs 200,000: 10%
• Next Rs 300,000: 20%
• Next Rs 1,000,000: 30%
• Next Rs 3,000,000: 36% (30% base + 20% additional tax on amounts between Rs 2,000,000 - Rs 5,000,000)
• Above Rs 5,000,000: 39% (30% base + 30% additional tax)

For Couples:

• First Rs 600,000: 1% (Social Security Tax)*
• Next Rs 200,000: 10%
• Next Rs 300,000: 20%
• Next Rs 900,000: 30%
• Next Rs 3,000,000: 36%
• Above Rs 5,000,000: 39%

Note: The 1% Social Security Tax goes to a separate account. Sole proprietors, pensioners, or contributors to the Social Security Fund (SSF) are exempt.

Valuable Deductions and Allowances:

Remote Area Allowance:

• Natural persons working in remote areas can claim additional deductions up to Rs 50,000 depending on the area's classification.

Pension Income Deduction:

• Pensioners can claim an additional deduction of up to 25% of the first tax band amount or the actual pension received, whichever is lower.

Deductions for Incapacitated Persons:

• Those with disabilities can deduct up to 50% of the first tax band amount or their actual income, whichever is lower.

Reduction in Taxable Income:

• Life Insurance Premium: Deduct up to Rs 40,000 or the actual premium, whichever is lower.
• Medical Insurance: Deduct up to Rs 20,000 or the actual premium, whichever is lower.
• Insurance of Private Buildings: Deduct up to Rs 5,000 or the actual premium, whichever is lower.
• Retirement Fund Contributions: Deduct the lower of 1/3rd of assessable income, Rs 500,000, or actual contribution made.

Special Tax Credits:

• Foreign Tax Credit: Available if you've paid taxes abroad, allowing you to reduce your tax liability in Nepal.
• Medical Tax Credit: Claimable up to Rs 750 or 15% of your medical expenses, whichever is greater.
• Female Tax Credit: Women with only remuneration income are eligible for a 10% reduction on their tax liability.

Tax Return Filing Requirements:

• Individuals solely earning from vehicle hire or specific non-business chargeable assets might not need to file returns, unless income exceeds Rs 4 million.
• Income received as compensation for a deceased person is exempt from taxation.

Plan Ahead for Financial Security

Understanding and planning around these tax bands, deductions, and credits can significantly improve your financial health. Always consult a tax advisor to optimize your returns and ensure compliance.

Stay informed and financially savvy!