New Fiscal Year Brings Continuity and Select Tax Exemptions for Individuals in Nepal

Kathmandu — As Nepal enters the fiscal year 2082/83, the new financial policies outlined in the recently enacted Finance Act have officially come into effect. While the overall structure of the income tax regime remains largely unchanged from the previous year, several tax exemptions and deductions continue to offer relief to specific groups of taxpayers.

The federal government retains full authority over income tax collection, with rates ranging from 1 percent to 39 percent based on income brackets and individual status. Notably, the government has opted to keep the income tax slabs stable, signaling a preference for continuity amid broader economic concerns.

For ordinary taxpayers, the system continues to differentiate between single and married individuals. Single taxpayers will pay just 1 percent on annual income up to Rs. 500,000, while married individuals enjoy the same rate for income up to Rs. 600,000. Tax rates increase incrementally, rising to 10, 20, and 30 percent as income grows, and peaking at 36 percent for annual income between Rs. 2 million and Rs. 5 million. A top marginal rate of 39 percent applies to income exceeding Rs. 5 million, a provision introduced in the last fiscal year.

However, individuals can still reduce their taxable income through various legal exemptions. Notably, the government has maintained a tax deduction of up to Rs. 40,000 annually for life and health insurance premium payments. Contributions to health insurance plans, in particular, are fully deductible from taxable income.

Similarly, those who invest in retirement funds can deduct up to Rs. 300,000 or one-third of their taxable income, whichever is lower. For those enrolled in the Social Security Fund, the deductible ceiling increases to Rs. 500,000.

Employees working in remote regions—categorized from Class ‘A’ to ‘E’ by the government—can also deduct monthly income ranging from Rs. 10,000 to Rs. 50,000 depending on the area.

Incomes already taxed under “final tax” provisions are exempt from further income tax. This includes income from house rent (if a 10 percent tax has been paid at the local level), interest income (subject to a 6 percent final tax), and capital gains from stock market transactions, which are considered settled after capital gains tax is paid.

Diplomatic staffers receive substantial tax relief as well—up to 75 percent of allowances received by employees working at foreign missions can be excluded from taxable income.

Micro-entrepreneurs operating sole proprietorships also receive preferential treatment under the law. If annual turnover does not exceed Rs. 3 million and annual income remains under Rs. 300,000, such individuals are required to pay a nominal fixed tax—Rs. 7,500 in metropolitan and sub-metropolitan cities, Rs. 4,000 in municipalities, and Rs. 2,500 in rural municipalities.