Very Short Question Answer

Briefly state any two tax-exempt amounts.

Two tax-exempt amounts are:

  1. Amount received by a person entitled to tax exemption privileges under a bilateral or a multilateral treaty or agreement concluded between the Government of Nepal and a foreign country or an international organization.
  2. Amount received by an individual from employment in the public service of the government of a foreign country.
Explain the tax rates applicable to industry established in Special Economic Zone (SEZ)?

Income of an industry established in Special Economic Zone (SEZ) is taxed as follows:

Income of an industry established in SEZ located at mountainous district and GON specified hilly districts is exempt from income tax for the first ten years of its operation and then taxed at 50% of the tax rate otherwise applicable.

Income of an industry established in SEZ other than areas specified above is exempt from income tax for the first five years of its operation and then taxed at 50% of the income tax rate otherwise applicable.

State any two payments that do not attract tax-deduction at source.
  • Business related payments made by an individual or other payment except rent for the land or building and associated fittings and equipment;
  • Payments for published articles in newspapers.
State any four payments that attract final withhold tax.

Following payments are treated as final withholding payments:

  • Payment of dividend by a resident company;
  • Payment of rent of land or building and associated fittings and fixtures (and equipment) with a source Nepal to an individual other than conducting a business;
  • Payment made by resident person for gain from investment (life insurance);
  • Payment for gain from unapproved retirement fund by a resident person.

Short Question Answer

Write in short the tax exempted incomes under Income Tax Act, 2058.

Income Tax Act, 2058 has exempted following amounts from income tax:

  1. Amount received by a person entitled to tax exemption privileges under a bilateral or multilateral treaty or agreement concluded between the Government of Nepal and foreign country or an international organization. service of the
  2. Amount received by an individual from employment in the public service government of a foreign country.
  3. Amount received from the public fund of a foreign country by an individual who is not a citizen of Nepal or by a member of the immediate family of the individual.
  4. Amount received by an individual, who is not a citizen of Nepal, from employment at the Government of Nepal’s service on terms of tax exemption.
  5. Allowance paid by the Government of Nepal to widow, elder citizen or disabled individual.
  6. Amount received by way of gift, bequest, inheritance, or scholarship except as required to be included in calculating income from business, employment or investment.
  7. Amount received by an exempt organization by way of the donation, gifts, etc.
  8. Pension received by a Nepali citizen retired from the army or police service of a foreign country.
  9. Any kinds of incomes of Government of Nepal.
Give the concept of withholding of tax (tax deducting at source). Write any five final withholding payments as prescribed in prevailing Income tax Act.

The tax deducted by payer on the behalf of recipient at the time of payment is known as Tax Deduction at Sources (TDS)’. The TDS is also known as withholding tax. The person who withholds or deducts the tax is withholding agent and the person whose income is taxed or deducted is the withholdee. Income Tax Act 2058 has prescribed the tax that must be deducted at the time of payment made by the payer to the recipient such payment with respect to business, employment or investment activities. The TDS or withholding tax can be final or non-final (advance or adjustable).

The five final withholding payments prescribed in prevailing Income Tax Act are a follows:

  1. Payment of dividend by a resident company
  2. Meeting fee
  3. Payment for occasional part-time teaching
  4. Rent received by an individual that is not related to business.
  5. Interest income received by an individual that is not related to business.
Enumerate the final withholding incomes under section 92. (2075)

Following payments are treated as final withholding payments:

  • Payment of dividend made by a resident company or a partnership firm;
  • Payment of rent of land or building and associated fittings and equipment with source in Nepal to an individual other than conducting a business;
  • Payment made by resident person for gain from investment (life) insurance;
  • Payment made by a resident person for gain from unapproved retirement fund.
  • Payment of interest made by a resident bank, financial institution, other entity issuing debenture; or company listed under prevailing Act or co-operative society:
  • Payment made to a non-resident person that is subject to withholding tax.
  • All kinds of retirement payments made by the Government of Nepal or Approved Retirement Fund or Unapproved Retirement Fund (excluding regular payment of pension),
  • Meeting fee, payment made for part-time/occasional teaching.
  • Payment made against casual gain.
  • Distribution of returns to an individual by a Mutual Fund.
Numerical Problems

A special industry providing direct employment to 320 Nepalese citizens throughout the income year and earned Rs.800,000 as taxable income in previous year. Required: Rate of income tax for the industry. (2074)

SOLUTION

Income tax rate applicable to special industry providing direct employment to 300 or more (up to 1,199) Nepalese citizens throughout the income year

= Normal income tax rate applicable to special industry x 90% = 20% × 90% = 18%

Mr. Rohit is involved in public transportation services with 10 buses and 20 taxies of his own in Kathmandu Valley. Except this, he does not have any other business. He reported Rs.40,00,000 as income and Rs.25,00,000 as expenses for the previous income year. How do you derive his tax liability?

SOLUTION

 Tax liability of rohit

10 buses @ Rs.3000 per bus

20 taxi @ Rs.2400 per taxi

=Rs30000

= Rs.78000

 

Total taxable income

 

 Rs.48000

 

Note: The public transporter (natural person) is taxed at flat amount of tax per year as per the types of vehicles. Therefore, total income and expenses from public transport are to be ignored.

Mr. Ram got retirement from the service of government of Nepal. He received Rs.900,000 as retirement payment from GON. Calculate tax liability with respect to retirement payment.

SOLUTION

Total retirement payment= Rs.900,000

50% of Rs.900,000              = Rs.450,000

or Flat amount                      = Rs.500,000

(Whichever is higher is tax exempted)

Taxable amount                     = Rs.900,000 – 500,000 = Rs.400,000

Tax payable                              = 400,000 @ 5% = Rs.20,000 (final TDS)

Miss Sunita has presented the following details of her remuneration income:

Total salary income Rs.500,000. Total allowance etc. Rs.50,000

Compute the total amount of tax rebate available to the Miss Sunita.

SOLUTION

Computation of total taxable income

Total salary

Total allowance

 

Rs.500,000

50,000

 

Total taxable income

 

550,000

Computation of tax liability

1st Rs.350,000 (single) @ 1%

Next Rs.100,000 @ 15%

Balance Rs.100,000 @ 25%

 

3,500

15,000

25,000

 

Total tax liability

Less: Tax rebate @ 10%

 

43,500

4,350

 

Tax payable

 

39,150

 

Amount of tax rebate = Rs.4,350 for a resident woman having employment income only.


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