Very Short Questions and Answers

1. Briefly state the measures for recovery of the due amount from the taxpayer.

The Act has stated the following measures for the recovery of the due amount:

  • Recovery of tax from person owing money to the tax debtor
  • Departure prohibition order
  • Recovery of tax from an agent of the non-resident
  • Recovery of tax from the receiver
  •  Charge over assets and sale (auction) of charged assets
2. What is a tax certificate? Give its types.

A tax certificate simply refers to a document issued by either a withholding agent or by the Inland Revenue Department to certify the payment or clarification of tax from the taxpayer.

Three types of certificates commonly used in matters related to taxation are:

  • Tax-exempt certificate
  • Tax clearance certificate
  • TDS certificate
3. Mention the methods of tax collection in brief.

As per the Income Tax Act, 2058, the government collects taxes through the following methods:

  • Installment method
  • Withholding/advance tax method
  • Collection along with self-assessment Presumptive taxation
  • Recovery or forced collection
4. Show your acquaintance with presumptive tax.

Presumptive taxation is a system of taxation under which income tax is levied on the average income in place of actual income. Under this system, tax is levied at annual flat rates. It is suitable for small taxpayers whose actual incomes and actual expenses are extremely difficult or practically not feasible to assess.

5. What is withholding/advance tax?

Withholding tax is the tax deducted from employment income, investment return, service fees, contract, or other incomes by the payer of the income and paid to tax authorities wholly on behalf of the recipient (i.e. withhold). Withholding tax, also known as tax deducted at source (TDS), is imposed on the receiver but collected through payers. It is based on PAYE (Pay As You Earn) concept.

6. What is a tax refund? Explain.

A tax refund refers to a refund on taxes when the tax liability is less than the taxes paid. It is the return of excess amounts of income tax that a taxpayer has paid to the government. Taxpayers can often get a tax refund on their income tax if the tax they owe is less than the sum of the total amount of the withholding taxes and estimated taxes that they paid.

Short Questions and Answers

1. Briefly describe the methods of tax collection under ITA, 2058.

The collection of taxes is one of the important functions of tax administration. ITA, 2058 has adopted the following three methods of collecting tax from the taxpayers:

A) Installment Method: An individual or an entity having assessable income during an income year from a business or investment is required to pay tax in three installments:

  • 1st installment: 40% of estimated tax is to be paid by the end of Poush.
  • 2nd installment: 70% of estimated tax is to be paid by the end of Chaitra.
  • 3rd installment: 100% of estimated tax is to be paid by the end of Ashadh. The taxpayer should pay remaining amount after deducting the amount of tax paid earlier while paying tax in a subsequent installment.

B) Withholding /Advance Tax Method: Withholding tax is the tax deducted from employment income, investment return, service fees, contract, or other incomes by the payer of the income and paid to tax authorities wholly on behalf of the recipient (i.e. withhold). Withholding tax, also known as tax deducted at source (TDS), is imposed on the receiver but collected through payers.

Any person who makes disbursement of incomes subject to withholding tax is required to withhold income tax at the time of disbursement, to remit all taxes thus withheld to the government account within 25 days, and to submit particulars thereof to the tax office concerned.

C) Collection along with Self-Assessment: Each person is required to file a return within three months after the end of each income year. While filing the final return, taxpayers are required to pay the outstanding tax, if any.

2. Enumerate the various modes of recovery of tax due from an ‘assessee in defaults’ as specified in ITA, 2058.

Today, a large part of the tax is collected in form of installments before the end of the income year. Besides, tax is collected by withholding on employment income, investment returns and service fees, and contract payments. However, not all taxpayers pay tax within the specified time. So, the tax administration should take swift action to collect delinquent taxes. The due amount can be recovered in different ways.

 The Act has stated the following measures for the recovery of the due amount:

  • Recovery of tax from person owing money to the tax debtor
  • Departure prohibition order Recovery of tax from an agent of the non-resident
  • Recovery of tax from receiver
  • Charge over assets and sale (auction) of charged assets
3. What do you mean by departure prohibition order? Briefly describe the provision in the act.

 Inland Revenue Department (IRD) may, by notice in writing served on the concerned office of the Government of Nepal, order the office to prevent the person (non-payer) from leaving Nepal for a period of 72 hours after the expiry of the time limit specified in a notice served for the purpose of paying tax. If the person pays the tax or makes an arrangement for payment, the tax administration may by notice in writing served on the office, withdraw the order.

4. What are the circumstances in which a claim for a refund of tax may arise? Describe briefly the procedure for claiming a refund of tax according to ITA, 2058.

If a person has paid the tax in excess of the tax liability, the Inland Revenue Department will first recover the tax payable by the person. After recovering that amount, if there is still the tax excess of the liability, the remaining amount will be refunded to the taxpayer. The interest paid by a person on account of failure to pay tax, which is found not to have been payable, will also be refunded.

The taxpayer should apply in Department for a refund of tax in the specified form. He should also submit the documents related to excess payment of the tax. The application should be submitted to the Department within two years of the later of the end of the income year or the date on which the excess was paid or the date on which the litigation is settled, otherwise, the taxpayer cannot get a refund. The Department must refund within 60 days from the date of receipt of the application.

The Department is liable to pay interest at the general interest rate while refunding an amount of tax to a person, whether by reason of court’s order or otherwise. Tax credits related to medical and foreign tax for an income year may not be set off or refunded.

5. Briefly describe the different types of certificates related to taxation.

Three types of certificates commonly used in matters related to taxation are:

  • Tax-exempt certificate
  •  Tax clearance certificate
  • TDS certificate

The Department can issue the first two certificates while a withholding agent issues the TDS certificate. The Department can issue a tax-exempt certificate if the person applying for the certificate seems to be a tax-exempt person. A person can submit an application for a tax clearance certificate to the Department with the inclusion of necessary documents specified in sub-section (2) of Section 96. After receipt of the application, the Department must give the tax clearance certificate after verifying the accuracy of tax calculation made by the si applicant and by checking proof of tax, fees, and advance tax amount, and making him pay interest if found due. The withholding agent making payments subject to withholding taxes is required to give a TDS certificate to the withholder.

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