Very Short Questions and Answers
1. State any two expenses not allowed for deduction.
The expenses not allowed for deduction are as follows:
- Fines and penalties are paid to the government or its local bodies for breach of any law regulations.
- Expenses incurred to derive the tax-exempted amounts or final withholding payments. For example, seeds and fertilizer expenses to derive agriculture income are not allowed for deductions.
2. Brief Answer Questions
(A) State with an explanation of whether the following expenses are allowed for deduction or not.
- Interest on loan borrowed to pay income tax.
- Fine paid to Nepal Electricity Authority due to failure to pay bills in time
- Dividend paid to shareholders
- Purchase of computer
- Emergency medical expenses.
- Interest paid to the loan relating to paying income tax is not allowable for the deduction, as it is not related to generating income.
- Late fees paid to the electricity authority is allowable as finance charges.
- Dividend paid to shareholders is not allowed for deduction as it is a distribution of profit.
- Purchase of a computer is a capital expenditure, so it is nondeductible.
- Emergency medical expenses incurred for an employee is allowable for the deduction.
(B) Explain with a brief explanation whether the following expenses are allowed for deduction or not.
- Cash payments of Rs. 35,000 for the purchase of office supplies.
- Foreign income tax paid Rs. 40,000.
- Penalties are paid to the income tax office.
- Interest paid for a loan borrowed to purchase office furniture.
- Transportation expenses for commuting between home and office.
- Cash payment Rs. 35,000 for office supplies is allowed for deduction as a general deduction.
- Income tax paid to a foreign country is not allowable for the deduction. However, if the taxpayer does not claim the foreign tax credit, then it can be allowed for deduction.
- Penalty paid to the income tax office is not allowed for deduction.
- Interest paid to the loan relating to the purchase of furniture is allowable if the furniture is used for generating taxable income.
- Transportation expenses to go and come from the office are not allowable as it is personal expenses.
(C) Explain whether the following incomes are included in the taxable income of the beneficiary or not.
- Meals facility provided by the office.
- Reimbursement of travel expenses.
- Training expenses are reimbursed by the office.
- Prize worth Rs. 400 given by the office.
- Cost of uniform reimbursed by the office.
- Included (only if not provided to all employees on equal terms at business premises).
- Not included
- Not included
- Not included
- Not included
Short Questions and Answers
1. State the various expenses which are expressly deducted while computing the net (assessable) income of an assessee.
The following expenses are expressly disallowed for deduction:
- Personal or domestic expenses.
- Income tax payable under Income Tax Act.
- Fines and penalties paid to government or its local bodies for breach of any law regulations.
- Expenses incurred to derive the tax exempted amounts or final withholding payments.
- Cash payments over Rs. 50,000 (except in certain circumstances) by an individua or an entity with an annual turnover of more than Rs. 2 million.
- Distribution of profits by an entity such as dividend, reserves, etc.
- Capital nature expenditure
- Foreign income tax.
2. What do you mean by personal or domestic expenses? Give any two examples.
The expenses incurred by individuals in respect of themselves are personal or domestic expenses. In other words, they are the expenses that an individual spends for his personal consumption to satisfy his personal needs. Such expenses are not deductible for income tax purposes.
Examples of domestic expenses are:
- Costs for the provision of shelter as well as meals, refreshment, entertainment, or other leisure activities.
- Cloth expenses for individuals other than clothing that is not suitable for wearing outside of work.
3. In which conditions does the cash payment above Rs. 50,000 is deductible.
Cash payments over Rs. 50,000 except for below mentioned circumstances made by an individual or an entity having an annual turnover of more than Rs. 20 Lakhs.
- if payment is made to the Government of Nepal, a constitutional body, a corporation owned by the Government of Nepal, or a bank or financial institution.
- if payment is made to a farmer or a producer producing primary agricultural products.
- if payment is made to a retirement contribution or retirement payment.
- if payment is made in an area where banking services are not available. An area having banking services means the area where there are no banking facilities within the surrounding of ten kilometres.
- if payment is and must necessarily be made in cash or on a day when banking services are closed. if payment is made into a bank account of the payee.