Table of Contents

Very Short Questions and Answers

1. Briefly describe the situation for an individual to be a resident individual.

 The situation for an individual to be a resident individual is listed below:

  • Whose normal place of abode is in Nepal.
  • Who has resided in Nepal for 183 days or more during a continuous period of 365 days.
  • Who is deputed by the government of Nepal to a foreign country.
2. List out any four entities classified as residents in Nepal.

Four entities are classified as residents in Nepal as listed below:

  • Government of Nepal
  • VDC, Municipality, or DDC
  • Company or partnership firm registered in Nepal.
  • An organization or entity established under any treaty or agreement.
3. Mr. KP Dhakal, an officer in the Government of Nepal service, was appointed as a permanent representative of Nepal to the USA. He left Nepal on the 1st Ashwin of the previous year. You are required to determine his residential status.

Since Mr. Dhakal is an employee of the government of Nepal posted abroad, his status as a resident.

4. List out any two privileges granted to residents over non-residents.

Two privileges granted to residents over non-residents are as follows:

  • Residents are entitled to an exemption that is not available to non-residents.
  • Residents are taxed at various rates while non-residents are taxed at a flat rate.

Short Questions and Answers

1. Define an assessee. State the conditions for an assessee to be a resident.

An assessee, also known as a taxpayer, means a person (an individual or an entity) on whom the tax is imposed and realized as per Income Tax Act, 2058. Income Tax Act, 2058 has made a detailed provision for resident individuals and companies. A resident person with respect to an income-year means the following:

a) In respect of an individual:

  • whose normal place of abode is in Nepal;
  •  who has resided in Nepal for 183 days or more during a continuous period of 365 days; or
  • who is deputed by the Government of Nepal to a foreign country at any time of the income year?

b) A partnership firm.

c) In respect of a trust, such trust:

  • which is established in Nepal;
  • the trustee of which is a resident person in an income year; or
  • which is controlled by a resident person or a group of persons comprising such a person, directly or through one or more interposed entities.

d) In respect of a company, such company:

  • which is incorporated under the laws of Nepal; or
  • management which is effective in Nepal in any income year.

e) Government of Nepal

f) Village Development Committee, Municipality, or District Development Committee.

g) In respect of an entity of any foreign government or provincial and local government under that government, such entity which is established under the laws of Nepal; or management of which is effective in Nepal in any income year.

h) An organization or entity established under any treaty or agreement; and i. a foreign permanent establishment of a non-resident person situated in Nepal.

2. Define a ‘resident’. State the privileges provided by IT Act 2058 to residents over non-residents.

Tax treatment of residents and non-residents differs considerably. Non-residents are not entitled to any exemptions. Unlike residents, non-residents are taxed at the flat rate of 25%. Similarly, any withholding taxes levied on employment income (Sec. 87). investment returns and service fees (Sec. 88), and contract payments (Sec. 89) of nonresidents are treated as final taxes.

In addition to basic exemption (Rs. 250,000 for an individual and Rs. 300,000 for a couple), a resident individual/couple may claim the following reductions from total taxable income:

  • Reduction for the insurance premium paid for his life not exceeding Rs. 20,000 per annum.
  • Reduction of health insurance premium up to Rs. 20,000 p.a.
  • Reduction for remote area exemption up to Rs. 50,000 depending upon the location of the remote area worked by individuals (Rs. 50,000, Rs. 40,000, Rs. 30,000, Rs. 20,000, and Rs. 10,000 for Remote Area A, B, C, D, and E respectively).
  • Reduction of 25% of basic exemption by individuals having pension income.
  • Reduction of 50% of basic exemption by a disabled individual
  • Reduction of 75% of foreign allowances by a Nepalese diplomat.

NUMERICAL PROBLEMS

1. Mr. B is an American and came to Nepal on Falgoon of the last year and stayed in Nepal till the end of the previous year. He disclosed the following details of his income and expenditure.

Assessable (net) income from business Rs. 1,75,000

Assessable (net) income from profession Rs. 1,50,000

He donated Rs. 5,000 to a local cricket club.

Required:

(a) Statement of total income.

(b) Residential status with an explanation.

SOLUTION:

a) Calculation of total taxable income of Mr. B, an American, for the previous income year.

b) Mr. B’s stay in Nepal = Falgoon to Ashad end, last year = 5 months = 5 × 30 days = 150 days Since Mr. B stayed in Nepal for less than 183 days in consecutive 365 days, he is a nonresident.

2. Mr. Pant, a permanent office of the Government of Nepal was appointed as a first secretary at the Embassy of Nepal in Bangladesh. He was drawing Rs. 14,000 p.m. as his salary. He left Nepal on 1st Aswin. He was paid US $ 1600 as dearness allowance and US $ 400 as out station allowance. Dollar exchange rate applicable was Rs. 75 for one US dollar. He stayed there till the end of Jesth of previous year.

Required:

(a) His taxable income

(b) His residential status

SOLUTION

a) Calculation of taxable income of Mr. Pant, a permanent officer of the Government of Nepal, for the previous income year.

2. Mr. Yomuna is working in an embassy representing Japan and came to Nepal on 1″ Chaitra of the previous year. His salary and other emoluments are paid by the country’s representatives. He declared the following sources of income during the previous year:

Salary Rs. 300,000

Foreign allowance Rs. 150,000 of Rs. 100.000

He runs a small business in Nepal and earned a net profit of Rs. 100,000 in the previous year. During the year he donated Rs. 20,000 to a public school located in Kathmandu.

Required:

(a) His residual status

(b) Taxable income

SOLUTION

(a) Length of stay = 1st Chaitra to Ashadh end, previous year

                               = (30 x 4) = 120 days (approx)

Since Mr. Yomuna stayed in Nepal for less than 183 days, his residential status is a non-resident.

(b) Statement showing taxable income of Mr. Yomuna for the previous year

3. Mr. John, a citizen of the UK, came to Nepal on Paush 1st and stayed in Nepal till the end of the previous year. During this period he earned the following income.

Income from Business of Rs. 450,000 after charging the rent of Rs. 50,000 to his residential house, and Rs. 25,000 for the showroom.

He claimed that he had donated Rs. 3,000 to a public library.

Required:

  1. Net Income from Business
  2. Statement of Total Taxable Income
  3. His residential status with explanation

SOLUTION

4. Mr. Shukla, an Indian citizen, came to Nepal on 1″ Magh and stayed in Nepal till the end of the previous year. During his stay in Nepal, he earned the following incomes:

Income from the business of Rs. 337,000 before deducting electricity charges of Rs. 30,000 of his house and after deducting depreciation of Rs. 35,000 of the assets are used for business purposes.

He claimed the amount of Rs. 10,000 donated to Nepal Red Cross Society.

Required:

(a) Net (assessable) income from the business.

(b) Statement of total taxable income.

(c) His residential status with an explanation.

SOLUTION

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