Very Short Questions and Answers
1. What do you mean by ‘tax assessment’? List out the types of tax assessment.
The term ‘assessment’ means the process of determining the tax liability of the assessee or taxpayers. Income Tax Act, 2058 has defined the term “assessment” as an assessment of tax to be paid under this Act and it includes an assessment of interest and penalty made under this Act. There are three types of tax assessment, which are as follows:
- Self-assessment
- Jeopardy assessment
- Amended assessment
2. Mention the person who is not required to file a return of income.
Each taxpayer does not require filing the return of income. Unless requested by the Inland Revenue Department by notice in writing or by publishing a public notice, the following persons are not required to file a return of income (sec. 97):
a) a person who has no tax payable amount for the year.
b) a resident individual in the following case:
- who has only one employer at a time during the year and all of whom are resident employers and
- who claims a medical tax credit and reduction for retirement contribution made by the employer but does not claim a reduction for donation.
c) a resident individual who receives a final withholding payment.
d) an individual who owns the vehicle and pays tax at a flat rate.
However, an individual has an income over Rs. 40 Lakhs in an income year is required to submit returns of income as per section 96. Such individuals should include final withholding incomes (except for meeting fees and interest incomes), casual gains tax, exempted incomes, and incomes subject to business concessions to derive the total gross income. Final withholding payments and income under business concession are to be deducted from such gross income. The format for submitting returns of such incomes will be as specified by IRD.
3. State the meaning of returns of income.
Return of income is the declaration of income and tax liability by the taxpayer in the prescribed format. As per Income Tax Act, every taxpayer should file a return of income not later than 3 months after the end of each income year. It should be signed by the person or manager and accompanied by necessary disclosures along with a declaration that the return is complete, true, and accurate.
4. Show your acquaintance with the extension of time to file a return of income.
A taxpayer may make a written request to Inland Revenue Department within the due date to extend the time to file a return of income. The Department may, and where the reasonable cause is shown, may grant multiple extensions not exceeding three months in total by which the return is to be filed. The Department will inform the person in writing of its decision on the application (sec. 98).
Short Questions and Answers
1. Give the concept of assessment of tax and write in brief about self-assessment of tax.
Generally, the term ‘assessment’ means the process of determining the tax liability of the assessee. Income Tax Act, 2058 has defined the term “assessment” as an assessment of tax to be paid under this Act and it includes an assessment of interest and penalty made under this Act. However, the term does not include an assessment that has been replaced with an amended assessment.
In self-assessment, a taxpayer himself assesses his tax liability. Income Tax Act, 2058 focuses on the self-assessment system. Under this Act, every assessment will be treated as a self-assessment. Where a person files a return of income for an income year, an assessment is treated as made on the due date for filing the return of:
- the tax payable by the person for the year and in the amount shown in the return,
- and the amount of the tax still to be paid for the year is the amount shown in the return.
Income Tax Act, 2058 has treated every assessment as a self-assessment. Even if a person fails to file a return by the due date, the person is treated to have made an assessment on the due date for filing the return and his assessed tax for the year will be equal to the sum of tax withheld and tax paid in installment. The Department may, then, proceed with an amended assessment.
2. What are the advantages of ‘self-assessment of tax’?
The advantages of self-assessment of tax are as follows:
- It brings the tax into the government treasury sooner than would be the case under the other system.
- It cuts down drastically on the interaction between the taxpayer and tax authority provided that the taxpayer makes an honest declaration.
- It is also cost-efficient as it cuts down the administrative cost of the tax authority.
3. Briefly state the conditions in which the jeopardy assessment is done.
Section 100 of ITA, 2058 also makes provision for the jeopardy assessments under such special circumstances as when:
- the person becomes bankrupt, is wound up, or goes into liquidation.
- the person is about to leave Nepal indefinitely
- the person is otherwise about to cease activity in Nepal or the Department otherwise considers it appropriate.
When an assessment is made under jeopardy assessment with respect to a full-income year, the assessed person will not file a return of income for the year. However, with respect to part of an income year, the assessed person is still required to file a return of income for the year. The Department is required to grant an opportunity to produce proof, if any, in its own favor while making a jeopardy assessment.
4. State the circumstances where returns of income are not required.
Unless requested by the IRD by notice in writing or by publishing a public notice, the following persons are not required to file a return of income:
a) a person (i.e. a taxpayer) who has no tax payable amount for the year under section
b) a resident individual who has only one employer at a time during the year and all of whom are resident employers and who claims only a medical tax credit with respect to medical costs borne by the employer and reduction for retirement contribution made by the employer but does not claim a reduction for donation.
c) a person who receives a final withholding payment.
- if a vehicle owner paying flat taxes (as per section 13 of schedule 1) is an individual.
5. What are the different types of assessment? Briefly describe the amended assessment.
Income Tax Act, 2058 has specified three types of assessments viz; self-assessment, jeopardy assessment, and amended assessment Self-assessment is done by the assessee himself whereas jeopardy and amended assessments are the assessments based on the judgment of the tax office. Section 101 of ITA, 2058 also empowers tax officials to make amended assessments to adjust the assessed person’s liability to tax in such a manner as, according to the Department’s best judgment, is consistent with the intention of this Act. The Department may amend an assessment according to its best judgment as many times as it thinks appropriate within a period of four years.
In case the assessment is inaccurate by reason of fraud, the Department may amend an assessment at any time (the period of 4 years is not applicable). But the assessment must be done within one year of receipt of information. However, the Department may not amend an assessment if the assessment has been amended or reduced pursuant to an order of the Revenue Tribunal or a court of competent jurisdiction except where the order is reopened.
6. Describe the methods of tax assessment under the Income Tax Act, 2058.
Income Tax Act, 2058 has specified three types of assessments viz; self-assessment, jeopardy assessment, and an amended assessment. Self-assessment is done by the assessee himself whereas jeopardy and amended assessments are the assessments based on the judgment of the Department. The income tax system in Nepal generally works on a self-assessment model, where the taxpayer himself assesses the taxable income.
A) Self-Assessment (Sec. 99)
A self-assessment is a tax collection regime in which a taxpayer is responsible for accurately computing and reporting his or her tax liability to the tax office. Income Tax Act, 2058 focuses on the self-assessment system. Under this Act, every assessment will be treated as a self-assessment. Where a person files a return of income for an income year, an assessment is treated as made on the due date for filing the return of:
- the tax payable by the person for the year and in the amount shown in the return, and
- the amount of the tax still to be paid for the year is the amount shown in the return.
B) Jeopardy Assessment (Sec. 100)
Jeopardy assessment is an official assessment conducted by tax officials in special circumstances. However, the tax office should grant taxpayers an opportunity to produce proof, if any, in their own favor while making a jeopardy assessment. The Act has given the authority to carry out jeopardy assessment under the following situations when:
- a person becomes bankrupt, is wound-up, or goes into liquidation.
- a person is about to leave Nepal indefinitely.
- a person is otherwise about to cease activity in Nepal or
- the Department otherwise considers it appropriate.
C) Amended Assessment (Sec. 101)
The taxpayers are normally treated as being honest in their tax dealings. It’s the responsibility of the Inland Revenue Department to verify all information given through a tax return and to check its accuracy. When the Department detects any undeclared assessable income or incorrectly claimed tax deductions or believes that the assessment made by taxpayers is incorrect and is not consistent with the intention of the Act, the Department can make an amended assessment. Hence, the amended assessment is a type of an official assessment where the tax officials make the review or re-assessment of self-assessment or previous assessment with a view to determining the assessee’s correct tax liability.
The Department may amend an assessment according to its best judgment as many times as it thinks appropriate within a period of four years. In case the assessment is inaccurate by reason of fraud, the Department may amend an assessment at any time (the period of 4 years is not applicable).