What is Advance Tax in Nepal
Advance tax refers to the payment of income tax in installment during the fiscal year rather than settling the entire amount at the end. This system in Nepal helps ensure a regular flow of revenue for the government while reducing the financial burden on taxpayers by distributing payments over time. It becomes applicable when the projected annual tax liability exceeds NPR 7,500.
Who Needs to Pay Advance Tax?
In Nepal, advance tax is mandatory for several types of taxpayers:
Individual taxpayers: Persons who has significant annual taxable income.
Turnover-based taxpayers: Businesses under presumptive taxation schemes that calculate taxes based on turnover.
Companies: Registered companies, whose income tax is more than or equal to NPR 7,500.
Advance Tax Payment Schedule
Installment Plan for Normal and Corporate Taxpayers
Normal and corporate taxpayers in Nepal are required to pay advance tax in three installments:
40% by the end of Poush (mid-January)
70% by the end of Chaitra (mid-April)
100% by the end of Ashad (mid-July)
How to Calculate Advance Tax
Estimating Income and Tax Obligation
The calculation of advance tax is based on estimated annual income. Taxpayers must carefully forecast their earnings using previous income records and realistic estimates to avoid penalties from underpayment or excess advance payments.
Meeting the 90% Payment Requirement
Taxpayers should ensure that at least 90% of the total annual tax liability is paid before submitting their final tax return to avoid interest or penalties.
Payment Options for Advance Tax
Offline Method – Banks
Advance tax can be paid through cash or cheque deposits at designated bank branches authorized by the government.
Online Method – Digital Platforms
Alternatively, taxpayers can use the IRD online portal, mobile banking services, ATMs, or QR code payments for fast and convenient transactions.
Interest and Penalties for Non-Compliance
Interest on Late Payments
A penalty interest of 15 % per annum is charged on unpaid advance tax installments.
Fixed Penalty Charges
Fixed penalties of NPR 5,000 is levied to the taxpayer if failed to submit the advance tax return.
Additional Interest on Short Payments
If the advance tax paid is below 90% of the total liability, interest is calculated on the difference.
Special Advance Tax Considerations
Tax on Capital Gains
Advance tax may also apply to capital gains earned from selling land, securities, or depreciable assets.
TDS on Foreign Income
For foreign earnings, banks in Nepal generally deduct TDS between 1% and 5% before crediting the funds to the account holder.
Reconciling TDS with Final Tax
Any advance tax collected as TDS is adjusted against the taxpayer’s final tax liability during income tax filing.
Adjustments and Refunds in Advance Tax
Adjustment While Filing Final Returns
When the annual return is filed, any advance tax already paid is credited against the total payable amount.
Refunds or Carry-Forwards
If there’s an excess of advance tax paid, the surplus can either be refunded or carried forward for future tax liabilities.
Ensuring Compliance and Proper Documentation
Keeping Records of Payments
Taxpayers must maintain proper records of all advance tax payments and form submissions to the Inland Revenue Department (IRD).
Amendments to Returns
If a mistake is discovered after submission, the return can be corrected in the next advance tax payment date.
Final Thoughts
Advance tax plays a vital role in effective tax management for individuals and businesses in Nepal. By adhering to installment deadlines, leveraging online payment systems, and maintaining proper documentation, taxpayers can stay compliant and avoid unnecessary financial penalties.
FAQs on Advance Tax in Nepal
Is there any penalty for underestimating income in advance tax?
Yes. If the advance tax paid is significantly lower than the final tax liability (without valid reason), the taxpayer may face interest and penalties for short payment.
How to pay advance tax in Nepal?
Advance tax can be paid online through:
IRD ePayment System
ConnectIPS or bank vouchers using the taxpayer’s PAN
Can I revise the advance tax amount during the year?
Yes. If there is a change in income estimate, you can revise the advance tax projections and adjust upcoming payments accordingly.
Do salaried individuals need to pay advance tax?
No. Salaried individuals generally do not need to pay advance tax as TDS (Tax Deducted at Source) is already deducted by the employer.
What are the legal provisions governing advance tax in Nepal?
Advance tax is governed under Section 95A of the Income Tax Act, 2058.