TDS and ETDS in Nepal 2025 | Rates, Filing Process & Compliance Guide

Introduction to TDS and ETDS in Nepal

Tax compliance is one of the most important responsibilities for individuals and businesses in Nepal. Among different tax systems, TDS (Tax Deducted at Source) and ETDS (Electronic Tax Deducted at Source) are widely used methods of collecting tax in advance. Both systems help the government ensure timely revenue collection while making businesses accountable for tax deductions.

This article provides a detailed overview of TDS and ETDS in Nepal, including definitions, rates, filing processes, responsibilities, compliance rules, and practical examples for 2025.

What is TDS (Tax Deducted at Source)?

Definition of TDS in Nepal

TDS in Nepal refers to the portion of tax that must be deducted by a payer (employer, company, or service user) at the time of making specific payments. The deducted amount is then deposited with the Inland Revenue Department (IRD) on behalf of the recipient.

Objectives of TDS System

• To collect tax at the time of income generation.
• To minimize tax evasion and ensure transparency.
• To distribute the tax burden fairly throughout the year.
• To bring unorganized sectors under the tax net.

Key Provisions under Income Tax Act

• TDS provisions are regulated under the Income Tax Act, 2058 (2002).
• It applies to various payments such as salary, rent, consultancy fees, interest, dividends, and more.
• Both individuals and businesses can be subject to TDS deduction, depending on the nature of the transaction.

What is ETDS (Electronic Tax Deducted at Source)?

Meaning of ETDS in Nepal

ETDS (Electronic TDS) refers to the online filing and submission of TDS returns using the IRD’s electronic system. It eliminates the need for manual paperwork and ensures smooth record-keeping.

Importance of ETDS Filing

• Saves time and cost for taxpayers.
• Provides an accurate digital record of TDS transactions.
• Ensures timely filing and reduces chances of penalties.
• Promotes transparency between businesses and the government.

Difference Between TDS and ETDS

• TDS is the tax deducted at the time of payment.
• ETDS is the electronic process of reporting and filing that deducted tax to the IRD.

  

  TDS Rates in Nepal (2025)

TDS rates in Nepal vary depending on the type of income and recipient. Here are the most common TDS categories along with examples:

TDS on Salary and Wages

• Employers must deduct TDS based on the progressive tax slab applicable to employees.
• Contributions such as CIT, SSF, and retirement funds are also considered while calculating taxable income.

Example:
Suppose an employee earns NPR 60,000 per month (NPR 720,000 annually).

• The first NPR 500,000 (for individuals) is taxed at 1% social security tax + 10% slab.
• The remaining NPR 220,000 is taxed at the higher slab (20%).
• Employer deducts TDS every month before paying salary.

This way, the employee pays tax gradually instead of waiting until year-end.

TDS on Rent and Lease

• 10% TDS on rent payments (land, building, equipment, etc.) to individuals or businesses.

Example:
If a company pays NPR 50,000 monthly rent to a landlord:

• TDS = 10% of 50,000 = NPR 5,000.
• The landlord receives NPR 45,000, and NPR 5,000 goes to the government.

TDS on Professional Services

• 15% TDS on payments made to professionals such as doctors, engineers, lawyers, auditors, consultants, etc.

Example:
A business hires a lawyer and pays NPR 100,000 as legal fees.

• TDS = 15% of 100,000 = NPR 15,000.
• Lawyer receives NPR 85,000, while NPR 15,000 is deposited to IRD.

TDS on Contracts and Consultancy

• 1.5% TDS on construction, supply, or service contracts.

Example:
A contractor completes a project worth NPR 1,000,000.

• TDS = 1.5% of 1,000,000 = NPR 15,000.
• Contractor gets NPR 985,000 after deduction.

TDS on Dividend and Interest Income

• 5% TDS on dividend income from companies.
• 5% or 15% TDS on interest income, depending on the nature of payment.

Example:
If an investor receives a dividend of NPR 200,000 from a company:

• TDS = 5% of 200,000 = NPR 10,000.
• Investor gets NPR 190,000 net.

Who Should Deduct TDS in Nepal?

Responsibilities of Employers and Businesses

• Employers must deduct TDS from employees’ salaries before payment.
• Businesses must deduct TDS when making payments for services, contracts, rent, and consultancy.
• Deducted TDS must be deposited into the government’s account within the due date.

TDS Deduction for Individuals

• Individual taxpayers engaged in business or profession may also be required to deduct TDS while making payments.
• For example, if a landlord receives rent from an individual operating a business, TDS must be deducted.

TDS Filing and Payment in Nepal

Process of TDS Deduction

1. Identify the transaction subject to TDS.
2. Deduct TDS at the prescribed rate.
3. Deposit the deducted amount to IRD’s bank account.
4. File TDS return through ETDS system.

Due Dates for TDS Payment

• TDS must be deposited within 25 days of the end of the Nepali month in which the deduction was made.
• Timely filing ensures smooth compliance and avoids penalties.

Penalties for Non-Compliance

• Delay in TDS deduction or payment results in fines and interest.
• Failure to file ETDS returns can lead to penalties up to NPR 100 per day or higher depending on the default.

ETDS Filing in Nepal

Steps to File ETDS Online

1. Log in to the IRD e-filing system (ird.gov.np).
2. Select “TDS Return Filing.”
3. Enter details of deducted TDS (PAN, amount, category, etc.).
4. Upload supporting documents.
5. Submit return and generate acknowledgment receipt.

Example:

• A company deducted NPR 15,000 TDS from a contractor.
• At month-end, the accountant logs into the IRD system.
• The TDS amount, contractor’s PAN, and payment category are entered.
• After submission, the system generates an acknowledgment receipt, which acts as proof of filing.

Challenges in TDS and ETDS in Nepal

Common Mistakes During TDS Deduction

• Wrong calculation of TDS amount.
• Deduction under incorrect TDS category.
• Failure to deduct TDS before making payments.

Issues in ETDS Filing and Reporting

• Technical issues in IRD portal.
• Lack of awareness among small businesses.
• Incomplete or inaccurate data entry.

Government Rules and Compliance for TDS/ETDS

Role of Inland Revenue Department (IRD)

• IRD monitors and regulates TDS and ETDS compliance.
• Provides training and updates regarding tax systems.
• Ensures penalties for defaulters and rewards for compliant taxpayers.

Penalties and Fines for Delay

• Late filing penalty: NPR 100 per day.
• Interest charges on late payment of deducted tax.
• Possible investigation for tax evasion if non-compliance continues.

Conclusion: Importance of TDS and ETDS in Nepal

TDS and ETDS are essential mechanisms for maintaining a fair and transparent tax system in Nepal. They ensure that taxes are collected in advance, reducing the risk of evasion and distributing the tax burden more evenly.

For businesses, timely TDS deduction and ETDS filing not only avoid penalties but also build trust with the government. As Nepal moves toward greater digital transformation in taxation, understanding and complying with TDS and ETDS rules will be crucial for every taxpayer.

Frequently Asked Questions (FAQs) on TDS and ETDS in Nepal

1. What is TDS in Nepal?

TDS (Tax Deducted at Source) is the portion of tax that must be deducted by a payer (employer, business, or individual) when making payments like salary, rent, consultancy fees, or dividends. The deducted amount is deposited with the Inland Revenue Department (IRD).

2. What is ETDS in Nepal?

ETDS (Electronic Tax Deducted at Source) is the online system for filing TDS returns. It simplifies reporting and ensures accurate digital records of deducted tax.

3. Who is responsible for deducting TDS in Nepal?

Employers, businesses, and individuals making certain payments are responsible for deducting TDS before making the payment to the recipient.

4. What are the TDS rates in Nepal for 2025?

• Salary & wages: progressive slab rates
• Rent: 10%
• Professional services: 15%
• Contracts & consultancy: 1.5%
• Dividend income: 5%
• Interest income: 5% or 15% depending on payment type

5. When should TDS be deposited to the IRD?

TDS must be deposited within 25 days of the end of the Nepali month in which the deduction was made.

6. What are the penalties for late TDS or ETDS filing?

• Late filing: NPR 100 per day
• Late payment: interest charges apply
• Continuous non-compliance may lead to further penalties or investigation

7. How do I file ETDS in Nepal?

1. Log in to the IRD e-filing system (ird.gov.np)
2. Select “TDS Return Filing”
3. Enter payment and deduction details (PAN, amount, category)
4. Upload supporting documents
5. Submit and download the acknowledgment receipt

8. Can individuals also deduct TDS?

Yes, individuals engaged in business or profession must deduct TDS for applicable payments like rent or professional fees.

9. What is the difference between TDS and ETDS?

• TDS: Tax deducted at the time of payment
• ETDS: Online reporting and filing of deducted TDS to IRD

10. Why is TDS and ETDS important in Nepal?

They ensure advance tax collection, reduce tax evasion, provide transparency, and make it easier for businesses and individuals to comply with the law.

Latest TDS Rates issued by IRD of Nepal