Tax

A tax is a payment that a person, firm or company must make to the government, according to law. It isn’t a price for something you buy, and it isn’t a gift: the law sets who pays, on what, and how much.

Taxes are the government’s main income. With them it pays for the everyday running of the country (salaries, offices, security) and for development (roads, bridges, schools, health posts). That is why paying tax is part of being a good citizen: the services everyone uses come out of it.

Some of the taxes collected in Nepal:

Tax	Charged on
Income tax	what a person or business earns
Value added tax (VAT)	the price of goods and services sold
Customs duty	goods brought in from other countries
Excise duty	particular goods such as alcohol, tobacco and vehicles
Vehicle tax	owning a vehicle, paid every year
House-rent tax	rent earned from a house or room
Property tax	land and buildings, collected by the municipality

A tax is usually set as a percentage. For example, in 2083/84 a student going abroad to study pays an education service fee of 3% on the tuition fee (Finance Act 2083).

2.1.1 Income tax

Income tax is the tax on the income of a person or of a group (a company, an industry): on wages and salary, and on profit. It is one of the government’s biggest sources of income, and it is worked out as a percentage. The rates can differ with the kind of income, and for some people (people with disabilities, pensioners, women with only a salary) the law gives reliefs.

The Income Tax Act, 2058 sorts income under four headings:

• a.Employment: salary, wages and allowances from a job.
• b.Business: profit from running a business.
• c.Investment: interest, dividends, rent.
• d.Windfall gains: one-off gains such as a lottery prize or a gift.

Income tax is managed by the Inland Revenue Department, which every year puts out how to work out income tax under the new Finance Act, on its website.

This year’s rates: 2083/84

The budget presented on 29 May 2026 (15 Jestha 2083) doubled the income on which only 1% is paid and lowered the top rate from 39% to 29%. These are the rates in the Finance Act 2083, for fiscal year 2083/84 (from 17 July 2026), for every resident individual (a natural person, in the law’s words, as against a company):

Taxable income in a year	Rate
the first Rs 10,00,000	1%
the next Rs 5,00,000 (Rs 10 lakh to 15 lakh)	10%
the next Rs 10,00,000 (Rs 15 lakh to 25 lakh)	20%
the next Rs 15,00,000 (Rs 25 lakh to 40 lakh)	27%
above Rs 40,00,000	29%

For comparison, in 2082/83 a single person paid 1% on the first Rs 5,00,000, 10% on the next Rs 2,00,000, 20% on the next Rs 3,00,000, 30% on the next Rs 10,00,000, 36% on the next Rs 30,00,000 and 39% above Rs 50,00,000; a married couple who chose to be taxed together had a slightly wider first band (Rs 6,00,000). For 2083/84 the IRD’s booklet on the Finance Act 2083 gives one table, with no separate rates for a couple; news reports of the Finance Bill say the same bands apply to a couple.

The 1% on the first band is called the social security tax. It isn’t charged on the business income of a sole proprietor, on a pension, or on a person who pays into the contribution-based Social Security Fund.

Each row of the table is a band (also called a slab); the income where a band ends is its ceiling, or threshold. The most important thing to understand about bands: a higher rate is charged only on the part of the income that is inside that band, not on the whole income. Move the slider and watch the shaded area, which is the tax.

What is taken off before the tax

Income tax is charged on the taxable income: the year’s income less the deductions the law allows. The main deductions and reliefs, with their limits in 2083/84:

	What	Limit or relief
a.	Deposits in the Employees’ Provident Fund, the Citizen Investment Trust, the Social Security Fund or an approved retirement fund	together, the least of: the amount deposited, one third of the year’s assessable income, and Rs 5,00,000
b.	Life insurance premium	up to Rs 40,000 a year
c.	Health insurance premium	up to Rs 20,000 a year
d.	Insurance of a private building you own	up to Rs 10,000 a year (Rs 5,000 until 2082/83)
e.	Tuition fees paid for your children’s education (new in 2083/84)	25% of the fees paid, or Rs 25,000, whichever is less
f.	Donations to tax-exempt bodies approved by the IRD	5% of the adjusted taxable income, or Rs 3,00,000, whichever is less (Rs 1,00,000 until 2082/83)
g.	Remote-area allowance, for working in a remote area	up to Rs 50,000 a year, by how remote the area is
h.	Staff of Nepal’s embassies and missions abroad	75% of the foreign allowance is not taxed
i.	Medical treatment	a tax credit (taken off the tax, not the income) of 15% of the approved bills, up to a yearly limit set by the Income Tax Rules
j.	A person with a disability	the first band is 50% larger
k.	Pension income	the first band is 25% larger (up to a set limit)
l.	A woman whose only income is from employment	10% off her income tax
m.	Social security allowances (such as the senior citizens’ allowance)	not taxed
n.	Dowry, scholarships, inheritance, and what is received by a will	not taxed

Limits change with each Finance Act: check the IRD’s booklet for the year you are working in. The Rs 5,00,000 in row a is the limit given in summaries of the Income Tax Rules for recent years; it could not be checked against the Rules’ own text for 2083/84. A question in an exam gives the rates and limits it wants you to use; use those.

The examples and exercises below use the rates and limits a question gives, often the earlier year’s table in Activity 2, as exam questions do. The method is the same for every year’s table.

Back to Sudip

Sudip earns Rs 50,000 a month for 13 months: Rs 6,50,000 a year, with no deductions.

In 2082/83 (single person): 1% of Rs 5,00,000 + 10% of Rs 1,50,000 = 5000 + 15000 = Rs 20,000.

In 2083/84: all of it is inside the first band of Rs 10,00,000, so 1% of Rs 6,50,000 = Rs 6,500.

The new rates leave him Rs 13,500 a year more. Had Sudip been a woman with only a salary, the 10% relief would lower each bill further: to Rs 18,000 before and Rs 5,850 now.

Question 1

Question 2

Question 3

Here are the rates of income tax for a person running a business as a sole proprietorship:

Yearly income (Rs)	Rate
1 to 4,50,000	tax free
4,50,001 to 5,50,000	10%
5,50,001 to 7,50,000	20%
7,50,001 to 20,00,000	30%
above 20,00,000	36%

How much tax does the owner pay on each yearly income?

Question 4

2.1.2 Value added tax

Value added tax (VAT) is a tax on goods and services. It is an indirect tax: the buyer pays it as part of the price, and the seller passes it to the government. It is charged on the value added at each stage, from the maker to the shop. The person who finally uses the thing, the consumer, pays all of it in the end, but it is collected a little at every step, so no step pays tax on tax.

Nepal’s VAT is set by the Value Added Tax Act, 2052. The standard rate is 13%. The Finance Act 2083 kept 13% as the standard rate and brought in a lower 5% for some things: from 2083/84 electricity carries VAT, but for a home only at 5% and only on use above 50 units, and services sold through apps, such as ride-sharing, pay 5%.

How VAT is collected at each step

A company makes a television and sets its price at Rs 10,000, its cost plus its profit. The television reaches you through a dealer, a wholesaler and a retailer. Each one adds their costs and profit to the price before VAT, then charges 13% VAT on top:

Sale	Price before VAT	VAT 13%	Price with VAT
Company → dealer	Rs 10,000	Rs 1,300	Rs 11,300
Dealer → wholesaler (adds Rs 2,500)	Rs 12,500	Rs 1,625	Rs 14,125
Wholesaler → retailer (adds Rs 2,500)	Rs 15,000	Rs 1,950	Rs 16,950
Retailer → you (adds Rs 3,000)	Rs 18,000	Rs 2,340	Rs 20,340

You pay Rs 2,340 in VAT. How does it reach the government? Each seller deposits in the government treasury the VAT they collected from their buyer less the VAT they paid to their own seller:

• Company: Rs 1,300
• Dealer: 1625 − 1300 = 325
• Wholesaler: 1950 − 1625 = 325
• Retailer: 2340 − 1950 = 390
• Total: 1300 + 325 + 325 + 390 = 2340

There is a second way to get the same numbers: each seller deposits 13% of the value they added:

• Company: 13% of Rs 10,000 = Rs 1,300
• Dealer: 13% of (12500 − 10000) = 13% of Rs 2,500 = Rs 325
• Wholesaler: 13% of (15000 − 12500) = 13% of Rs 2,500 = Rs 325
• Retailer: 13% of (18000 − 15000) = 13% of Rs 3,000 = Rs 390

That is where the name comes from: the tax is on the value added at each step. Change the retailer’s price and watch.

Discount first, then VAT

A shop’s marked price (MP) is usually the price before VAT. If it gives a discount, VAT is charged on the price after the discount:

$$\begin{aligned} \text{Price after discount} &= \text{MP} - \text{discount} = \text{MP} \times \frac{100 - d}{100} \\ \text{VAT} &= \frac{13}{100} \times \text{price after discount} \\ \text{Price with VAT} &= \text{MP} \times \frac{100 - d}{100} \times \frac{113}{100} \end{aligned}$$

Working backwards, from a price with VAT to the price before it, divide by 1.13:
$$\text{Price before VAT} = \text{price with VAT} \times \frac{100}{113}$$

Question 1

Find the VAT.

	Price without VAT	VAT rate
a.	Rs 300	13%
b.	Rs 750	13%
c.	Rs 6,000	13%
d.	Rs 3,75,000	13%
e.	Rs 20,27,000	13%

Question 2

Each price below includes 13% VAT. Find the price without VAT.

	Price with VAT
a.	Rs 3,616
b.	Rs 30,510
c.	Rs 3,390
d.	Rs 57,630
e.	Rs 1,19,328

Question 3

Find what the customer pays for each. VAT is 13%.

Question 4

Find the price with VAT.

	Marked price without VAT	Discount	VAT
a.	Rs 2,000	8%	13%
b.	Rs 7,000	15%	13%
c.	Rs 27,000	20%	13%
d.	Rs 20,525.30	10%	13%
e.	Rs 1,81,500	7.5%	13%

Question 5

Question 6

Find the marked price (without VAT) and the discount.

	Discount rate	VAT	Price with VAT
a.	20%	13%	Rs 4,520
b.	10%	13%	Rs 15,225
c.	15%	13%	Rs 57,630
d.	25%	13%	Rs 2,151.52
e.	15%	13%	Rs 2,40,125

Question 7

Question 8

A shopkeeper buys an article for Rs 27,500 without VAT and marks it at Rs 35,000. He sells it at 10.5% off, with 13% VAT.

Question 9

A shopkeeper buys a watch for Rs 4,000 without VAT and marks it 25% above the cost. He gives a 12% discount and charges 13% VAT.

Question 10

A wholesaler sells a washing machine to a retailer for Rs 67,000, adding 13% VAT. The retailer delivers it to a customer’s home, adding Rs 3,000 for transport and Rs 5,000 profit.

Question 11

A watch wholesaler buys a watch from a dealer for Rs 12,000 without VAT, and sells it to a retailer for Rs 16,950 with VAT. VAT is 13% at each step.

Question 12

A wholesaler sells 15 chairs to a retailer at Rs 9,000 each without VAT. The retailer sells all of them to customers at Rs 11,500 each without VAT. VAT is 13%.

Question 13

A wholesaler sells 10 chairs to a retailer at Rs 10,170 each, with VAT. The retailer sells all of them at Rs 11,500 each without VAT. VAT is 13%.

Question 14

A wholesaler sells 30 tables to a retailer at Rs 10,170 each, with VAT. The retailer sells all of them at Rs 12,995 each, with VAT. VAT is 13%.

Question 15

Question 16

A dealer sets the price of a washing machine at Rs 56,000 without VAT and sells it to a wholesaler with 13% VAT. The wholesaler sells it to a retailer for Rs 74,580 with 13% VAT.

Grade 9’s final exam is set to CDC’s specification grid for Compulsory Mathematics, Grades 9–10 (2078). There, Arithmetic is 13 marks in three questions; the tax question is usually 5 marks in three parts:

Part	Level	Marks	What it asks
a.	knowledge	1	what a tax (income tax, VAT) means
b.	understanding	2	a year’s income, or a price after discount
c.	application	2	the tax after a deduction, or the price with VAT

Here is one in that shape, with how it is marked.