Chapter 13 · Part 13 — Worked Examples
Worked Examples
Four taxpayers computed end to end, and one purchase traced through four taxes.
13 of 14 · 10 min
Everything in Parts 1–12, applied. Four complete computations for four different taxpayers, each worked line by line so you can follow and check the arithmetic.
A salaried employee
Sabina is a resident natural person, employed, contributing to the Social Security Fund.
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STEP 1 — GROSS REMUNERATION
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Basic salary Rs 1,800,000
Allowances Rs 540,000
Annual bonus Rs 260,000
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GROSS REMUNERATION Rs 2,600,000
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STEP 2 — DEDUCTIONS AND RELIEFS (Part 4)
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Approved retirement fund contribution [R] (Rs 260,000)
Insurance premium, private building
Premium actually paid Rs 14,000
Cap Rs 10,000
→ lower of the two (Rs 10,000)
Tuition fee relief
Annual tuition paid Rs 120,000
25% of that Rs 30,000
Cap Rs 25,000
→ LOWER of the two (Rs 25,000)
Donation to an approved institution
Donated Rs 80,000
Limit: lower of Rs 300,000 or 5% of adjusted
taxable income [R] — assume the 5% limit exceeds
Rs 80,000 here (Rs 80,000)
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TOTAL DEDUCTIONS (Rs 375,000)
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STEP 3 — TAXABLE INCOME
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2,600,000 − 375,000 = Rs 2,225,000
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STEP 4 — APPLY THE SLABS (Part 2)
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Band Amount Rate Tax
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First 1,000,000 1,000,000 1% * — ← see note
Next 500,000 500,000 10% 50,000
Next 1,000,000 (part) 725,000 20% 145,000
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TAX LIABILITY Rs 195,000
* SABINA CONTRIBUTES TO THE SSF, so the 1% social security
tax on the first band DOES NOT APPLY (Part 2.3).
A non-SSF colleague on identical income would pay
1,000,000 × 1% = Rs 10,000 more.
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STEP 5 — SETTLE
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Tax liability Rs 195,000
Less: TDS withheld by employer during the year (Rs 190,000)
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BALANCE PAYABLE Rs 5,000
Effective rate on taxable income = 195,000 ÷ 2,225,000 = 8.76%
Effective rate on gross = 195,000 ÷ 2,600,000 = 7.50%
Marginal rate = 20%A NEPSE investor
Rajan invests on NEPSE alongside employment income. This example isolates the capital gains computation (Part 3).
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DISPOSALS DURING FY 2083/84
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Scrip Bought Sold Held Cost Proceeds Gain
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A Shrawan 2083 Falgun 2083 210 d 600,000 780,000 180,000
B Baisakh 2082 Bhadra 2083 490 d 450,000 620,000 170,000
C Poush 2082 Ashwin 2083 270 d 300,000 265,000 (35,000)
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APPLY THE HOLDING-PERIOD TEST
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Scrip A 210 days → ≤ 365 days → SHORT → 10%
Scrip B 490 days → > 365 days → LONG → 7.5%
Scrip C loss, no gain to tax
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CAPITAL GAINS TAX
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Scrip A 180,000 × 10% = Rs 18,000
Scrip B 170,000 × 7.5% = Rs 12,750
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TOTAL CGT WITHHELD Rs 30,750
! Scrip C's Rs 35,000 loss. [R] Whether it can be set against
the gains on A and B is governed by the Act's loss
provisions. DO NOT assume it reduces the Rs 30,750.
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WHAT IT WOULD HAVE COST LAST YEAR
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Scrip A 180,000 × 7.5% (FY 2082/83 short) = Rs 13,500
Scrip B 170,000 × 5% (FY 2082/83 long) = Rs 8,500
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Rs 22,000
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║ ADDITIONAL TAX THIS YEAR: Rs 8,750 ║
║ On the same trades. An increase of 39.8%. ║
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THE FINAL-TAX CHOICE (Part 3.5)
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IF RAJAN DOES NOT FILE
The Rs 30,750 is FINAL. Nothing more due on the gains,
nothing recoverable, and the Scrip C loss is simply lost.
IF RAJAN FILES
The gains enter his assessment; the Rs 30,750 becomes a
credit; loss relief and other reliefs come into account
to the extent the Act allows. [R]
! AND remember: he can no longer skip filing SOLELY because
his income falls under Section 95Ka(6kha),(6ga),(6gha).
Whether he MUST file and whether filing HELPS are separate
questions. [R] Take advice.
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WHAT IS NOT IN THIS ARITHMETIC
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Broker commission, the SEBON regulatory fee and DP charges
all reduce net proceeds BEFORE the gain is computed.
Rates are SEBON-set and revised — use the site's live
calculators rather than a figure printed in a lesson.A trading business
Himal Traders Pvt. Ltd. is a resident company. This example shows the accounting-to-tax reconciliation (Part 5) and the cash-transaction trap.
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STEP 1 — ACCOUNTING PROFIT
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Revenue Rs 92,000,000
Cost of sales (Rs 61,000,000)
Operating expenses (Rs 19,400,000)
Finance cost (Rs 1,600,000)
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ACCOUNTING PROFIT BEFORE TAX Rs 10,000,000
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STEP 2 — ADD BACK DISALLOWED ITEMS
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Cash payments above Rs 25,000 per transaction
(Part 5.2 — six payments totalling this) Rs 340,000
Fine paid to a regulator Rs 75,000
Donation in excess of the Section 12 limit Rs 120,000
CSR in excess of the 1% limit Rs 40,000
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TOTAL ADD-BACKS Rs 575,000
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STEP 3 — ADDITIONAL DEDUCTIONS
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Share issue costs — NOW DEDUCTIBLE under the
amended Section 21(3) (Part 5.3) (Rs 1,200,000)
Tax depreciation in excess of book [R] (Rs 450,000)
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(Rs 1,650,000)
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STEP 4 — TAXABLE INCOME
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10,000,000 + 575,000 − 1,650,000 = Rs 8,925,000
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STEP 5 — TAX
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Applicable corporate rate [R] (illustrative 25%)
8,925,000 × 25% = Rs 2,231,250
Less: advance tax paid and TDS suffered (Rs 2,100,000)
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BALANCE PAYABLE Rs 131,250
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THE COST OF THE CASH PAYMENTS
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Disallowed cash payments Rs 340,000
Tax cost at 25% Rs 85,000
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║ The company SPENT Rs 340,000 on genuine expenses ║
║ and ALSO lost Rs 85,000 of tax relief — purely because ║
║ the payments were made in cash above Rs 25,000 each. ║
║ ║
║ Under the old Rs 50,000 threshold, several of these ║
║ would have been allowed. PAY THROUGH A BANK. ║
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THE BENEFIT OF THE SHARE-ISSUE CHANGE
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Issue costs now deductible Rs 1,200,000
Tax saved at 25% Rs 300,000
Under the previous treatment these were capital expenditure
and gave no deduction at all.An IT service exporter using safe harbour
Sagarmatha Software Pvt. Ltd. develops software for its foreign parent. Turnover Rs 180 million — inside the Rs 1 billion safe harbour ceiling (Part 7).
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STEP 1 — IS THERE AN INTERNATIONAL TRANSACTION?
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Services provided to a NON-RESIDENT parent, affecting income.
→ YES, Section 2(kha1) applies.
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STEP 2 — ARE THEY ASSOCIATED PERSONS?
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The parent holds 100% — far above the 30% control test.
→ YES. Transfer pricing applies.
! Note it would ALSO have applied at 30% shareholding, or with
NO shareholding at all if Sagarmatha relied mainly on the
parent's IP (test c) or sourced ≥90% of its inputs from it
(test d).
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STEP 3 — SAFE HARBOUR OR FULL STUDY?
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Turnover Rs 180,000,000 ≤ Rs 1,000,000,000 → ELIGIBLE
Category: IT SERVICE EXPORTER
Condition: minimum 15% OPERATING MARGIN on operating costs
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STEP 4 — APPLY THE SAFE HARBOUR
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Operating cost of delivering the service Rs 150,000,000
Minimum arm's-length charge to the parent
= 150,000,000 × (1 + 15%) = Rs 172,500,000
Minimum taxable operating margin = Rs 22,500,000
Tax at 25% [R] = Rs 5,625,000
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STEP 5 — WHAT IF THE COMMERCIAL MARGIN IS LOWER?
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Suppose the parent actually pays Rs 162,000,000
→ actual margin = 12,000,000 = 8% of operating cost
SAFE HARBOUR requires a 15% margin, so the taxable margin
is Rs 22,500,000, not Rs 12,000,000.
Additional taxable income Rs 10,500,000
Additional tax at 25% Rs 2,625,000
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║ SAFE HARBOUR IS INSURANCE, AND INSURANCE HAS A PREMIUM. ║
║ ║
║ Sagarmatha pays Rs 2,625,000 more than its actual ║
║ economics would suggest — in exchange for CERTAINTY ║
║ and no comparability study. ║
║ ║
║ The alternative is a full transfer pricing study ║
║ supporting the 8% margin — cheaper in tax, more ║
║ expensive in professional fees, and defensible only if ║
║ the comparables genuinely support it. ║
║ ║
║ ! AND SAFE HARBOUR LOCKS FOR AT LEAST FIVE INCOME YEARS. ║
║ Model all five before opting in. ║
╚═══════════════════════════════════════════════════════════╝One change traced through every tax
A single decision — a company buys a delivery vehicle — touches most of this course.
┌──────────────────────────────────────────────────────────────────────┐
│ DECISION: import an electric delivery van, CIF Rs 3,500,000 │
└──────────────────────────────────────────────────────────────────────┘
│
┌───────────────────────────┼───────────────────────────┐
▼ ▼ ▼
┌──────────────┐ ┌─────────────────┐ ┌──────────────────┐
│ CUSTOMS │ │ VAT │ │ INCOME TAX │
│ (Part 10) │ │ (Part 8) │ │ (Part 5) │
├──────────────┤ ├─────────────────┤ ├──────────────────┤
│ CIF in the │ │ VAT on the │ │ Capitalised; │
│ Rs 30-40 lakh│ │ landed value │ │ tax depreciation │
│ band: │ │ at the │ │ over its life [R] │
│ │ │ applicable rate │ │ │
│ Customs duty │ │ │ │ ! If any part of │
│ 20% flat │ │ Input VAT │ │ the purchase is │
│ │ │ creditable if │ │ paid IN CASH │
│ CIIF 20% + │ │ used for │ │ above Rs 25,000, │
│ additional │ │ taxable │ │ that portion is │
│ 15% │ │ supplies │ │ DISALLOWED │
│ │ │ │ │ │
│ Road │ │ 10% of the VAT │ │ │
│ construction │ │ exempted if │ │ │
│ fee [R] │ │ paid │ │ │
│ │ │ electronically │ │ │
└──────────────┘ └─────────────────┘ └──────────────────┘
│ │ │
└───────────────────────────┴───────────────────────────┘
▼
┌──────────────────────────────────────────────────────────────────────┐
│ AND LATER, ON DISPOSAL │
│ • Any gain or balancing charge under the Income Tax Act [R] │
│ • VAT on the sale if the company is registered │
└──────────────────────────────────────────────────────────────────────┘
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║ ONE PURCHASE. FOUR TAXES. THREE DECISIONS THAT CHANGE THE COST: ║
║ ║
║ 1. WHICH CIF BAND — the CIIF jumps from 2.5% to 20%+ above ║
║ Rs 20 lakh (Part 10.3) ║
║ 2. HOW IT IS PAID — cash above Rs 25,000 loses the deduction ║
║ (Part 5.2); electronic payment earns the 10%-of-VAT benefit ║
║ (Part 8.4) ║
║ 3. WHAT IT IS USED FOR — input VAT is creditable only against ║
║ taxable supplies ║
╚═══════════════════════════════════════════════════════════════════════╝Part 13 — Revision table
| Example | Key lesson |
|---|---|
| **Salaried employee** | SSF membership removes the 1% first-band tax; effective rate (7.5% of gross) sits far below the marginal rate (20%) |
| **NEPSE investor** | Same trades cost **39.8% more tax** this year; the final-tax choice forecloses loss relief; commission and fees come off before the gain |
| **Trading business** | Cash payments above Rs 25,000 cost the expense **and** the relief; share-issue costs now save real tax |
| **IT exporter** | Safe harbour is insurance with a premium — and it locks for five years |
| **One vehicle purchase** | Four taxes, and three decisions (CIF band, payment method, use) that change the total cost |
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