Chapter 2 · Part 2 — Personal Income Tax
Personal Income Tax
The new unified slab schedule: threshold doubled to Rs 1 million, top rate cut to 29%, couple slabs abolished.
The largest change in a decade. The exemption threshold doubled, the top rate fell ten percentage points, and the separate schedules for individuals and married couples were abolished. This Part explains the new structure, the arithmetic, and the traps.
The new schedule
One rate schedule now applies to every resident natural person on remuneration income.
┌──────────────────────────────────┬───────────────────────────────────┐ │ TAXABLE INCOME (Rs) │ APPLICABLE TAX RATE │ ├──────────────────────────────────┼───────────────────────────────────┤ │ First 1,000,000 │ 1% * │ │ Next 500,000 │ 10% │ │ Next 1,000,000 │ 20% │ │ Next 1,500,000 │ 27% │ │ Remaining above 4,000,000 │ 29% ** │ └──────────────────────────────────┴───────────────────────────────────┘ Expressed as cumulative bands: up to 1,000,000 → 1% 1,000,001 – 1,500,000 → 10% 1,500,001 – 2,500,000 → 20% 2,500,001 – 4,000,000 → 27% above 4,000,000 → 29% * The 1% is SOCIAL SECURITY TAX, deposited to a separate revenue account (11211). It is NOT ordinary income tax. See 2.3. ** 29% = 27% plus an additional 2% on the tax rate applicable to taxable income exceeding Rs 4,000,000. See 2.4.
What changed
| FY 2082/83 | FY 2083/84 | Change | |
|---|---|---|---|
| 1% band ceiling | Rs 500,000 | **Rs 1,000,000** | Doubled |
| Top marginal rate | 39% | **29%** | −10 percentage points |
| Separate slabs for couples | Yes | **No — one schedule** | Abolished |
| Effective from | — | Shrawan 1, 2083 (≈16 July 2026) | — |
How slab tax actually works
The single most common error in personal tax is believing that crossing a threshold taxes your whole income at the higher rate. It does not.
╔═══════════════════════════════════════════════════════════════════╗
║ MARGINAL, NOT AVERAGE. ║
║ ║
║ Each SLICE of income is taxed at the rate for that slice. ║
║ Earning one rupee more never reduces your take-home pay. ║
╚═══════════════════════════════════════════════════════════════════╝
Income of Rs 2,000,000, sliced:
Rs 0 ──────── 1,000,000 × 1% = Rs 10,000
│
Rs 1,000,000 ──────── 1,500,000 × 10% = Rs 50,000
│
Rs 1,500,000 ──────── 2,000,000 × 20% = Rs 100,000
│ ──────────
(stops here) TOTAL = Rs 160,000
Average (effective) rate = 160,000 ÷ 2,000,000 = 8.0%
Marginal rate = 20% (the rate on the NEXT rupee)Formula.
n
Tax = Σ (income falling in band i) × (rate of band i)
i=1
where the bands are those in 2.1, applied in order from the bottom.| Term | Meaning |
|---|---|
| **Taxable income** | Assessable income less allowable deductions and reliefs (Part 4) |
| **Band / slab** | A slice of income with its own rate |
| **Marginal rate** | The rate applied to the next rupee earned |
| **Effective rate** | Total tax ÷ total taxable income — always lower than the marginal rate under a progressive schedule |
The 1% social security tax — five rules that catch people out
The first band's 1% is not ordinary income tax. It is a social security tax credited to a separate revenue account (11211).
┌──────────────────────────────────────────────────────────────────────┐ │ THE 1% SOCIAL SECURITY TAX DOES **NOT** APPLY TO: │ │ │ │ 1. A taxpayer registered as a SOLE PROPRIETOR │ │ 2. PENSION income │ │ 3. Income from a CONTRIBUTION-BASED PENSION FUND │ │ 4. A taxpayer who DEPOSITS TO THE SOCIAL SECURITY FUND (SSF) │ │ — if you contribute to SSF, the 1% is not levied │ ├──────────────────────────────────────────────────────────────────────┤ │ 5. It applies to REMUNERATION income of resident natural persons │ │ who are not in the categories above. │ └──────────────────────────────────────────────────────────────────────┘
Why the SSF carve-out exists. The 1% is a contribution to social security by another name. If you are already contributing to the Social Security Fund, the state does not levy it twice.
The practical consequence, worked.
Two employees, each on taxable income of Rs 900,000. EMPLOYEE A — not an SSF contributor 900,000 × 1% = Rs 9,000 social security tax EMPLOYEE B — contributes to SSF 1% not applicable = Rs 0 (B instead pays SSF contributions under the SSF scheme) ⇒ On identical salary, the income tax line differs by Rs 9,000. Payroll must know each employee's SSF status. Getting this wrong is a common payroll error.
The 29% top rate — how it is actually built
The top rate is not a plain 29% band. It is constructed:
╔═══════════════════════════════════════════════════════════════════╗ ║ 29% = 27% + an additional 2% on the tax rate applicable ║ ║ to taxable income exceeding Rs 4,000,000 ║ ╚═══════════════════════════════════════════════════════════════════╝
Historically Nepal levied a surcharge on very high incomes (the old structure reached 39% this way). The Finance Act 2083 keeps the two-part construction but at a far lower level.
Why the construction matters rather than just the number. Because a surcharge expressed as "an additional 2%" can be amended independently of the base rate. When you read next year's Finance Act, check both components.
Full worked examples
All figures illustrative. Deductions and reliefs are covered in Part 4 — these examples work from taxable income after those adjustments.
Example 1 — Taxable income Rs 800,000
Band Amount Rate Tax
────────────────────────────────────────────────────────────
First 1,000,000 (part) 800,000 1% 8,000
────────────────
TOTAL TAX 8,000
Effective rate = 8,000 ÷ 800,000 = 1.00%
Marginal rate = 1%Example 2 — Taxable income Rs 1,500,000
Band Amount Rate Tax
────────────────────────────────────────────────────────────
First 1,000,000 1,000,000 1% 10,000
Next 500,000 500,000 10% 50,000
────────────────
TOTAL TAX 60,000
Effective rate = 60,000 ÷ 1,500,000 = 4.00%
Marginal rate = 10%Example 3 — Taxable income Rs 3,000,000
Band Amount Rate Tax
────────────────────────────────────────────────────────────
First 1,000,000 1,000,000 1% 10,000
Next 500,000 500,000 10% 50,000
Next 1,000,000 1,000,000 20% 200,000
Next 1,500,000 (part) 500,000 27% 135,000
────────────────
TOTAL TAX 395,000
Effective rate = 395,000 ÷ 3,000,000 = 13.17%
Marginal rate = 27%Example 4 — Taxable income Rs 6,000,000
Band Amount Rate Tax
────────────────────────────────────────────────────────────
First 1,000,000 1,000,000 1% 10,000
Next 500,000 500,000 10% 50,000
Next 1,000,000 1,000,000 20% 200,000
Next 1,500,000 1,500,000 27% 405,000
Above 4,000,000 2,000,000 29% 580,000
────────────────
TOTAL TAX 1,245,000
Effective rate = 1,245,000 ÷ 6,000,000 = 20.75%
Marginal rate = 29%The effective-rate curve
Taxable income Total tax Effective rate Marginal ───────────────────────────────────────────────────────────── 500,000 5,000 1.00% 1% 800,000 8,000 1.00% 1% 1,000,000 10,000 1.00% 1% 1,500,000 60,000 4.00% 10% 2,000,000 160,000 8.00% 20% 2,500,000 260,000 10.40% 20% 3,000,000 395,000 13.17% 27% 4,000,000 665,000 16.63% 27% 5,000,000 955,000 19.10% 29% 6,000,000 1,245,000 20.75% 29% 10,000,000 2,405,000 24.05% 29% ┌────────────────────────────────────────────────────────────┐ │ 30% ┤ ╭────────────── │ marginal │ │ ╭─────────╯ │ │ 20% ┤ ╭───────────╯ ╭──────────────── │ effective │ │ ╭─────╯ ╭───────╯ │ │ 10% ┤ ╭────╯ ╭─────╯ │ │ │╭──╯ ╭────────╯ │ │ 0% ┼─────────────────────────────────────────────────► │ │ 0 1M 2M 3M 4M 5M 6M ... income │ └────────────────────────────────────────────────────────────┘ The effective rate APPROACHES but never reaches 29%, because the lower bands are always taxed at their own lower rates.
What "taxable income" means before you apply the slabs
The slabs apply to taxable income, not gross salary. The route from one to the other:
GROSS REMUNERATION
Salary, allowances, bonus, overtime, benefits in kind,
leave encashment, gratuity (per the Act's rules)
│
├── LESS: contributions to an approved retirement
│ fund, within limits [R]
│
├── LESS: reliefs and deductions (Part 4)
│ • insurance premium on a private building
│ — up to Rs 10,000 (raised from Rs 5,000),
│ limited to the actual premium if lower
│ • tuition fee for children's education —
│ 25% of annual fee or Rs 25,000,
│ WHICHEVER IS LOWER
│ • donations — lower of Rs 300,000 or 5% of
│ adjusted taxable income
│ • other reliefs per the Act [R]
│
▼
TAXABLE INCOME
│
▼
APPLY THE SLABS (2.1)
│
▼
TAX LIABILITY
│
├── LESS: tax already withheld (TDS) — Part 6
├── LESS: advance tax paid — Part 6
▼
TAX PAYABLE OR REFUNDABLETwo deductions changed this year — both worth knowing precisely:
| Deduction | FY 2082/83 | FY 2083/84 |
|---|---|---|
| Insurance premium, private building | Rs 5,000 | **Rs 10,000**, limited to the actual premium if lower |
| Tuition fee, children's education | — | **25% of annual tuition fee OR Rs 25,000, whichever is LOWER** |
! Read the tuition relief carefully — "whichever is lower" caps it hard.
Annual tuition fee Rs 60,000 25% of 60,000 = Rs 15,000 Rs 25,000 LOWER of the two = Rs 15,000 ← the deduction Annual tuition fee Rs 200,000 25% of 200,000 = Rs 50,000 Rs 25,000 LOWER of the two = Rs 25,000 ← the deduction, capped
The relief is worth at most Rs 25,000 of deduction — which at a 27% marginal rate is Rs 6,750 of actual tax saved. Useful, not transformative.
Full treatment of deductions and exemptions is in Part 4.
Filing: who must, and what changed
A resident natural person can no longer skip filing a return solely because their only income falls under Section 95Ka(6kha), (6ga) and (6gha).
That is a real widening of the filing net. Previously, if all your income was final-withheld under those provisions, no return was required. Now it is.
┌──────────────────────────────────────────────────────────────────────┐ │ BUT NOTE THE COUNTERVAILING RULE (Section 95Ka): │ │ │ │ Capital gains on listed or unlisted shares, land and buildings, │ │ and certain foreign-currency service income are FINAL-TAXED │ │ IF THE RECIPIENT DOES NOT FILE A RETURN. │ │ │ │ ⇒ You may choose: accept the withheld amount as final, or file │ │ and be assessed. Part 3 works through when each is better. │ └──────────────────────────────────────────────────────────────────────┘
Filing relief for taxpayers in districts without an Inland Revenue Office (a VAT-side change that signals the direction — see Part 8): they may file and pay within fifteen days after the end of the relevant month through the Local Government or the District Treasury and Accounts Controller Office, which must forward the return and payment details to the relevant IRO within seven days.
The abolition of the couple slab — who wins and who loses
This is the change most likely to affect a household's actual bill, and it is barely mentioned in summaries.
Under the old system, a married couple electing to be assessed as a couple received a higher first-band threshold than a single individual. Under FY 2083/84, one schedule applies to everyone.
Worked comparison. Illustrative — a household with total income Rs 2,000,000.
SCENARIO A — one earner, Rs 2,000,000
First 1,000,000 × 1% = 10,000
Next 500,000 × 10% = 50,000
Next 500,000 × 20% = 100,000
────────
Household tax 160,000
SCENARIO B — two earners, Rs 1,000,000 each
Spouse 1: 1,000,000 × 1% = 10,000
Spouse 2: 1,000,000 × 1% = 10,000
────────
Household tax 20,000
╔═══════════════════════════════════════════════════════════════╗
║ SAME HOUSEHOLD INCOME. DIFFERENCE: Rs 140,000. ║
╚═══════════════════════════════════════════════════════════════╝Non-residents
The schedule above applies to resident natural persons. Residence is determined by the Income Tax Act's tests [R] (broadly, presence in Nepal for a defined period in the income year, or having a normal place of abode).
Non-residents are taxed differently — generally at a flat rate on Nepal-source income, with withholding at source. [R] Verify the applicable rate and the treaty position, if any, for the specific income type.
One relevant amnesty provision (Part 12): where a foreign aid agreement between Nepal's government and a donor agency, or an implementation letter approved by the Council of Ministers, grants income tax exemption to a non-resident working on the project or to a construction or service provider through a registered permanent establishment in Nepal, the income earned up to the end of FY 2081/82 is exempt from income tax, and tax due under Section 2(6) of Schedule 1 is waived.
Common mistakes
MYTH "I crossed Rs 1,500,000, so all my income is taxed at 10%."
FACT Only the slice above 1,000,000 is. The first 1,000,000 stays at 1%.
MYTH "The 1% applies to everyone."
FACT Not to sole proprietors, pension income, contribution-based pension
fund income, or SSF contributors.
MYTH "The top rate is 29%, so high earners pay 29% of income."
FACT At Rs 6,000,000 the EFFECTIVE rate is 20.75%.
MYTH "Tuition relief is 25% of fees."
FACT It is the LOWER of 25% of fees or Rs 25,000.
MYTH "Married couples still get the higher threshold."
FACT Abolished. One schedule for all resident natural persons.
MYTH "If my income is all final-withheld I never file."
FACT Changed: you can no longer skip filing solely because income falls
under Section 95Ka(6kha),(6ga),(6gha). But CGT under 95Ka IS final
if you do not file — see Part 3.
MYTH "The rates are permanent."
FACT [R] They are set annually by the Finance Act. Verify every year.Part 2 — Revision table
| Item | FY 2083/84 position |
|---|---|
| First band | Rs 1,000,000 at **1%** (social security tax, account 11211) |
| Second band | Next Rs 500,000 at **10%** |
| Third band | Next Rs 1,000,000 at **20%** |
| Fourth band | Next Rs 1,500,000 at **27%** |
| Top band | Above Rs 4,000,000 at **29%** (27% + additional 2%) |
| 1% does NOT apply to | Sole proprietors · pension income · contribution-based pension fund income · SSF contributors |
| Couple slab | **Abolished** — one schedule for all resident natural persons |
| Threshold change | Rs 500,000 → Rs 1,000,000 (doubled) |
| Top rate change | 39% → 29% (−10 percentage points) |
| Building insurance relief | Rs 5,000 → **Rs 10,000**, capped at actual premium |
| Tuition relief | **Lower of** 25% of annual fee **or** Rs 25,000 |
| Filing | Can no longer skip solely due to 95Ka(6kha),(6ga),(6gha) income |
| Effective from | Shrawan 1, 2083 (≈16 July 2026) |
| Verify | ird.gov.np + Finance Act 2083 |
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