What is TDS in Nepal?
Tax Deducted at Source (TDS) is a mechanism under the Income Tax Act, 2058 where the person responsible for making specific payments — called the "withholder" — must deduct tax at the very moment of payment and deposit it with the Inland Revenue Department (IRD). Rather than waiting for year-end filing, the government collects tax incrementally, in real-time, as income is generated.
The TDS process in Nepal follows a structured legal workflow governed by the Income Tax Act, 2058 as amended by the Economic Act, 2082. There are eight key steps from transaction to final electronic reporting.
Step 1: Identifying the TDS Transaction — Nepal
The first step is determining whether a payment is subject to withholding tax at all. Not every payment triggers TDS — you must match the payment against the relevant section of the Act.
Identify Transaction Type & Applicable Section
Four primary sections govern withholding in Nepal:
| Section | Payment Type | Examples |
|---|---|---|
| Section 87 / धारा ८७ | Employment Income | Salaries, wages, bonuses, allowances paid to employees |
| Section 88 / धारा ८८ | Investment Returns & Service Fees | Dividends, interest, rent, professional fees, consultancy |
| Section 88A / धारा ८८क | Windfall Gains | Lottery winnings, prizes, unexpected gifts |
| Section 89 / धारा ८९ | Contract Payments | Payments > NPR 50,000 under a single contract; non-resident payments |
Step 2: TDS Rate on Vendor Payment Nepal 2082/83
Once the transaction type is confirmed, the withholder must determine the correct rate. Three key factors affect which rate applies:
A. VAT registration status of the payee
For service and vendor payments, VAT registration status is the most critical factor. Always request a VAT certificate from your vendor before processing payment.
B. NPR 50,000 threshold — Section 89 contracts only
The NPR 50,000 threshold applies only to Section 89 contract payments, not to Section 88 service fees. Section 88 service fees, rent, interest and dividends have no minimum threshold — TDS is mandatory on every rupee. For Section 89 contracts, TDS applies only when a single payment exceeds NPR 50,000. Importantly, sub-section (2) requires that payments under the same contract within the past 10 days must be aggregated to determine whether the threshold is crossed.
C. Residency of the payee
Rates differ significantly between resident and non-resident payees. Non-resident employment income is taxed at a flat 25%, while non-resident contract payments are taxed at 5% under Section 89.
D. Nature of payment
Even within the same category, rates vary by asset type. Business property rent is taxed at 10%; vehicle rentals at 2.5%.
TDS Rate Chart Nepal 2082/83 — All Sections
| Payment Type | Rate | Section | Notes |
|---|---|---|---|
| Service Fee — VAT Registered | 1.5% | Sec 88 | No threshold — TDS on every payment; VAT invoice required |
| Service Fee — Non-VAT | 15% | Sec 88 | No threshold — TDS on every payment |
| Technical/Consultancy (Individual) | 5% | Sec 88 | Final withholding for individuals |
| Contract > NPR 50,000 | 1.5% | Sec 89 | Threshold applies; aggregate same-contract payments within 10 days |
| Contract — Non-Resident | 5% | Sec 89 | All non-resident contractors |
| Rent — Business Property | 10% | Sec 88 | Paid to resident (non-natural persons) |
| Vehicle / Transport Rental | 2.5% | Sec 88 | All transport service payments |
| Dividends | 5% | Sec 88 | Final withholding; resident companies |
| Interest — Bank / Cooperative | 6% | Sec 88 | Final withholding; natural persons |
| Windfall Gains / Lottery / Prizes | 25% | Sec 88A | Final withholding on all windfall |
| Non-Resident Employment Income | 25% | Sec 87 | Flat rate regardless of slab |
Salary TDS Slabs Nepal 2082/83 — Section 87
Salary TDS is calculated under Section 87 using a progressive slab system. Employers estimate the employee's total annual taxable income — after deducting SSF/CIT contributions and other allowable deductions — and deduct a proportional monthly TDS from each payslip.
| Annual Taxable Income (Single) | Annual Taxable Income (Couple) | Tax Rate |
|---|---|---|
| Up to Rs. 5,00,000 | Up to Rs. 6,00,000 | 1%Social Security Tax |
| Rs. 5,00,001 – 7,00,000 | Rs. 6,00,001 – 8,00,000 | 10% |
| Rs. 7,00,001 – 10,00,000 | Rs. 8,00,001 – 11,00,000 | 20% |
| Rs. 10,00,001 – 20,00,000 | Rs. 11,00,001 – 20,00,000 | 30% |
| Rs. 20,00,001 – 50,00,000 | Rs. 20,00,001 – 50,00,000 | 36%30% + 20% surcharge |
| Above Rs. 50,00,000 | Above Rs. 50,00,000 | 39%30% + 30% surcharge |
ℹ️ Other deductions (Sections 51, 12 etc.): Medical treatment expenses, donations, approved life insurance etc. are also allowable before slabs. Enter them in the calculator for accurate estimation.
ℹ️ Other deductions (Section 51, 12 etc.): Medical treatment, donation, approved life insurance etc. are allowable. Enter estimated annual amount / 12. Most are claimable/adjustable in annual return. For monthly TDS employers usually only deduct SSF. This calculator shows estimated final liability.
Step 3: How to Calculate TDS Nepal — Formula
Calculate TDS on Gross Payment
Sec 90(3)The withholder calculates TDS on the gross payment amount before any deductions (for vendor payments), or on taxable income after SSF + other allowable deductions (for salary):
Net Payable = Gross Payment − TDS Amount
VAT-registered vendor:
Net Payable = Gross + VAT (13%) − TDS
Salary TDS = (Annual Gross − SSF − Other Deductions) × Slab Rate / 12
Under Section 90(3), even if tax is not physically deducted at the time of payment, it is legally considered "deducted" the moment the payment is made. The withholder remains liable regardless.
Example B — Non-VAT vendor (service fee): NPR 1,00,000 × 15% = TDS NPR 15,000 | Net NPR 85,000
Example C — Contract payment NPR 40,000 (Sec 89): Below NPR 50,000 threshold → No TDS required
Example D — Service fee NPR 5,000 (Sec 88): No threshold applies → TDS required even on small amounts
Step 4: Depositing TDS with IRD Nepal
Deposit TDS into Government Treasury
Sec 90- Deadline: Within 25 days of the end of the month in which the deduction was made (Section 90(1)).
- Payment channels: IRD-approved banking channels or the IRD electronic payment system.
- Reference: Always quote your PAN and the relevant tax period on the deposit slip.
Step 5: Record Keeping Requirements
Maintain All Documentation
Sec 88Every withholder must maintain records for a minimum of five years. Required records include:
- Original invoices and payment vouchers
- Payee PAN records for every transaction
- TDS calculation worksheets
- VAT registration certificates of payees
- Copies of TDS certificates issued to payees
- Bank receipts confirming IRD deposits
- Monthly eTDS submission acknowledgements
Step 6: Issuing TDS Certificates
Provide TDS Certificate to Payee
| Certificate Type | Deadline |
|---|---|
| General payments (vendor, rent, dividend, interest) | 25 days after month-end |
| Employment income — annual certificate | 30 days after fiscal year-end, or within 30 days of termination |
Step 7: eTDS Filing Nepal — Monthly Statement
Submit Electronic TDS Statement to IRD
eTDS Portal- Pre-requisite: Register for eTDS portal access on IRD's website (ird.gov.np) separately from your PAN registration, before you can file.
- Deadline: Within 25 days of the end of the month.
- Content: Each payee's PAN, payment amount, TDS rate, and TDS amount — for every transaction in the month.
- Late filing fee: 2.5% per annum on amounts not reported on time.
TDS Deadline Nepal — Summary
| Obligation | Deadline | Consequence if Missed |
|---|---|---|
| Deposit TDS with IRD | 25th of following month | 15% p.a. interest on unpaid amount |
| Issue TDS certificate (general) | 25th of following month | Penalty exposure; payee cannot claim credit |
| Issue annual employment certificate | 30 days after year-end | Penalty; employee tax filing delayed |
| Submit monthly eTDS statement | 25th of following month | 2.5% p.a. fee on outstanding amounts |
| Retain records | Minimum 5 years | IRD reassessment; penalties on audit |
Step 8: TDS Penalties Nepal — Non-Compliance
| Violation | Penalty / Interest | Basis |
|---|---|---|
| Late deposit of deducted TDS | 15% per annum interest | On unpaid tax from due date |
| Failure to submit monthly eTDS | 2.5% per annum fee | On amounts not reported |
| False or misleading statement to IRD | 50%–100% of tax deficit | Plus potential prosecution |
| Failure to deduct TDS at source | Full TDS + 15% p.a. interest | Withholder personally liable |
| Failure to collect payee PAN | Higher deemed TDS rate | Plus penalty on difference |
| Minimum late filing penalty | NPR 5,000+ | Per violation instance |
| Joint liability (payee) | Proportional to unpaid TDS | Where withholder defaults |
TDS Exemptions in Nepal — What is NOT Subject to TDS
Not every payment triggers TDS. The following transactions are explicitly exempt under the Income Tax Act 2058. Misapplying TDS where it is not required — or failing to apply it where it is — both carry IRD penalty risk.
| Exempt Transaction | Legal Basis / Notes |
|---|---|
| House rent paid to a natural person (individual landlord) | Sec 88 — TDS applies only when payee is a business entity, not a natural person. Confirm landlord status before each payment. |
| Interest paid by a business to a bank or financial institution | Sec 88 — Interest on business loans to licensed BFIs is exempt. TDS does apply on interest paid to cooperatives and individuals. |
| Dividend or interest paid to a Mutual Fund | Sec 88 — Distributions to SEBON-registered mutual funds are exempt from TDS. |
| Payment made by a natural person for personal (non-business) use | Sec 90 — A private individual paying for personal services does not trigger TDS. The payer must not be carrying on a business. |
| Payment made by a non-resident person | Sec 90 — Non-resident payers have no Nepal TDS obligation (though the income may still be taxable in Nepal). |
| Insurance claim paid on death of insured person | Sec 88 — Death-claim proceeds are exempt. Other insurance payouts (maturity, surrender) may attract TDS. |
| Windfall gain ≤ NPR 5,00,000 from a national/international prize | Sec 88A — Prizes of NPR 5 lakh or less from recognised national/international competitions are income-tax exempt, so TDS does not apply. |
| Payments between government entities (as specified by IRD) | IRD circular — Certain inter-government payments are exempt; verify against current IRD notifications. |
IRD Revenue Codes — TDS Deposit Reference
When depositing TDS through the IRD Taxpayer Portal or at a bank, you must select the correct revenue code. Using the wrong code causes reconciliation failures in eTDS filing and can trigger IRD notices. Keep this table handy for every deposit.
| Revenue Code | When to Use |
|---|---|
| 11112 | TDS on Salary (Sec 87) — employee salary, wages, bonuses |
| 11131 | TDS on Rent (Sec 88) — business property rent, equipment lease |
| 11132 | TDS on Interest (Sec 88) — interest paid to cooperatives, individuals |
| 11133 | TDS on Dividend (Sec 88) — dividend distributions from companies |
| 11134 | TDS on other investment returns — mutual fund income, insurance payouts |
| 11135 | TDS on Windfall Gains (Sec 88A) — lottery, prize, contest winnings |
| 11139 | Other TDS — service fees (Sec 88), contract payments (Sec 89), royalties, commission, consultancy |
| 11211 | Social Security Tax — 1% on first slab of salary income only |
How to Claim TDS Credit Against Your Income Tax (Payee Guide)
If TDS has been deducted from payments you received, that amount is not lost — it is advance income tax paid on your behalf. You can offset it against your final income tax liability at year-end. Here is the exact process.
Confirm TDS was deposited and eTDS filed
Payee GuideAsk your payer for the TDS deposit voucher number and confirm they have filed the monthly eTDS return on the IRD portal. The eTDS return must include your PAN, the payment amount, TDS rate, and TDS amount. Without this, your credit will not appear in the system.
Log in to IRD Taxpayer Portal
Visit taxpayerportal.ird.gov.np and log in using your PAN as your username. Navigate to your Income Tax Return filing section for the relevant fiscal year.
Check Annex 10 (TDS Credit Schedule)
Annex 10 automatically populates TDS deducted on your income based on the eTDS returns filed by your payers. Verify that all TDS amounts are correctly reflected. If any are missing, contact the withholder to file or correct their eTDS return before you proceed.
Apply TDS credit against tax payable
In your income tax return, the TDS credit from Annex 10 is deducted from your total income tax liability. You pay only the net amount remaining. If TDS exceeds your tax liability, the excess can be carried forward or refunded subject to IRD approval.