BY:DAMODAR LAMSAL

INCOME FROM
EMPLOYMENT

Concept of Employment/Remuneration
Employment income means remuneration received from former employer, present employer or
prospective employer within a year. Every payment made by an employer to his employee for
service rendered would be chargeable to tax as income from employment. Theterm income from
employment for the purpose of Income Tax Act, 2058 includes monetary payments (e.g. basic
salary, bonus, commission, allowances, overtime payment, etc.) as well as non monetary facilities
or perquisites (e.g. accommodation facility, vehicle facility, medical facility, interest free loans,
education facility, eyc.). According to Section 22(2) of Income Tax Act, 2058, an individual has to
keep an account of income from employment derived during the year on a cash basis, but if
individual has income from employment as well as income from business during the year,
he/she is given a choice to select either the cash basis or the accrual basis of accounting.
 Employment is an economic activity which is undertaken to earn money for livelihood;
 Employment is an agreement between the employer and employee;
 Employer pay remuneration to the employee in exchange for his /her service;
 Employee need to possess the prescribed qualification of a job to get employment;
 Employee have a certainty to receive the remuneration regularly;
 Employer has the power and right to control and direct the work of employee;
 The employer determines where, when, why and who the work is to be performed by the
employee.

Income Included Under the Head of Employment

According to Income Tax Act 2058, Section 8(2), the following payments made during the year by
an employer to his or her employee are included as income from employment of a person.
1. Payment of salary, wages, leave pay, grade, overtime pay, fee, commission, prize or gift,
2

bonus and other facilities like Dashain bonus, children education facility, telephone facility
etc.
2. Payment of any personal allowances including dearness allowances, any cost of living
subsistence, rent, entertainment, transportation allowance and all other allowance except
meeting allowance and TADA.
3. Payment providing any discharge or reimbursement of the personal expenses incurred by an
employee. For example, reimbursement of medical expenses, payment of life insurance
premium and other private expenses.
4. Payment for the agreement to any conditions of the employment. For example, an employee
receives Rs. 5,000 per month for non-working in other organization as per the agreement
made on the request of the employer.
5. Payment for termination or loss of service or compulsory retirement (redundancy) from the
employment. For example, amount received by employee as golden hands, shake scheme or
employment loss.
6. Contribution to the retirement fund and retirement payments. For example, contributions to
provident fund, citizen investment trust payment of gratuity and medical expenses at the time
of retirement etc.
7. Other payments made in respect of the employment.
8. Quantified or Valuation of Perquisites:
a. Transfer of assets (Sec. 27 a):
b. Vehicle facility (Sec. 27 b): An employer has provided a vehicle facility to an employee
wholly or partially for private purpose, it should quantify in the following ways;
 If the vehicle facility is provided to employee or other person who received monthly
remuneration, 0.5% of his or her total salary should be included in employment
income.
 If the vehicle facility is provided to other than above mentioned, 1% of the prevailing of
the market value of the motor vehicle per annum should be included in the income of
the person.
Here motor vehicles include motor, car, jeep etc. but motor cycle, cycle, joint bus facility
are not considered as vehicle facility.
c. House or Residential facility (Sec. 27 b):
• If the residential facility is provided to employee or other individual who receive
monthly remuneration, 2% of his or her salary should be included in employment
income.
 If the residential facility is provided to other individual other than above mentioned,
25% of actual rent should be included in employment income.
Here salary includes annual basic salary and annual grades but not other allowance and
benefits.
d. Other fringe benefits (Sec. 27 c):
e. Interest facility (Sec. 27 d):
3

f. Indirect payment (payment made by employer to the third party on behalf of employee)
[Sec. 27 (e)]:

Non-Taxable or Non-Chargeable Income

non-chargeable Incomes
Some incomes are not included in calculating a person's remuneration from employment even if
they are derived from the employment. These incomes are treated as tax-free income. The
following amounts are excluded in calculating an individual's remuneration form an
employment: The following incomes are exempted from income tax net:
1. Exempt amount [10]: The following payments are not included while calculating the income
from employment as per section 10 of the Act:
 Remuneration exempted under a bilateral or a multilateral agreement (treaty) with a
foreign government or an international organization.
 Remunerationundertheemploymentofpublicserviceofforeigngovernment or an
international organization.
 Remuneration under the employment of public service of foreign government.
 Remuneration derived by foreign national from foreign government.
 Remuneration paid by Nepal Government to foreign national on the terms and conditions
of tax exemption.
 Allowance paid by Nepal government to widows, senior citizens or disabled individuals.
 Gift, bequest, inheritance or scholarship except as required to be included in the income
from employment.
 Pension received by retired Army/Police from public fund of foreign government.
 Amount derived by Nepal Rastra Bank as per its objectives.
 Amounts derived by Nepal securities board as per its objective.
 Any income of Nepal Government.
2. Final withholding payments [92]: If a person receives the final withholding payments after
tax deduction at source, they are not included in the person's income. The following incomes
received after deducting tax at source as final withholding payments are not included while
calculating income:
 Dividends paid by a resident company
 Rent for the lease of land or a building and associated fitting and fixtures having a source
in Nepal, and that are received by an individual other than in conducting a business.
 Payment made by a resident person for gains from investment insurance. (Life insurance)
 Payment made by a resident unrecognized retirement fund to the beneficiary for gains
from interest on unrecognized retirement fund.
 Interest that is sourced in Nepal and not related to a person's business paid by a resident
bank or financial institution to the natural person.
4

 Payment made to non-resident persons that are subject to tax withholding by employers,
withholding from investment returns and service fees, withholding from contract payment
under 87, 88 and 89 respectively.
 Retirement payment made by Nepal Government or recognized retirement fund.
 Meeting allowance upto Rs. 20,000 per meeting and payment for part-time teaching.
 Payment of casual gain.
 Return from mutual fund.
 Remuneration for examining answer books and setting question paper.
3. Meals and refreshments on similar terms:
4. Payments of small amounts [8.3 (d)] {6}:
Specimen for Computing Employment Income
Computation of Income from Employment
for the previous income year
Particulars Amount Rs. Amount Rs.
Salary and wages including grades................................................................................................... xxx
Leave pay (salary in lieu of leave) ..................................................................................................... xxx
Advance salary ................................................................................................................................. xxx
Dashain allowance ............................................................................................................................ xxx
City compensatory allowance ........................................................................................................... xxx
Transportation allowance .................................................................................................................. xxx
Business promotion allowance .......................................................................................................... xxx
Chairmanship allowance ................................................................................................................... xxx
Outstation/foreign allowance ............................................................................................................. xxx
Overtime pay ..................................................................................................................................... xxx
Fee received ..................................................................................................................................... xxx
Prize & gifts related to employment................................................................................................... xxx
Bonus & commission......................................................................................................................... xxx
Other facilities .................................................................................................................................. xxx
Dearness allowance .......................................................................................................................... xxx
Cost of living subsistence ................................................................................................................. xxx
House rent allowance........................................................................................................................ xxx
Entertainment and transportation allowance ..................................................................................... xxx
Other personal allowance ................................................................................................................ xxx
Pension from the previous employer ................................................................................................. xxx
Compensation received from previous employer .............................................................................. xxx
Reimbursement of personal expenses .............................................................................................. xxx
Payment for accepting any condition (restriction) regarding employment ......................................... xxx
Other payments made in respect of employment .............................................................................. xxx
Contribution to the retirement fund and retirement payments ........................................................... xxx
Amount of vehicle facility (0.5% of basic salary) ............................................................................... xxx
Amount related to residence or accommodation facility (2% annual salary) ..................................... xxx
Amount related to service of housekeeper, chaukidar, driver, gardener or other domestic xxx
assistants ..........................................................................................................................................
Amount of service related to drinking water, electricity, telephone & other utilities in respect of xxx
the employees
Any meal, refreshment or entertainment provided by employer ........................................................ xxx
Under payment of interest by employee for the loan taken from employer ....................................... xxx
Assessable income from employment xxx
Statement of Taxable Income
Particulars Rs. Rs.
5

Assessable income from employment............................................................................................... xxx

Assessable income from business/profession .................................................................................. xxx
Assessable income from investment ................................................................................................. xxx
Total assessable income xxx ×××
Less: Allowable reductions
Contribution to approved retirement fund (ARF) .................................................................... xxx
Donation to tax exempt entity ................................................................................................. xxx xxx
Taxable income before other exemptions xxx
Less: Exemptions:
Life insurance premium ............................................................................................................ xxx
Health insurance premium ...................................................................................................... xxx
Disable exemption ................................................................................................................... xxx
Pension exemption................................................................................................................... xxx
Remote area exemption ........................................................................................................... xxx xxx
Foreign allowance exemption (only for Nepalese diplomat) .....................................................
Total Taxable Income xxx

Computation of Tax Liability

For individual:
Up to Rs 500,000 @ 1% .......................................................................................................................................... xxx
Next Rs 2,00,000 @10%.......................................................................................................................................... xxx
Next Rs 300,000 @ 20 %......................................................................................................................................... xxx
Next Rs.10,00,000 @ 30%....................................................................................................................................... xxx
Balance @ 36% (more than Rs. 20,00,000)............................................................................................................. xxx
Total Tax Liability xxx
Less: Advance tax paid (Advance TDS + advance tax paid) .................................................................................. xxx
Medical tax credit .......................................................................................................................................... xxx
Foreign tax credit ........................................................................................................................................... xxx
Women tax credit ........................................................................................................................................... xxx
Tax amount payable to government xxx

For couple:
Up to Rs 600,000 @1% ........................................................................................................................................... ×××
Next Rs 2,00,000 @10%.......................................................................................................................................... ×××
Next Rs 3,00,000 @20%.......................................................................................................................................... ×××
Next Rs 900,000 @30%........................................................................................................................................... ×××
Balance @36% (more than Rs. 20,00,000).............................................................................................................. ×××
Total tax liability ×××
Less: Medical tax credit ........................................................................................................................................... ×××
Foreign tax credit ........................................................................................................................................... ×××
Advance tax paid (Advance TDS + advance tax paid) ................................................................................... ×××
Tax amount to be paid ×××

Tax rate for non-resident individual - flat tax rate @ 25% at total taxable income.

Illustration 1: Mr. Sabin is an employee of a private Bank had submitted the following income details for the
previous year
i. Total salary including Dashain allowance Rs 3,57,500
ii. Contribution to provident fund 10% of salary and employer also contributed the equal amount
iii. Life Insurance Premium Rs 2,000 per month paid by the employer and Rs 1,000 per month is deducted from
his salary.
iv. Meeting allowance Rs 8,500 (net).
v. Department head allowance Rs 500 per month is provided by the employer.
vi. Business Promotion allowance Rs 50,000
6

vii. Transportation and communication allowance Rs 300 p.m. and 200 p.m. respectively.
viii. Bank has provided him concession loan of Rs 5,00,000 at interest rate of 5% p.a. but prevailing market
interest rate is 10%.
ix. He received interest from private money lending activities Rs 2,00,000
x. He claimed the following expenses for reduction:
xi. Approved retirement fund
xii. He has submitted the expenditure bill of Rs 20,000 out of the total business promotion allowance.
xiii. Insurance premium paid Rs 20,000
xiv. Advance tax payment Rs 30,000
Required: a. Assessable income from employment b. Statement of taxable income
c. Tax liability
SOLUTION
a. Calculation of assessable income from employment of Mr Sabin for the previous year
Particulars Rs. Rs.
Salary (27,500×12) .................................................................................................................... 330,000
Dashain allowance (27500×1).................................................................................................... 27,500
Contribution to provident fund by the employer (10% of 330,000) ............................................. 33,000
Insurance premium paid by the employer (2000 – 1000)×12 ..................................................... 12,000
Department head allowance (500×12) ....................................................................................... 6,000
Business promotion allowance [50,000 - 20,000] ....................................................................... 30,000
Transportation allowance (300×12)............................................................................................ 3,600
Communication allowance (200×12) .......................................................................................... 2,400
Interest facility provided by employer 500,000×(10 – 5)%.......................................................... 25,000
Net assessable income from employment 4,69,500
b. Statement of taxable income
Particulars Rs. Rs.
Total income from employment 4,69,500
Total income from business/profession Nil
Total Income from investment (Interest from private ) 200,000
Total assessable Income 6,69,500
Less: Allowable deduction
Contribution to approve retirement fund (actual 20% of salary i.e. 66,000 or 1/3rd of 66,000
4,69,500 or maximum limit Rs 300,000 whichever is lower)
Life insurance premium (actual Rs 20,000 or maximum limit Rs 25,000 whichever is less) 20,000 86,000
Net taxable income 5,83,500
c. Computation tax liability
Up to Rs 4,00,000 @1% (single) .......................................................................................................................... Rs. 4,000
Next Rs 1,00,000 @ 10%...................................................................................................................................... Rs. 10,000
Balance Rs 83,500 @ 20% ................................................................................................................................... Rs. 16,700
Total tax liability Rs 3,0700
Less: Advance tax paid ......................................................................................................................................... Rs 30,000
Net tax liability Rs 700
Working and remarks:
• Approved retirement fund and insurance premium up to certain limit is allowable for reduction
• Meeting allowance is subject to final tax withholding.
3‚57‚500
Monthly salary = 13 = Rs 27,500

Illustration 2: Mr. Safal is a government employee working at the office located at remote area ‘B’ and
furnishes the following details of his income for previous year.
i. Net salary after deducting provident fund Rs 30,000 and tax deducted at sources Rs 10,000 before including
7

Dashain kharcha is Rs 2,60,000.

ii. Remote area allowance is provided by the office Rs 5,000 per month.
iii. Transportation allowance and Daily allowance Rs 15,000 is provided by the office
iv. Office provided him rent free accommodation facility.
v. A car is provided him as a facility along with driver and fuel.
vi. His medical bill of Rs 20,000 reimbursed by the office.
vii. Bonus provided by the office equal to two month salary.
viii. He received Rs 95,000 net as a dividend from resident company.
ix. He received Rs 42,500 net from writing articles in a journal.
x. He received director’s fees Rs 4,500 and meeting allowance Rs 4,250 (net).
xi. Clothing allowance Rs 1,000 per month.
xii. Royalty received Rs 50,000.
Required: Assessable income from employment and taxable income.
SOLUTION
Calculation of total assessable income of Mr. Safal of previous year
Particulars Rs. Rs.
Salary (25,000×12) .................................................................................................................... 300,000
Dashain allowance (25,000×1)................................................................................................... 25,000
Provident fund contribution by the employer ............................................................................. 30,000
Remote area allowance (5,000×12) ........................................................................................... 60,000
Car facility (0.5% of salary) ........................................................................................................ 1,500
Accommodation facility (2% of salary) ....................................................................................... 6,000
Medical fees reimbursed by office ............................................................................................. 20,000
Bonus (25,000×2) ...................................................................................................................... 50,000
Director’s fees ............................................................................................................................ 4,500
Clothing allowance (1,000×12)................................................................................................... 12,000
Total assessable income from employment 509,000
Statement of Taxable Income
Particulars Rs. Rs.
Net assessable income from employment 5,09,000
Net assessable income from business/profession (writing article) (42,500/0.85) 50,000
Net assessable income from investment (Royalty) 50,000
Total Assessable income 6,09,000
Less :Allowable deductions
Contribution to approve retirement fund (Actual 20% of Rs 300,000 i.e. Rs 60,000 or 60,000
1/3 rd of 6,09,000 or maximum limit Rs 300,000 whichever is lower)
Remote area allowance (Area B) 40,000 100,000
Taxable income 5,09,000
Working and remarks:
Total salary = Net salary + Tax deducted at source + Provident fund deduction
= Rs 2,60,000 + Rs 10,000 + Rs 30,000 = Rs 3,00,000
Total salary 3‚00‚000
Monthly salary = 12 = 12 = Rs 25,000
Meeting allowance is subject to final tax withholding.
Medical tax credit is deducted from tax liabilities only 15% of medical expenses or maximum Rs 750, whichever
is less.
Income received from writing the articles is subject to be advance withholding payment.

Illustration 3: Mr. Devkota is a resident employee of Star Hospital appointment on 1st Shrawan 2068 B.S. His
pay scale is Rs. 25,000-1,500-34,000-2,500-54,000. He furnished the following income details of previous
year:
8

i. Non practicing allowance is 50% of basic salary.

ii. Meeting allowance Rs. 2,500 (net) per meeting for 15 meetings in a year.
iii. Overtime allowance Rs. 500 per hour. During the year he worked 40 hours as overtime.
iv. He is the member of recognized provident fund, hospital provided 10% of salary in his fund and he also
contributed the equal amount.
v. Office provided him a driver with monthly salary of Rs. 10,000.
vi. Office provided free lunch to all employees and Mr. Devkota also gets such facilities. Average working days
in a month are 25 days.
vii. He received telephone facilities and office paid in average Rs. 2,000 per month for the bill.
viii. Office paid Rs. 1,000 per month as entertainment allowance.
ix. During the year he received a gift from the patient the market value of such gift is Rs. 35,000.
x. Rs. 50,000 received as a commission from the hospitals during the year for their better performance.
xi. Hospital pays Rs. 500 as a taxi fare at emergency.
xii. He received dividend from the NABIL bank limited Rs. 87,000 (net) during the year.
xiii. Amount of interest Rs. 170,000 (net) received from the private money lending transactions.
xiv. He won a lottery and received Rs. 3,00,000 (net) for the year.
He claimed the following expenses as deductions:
i. Approved bill of medical expenses Rs. 10,000.
ii. Life Insurance premium Rs. 43,000.
iii. Entertainment expenses Rs. 4,000.
iv. Donation Rs. 60,000 given to the District hospital Tanahun.
v. Interest collection charge Rs. 300.
Required: a. Total assessable income from employment. b. Total assessable income from investment.
c. Statement of taxable income. d. Tax liabilities assuming couple tax payer.
SOLUTION
Calculation of total assessable income from the employment of Mr. Devkota
Particulars Amount Rs. Amount Rs.
Salary (44,000 × 12) ......................................................................................................................... 528,000
Non practicing allowance(50% of 25,000 × 12) ................................................................................. 150,000
Dashain allowance ........................................................................................................................... 44,000
Provident fund contribution of office .................................................................................................. 58,800
Overtime allowance (500×40) ........................................................................................................... 20,000
Drivers salary paid by office (10,000×12) .......................................................................................... 120,000
Entertainment allowance .................................................................................................................. 12,000
Accommodation facility (2% of salary) .............................................................................................. 10,560
Telephone bill paid by office (2,000×12) ........................................................................................... 24,000
Gift received from the patient ............................................................................................................ 35,000
Commission from the office .............................................................................................................. 50,000
Net assessable income from employment 10,52,360
Computation assessable income from investment:
Interest from investment (1,70,000 × 100/85) ......................................................................... 200,000
Less: Allowable deduction expenses:
Interest collection charge ........................................................................................................ 300
Net income from investment 1,99,700
Statement of Taxable Income
Particulars Rs. Rs.
Net income from employment ........................................................................................................... 10,52,360
Net income from profession .............................................................................................................. Nil
Net income from investment ............................................................................................................. 1,99,700
Total assessable income 12,52,060
Less: Allowable reductions:
9

Retirement contribution (actual 20% of annual salary i.e. Rs. 105,600 or 1/3rd of 1,05,600
Rs.12,52,060 or maximum limit is Rs. 300,000 whichever is lower) .......................................
Donation (actual Rs. 60,000 or 5% of (14,32,060 – 1,05,600) or maximum Rs. 1,00,000 60,000
whichever is lower) .................................................................................................................
Life insurance premium (actual Rs 43,000 or maximum limit is 25,000 whichever is lower)... 25,000 197,600
Taxable income 10,61,460
Calculation of Tax Liabilities
Up to Rs. 450,000 @ 1% (Couple) 4,500
Next 100,000 @10% 10,000
Next, 200,000 @ 20% 40,000
Balance 311,460 @ 30% 93,438
Total tax liabilities 1,47,938
Less: Advance TDS (30,000)
Less: Medical tax credit
15% of Rs. 10,000 = 1500
Or, Maximum limit = Rs. 750
(whichever is lower) (750)
Net tax payable 117,188
Working and remarks:
Calculation of monthly salary and grades
Appoint year: 1st Shrawan 2071
Income year: 2078/79
Less: appointment year 2068/69
Total no. of grade 10
Monthly salary of 2078/79 = 25,000 + (1500 × 6) + [2500 × 4] = 44,000
• Meeting allowance is subject to final tax withholding.
• Food facilities for all staff are not taxable income.
• Dividend received from the resident company is final tax withholding.
• Lottery income is subject to casual gain is final tax withholding.

Illustration 4: Dr. Amuda is a professor of Pokhara University was promoted to the post of Professor on
1stMansir 2070 at a salary scale of Rs. 44,000-1500-64,000. University follows the same rule as government
in respect of annual increment. Other details of income and expenses submitted by Prof. Dr. Amuda are as
follows:
i. Department head allowance Rs. 2,000 per month.
ii. Question paper setting allowance Rs. 7,600 net.
iii. Meeting allowance Rs. 425 each for 12 meetings (net).
iv. House facility and guard allowance Rs 2,000 per month.
v. Vehicle facility along with driver and fuel Rs. 5,000 and Rs. 2,000 per month.
vi. She claimed following expenses for reductions:
vii. She is a member of recognized provident fund and contributes 10% of her salary. University also contributes
equal amount.
viii. She has appointed driver by herself and has paid Rs. 8,000 per month.
ix. She purchased books for her personal use Rs. 4,000.
x. She donated Rs 4,000 to the University Teachers Union.
Required: a. Assessable income from employment. b. Statement of taxable income.
c. Tax liabilities.
SOLUTION
a. Calculation of total assessable income from employment of an employee for previous year:
10

Particulars Amount Rs. Amount Rs.

Salary (24,500 × 4 + 25,000 × 8) ...................................................................................................... 3,34,000
Contribution to provident fund by employer (10% of 3,34,000) ......................................................... 33,400
Dashain allowance ............................................................................................................................ 27,500
Department allowance ..................................................................................................................... 24,000
Guard allowance ............................................................................................................................... 24,000
Accommodation facility (2% of salary) .............................................................................................. 6,680
Vehicle facility (0.5% of salary) ......................................................................................................... 1,670
Total assessable income from employment 4,51,250
Statement of taxable income
Particulars Rs. Rs.
Assessable income from employment............................................................................................... 4,51,250
Assessable income from business .................................................................................................... Nil
Assessable income from investment ................................................................................................. Nil
Total assessable income 4,51,250
Less: allowable reduction:
Approved retirement fund (66,800)
(1/3rd of assessable income or actual = 66,800 or Maximum 3,00,000 Least of above)
Donation [5% of adjusted income or actual or max.1,00,000] (4,000)
Taxable income 3,80,450
b. Calculation of tax liabilities
Up to Rs. 4,00,00 @ 1% (Single) ............................................................................................................................. 3,804.5
Total tax liability 3804.5
Less: Tax rebate as women exemption.................................................................................................................... 380.45
Tax payable to government 3424.05
Working and remarks:
Calculation of payee scale of Dr. Anjana for income year 2078/79 (from 2078 Shrawan 1st to 2079 Ashad 31st)
2070/08/1 to 2071/07/31 = 24,000
2071/08/1 to 2072/07/31 = 24,500 (24,000 + 500)
2072/08/1 to 2073/07/31 = 25,000 (24500 + 500)
2073/08/1 to 2074/07/31 = 25,500 (25000 + 500)
2074/08/1 to 2075/07/31 = 26,000 (25500 + 500)
2075/08/1 to 2076/07/31 = 26,500 (26000 + 500)
2076/08/1 to 2077/07/31 = 27,000 (26500 + 500)
2077/08/1 to 2078/07/31 = 27,500 (27000 + 500)
2078/08/1 to 2079/07/31 = 28,000 (27500 + 500)
Therefore, annual salary = 4 months × 27,500 + 8 months × 28,000 = Rs 334,000

Illustration 5: Mrs. Bindu an employed in A class commercial bank as a branch manager as on 1st Falgun
2072 at a pay scale of Rs.32,000 – 1,000 – 36,000; EB – 2,000 – 50,000. Her office is located in remote are
-A. Besides salary she received the following income from employer.
i. Business promotion allowance Rs.80,000
ii. Dashain bonus equal to one month salary
iii. Bonus equal 2 month's salary at the year end
iv. Project allowances Rs.5,000 per month
v. Free accommodation facility is also provided.
vi Travelling and daily allowances Rs.45,000
vi. She maintains her own scooter, fuel expenses of Rs.2,500 p.m. reimbursed by the bank
vii. Bank awarded her as a best performer in the year of Rs.25,000 cash and laptop which costing Rs.60,000 in
the market.
viii. She was provided a loan of Rs.500,000 at interest rate of 6%. The prevailing interest rate in the market is 15%
11

ix. Meeting allowances Rs.17,500 during the year

x. She contributes 10% of her salary to recognized to Social Security Fund (SSF) and bank also contribute 21%
of salary. She also contributed 20% of her salary to CIT.
She claimed following expenses:
 Donation to a poor student Rs.15,000
 Donation to Lumbini development trust Rs.20,000
 Life insurance premium Rs.40,000 for her own
 Household expenses Rs.2,50,000
Required: a. Net assessable incomes from employment
b. Statement of total taxable income
c. Tax liabilities
SOLUTION:
Calculation of assessable income from employment of Mrs. Bindu for the previous income year.
Particulars Amount Rs.
Salary ....................................................................................................................................................................... 4,66,000
Business promotion allowances ............................................................................................................................... 80,000
Dashain bonus ......................................................................................................................................................... 38,000
Bonus (40,000 × 2)................................................................................................................................................... 80,000
Project allowance (5,000 × 12) ................................................................................................................................. 60,000
Accommodation facility (2% of 4,66,000) ................................................................................................................. 9,320
Fuel expenses paid by employer (2,500 × 12) ......................................................................................................... 30,000
Prize received for the best performer (Rs.25,000 + Laptop Rs.60,000) ................................................................. 85,000
Interest subsidy (9% of 5,00,000)............................................................................................................................. 45,000
Contribution to Social Security Fund (SSF) by employer (21% of 4,66,000) ............................................................ 97,860
Assessable income from employment 991,180
Statement of total taxable income
Particulars Amount Rs. Amount Rs.
Net (Assessable) income from employment ...................................................................................... 991,180
Net (Assessable) income from business/investment ......................................................................... Nil
Total Assessable incomes 991,180
Less: Contribution to SSF and CIT
1/3rd of Rs. 991,180 = Rs.330,393
or, Actual 51% of Rs. 4,66,000 = Rs.237,660 Whichever is less 237,660
or, Maximum limit = Rs.500,000
Less: Donation
5% of (991,180 – 237,660) = Rs.37,676
or, Actual donation = Rs.20,000 Whichever is less
or, Maximum limit = Rs.1,00,000 20,000
Less: Life insurance premium [Actual Rs.40,000 or maximum limit Rs.25,000) 25,000
(whichever is Lower)
Less: Remote area exemption (Area 'A') 50,000
Taxable income 658,520
Calculation of tax liability
Particulars Amount Rs.
First 4,00,000 (Single) .............................................................................................................................................. Nil
Next 1,00,000 @ 10% .............................................................................................................................................. 10,000
Balance 158,520 @ 20% ......................................................................................................................................... 31,704
Total 41,704
Less: Medical tax credit [15% of 20,000 = Rs.3,000 or maximum limit Rs.750] Lower ............................................ 750
Less: Woman tax credit (10% of 41,704) ................................................................................................................. 4,170
Tax payable 36,784
Hints: in case of retirement contribution to Social Security Fund (SSF) 1% social security tax is not applicable.
12

i. Calculation of current salary

2072/73 = 32,000 × 5
2073/74 = 32,000 × 7 + 33000 × 5
2074/75 = 33,000 × 7 + 34,000 × 5
2075/76 = 34,000 × 7 + 35,000 × 5
2076/77 = 35,000 × 7 + 36,000 × 5
2077/78 = 36,000 × 7 + 38,000 × 5
2078/79 = 38,000 × 7 + 40,000 × 5 = 466,000
ii. Traveling allowances is not taxable income
iii. Meeting allowance is final withholding payment
iv. Ms. Bindu has employment income only so, she gets women tax credit @ 10% of total tax liability
v. Donation to poor student is not allowed for deduction.

Illustration 6: Mr. Basnet is an employee of Nepal government has submitted the following particulars of his
incomes and expenses of previous year:
Net annual salary received Rs.4,42,000 after deducting his own contribution to provident fund Rs.48,000 and
income tax at sources Rs.30,000 and including Dashain expenditure 1 month salary
i. Saving from TATA Rs.50,000
ii. Dearness allowances Rs.2,000 per month
iii. His employer contributed an equal amount to the provident fund
iv. Local allowances Rs.2,500 per month
v. Medical allowances Rs.60,000 (Actual medical expenses was Rs.70,000)
vi. Life insurance premium paid by employer on behalf of Mr.Basnet was Rs.30,000 on the insured sum of
Rs.3,00,000
vii. Mr. Basnet has spend Rs.50,000 for tuition fees of his son
viii. Office has provided him accommodation and vehicle facility
ix. He had purchase professional books for his own purpose of Rs.50,000
x. Office has provided him a household servant whose salary was Rs.5,000 per month (office has deducted
Rs.3,000 per month from his salary)
xi. He donated Rs.10,000 to a government school
xii. He received dividend Rs.19,000 (net) from a bank
Required: a. Net assessable income from employment b. Statement of total taxable income
c. Tax liability by Mr. Basnet
SOLUTION:
Calculation of assessable income from employment of Mr. Basnet for the assessment year 2075/76
Particulars Amount Rs.
Income:
Salary (4,42,000 + 48,000 + 30,000 = 5,20,000 ÷ 13 × 12) ...................................................................................... 4,80,000
Contribution to provident fund by employer.............................................................................................................. 48,000
Dashain allowances ................................................................................................................................................. 40,000
Dearness allowance (2,000 × 12)............................................................................................................................. 24,000
Local allowances (2,500 × 12) ................................................................................................................................. 30,000
Medical allowance .................................................................................................................................................... 60,000
Life insurance premium paid by employer................................................................................................................ 30,000
Accommodation facility (2% of 4,80,000) ................................................................................................................. 9,600
Vehicle facility (0.5% of 4,80,000) ............................................................................................................................ 2,400
Household servant facility (5,000 – 3,000) × 12 ....................................................................................................... 24,000
Net (Assessable) income from employment 7,48,000
13

Statement of taxable income

Particulars Amount Rs. Amount Rs.
Net (Assessable) income from employment ...................................................................................... 7,48,000
Net (Assessable) income from investment/business ......................................................................... Nil
Total Assessable incomes 7,48,000
Less: Contribution to provident fund
1/3rd of 7,48,000 = Rs.2,49,333
or, Maximum = Rs.3,00,000 Lower 96,000
or, Actual (20% of 4,80,000) = Rs.96,000
Less: Life insurance premium
or, Actual = Rs.23,000
or, Maximum limit = Rs.25,000 Lower 23,000
Total taxable income 6,35,000
Calculation of tax liabilities
Particulars Amount Rs.
First Rs.4,00,000 @ 1% (assumed single) ............................................................................................................... 4,000
Next Rs.1,00,000 @ 10%......................................................................................................................................... 10,000
Balance Rs.1,35,000 @ 20% ................................................................................................................................... 27,000
Total payable 41,000
Note:
442000 + 48000 + 30000
i. Monthly salary = 13 = Rs.40,000
ii. TADA is not taxable income
iii. He does not claimed medical tax credit
iv. Dividend received is final withholding income

 Things to be Remember
1. Dashain allowance equals to one month's salary and contribution to employee provident fund (10% of salary) by office
are to be included in case of government employee even if the question is silent.
2. Personal expenses is not allowed for reduction for employment income.
3. Meeting allowance is subject to final tax withholding.
4. Income received from setting questions papers after TDS is subject to be final withholding payment.
5. Unapproved retirement fund is not allowed for reduction.
6. Saving from TADA is tax exempt.
7. Food facilities for all staff is not taxable income.
8. Dividend received from the resident company is final tax withholding.
9. Lottery income is subject to casual gain is final tax withholding.
10. Income received from checking examination copy may treated as final withholding payment.
11. Life insurance premium paid for his/her family and son is not allowable for reduction.
12. Expenses paid by employer for employee up to Rs 500 as petty income are exempted from tax.
13. Donation to Prime Minister Relief Fund is fully allowable.
14. Pension received from the public fund of foreign government is tax exempt.
15. Amount received as advance salary is taxable due to cash basis of his recording for individual.
16. Health insurance premium is not included in life insurance premium.
17. Rent received from agriculture land may treated as income from investment.
18. Amount received from the public fund from foreign country is not taxable.
19. Meal and transportation facility provided in equal term for all staff is not admissible income.
20. Life insurance premium paid to a non -resident life insurance company is also allowed for reduction.
14

21. Returns received from mutual fund by an individual is subject to final tax @ 5%.
22. A widow or widower with dependent is treated as couple for tax purpose.
23. Rent received, Interest from bank and dividend received from a resident company are final withholding income.
24. Gain from investment (Life) insurance is a final withholding income.
25. Contribution to unrecognized provident fund is not allowed for reduction.
26. Accumulated home leave and accumulated provident fund up to Chaitra 18, 2058 are exempt from tax.
27. Retirement payment received from approved retirement fund (After Chaitra 18, 2058) is subject to final tax if the
payment exceeds Rs 500,000, otherwise it is exempt from tax.
28. Medical tax credit from for cosmetic surgery is not allowed for deduction.
29. Gain on sale of shares of listed company is subject to an advance tax @ 5%
30. Reimbursement of fuel and maintenance expenses along with vehicle facilities should not be included in income.

QUESTIONS

Problem 1. __ Following information is furnished by the Dr. Bhattarai a lecturer of TU Nepal working
in the remote area ‘C’ for the previous year.
i. Monthly salary Rs. 37,500.
ii. Dashain allowance is paid as per government rules.
iii. Dearness allowance 10% of salary.
iv. TADA received during the year Rs. 6,000.
v. Directors fees and meeting allowance Rs. 450 p.m. and Rs. 15,000 respectively.
vi. Office has provided him a cook and a gardener with their monthly salary Rs. 5,000 and Rs.
4,500 but office deduct his salary Rs. 3,000 and Rs. 2,500 p.m. from his salary.
vii. Monthly fuel bill of Rs. 900 reimbursed by office.
viii. He is the member of recognized provident fund so he contributes 10% of his salary and his
employer also contributes equal amount.
ix. He received Rs 42,500 (net) for checking the examination copies.
x. He received Rs 17,000 (net) from the Nepal Rastra Bank for setting the questions of their
internal examination.
xi. Remote area allowance Rs 4,000 per month.
xii. He received concession loan Rs. 4,00,000 @ 4% p.a. from the office but current market rate
of interest is 11%.
He claimed the following expenses for deduction:
• Donation to Ancient Heritage approved by IRD Rs. 75,000.
• Travelling and entertainment expenses Rs. 300 and Rs. 600 per month.
• Saving on Citizen Investment Trust (CIT) Rs. 60,000.
Required: a.Total assessable income from employment. b. Statement of taxable income.
c. Tax liabilities.
Hints:
(i) Income received from checking examination copy and amount received from NRB for setting the questions are
professional incomes.
(ii) Deduct Rs 30,000 as remote area exemption for remote area ‘C’.
15

Problem 2. __ Nabin Shrestha is an employee of an INGO project located in remote area of 'E' has
furnishes the following details of his income and expenses.
i. Monthly salary Rs. 1,75,000 per month.
ii. Dearness allowance Rs. 4,000 per month,
iii. Project allowance Rs. 50,000
iv. Telephone and water bill Rs. 7000 paid by office.
v. Pension Income from the previous employee Rs. 9,000 per month.
vi. Vehicle facility provided by office to him.
vii. Bonus equal to two months’ salary.
viii. Office paid insurance premium of Rs. 34,000.
ix. Telephone and electricity bill of Rs. 15,000 paid by office.
x. He received Rs. 4,000 as house rent from the employer.
xi. Gift related to his employment received from the office. The market value of gift is Rs.
40,000.
xii. He took loan Rs. 15,00,000 from his office as a facility rate of interest @ 2%. The prevailing
market rate is 9%.
xiii. He run a small business and earned Rs. 1,50,000.
xiv. Income from the agriculture Rs. 60,000.
xv. Royalty received from the natural resources Rs. 4,25,000 (net).
xvi. He claimed following expenses for deduction:
xvii. Depreciation of business assets Rs. 8,000.
xviii. Donation to a temple Rs. 95,000
xix. Contribution to Citizen Investment Trust Rs. 4,00,000.
xx. Disable facilities as per rule.
xxi. Income Tax paid in advance Rs. 7,500.
Required: a.Total assessable income from the employment.
b. Statement of taxable income.
c. Tax liabilities.

Problem 3. __ Mr. Pandey an employee of a public campus, provide you the following income and
expenditure of previous year.
i. Net salary after deducting provident fund as per rules and tax deducted at sources Rs
5,80,000.
ii. Tax deduct at source Rs. 50,000.
iii. Dashain allowance equal to one month salary.
iv. Local allowance Rs. 300 per month.
v. Department head allowance Rs. 450 per month.
vi. Meeting allowance Rs 850 (net) per month per meeting.
vii. Contribution by employer 10% of salary and Rs. 18,000 for CIT.
viii. Office also provided a cook and helper at a monthly salary Rs 5,000 and 4,000 per month
respectively but employer deduct his salary Rs 3,000 and 3,500 respectively.
ix. He received prize from college Rs. 9,000 as a best employee.
x. He is the member of recognized provident fund.
xi. He also received gain from insurance company Rs. 40,000 after TDS.
xii. He paid Donation to UML party Rs. 7,000.
16

xiii. College paid him for accumulated sick leave Rs. 56,000.
xiv. He received remuneration from TU for examining copies Rs 4,250 after TDS.
xv. College provides him lunch facilities during the college day.
xvi. Average bill of his lunch is Rs 3,200 per month.
xvii. He claimed medical expenses Rs 3,000.
Required: Assessable income from employment, Statement of taxable income and Tax liabilities.

Problem 4. __ Mrs. Sapkota, a disable person worked as senior finance officer of an organization,
submitted the following particulars his incomes and during the previous year.
i. Net salary including Dashain allowance after deducting provident fund and income tax
deducted at source Rs. 646,000
ii. Contribution to recognized provident fund Rs. 72,000
iii. Income tax deducted at sources Rs. 62,000
iv. Dearness allowance Rs. 3,000 p.m.
v. Saving from traveling and daily allowance Rs. 10,000
vi. Amount received after expiry of life insurance policy Rs 360,000 (net)
vii. Education expenses of her children paid by the employer Rs.25, 000.
viii. Accommodation facility provided by the employer.
ix. Driver allowance provided by the employer Rs. 4,000 p.m. Actual amount paid to driver was
Rs. 5,000 p.m.
x. Telephone expenses paid by her Rs. 1,500 p.m. However telephone allowance provided by
the employer was Rs. 2,500 p.m.
xi. Donation to renovate an old temple Rs.20,000 and Rs.10,000 to poor student of remote
area.
xii. Pension received from previous employer Rs.15, 000 p.m.
xiii. Life insurance premium paid to LIC Rs.60,000 (80% reimbursed by office).
xiv. She also contribute Rs.30,000 to CIT and paid Rs. 10,000 for personal expenses for
household.
xv. Amount received from interest on investment Rs 200,000.
xvi. Gain on sale of share ( non listed) 180,000 after TDS . TDS on gain on sale of share
Rs.20,000.
xvii. Royalty received from natural recourses Rs.1,70,000(After TDS).
xviii. Medical expenses paid by her Rs.12,000 for medical treatment. She claimed medical tax
credit.
xix. Office provided her a assistant and his salary Rs.8,000 P.M paid by office but Rs.3,000 p.m
deducted from her salary at the time of salary payment.
xx. Remaining income tax of previous year Rs.10,000 paid by office.
xxi. She purchase some books and magazine for her study of Rs.6,000. She claimed for
deduction from assessable income.
xxii. She won a lottery and received Rs.750,000(net).
xxiii. Rent received from house let out Rs.30,000 (net).
Required: a.Assessable (net) income from employment
b. Taxable income c. Tax Payable

Problem 5. ___ Mrs. Mira appointed as a officer of Nepal Government on 1s Shrawan 2070 at a pay scale
of Rs. 22,000–1,500–28,000–2,000–40,000. Besides salary she disclosed the following details
17

regarding his incomes and expenditures:

i. Home and sick leave encashment Rs. 45,000
ii. She received advance salary Rs. 30,000
iii. Clothing allowance Rs. 30,000
iv. Travelling and daily allowance Rs. 25,000
v. Meeting allowance Rs. 17,000 (net)
vi. Dearness allowance Rs. 3,000 per month
vii. Office has provided a well furnished quarter to her.
viii. Medical expenses reimbursed by the office Rs. 10,000
ix. Family allowance Rs. 5,000 pm
x. She received royalty from book Rs. 85,000 (net)
xi. During the year she received salary from part time lecture for a college Rs. 170,000 (net).
xii. Office has provided her a vehicle facility with fuel and maintenance expenses Rs. 30,000
xiii. Office provided her a housing loan Rs. 20,00,000 at a concessional interest rate @ 5% but
prevailing market rate is 12% per annum.
xiv. Office provided her house assistant and whose salary Rs. 15,000 per month provided by her office.
xv. Children's education expenses Rs. 40,000 reimbursed by her office.
She claimed the following expenses for deduction:
• Tuition fees of her children Rs. 20,000
• Purchase of books which are useful for her job Rs. 5,000
• Life insurance premium Rs. 23,000
• Donation paid to a local club Rs. 20,000
• She claimed medical tax credit for her approved medical expenses.
Required: Assessable Income, Taxable Income and Tax Liability

Problem 6. __ Mr. Yugal a retired British army joined a government job as a post of conflict manager
at a pay scale of 42,000-2,000-60,000 on 1stMagh 2070. He furnishes the following details for his
income and expenses:
i. Dashain allowance is equal to government rule.
ii. Motivation allowance Rs. 2,000 per month.
iii. Family and children allowance Rs. 3,500 per month.
iv. Entertainment allowance Rs. 20,000
v. Contribution to provident fund 10% of salary employer also contributed equal amount.
vi. Pension from British government Rs. 45,000 per month.
vii. Meeting allowance Rs. 7,000.
viii. His office is located at remote area 'B', so office paid him Rs 40,000 as remote area
allowance.
ix. Agriculture income Rs. 60,000 received during the year.
x. Office provided him a Chaukidar for his resident with payment of Rs. 5,000 per month.
xi. He received prize of best employee for the year the value of prize is Rs. 4,000 in market.
xii. He received royalty from natural resources Rs. 68,000 (net.)
xiii. Interest received from private money lending transaction Rs. 30,000.
He claimed following expenses for deduction:
xiv. Donation to Nepali Congress party Rs. 90,000.
xv. Medical expenses Rs. 8,000.
18

xvi. Contribution to Citizen Investment Trust Rs. 3,000 per month.

xvii. Life insurance of his son Rs. 20,000 and education expenses Rs. 30,000.
Required: Calculate taxable income and tax liabilities of Mr. Gurung.
Hint: Amount received from the public fund from foreign country is not taxable.

Problem 7. __ Dr. Satyam joined a nursing home as a medical officer on 1stPoush 2074 B.S. at a
pay scale of Rs 60,000-1,000-67,000-EB-1,500-76,000 plus non-practicing allowance 20% of
starting salary. The nursing home is located at remote area 'C'. He has submitted the following
details of his income for the previous year.
a. Remote area allowances 25% of salary
b. Dashain expenses allowance equal to one month salary
c. Tihar allowance equals to half months salary
d. Local allowance Rs. 2,000 p.m.
e. Transportation allowance Rs. 1,000 p.m.
f. House facility is provided by employer.
g. His life insurance premium paid by the employer Rs. 15,000 for the insured sum of Rs.
200,000
h. Contribution to recognized provident fund 10% of salary
h. School fees of his daughter paid by employer Rs 2,000 p.m.
i. Scholarship provided by the employer to his son equal to 10% of salary.
j. During the previous year the employer had sent him to Kathmandu to attend a short-term
seminar. For this purpose he was provided with travelling and daily allowance Rs. 35,000
k. Royalty income from natural resources Rs. 90,000
l. Scholarship provided by Indian Embassy to his daughter Rs. 120,000
m. Income tax paid in advance Rs. 20,250
n. Medical expenses incurred (own) Rs. 15,000
Required: a. Net assessable income from employment.b. Statement of total taxable income
c. Tax liability.

Problem 8. __ Mr. Kafle joined as a manager in private company after voluntary retirement from
previous job. He appointed on 1st Baisakh 2070 at a pay scale of Rs. 80,000-1,000-85,000-2000-
95,000. He contributed 10% salary toward recognized provident fund and equal amount also
contributed by the employer. Other income and expenses are as follows:
i. Dearness allowance Rs. 6,000 P.M.
ii. Travelling and daily allowance (TADA) Rs. 12,000 (saving from TADA Rs. 4,000).
iii. House facility provided by office and office paid Rs. 15,000 rent to the house owner.
iv. He was provided a car along with driver Rs. 10,000 P.M and fuel 20 litters @ Rs.180 per
litter.
v. The company awarded him for his better performance with a Washing machine which has a
market price of Rs.75, 000.
vi. Telephone bill paid by office Rs. 20,000, 60% of which is related to official use.
vii. Medical expenses reimbursement by office Rs. 10,000 out of which Rs.4000 was related to
cosmetic surgery and Rs.6,000 was eye surgery he clamed medical tax credit.
viii. He is resident disabled individual. He received disabled allowance Rs.3000 p.m. from
government.
ix. He donated a political party registered with election commission Rs. 1,20,000 and Prime
Minister Disaster Relief Fund Rs. 60,000.
19

x. Health insurance and life insurance premium paid by office Rs. 22,000 and 20,000
respectively. Business promotion expenses provided by company Rs.50,000 out of which
40% could not be certified.
xi. He has lead a delegation to an international conference he received leader allowance Rs.
25,000 and foreign allowance Rs. 60,000.
xii. He also received return on investment from Nabil Mutual Fund Rs. 95,000 (net).
xiii. He invested Rs. 2, 50,000 in taxable government bound, interest @ 10% received in net.
xiv. He received interest from private money lending activities Rs.170,000 (net).
xv. Gain on sale of share (listed company) Rs. 95,000 (net).
xvi. His office located in remote area group D
xvii. He paid Rs.20,000 for household expenses and Rs.10,000 for school fee of his children.
xviii. His office provided housing loan of Rs.10,00,000 at a concessional interest at 5% p.a but
prevailing interest rate was 12% p.a.
Required: a.Assessable income from employment b. Taxable income
c. Tax liability