How do you define tax and tax payer? Write the bases of income tax in Nepal.

Attempt this
question in the reference of Income Tax Act 2058. (Section 2, 7, 8 and 9)
Tax: Tax is defined as the compulsory fee levied by the government as its source of revenue on
the individuals, corporate bodies or on the price of goods or services. If the tax is levied on the
individual or the corporate body then it is known as the direct tax. If the tax is levied on the price
of goods or service then it is known as the indirect tax.
Tax payer: Tax payer is the one on whom the tax is levied. The tax payer is subjected to pay tax
to the government. It could be an individual or a corporation. . Taxpayers have an identification
number, a reference number issued by a government to its citizens. In case of Nepal, taxpayers is
given a personal identification number called Personal Account Number and they are liable to
pay tax.

In Nepal, the income tax is levied on the basis of computation of income from three sectors;

Income from business

Income from employment and
Income from investment

Income from business:

The income tax for the income year is levied based on the profits and benefit made by any person
in any year from any business or professional activity. According to the sec 7 of the Income Tax
Act 2058, the provisions are available to compute tax from the income from the business;

The profits and benefits earned from the business in any income year should include
Service charge,
Amount obtained from the disposal of stock-in trade,
Net profit derived from the business,

 Gift received in respect of business,

Amount received for having accepted any restriction in respect of the operation of the

business,
But amount deductible and payments from which tax is withheld finally may not be
included in computing the income from business.

Income earned from employment:

If the tax is levied on the income earned from the employment in the form of remuneration then
such income is computed on the basis of sec 8 of Income Tax Act, 2058. Computation of income
earned from the employment is done in the following manner;

The remuneration derived by any natural person from employment in a year shall be

computed as income in the same year.

The remuneration from employment includes;
Amount for wages, salary, leave, amount for overtime work, fee, commission, prize,

gift, bonus, and payment for other facilities

Payments made by an employer for any personal allowance,
Payment for settlement of reimbursement of expenses,
Payment for termination or compulsory retirement,
Retirement payment and
Other payments made in respect of employment.
But amounts deductible and payment from which tax is finally withheld are not included.
Food and tiffin provided at work in the manner that it is available to all employees on the
same terms are also excluded. The settlement or reimbursement of the expenditure which
fulfills the business purpose of the employer is also excluded. Payments for the petty
expenses which are insignificant in the account are also not taken into consideration.

Income earned from investment:

If the income tax is levied on the income earned from the investment in the form of profits or
dividend then it such income is computed based on the sec 9 of the Income Tax Act, 2058.
Computation of the income earned from the investment is done in the following manner;

The income earned for any income year from the investment includes the profits and

benefits derived by any person from investment in that year.

The profit or gain made by an individual from the investment can be as under
Dividend, interest derived from the investment, payment for natural resources, rent,

royalty, profit for investment insurance,

Net profit derived from the disposal of non-business taxable property of the

investment of that person.

Excess amount of income due to depreciation of assets,
Gift received in respect of investment
Retirement payment
Amounts received for having accepted any restriction in respect of investment

Reference:
Income Tax Act, 2058