Taxation

Attempt All Questions (10*10=100)

1. Mr. Shrestha, a disable person and residing in Mustang District, disclosed the
following income and expenditure for the income year 20X1/X2.
Income Side
a) Interest on private money lending 127,500 (after TDS )
b) Royalty from natural resources Rs. 306,000 (after TDS)
c) Interest from Bank deposit Rs. 190,000
d) Dividend from domestic companies Rs. 95,000
e) Royalty from writing article Rs. 15,000
f) Royalty from book publication Rs. 170,000 (after TDS)
g) Compensation received Rs. 50,000
h) Money fund lying in street Rs. 75000 (net)
Expenses Side
a) Interest on private money lending Rs. 2,000
b) Natural resources Rs. 1000
c) Royalty from writing article Rs. 100
d) Dividend from domestic companies Rs. 500
e) Legal expenses (Income Tax appeal) Rs. 5000
f) Salary to assistant Rs. 30,000
g) Life insurance premium Rs. 15,000 on his own policy amount Rs. 300,000
h) Contribution to approved retirement fund Rs. 50,000
i) Donation to tax exempt organization Rs. 12,000
Compute tax liability and net tax payable of Mr. Shrestha for the income year
20X1/20X2.
(Assume him couple for tax calculation)
2. Dr. Bhatta, a senior cardiologist working in a private hospital of Kathmandu, left
Nepal for London on 1st Ashwin 20X1 of the income year. His visit to London was
unofficial. Before leaving Nepal, the following agreement signed between him and
the hospital.
 No Salaries for non-duties
 Maximum leave period approved = one year.
As per agreement signed, the validity will remain until the end of Bhadra , 20X2.
However, he returned to Nepal before validity has expired as on 1st Baisakh 20X2 and
join the duty on same date. He was drawing Rs. 450,000 per month gross salary in
Nepal during the year.
 As on Ashad end 20X2, Dr. Bhatta received GBP 27,000 (after TDS of GBP 3000) in
Nepal from western union money transfer as consideration payment made by hospital
against service provided by him. The exchange rate GBP 1= 149.71.
You are required to determine the following with reference to Income Tax Act 2058.
a) Residential status for IY 20X1/20X2
b) Tax Liability

3. ABC Cement Pvt. Ltd has following transactions during the income year 20X1/ 20X2.

Profit and Loss Account

Particulars Amount in Rs.
Sales 31,000,000
Cost of Sales 17,600,000
Gross Profit 124,00,000
Other Income 500,000
Administrative Expenses 2,000,000
Selling and Distribution Expenses 600,000
Depreciation 6,800,000
Interest expenses 2,000,000
Profit before tax 2,500,000

Additional information:
a) Other income was interest from Bank of Kathmandu. It has presented net of
tax.
b) Cost of Sales includes the following:

Particular Amount (Rs) Amount (Rs)

Opening stock 700,000
Clinker and other raw 18,000,000
material
Manufacturing
expenses:
Salary and wages for 12,00,000
factory
Repair and maintenance 400,000
expenses
Other overhead 300,000
expenses
Total manufacturing 19,00,000
expenses
Closing stock 3,000,000
Cost of Sales 11,900,000

c) Cost of stock includes the repair and maintenance expenses, which is

approximately 2% of valuation.
 d) Depreciation includes Rs. 2,000,000 for the construction of factory, which was
completed on Mangsir 20 20X1 with the total cost of Rs. 40,000,000.
Depreciation for others as follows:
Block Depreciation Base Depreciation
B 1,200,000 300,000
D 30,000,000 4,500,000

e) Interest expenses was charged for the loan borrowed for factory construction.
The loan Rs. 20,000,000 with 10% interest rate.
Based on the above information, you are required to calculate taxable income and
tax liability for the relevant income year.

4. a. Mr. Z is a trader based in Shantinagar, Kathmandu. He deals in retail sales of

different consumer items, and he has no other income than the retail sales. During the
Income Year 20X1/X2, he has total business turnover of Rs. 1,885,000. He made a
payment of Rs. 60,000 on 1st Jestha 20X2 in relation to purchase of Wai Wai Noodles
from a dealer in cash. It was not a public holiday. Is the payment in cash deductible
for tax purpose? What would be your answer if the payment was made in a place
where there is no banking facility within the periphery of 10 KM of his business
place?

b. Mrs. Joshi is retired employee of government office, she received in the three
financial year as salary and benefits are, in the financial year 2071/072 NPR. 750,000,
financial year 2072/073 NPR. 890,000 and financial year 2073/074 is NPR. 1000,000.
The account of the office has calculate the tax liability by considering total sum of
three financial year is one financial year in the year 2072/073 and deposit tax liability
according in the financial year 2072/073.

Required:
 State your view in this regard, imposition of tax in the income of Mrs. Asmita?
 Define imposition of Tax as per Income Tax Act 2058?
 What are the provisions for Social Security tax in financial act 2073? Whether
social security tax is applicable to Mrs. Asmita, who has only pension income?

5. Mrs. Ambika working with Nepal Life Insurance Ltd as Acting CEO, her details
of income for FY 20X1.X2s is given below

Particulars Amount Remarks

Salary 325,000.00 per month
Dashain Allowance 325,000.00 one month, received on Ashoj
Children Education Allowance 27,500.00 per month
Medical Allowance 325,000.00 one month, received on Ashoj
 Contribution to Approved 30,000 by both employer and per
30,000.00
Retirement Fund month
Donation 350,000.00 paid to Tax exempt organization
Cost of Life Policy 75,000.00 50% paid by employer
Cost of Health Insurance Policy 45,000.00 50% paid by employer

Additionally other facilities are as follows:

a) One Hyundai CRETA costing Rs. 45,00,000 for official use with driver, the
salary of driver is Rs. 25,000 per month
b) Telephone allowance of Rs. 2,500 per month
c) Her visit to Singapore for Training nominated by office, all the expenses paid
including Travel and Daily Allowance USD 5000

 Calculate tax liability and income tax payable.

6. Explain the following with reasons; on tax/withholding tax implications thereon with
reference to the relevant provision of Income Tax Act 2058:
a) Z & Co. has taken loan of Rs. 100 million from Nabil Bank Ltd. To conduct
the business. The company paid interest of Rs. 10 million (@10% p.a) during
the income year to the bank.
b) X & Co. made the following payments to Z & Co. under the contract, for the
supply of materials required for its company. Both the company are registered
under value added tax.
4/8/20X2 Rs.25,000
4/12/20X2 Rs. 10,000
4/13/20X2 Rs. 5,000
4/15/20X2 Rs. 10,000
4/17/20X2 Rs. 5,000
Since each payment is less than Rs. 50,000. X & Co. did not withhold any tax
on the payment made as above.
c) X & Co., Chartered Accountants, has entered in to contract for tax consultancy
services to Z Ltd. For Rs. 200,000 per month. X & Co., raised the VAT
invoice for the month of shrawan 2073 amounting to Rs. 226000
(200,000+13% VAT)
d) Mr. Krishna is an economist; He published an article on “Current Status of
Economy” in Kantipur daily and received Rs. 6000. He also teaches,
occasionally, “Economics” in an educational institution for which he received
Rs. 5,000 for a class.
e) A & Company Ltd. Decided to declare and distribute the cash dividend at the
rate of 10% amounting to Rs. 50,000 and bonus shares at the rate of 20%
amounting to Rs.100,000 out of the profit of the income year 2067/68 from its
general meeting dated Mansir 28, 2073.
7. Compare and explain the following treatment in financial statement as per Nepal
Financial Reporting Standard (NFRS) and Income Tax Act 2058.
a) Repair and Maintenance expenses
b) Depreciation
c) Valuation of Closing Stock
d) Provisional for doubtful debt
e) Pre operating expenses

8. Mr. Tika, a management consultant, maintains his accounts on a cash basis. He

furnished you following account for the previous income year:
Receipt and Payment Account
Receipts Rs. Payment Rs.
To Opening balance of cash 65,700 By office expenses 1,50,000
To consultancy fee 4,90,000 By Utilities expenses 60,000
To visiting fee (net) 1,70,000 By Salary to staff 1,75,000
To dividend from NBB Ltd. 9,500 By Travelling expenses 80,000
(net)
To Sale of old journals 2,250 By purchase of 1,75,000
furniture (in Chaitra)
To Bank Loan 2,00,000 By interest on bank 25,000
loan
To sale of old furniture 25,000 By Donation 45,000
To interest on Govt. bond 28,500 By purchase of journal 8,042
(net)
To wining from lottery (net) 75,000 By health insurance 27,500
premium
To examiner's fee from TU 9,000 By office rent paid 40,000
To salary from part time 17,000 By Closing balance of 3,06,408
lecture (net) cash

Additional information:
a) Travelling expenses include Rs. 5,000 incurred for repair of furniture.
b) Opening WDV of furniture was Rs. 45,000.
c) Assessable income from Investment was Rs. 7,50,000.
d) Office expenses include medical expenses Rs. 15,000 incurred for his
treatment. He claimed it for tax credit.
e) His wife expired two year ago and he has two minor sons.
f) Donation include Rs. 25,000 given to Lumbini Development Trust and
remaining to Public School.
g) Office rent include Rs. 4,000, which was the payment of next year's rent.

Required:
a) Assessable income from profession
b) Statement of taxable income
c) Tax Liability.
9. List down exemption and concession provided to taxpayers as per Finance Act
2074/75

10. a) Miss Unnati, beauticians, is running a beauty parlor in Kathmandu Metropolitan

since few years. Her annual transactions is Rs. 25,00,000 and annual net income (after
deducting all required expenses) is Rs. 350,000. She is currently paying Rs. 5,000 as a
flat income tax as s small taxpayer. She is contributing Rs. 100,000 to approved
retirement fund and Rs. 15,000 as a life insurance premium. Seeing the benefit of
additional reductions as per Income Tax Act, she wants to assess her income as sole
proprietor. As a tax planner, what suggestion do you want to give her to minimize her
tax burden?

b.) Mr. Madhukar has considered two business proposals; one is formation of sole
proprietorship firm and another is a private company under Company Act, 2063. The
annual expected net assessable income is Rs. 900,000 from both proposals. He is also
planning a retirement scheme and contributed Rs. 200,000 to citizen Investment Trust.
The business will be located in remote area A.
As a tax planner, provide consultancy to Mr. Madhukar whether to registered
company or proprietorship firm.