Assignment 1

Total Marks=100

1. Mr. David has stayed in Nepal in the following periods. Find out the
residential status for the income years 2072-73 and 2073-74.

Period of Stay

14 Falgun 2071 to 11 Chaitra 2071

13 Baishakh 2072 to 26 Ashadh 2072

3 Shrawan 2072 to 25 Bhadra 2072

8 Marga 2072 to 13 Falgun 2072

18 Jeshtha 2073 to 16 Bhadra 2073

[ Marks= 5]

The number of days in the relevant months

Year BS Month No. of

days
2071 Falgun 30
2071 Chaitra 30
2072 Baisakh 31
Jestha 32
Ashad 31
Shrawan 32
Bhadra 31
Ashwin 30
Kartik 30
Marga 29
Poush 30
Magh 29
Falgun 30
Chaitra 30
 2073 Baisakh 31
Jestha 32
Ashad 31
Shrawan 32
Bhadra 31

2. Determine tax liability/implication in following case. [ 4*2.5=10]

a. Gulf Bank, a Dubai based banking company has an office in Kathmandu
for its wholesale banking service to local banks. During the year it made
Rs. 75,00,000 profit from the operation in Nepal of which Rs. 50,00,000 was
repatriated to head office Dubai.

b. Mr. Santosh Sharma has bought a house on 20th Asoj 2067 for Rs. 90,00,000
including registration expenses and other expenses. Again, he has
purchased a plot of land on 3rd Chaitra 2070 for Rs. 1,50,00,000 including
registration expenses and other expenses. He sold both of the property on
22nd Mangsir 2073 to Mr. Binod Sharma for Rs. 3,00,00,000 and Rs.
3,50,00,000 respectively. Stating the relevant provisions of the Income Tax
Act, 2058, advise whether tax needs to be deducted or not in the said
transaction, and if yes, advise who will deduct the tax and amount of tax to
be deducted on the above transaction.

c. The saving and credit cooperative which is established in rural area as

define by income tax has paid Rs. 20,000 interest to its depositor from his
saving. Explain the amount of tax to be deducted by cooperative while
paying interest.

d. Ram has established sole proprietorship firm for doing business of

restaurant in Kathmandu. During the year, he has made sales of Rs. 15
lakhs and taxable expenses of Rs. 10 lakhs from his business. He has not
 registered his business in VAT. Can Ram pay presumptive tax as per
Income Tax Act?

3. Discuss the implication of TDS on following case [3*5=15]

a. XYZ Bank Nepal Limited, a joint venture bank operating in Nepal since its
establishment, declared dividend at the rate of 15% of paid up capital.

Mr. Thomas, German citizen, is the owner of 15 % of the paid-up capital of

the bank. Accordingly, the bank has to pay NPR. 70,000,000 to Mr. Thomas
as dividend. Mr. Thomas visited Nepal just for collecting his dividend and
returned to German after completing all the formalities including legal if
any. Discuss the tax implication of above transaction and determine the
amount of tax to be deducted by XYZ Bank Nepal Limited at the time of
payment to Mr. Thomas.

b. AB cold storage is providing storage service for agriculture item. AB cold

storage is not registered in VAT. XY fruits processing and seller has kept
their inventory in AB cold storage. In Baisakh, XY fruits processing and
seller has paid Rs. 150,000 to AB cold storage.

c. GY, an INGO has obtained approval from Ministry of Affairs and Social
Welfare Council in Nepal. GY has open office in Nepal in rental house
which is owned by Mr. Ram. In Jestha GY has paid rent of Rs. 670,000 in
advance for 5 months to house owner Mr. Ram.

d. Mr. A has retired from Nepal Government on Falgun 2076 under voluntary
retirement scheme. He has served the government for 20 years. His basic
salary including grade was NPR. 40,000 per month at the time of his
retirement. As per the scheme, he is entitled for 7 years salary as a golden
 hand shake. He is also entitled for the gratuity equivalent to 1.5 month’s
salary for every year of completed service. As per the official record, the
amount of gratuity accrued on 2058/12/18 amounts to NPR. 1,100,000.
Determine taxable amount and the amount of TDS at the time of payment
to Mr. A, as per the provisions of Income Tax Act, 2058.

e. Mr. B has retired from XYZ Pvt. Ltd on Falgun 2076 under golden
handshake retirement scheme. He has served the XYZ Pvt. Ltd for 20 years.
His basic salary including grade was NPR. 40,000 per month at the time of
his retirement. As per the scheme, he is entitled for 7 years salary as a
golden hand shake. He is also entitled for the gratuity equivalent to 1.5
month’s salary for every year of completed service. As per the official
record, the amount of gratuity accrued on 2058/12/18 amounts to NPR.
1,100,000. Determine taxable amount and the amount of TDS at the time of
payment to Mr. A, as per the provisions of Income Tax Act, 2058.

4. Mohani Sharma was school English teacher in a reputed private school

located at remote area (classified as A class area by GON) between
shrawan 20X1 to Poush 20X1. She joined an international organization
located at Kathmandu immediately after resigning with effect from 1st
Magh 20X1. Mrs. Sharma has received following salary and benefits during
the income year 20X1/X2:
A) Salary & benefit received from private school

Particulars Amount
Basic Salary (Gross) 50,000 p.m.
Dashain Allowance 50,000
House Rent Allowance 5,000 p.m.
Remote Area Allowance 10,000 p.m.
Leave Encashment 10,000 p.m.
 B) Salary & benefit received from INGO in Kathmandu

Particulars Amount
Basic Salary (Gross) 1,00,000 p.m.
Advance Salary 1 month
House Rent Allowance 25,000 p.m.
Telephone Allowance 5,000 p.m.
Travelling & Daily Allowance 10,000/day
(TADA)
School tuition fees of Mrs. Sharma 4,000 pm
children directly paid by INGO.

Other information:

i) Mrs. Sharma managed to deposit in retirement fund approved by

IRD operated by listed commercial bank in Kathmandu. She has
deposited 4,50,000 in the retirement fund within income year
20X1-X2.
ii) Mrs. Sharma contributed donation of Rs. 3,00,000 to tax exempt
organization.
iii) Mrs. Sharma had gone outstation for 25 days to monitor INGO
activities. TADA provided to Mrs. Sharma is only to pay cost of
foods & lodging charges. Mrs. Sharma could only submit bills of
Rs. 50,000 incurred by her for food and lodging charges.
iv) Life insurance premium paid by Mrs. Sharma Rs. 25,000.
v) Mrs. Sharma was sick and incurred medical expenses of Rs. 5,000
to hospital run by GON.
vi) TDS deducted & deposited by school for Mrs. Sharma salary &
benefits withdrawn by her up to Poush 20X1 was Rs. 63,388 and
INGO had deposited 1,00,000 within the end of Ashad 20X2.
vii) During the year, Mohini Sharma has opted single for tax
calculation.
 Required:
a. Calculate taxable income of Mrs. Sharma for the income year 20X1-
X2. [12 Marks]
b. Calculate tax liability [3 Marks]
c. Discuss the tax credit facility available to Mohini Sharma those have
Nepal Source income. [ 5 Marks]
d. During the year, Private company has deducted per month Rs. 10,516
as a salary TDS and Rs. 333 as Social Security Tax. Similarly, INGO
has deducted per month Rs. 34367 per month as Salary TDS and Rs.
333 as a Social Security Tax. How can Mohini Sharma can adjust TDS
if deducted by her employer more or less than actual calculated after
deduction of contribution to approved retirement fund, donation and
medical tax credit. Discuss with calculation. [5 Marks]
e. Does Mrs. Sharma require to file income tax return as per the
provision of Income Tax Act, 2058. [2 Marks]
f. Mohini Sharma is married and her husband does not have any
taxable income during the year. Will it be beneficial to Mohini
Sharma if she opted for couple status? [ 8 Marks]

5. Based on the financial statement of M/s ABC Sugars Industries and Sales
Ltd. for the financial year 20X1/X2. Calculate Taxable Income of M/s ABC
Sugars Industries and Sales Ltd., with considering the relevant provisions
of Income Tax Act, 2058 and Financial Act, 2076. [ 25 Marks]

Particular Note Amount (NPR.)

Sales 13 3,066,000,000
Less: Cost of Goods Sold 14 2,085,000,000
Gross Profit 981,000,000
Miscellaneous Income 15
Repair and maintenance 16
Selling and Distribution Expenses 17
Administrative expenses 18 120,000,000
Operating Profit 861,000,000
Interest Expenses 19 160,000,000
Depreciation Expenses 4
Profit Before Staffs Bonus 701,000,000
Provision for Staffs Bonus 63,727,273
Profit Before Tax 12 637,272,727
Provision for Income Tax 127,454,545
Net Profit for the period 509,818,182

Notes to annual financial statements of ABC Sugars Industries and Sales

Ltd. for financial year 2075/076

Note-13 Amount (NPR)

Sales
Sugar 2,637,000,000
Molasses 270,000,000
Low grade sugar 126,000,000
Sugar Cane 33,000,000
Total Sales 3,066,000,000

Note-18
Administrative expenses Amount (NPR)
Salary Allowances 80,000,000
Donations 8,000,000
Research and Development 20,000,000
Expenses
Deprecation other than Plant & 6,000,000
Factory Building
Office Expenses 6,000,000
Total 120,000,000
Note 14 Amount (NPR)
Cost of Goods Sold
Opening Stocks 264,000,000
Sugar 160,000,000
Molasses 24,000,000
Rectified Sprite 80,000,000
Raw Materials Purchased 1,260,000,000
Sugarcane 1,200,000,000
Fright for cane purchase 40,000,000
sugarcane center expenses 20,000,000
Production Expenses 561,000,000
Wages of Labor 374,000,000
Electricity 11,000,000
Repair and Maintenance Plant 44,000,000
Pollution control Expenses 11,000,000
Consumable Stores 33,000,000
Plant & Factory Building 88,000,000
Deprecation
Total 2,085,000,000

Additional Information for tax calculation:

The company has provided bonus provision in financial statement as per

Bonus Act, 2030.

Provision of income tax has provided in the financial statement at the rate
of 20% on Ashad end 2076

Interest expenses includes NPR. 12 crore loan given to directors without

charging interest. The company has taken loan 10% pa.

As per NAS 2 Inventory valuation of stock on 31/03/20X1 is NPR. 264

million, and as per Income Tax act is NPR. 240 million.

Sugar cane purchase includes;

 • Last year company has unable to purchase cane from farmer as
committed by the company and farmer has claimed compensation of
NPR. 90 lac and same has been paid by company.
• Sugar cane are purchased from local farmer and vendor, payment
generally made in bank deposit and account payee cheque but
company made cash payment of NPR. 21 lac to one of local vendor.
• Cane center expenses include, liquor expenses of NPR. 7 lacs
incurred for Labour and NPR. 30 lacs for staff refreshment expenses
through various vouchers less than NPR. 500 each with no
supporting bills.

Repair & maintenance expense includes plant improvement expenses.

Opening Written Down Value of assets:

Block A 1000 Lacs

Block B 180 lacs

Block C 240 Lcas

Block D 900 Lacs

The company has installed pollution control equipment for control the
pollutions.

Donation included the payment of NPR. 15 lacs to tax exempted entity and
rest paid to construction of public sport center with permission of Inland
Revenue Department.

Research and Development expenses included the NPR. 60 lacs is related to

the study to maximization of production of Sugar and Rest NPR.140 lacs is
incurred in study of mobile bank branch for the payment by the company
 in cane center & other payment center that’s banking payment available to
every center.

6. Shyam Bhandari has following transactions for the given year, calculate the
taxable income as per applicable provisions of Income Tax Act 2058. [10
Marks]

He has commercial complex at Anamnagar, with 110 shutters, which are

rented out for Rs. 22,500 per month, and tax is paid to concerned ward
office. The rent collection and complex management is done by his staff
Mr. Ramesh with monthly salary of Rs. 25,000. Repair of complex for the
year is Rs 324,000.

He has provided loan to Bhairabkunda Hydropower Rs. 450,00,000 for

interest of 15% p.a., and withholding tax is deposited by the company to
concerned tax office.

He has purchased 2 sports vehicles and rented out to ‘Ride Ventures Pvt.
Ltd.’ for per month rental of Rs. 35,000 each, the tax is deposited by the
company at concerned tax office.

Dividend received from listed companies is Rs. 425,000 and interest

received from Debentures of Siddhartha Bank Ltd is Rs. 95,000 during the
year.

The opening WDV of sports vehicles is Rs. 240,00,000 and repair of the
vehicles is Rs. 275,000 for the year.