By:Damodar lamsal

Remuneration Income (Income from Employment)

Concept of Employment or Remuneration
Employment is an agreement between an employee and an employer that the employee provides
certain services on the job and the employer provides remuneration. According to section 8, an
individual's remuneration for and income year should be taken as the individual remuneration
from employment. Section 2(aj) of the Act has given a definition that employment includes a past,
present or prospective employment. It can be said that remuneration means the income received
by any natural person in respect of any employment or service rendered by the person from the
employer in any income year.
In the global perspective, remuneration from employment is also known as salary. Black's Law
Dictionary defines salary as a reward or recompense for service performed. In a more limited
sense, salary is a fixed periodical compensation paid for service performed. In a more limited
sense, salary is a fixed periodical compensation paid for services rendered. Accordingly to
Butterworth's Business and Law Dictionary, "Salary is a fixed amount paid regularly to an
employee as remuneration for work done."

Essential Features of Remuneration

1. Relationship as employer and employee
2. Mode of payment.
3. Remuneration income and professional income
4. Income received from the employer
5. Income received from an associate of the employer
6. Income received from third party
7. The amount paid should be of regular nature

Some Basic Points for Consideration

There are some basic considerations while computing assessable income from employment.
These considerations may be as follows:
 Remuneration, Salary & wages are not conceptually different. But the remuneration income
and professional income are conceptually different.
 Salary may be received from more than one employer.
 Salary from a former employer, present employer & prospective employer is included in the
income from employment.
 Salary income must be real but not fictitious.
 Remuneration income is taxed on the receipt basis: Tax accounting of remuneration is cash
basis. Hence, it is obvious that advance salary and arrears of salary may be taxed in the year
of receipt apart from the current year's salary.
Taxable Income from Employment
The chargeable incomes under income from employment are specified in section 8 of income tax
Act. As per the Act, the following payments made to a natural person from the employer are
included while calculating the person's remuneration from an employment:
1. Payments of wages, salary, leave pay (including salary in lieu of leave and encashment of
accumulated home, sick etc. leave), overtime pay, fees, commissions, prizes, gifts (as per
market value in case of prize and gift is not in cash), bonuses, and other facilities i.e.
Dashain expenses, Tihar expenses, telephone facility, transportation facility etc.
2. Payments of any personal allowances including any cost of living, subsistence allowance,
rent allowance, entertainment allowance and transportation allowance.
3. Payments providing any discharge or reimbursement of costs by employer, incurred by the
individual or an associate of the individual. For example, reimbursement of medical
expenses, payment of life insurance premium and private trip expenses etc.
4. Payments for the restriction accept related to employment or agreement to any conditions
of the employment. For example: in case an employee receives Rs.5000 per month for not
working in other organization as per the agreement made on the request of the employer.
5. Payments for termination or loss of service or compulsory retirement. For example, amount
derived as golden hands shake scheme.
6. Contribution to retirement fund by employer.
7. Amounts required to be included in employment due to change in tax accounting.
In addition to above stated items of remuneration, the following types of perquisites are also
included in remuneration from employment of a person:
8. Transfer of the asset [27(a)]: In case of the transfer of the asset from employer to employee,
the market value of such asset is included in the employee's income. For example; if an
employer provides 100 liters of petrol as a fuel facility to an employee and market value of
petrol per liter is Rs.110, its total market value of Rs.11,000 should be included in the
employee's income from employment.
9. Vehicle for personal and official purpose and Rent-free accommodation for personal
purpose [27(b)]: Payments consisting of the following facilities determined in accordance
with the rules are included in the income of the employee:
a. Vehicle facility: Availability of vehicle wholly or partly for private purpose. However, such
amount will be limited only to 0.5 percent of annual salary. In case the facility is not
provided as fringe benefit but is paid as transportation allowance or paid certain amount
as transportation facility, such allowance or amount should be included in the employee's
income. It is noted that partly personal purpose also refers to the facility of vehicle
provided to go to office and to return to home from office. It is a common phenomenon
that any vehicle will not run without driver and fuel. Therefore, if once the above
perquisite is charged in the income of the employee, the payment or facility of driver and
fuel should not be included in the employee's income.
If vehicle facility is provided to other individuals other than employer, 1% of market value
of vehicle should be included in the income.
If the driver, fuel facility and maintenance are provided for employee's own vehicle used
for his personal purpose, the amount of driver's salary and amount of fuel are included in
the employee's income. In case of motor vehicle facility is provided for joint use by
employees, such facility should be included in each's employment income
b. House facility (including rent-free accommodation) for personal purpose: This amount is
limited to only 2 percent of the annual salary. But in case the facility is not provided as
 fringe benefit but is paid as house rent allowance or paid certain amount as residence
facility, such allowance or amount is included in the employee's income. If
accommodation facility to other individual other than employer, 25% of actual rent or 25%
of prevailing rent should be included in the income.
In case of the maintenance expenses is provided to employee's own house, the amount of
such payment is included in income of the employee.
10. Expenses incurred by employer for the provision of domestic assistants, food, household
utilities of the employee [27(c)]: The amount of expenses incurred by the employer for
provision of following facilities for the employee (but any contribution of the employee for
provision of such facilities is not included in income):
 Service of housekeeper, cook, chauffeur (driver), gardener or other domestic assistants;
 Any meal, refreshment or entertainment;
 Drinking water, electricity, telephone and like utilities in respect of employee's place of
resident.
11. Difference of actual interest and interest as pre market rate in case of a soft loan [27(d)]: In
case, the amount of interest on loan paid by the employee to the employer with a concession
rate, the difference amount of interest that is lower than the interest to be paid as per the
standard higher rate is included in the employee's income. for example, if a manager of a
bank has received a housing loan of Rs.10,00,000 to construct a house with a concession
interest rate of 6% instead of the standard interest rate of 15% for housing loan in the same
bank and he pays interest of Rs.60,000, the difference amount of Rs.90,000 with compared
to the interest of Rs.1,50,000 as per standard rate is added to income from employment.
12. Compensation received [31(a), 62 & 92]: In case, a person or an associate of a person
derives a compensation amount including a payment under insurance that compensates for
income from employment, it is included in the income from employment at the time the
compensation amount is derived. The compensation for an income that the person derived
or expected to derive from employment is included in such category. For example,
compensation to an employee from insurance company that was insured by employer on
termination from the job is included in the employee's income from employment. It is noted
that compensation or gain from the investment insurance from resident person is subject to
final withholding payments and is not included in the individual's income but the
compensation or gain form investment insurance from the non-resident person is included in
the individual's income.
 13. Personal expenses of employee directly paid by the employer [27(e)]: For the payment
other than stated above, the value of benefit of the payment made by the employer to a third
person instead of employee is included in the income of the employee. For example: School
fee of the children of the employee is directly paid by the employer to the school, life
insurance premium paid by the employer, etc.

Non- Taxable 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:
a. Amounts received by a person entitled to privileges under a bilateral or multilateral treaty
concluded by Nepal Government with any foreign country or international agency.
b. Amounts derived by a natural person from employment in the public service of the
government of a foreign country.
For application of this provision:
 The person must be a resident or non-resident solely by reason of employment.
 The amounts are to be payable from the public funds of the country.
c. Amounts derived from public fund of foreign country by a natural person who is not
citizen of Nepal as referred to in paragraph (b) or a member of the immediate family of
the person.
d. Amounts derived by an individual, who is not a citizen of Nepal citizen, from employment
at the Government of Nepal's service on term of a tax exemption.
e. Allowances paid by Nepal Government to elder citizens, widows or disabled individuals.
f. Amounts derived by way of gift, bequest, inheritance or scholarship except as required to
be included in calculating income from business, employment or investment.
g. Amounts received by an exempt organization by way of the following:
 Donation, gifts:
 Other contributions that directly relate to the exempt organization's function, whether
or not the contribution is made in return for consideration.
 Amount earned by Nepal Rastra Bank as per its objectives.
 Amount earned by Securities Board of Nepal as per its objectives.
h. Pension received by a Nepali citizen retired from the army or police service of a foreign
country. These amounts must be paid from the public fund of that country.
i. Income earned by Nepal Government and Provincial Government.
2. Final withholding payments [92]: Final withholding is also known as final tax. 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 and partnership firm.
 Rent of land or a building and associated fitting and fixtures having a source in Nepal,
and that is 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 unrecognized retirement fund.
 Payment of interest by a resident bank, financial institution, other entity-issuing
debenture, cooperative and company listed under prevailing Act that is sourced in Nepal
and not related to a person's business, paid to the natural person.
 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 or
unrecognized fund including all kind of retirement payment (excluding regular payment
of pension) .
  Meeting allowance, payment for part-time teaching.
 Payment of casual gain.
 Payment of returns by a Mutual Fund to a natural person.
3. Meals and refreshments on similar terms: Meals or refreshments provided in premises
operated by or on behalf of an employer to the employees that are available to all the
employees on similar terms [8.3 (b)].
4. Discharge or reimbursement of expenses used for employer's business purpose or
employer's admissible deductions from business or investment [8.3(c.1 & c.2)]: Any
discharge or reimbursement of costs incurred by the employee that serve the proper
business purposes of the employer or that are or would otherwise be deductible in
calculating the employer's income from any business or investment. For the detailed
analysis of chargeable and non-changeable income received as reimbursement of expenses
incurred by an employee, it should be identified whether or not the expense is deductible
expense from business or investment of the employer or is used for proper business of the
employer. To make clear idea about it, expenses of domestic or personal nature that are
expressly disallowed for deduction are clearly identified as mentioned in the clarification of
section 21 of the Act.
5. Payments of small amounts [8.3(d)] {6}: Payments of the prescribed small
amounts which (after taking into account the frequency with which the employer
makes similar payments) are so small as to make accounting for them
unreasonable or administratively impracticable. [8.3(d)] As per the rule 6, an
employer may make a payment of an amount not exceeding Rs.500 at a time as
the payment of small amount in this respect for a provision of tea, stationery,
gifts, reward, awards, emergency medical treatment or other similar expenses
approved by the Department. {6}

6. Special provision of exemption for retirement payment and leave pay {20.6 (a) & (b)}: The
following amounts, which are previously exempted from tax, are also exempted:
 The amounts accrued prior to the commencement of 'Income Tax Act 2058' (till
2058/12/18) to any natural person as principal, interest and bonus in consideration of
employee's and employer's contribution in Employees Provident Fund and Citizen
Investment Trust (Recognized Retirement Funds) are exempted. However, the interest
accrued on the same amount is taxed after that date as final withholding payment.
Similarly, the amount accrued till that date to an employee as gratuity and amount of
accumulated home and sick leave are also exempted. {20.6(a)}
 Medical expenses up to Rs.1,80,000 payable at the time of discharge or retirement to that
employee who was working on job at the commencement of the Act. {20.6(b)}

Allowable Reduction or Common Expenses

The amounts that are deductible while computing taxable income are as follows:
1. Retirement contribution to recognized retirement fund [63] {21}: A natural person may claim
to have the person's taxable income for an income year reduced by retirement contributions
made by the individual during the year to an approved (recognized) retirement fund. In this
respect, Employee Provident Fund and Citizen Investment Trust are approved as recognized
retirement funds (RRF). To deduct contribution to the fund, the person must be a beneficiary
of the fund. However, there is a limitation for the deduction of contribution to RRF. The
limitation is set as the Actual contribution, Rs.3,00,000 or 1/3rd of assessable income of the
person whichever is less.
Limit of contribution to approved retirement fund
 1/3 of total assessable income = ×××××
or, Actual contribution to ARF = ×××××
or, Maximum limit = 3,00,000
(Whichever is lower is allowable)
2. Donation to exempt organization [Sec. 12]: Donation given to an exempt organization,
approved by Inland Revenue Department (IRD), is allowed for reduction from taxable
income. Reductions allowed to an individual or an entity will not exceed Rs.1,00,000 or 5% of
adjusted taxable income. However, the Government of Nepal may prescribe, by publishing a
notice in the Nepal Gazette, as to allow full or partial deduction of the expense incurred for
special purpose at the time of assessing income. (Sec. 12)
Limit of donation
5% of adjusted taxable income = ×××××
or, Maximum limit = 1,00,000
or, Actual donation = ×××××
(Whichever is less is allowable)
Note: In this case, adjusted taxable income = assessable income – allowable ARF
Donation paid by a company for the protection and promotion of ancient, religious and
cultural heritage located in Nepal and for building public physical infrastructure for sports
are allowed for reduction with a pre-approval of Inland Revenue Department up to Rs.10
lakhs or 10% of assessable income or Actual, whichever is lowest. (Sec. 12 Ka)
Limit of donation
10% of assessable income =×××××
or, Maximum limit = 10,00,000
or, Actual donation = ×××××
(Whichever is less is allowable)
Note: This provision applicable only for company not for natural person.
Donation given to Prime Minister Disaster Relief Fund or Reconstruction Fund is fully
allowed for reduction.
Limit of donation
Fully allowable .

Exemptions
1. Statutory exemption limit: Statutory exemption limit of Rs.4,00,000 for individual (single) and
Rs.4,50,000 for couple is allowed to deduct while computing taxable income for the income
year 2076/077.
2. Remote area allowance as an additional exemption limit: Remote area allowance is
applicable to all natural persons as an exemption in addition to the statutory exemption limit
for income from employment, business or investment (i.e. Rs.50,000, 40,000, 30,000, 20,000
and 10,000 for A, B, C, D and E class respectively)].
3. Additional exemption for pension income: In case of pension income, an additional amount
of 25% of statutory exemption limit is allowed to deduct while computing taxable income of
an individual or a couple. It means that the extra exemption limit would be Rs.87,500 for an
individual (single) and Rs. 1,00,000 for a couple for the income year or Actual pension
whichever is less.
4. Life insurance premium: Income Tax Act, 2058 has provided the facility of exemption for the
life insurance premium Rs. 25, 000 per year or Actual amount, whichever is lower from the
taxable income to the natural person.
5. Additional Exemption for person with physical disability: 50% of statutory exemption limit is
deducted from taxable income for disable person.
 6. Foreign allowance: 75% of foreign allowance is to be deducted from taxable income for
Nepalese diplomats.
7. Health insurance premium: Income Tax Act, 2058 has provided the facility of exemption for
the health insurance premium paid to resident insurance company. Allowable limit is Rs.
20,000 per year or actual health insurance paid, whichever is lower.

Tax Credit
Tax credit is reduction of tax liability of a person after deriving all tax liability. In such case, tax is
computed forgetting credit but on paying credits is shrunken. Following tax credit items are
provided by Income Tax Act, 2058.
1. Medical tax credit [51 {17}]: If a resident natural person became ill, the treatment cost is
qualify for medical tax credit under Sec. 51. A resident natural person may claim a medical
tax credit for an income year for any approved medical costs paid by the person or through
others during the year in respect of the person. For this purpose, approved medical costs
mean medical costs approved as prescribed in Income Tax Rules, 2059 rule 17. Eligible
Medical Cost (EMC) is cost of treatments including fee paid to doctor, lab cost, dispensary
cost and other associate cost. In EMC, three costs are exception: one is cosmetic surgery
cost is not includable, next is, accidental injury cost if compensated else one and health
insurance premium.
The medical tax credit of a natural person for an income year is to be calculated by applying
the rate of 15% to the amount of approved medical costs for the year and adding it to the any
amount of medical tax credit carried forward from previous income year. The medical tax
credit claimed by the person for any income year shall not exceed the limit prescribed.
Income Tax Rules, 2059 has prescribed the limit in rule 17.3. According to this rule, the limit
for claim of medical tax credit is Rs.750.
In case the amount of calculated medical tax credit is greater than Rs.750 and in case the
natural person cannot use the medical tax credit by reason of lack of tax payable for the
year, the sum of any excess amount and unused amount due to lack of tax payable may be
carried forward and added to the medical tax credit amount for the next income year.
Allowable medical tax credit
15% of eligible/approved medical cost = ××××
or, Maximum limit = Rs. 750
(Whichever is lower)
Carry forward of medical tax credit: In case a resident person has Nepal tax obligation
and medical tax credit in the same year, latter s/he became non-resident and further
became resident. In such case, earlier unrelieved medical tax credit cannot enjoy for
tax. In the other hand, if resident natural person has medical tax credit but no taxable
income, it can be carry forward to next (or further next) income years through income
tax return.
2. Foreign tax credit [71] Amount of income tax paid in a foreign country is deductible as tax
credit from the tax liability of foreign source income. However, such amount does not
exceed the average rate income tax of Nepal. For this purpose, the average tax rate is
calculated as follow:
Tax liability before deduciting foreign income tax
Average tax rate = Taxable income of the person × 100

3. Women employment tax credit: If resident individual is a woman having remuneration

income only, she is entitled to a rebate of 10% on total tax liability.
 4. Tax deduct at source(TDS): Withholding tax is a tax automatically taken from income
received during the year. Other word withholding payment means the payments which are
subject to tax deduction at source. Withholding tax may be provisional or final. If provisional,
the amount withheld is credited against the taxpayer's final tax liability and adjusted
accordingly. The provisional withholding is also called tax credit, so it is deducted from tax
liability.
5. Advance tax paid: All advance tax paid by taxpayer is allowed to deduct from tax liability.
6. Excess tax paid in last year: Every taxpayer allowed deducting excess tax paid in last year
from current year tax liability.

Tax Rate
For income year 2076/77

For Individual For Couple Tax Rate

Up to Rs.4,00,000* Up to Rs.4,50,000* 1%
Next Rs.1,00,000 Next Rs.1,00,000 10%
Next Rs. 200,000 Next Rs. 200,000 20%
Next Rs.13,00,000 Next Rs.1250,000 30%
Balance Balance 36%

2. Tax rate of capital gain: The profit from the disposal of non-business chargeable asset
(capital gain) is taxed at the rate of 2.5% to 10 % percent. In case of a resident person,
capital gain is taxed as follow.
 Gain on sale of land and building with an ownership five year or more than five year and
less than ten year is taxed @ 2.5%
 Gain on sale of land and building with an ownership less than five year is taxed @ 5%.
 Gain on sale of share from listed company is taxed @ 5%.for 2074/75 and 7.5% for
2075/76
 Gain on sale of share from non-listed company is taxed @ 10%
4. A non-resident individual is taxed at 25% on taxable income with source in Nepal. Any
withholding payment made to a non-resident is treated as final.

Computation of Assessable Income from Employment of Mr/Mrs. …….

For the Current Assessment year
Particulars Total
Amount
Amount
(Chargeable Income):
Salary (including grades) and wages [8.2(a)] ................................................ xxx
Leave pay (salary in lieu of leave) [8.2(a)] ...................................................... xxx
Pay for overtime [8.2 (a)] ............................................................................... xxx
Fees [8.2(a)] .................................................................................................. xxx
Prizes and gifts related to employment (in case in kind as per market xxx
value) [8.2(a)] ................................................................................................
Bonus [8.2 (a)] .............................................................................................. xxx
Other facilities (Dashain bonus or Tihar bonus [8.2(a)])................................. xxx
Commission [8.2(b)] ...................................................................................... xxx
Dearness allowance [8.2(b)] ......................................................................... xxx
Subsistence (Living allowance) [8.2(b)] ......................................................... xxx
House Rent allowance [8.2(b)] ...................................................................... xxx
Entertainment and transportation allowances [8.2(b)] .................................. xxx
Other personal allowances (children education allowance) [8.2(b)] .............. xxx
Reimbursement for personal expenses [8.2(c)] ............................................. xxx
Payment for accepting any condition regarding employment [8.2(d)] ............ xxx
Payment for discharge, loss or termination of the employment [8.2(e)] ......... xxx
Other payments made in respect of employment [8.2(f)] ............................... xxx
Retirement payment and retirement contribution by employer [8.2(g)] ......... xxx
Amount related to vehicle facility (0.5% of salary) [27.1(b.1)] ........................ xxx
Amount related to provision of house or residence facility (2% of xxx
salary)[27.1(b.2)] ..........................................................................................
Amount related to housekeeper, driver, gardener or domestic assistants xxx
[27.1 (c.1 .......................................................................................................
Any meal refreshment or entertainment provided by employer [27.1(c.2)] .... xxx
Amount related to services related to drinking water, electricity, xxx
telephones and other utilities in respect of the employee [27.1 (c.3)] ............
Under payment of interest (Loan provided by employer) .............................. xxx
Amount to be included due to change in the accounting system ................... xxx
Assessable income from employment xxx
Income from investment................................................................................ xxx
Less: Expenses ............................................................................................. ( xxx)
Assessable income from investment ............................................................. xxx
Income from business/profession ................................................................. xxx
Less: Expenses ............................................................................................. (xxx)
Assessable income from business/profession xxx

Statement of Taxable Income

Particulars Amount Total Amount
Assessable Income from Employment ..................................................................... xxx
Assessable Income from Business/profession ......................................................... xxx
Assessable income from Investment ........................................................................ xxx
Total assessable income xxx
Less:Contributions to recognized retirement funds
(Employee Provident Fund and Citizen Investment Trust) @ 1/3 of assessable
income or Rs.3,00,000 or Actual whichever is less) ................................................. xxx xxx
Adjusted taxable income xxx
Less:Donation (5% of adjusted taxable income before donation or
Actual or 1,00,000 whichever is lower or as prescribed by Government) ................ xxx xxx
Taxable Income before exemptions xxx
Less: Remote area allowance from 10,000 to 50,000 ............................................... xxx
25% of exemption limit for pension income....................................................... xx
75% of foreign allowance ................................................................................. xxx
50% of exemption limit for disable person ........................................................ xxx
Life insurance premium (upto 25,000) .............................................................. xxx
Health insurance premium (upto 20,000) ......................................................... xxx (xxx)
Taxable Income after exemption xxx

Computation of Income Tax LiabilityFor income year 2075/76

First Rs.4,00,000 for individual or Rs.4,50,000 for couple..................................... 1%
Next Rs.1,00,000 ................................................................................................. 10%
Next Rs. 200,000 for individual and Rs. 200,000 for couple 20%
Next Rs.13,00000 for individuals and Rs 12,50,000 for couple ............................. 30%
Remaining amount .............................................................................................. 36%
Total tax liability xxx
Less: Medical Tax Credit ...................................................................................... xxx
Foreign Tax Credit............................................................................................... xxx
TDS Paid ............................................................................................................. xxx
Advance Tax Paid................................................................................................ xxx
Excess Tax Paid in previous year ........................................................................ xxx
Rebate for woman tax payer (10% of total tax liability) ......................................... xxx xxx
Tax Payable to Government xxx