The general rule of income taxes is that: (i) if you are an individual, you pay your taxes on the tax band basis on the taxable income, and (ii) if you are an entity for tax purposes, you pay your taxes on the basis of the flat rate applied to the taxable income.
However, if your income qualifies the certain criteria, then you will be required to pay taxes on presumptive basis, i.e. independent of the profit your business makes, but based on a certain percentage of the turnover or some flat amount.
Small Vendors Taxation - D1
Under Section 4(4), the income tax payable by a resident individual, who meets all of the following conditions, is required to pay small vendor taxation under Schedule 1(1)(7) of the Income Tax Act:
- Exclusive Business Income: The resident individual’s income for an income year consists exclusively of income from a business having a source in Nepal; and
- Medical and Advance Tax Credit are not claimed: The resident individual does not claim medical tax credit under Section 51 and advance tax credit under Section 93; and
- Income Threshold: Income of the business does not exceed Rs. 300,000; and
- Turnover Threshold: Turnover of the business does not exceed Rs. 3,000,000;
Under Schedule 1(1)(7), if the above criteria are met, then the taxes payable by the individual conducting such business in Metropolitan City or Sub-metropolitan City is Rs. 7500. Similarly, it is Rs. 4000 for Municipality and Rs. 2500 for other places.
Turnover Taxation - D2
Under Section 4(4Ka), the income tax payable by a resident individual, who meets all of the following conditions, is required to pay turnover taxation under Schedule 1(17) of the Income Tax Act:
- Exclusive Business Income: The resident individual’s income for an income year consists exclusively of income from a business having a source in Nepal; and
- Excluding Certain Professional Services: Income shall not be from consultancy and professional services like those provided by Doctor, Engineer, Auditor, Lawyer, Sports Player, Actor, Consultant and Specialist; and
- Income Threshold: Income of the business doesn’t exceed Rs. 1,000,000; and
- Turnover Threshold: Turnover of the business exceeds Rs. 3,000,000 but not exceeding Rs. 10,000,000;
If the above criteria are met, then the taxes payable by the individual conducting such business is the following on tax band basis:
Service Sector:
For turnover from Rs. 0 to Rs. 3,000,000 – Taxes as per Section 4(4)
For turnover from Rs. 3,000,000 to Rs. 10,000,000 – 2% of the turnover
Non Service Sector:
Transaction of goods with upto 3% commission or value addition (including gas and cigarette)
For turnover from Rs. 0 to Rs. 3,000,000 – Taxes as per Section 4(4)
For turnover from Rs. 3,000,000 to Rs. 5,000,000 – 0.25% of the turnover
For turnover from Rs. 5,000,000 to Rs. 10,000,000 – 0.3% of the turnover
Transaction of other goods
For turnover from Rs. 0 to Rs. 3,000,000 – Taxes as per Section 4(4)
For turnover from Rs. 3,000,000 to Rs. 5,000,000 – 1% of the turnover
For turnover from Rs. 5,000,000 to Rs. 10,000,000 – 0.8% of the turnover