Women Employment Tax Credit under ITA

What is the position of the law on Women Tax Credit?

Income derived by an individual is taxed on the basis of the applicable tax bandings based on their income. Schedule 1(1)(1) and Schedule 1(1)(1) of the Income Tax Act, 2058 provides the various slab of tax bandings applicable, based on which the tax payable by the individual is calculated. 

Regarding the women employment tax credit, Schedule 1(1)(11) of the Act provides that if a resident natural person is a woman earning only the employment income, 10% concession will be provided on the tax amount to be paid by the natural person. In Nepali Text, आयकर ऐन २०५८, अनुसूची १ को दफा(११) यस दफामा अन्यत्र जुनसुकै कुरा लेखिएको भए तापनि कुनै बासिन्दा प्राकृतिक व्यक्ति पारिश्रमिक आय मात्र आर्जन गर्ने महिला रहेछ भने त्यस्तो प्राकृतिक व्यक्तिले तिर्नुपर्ने कर रकममा दश प्रतिशत छुट हुनेछ ।

Opting Single Option or Couple Option

We have all heard this “opting couple option gives the taxpayer tax advantage”. How does this work? 
The basic exemption limit for an individual opting couple option is higher than the person opting single option. This gives an added tax advantage to the person opting couple option. This is because the tax rate applicable to the basic exemption limit is only 1% or even 0% where the taxpayer is a participant of Social Security Fund. 

So who can opt couple option?
Under Section 50 of the Act, a resident natural person and a resident spouse of the person may, by notice in writing, elect to be treated as a single individual for a particular income year. Further to this, the resident widower or widow taking care of dependents are also taken as couple for tax purposes. 

Para 17.6 of Income Tax Directive, ऐन अनुसार प्रत्येक प्राकृतिक व्यक्ति बेग्लै करदाताको रूपमा मानिन्छ । सामान्यतयाः कुनै प्राकृतिक व्यक्ति विवाहित भए पनि निजको छोरा, छोरी, बाबु, आमा सगोलमा नै भए पनि निज, निजको पति वा पत्नी, छोरा, छोरी, बाबु, आमा सबै बेग्लाबेग्लै व्यक्ति मानिन्छ । ऐनको दफा ५०(१) बमोजिम बासिन्दा प्राकृतिक व्यक्ति र सो व्यक्तिको बासिन्दा पति वा पत्नी दुवैले लिखित सूचना दिएर कुनै खास आय वर्षमा कर प्रयोजनको लागि एउटै प्राकृतिक व्यक्तिको रूपमा मानिने गरी छनौट गर्न सक्नेछन् । यसरी छनौट गर्ने दम्पतीमध्ये पति वा पत्नीले सो वर्षमा बुझाउनुपर्ने करको लागि एक अर्को प्रति संयुक्त रूपमा र छुट्टाछुट्टै रूपमा जिम्मेवार हुनेछन् । यसरी दम्पती हुन छनौट गरेको आय वर्षमा पति पत्नी दुवैको करयोग्य आय समावेश गरी आय कायम गर्नु पर्दछ । ऐनको दफा ५०(३) मा आश्रितलाई भरण पोषण गर्नुपर्ने बासिन्दा विधवा वा विधुरलाई दम्पती सरह मानिने व्यवस्था गरेको छ । 

Can married women avail WETC?

Under Annexure 1(1)(11) of Income Tax A t, 2058 (“ITA”) resident individual who is a woman earning income only as remuneration shall get ten percent exemption from the total payable taxes. Here, the condition for the 10% exemption is that (i) the individual is a resident woman and (ii) individual earns only employment income. 

As to, whether or not, a married woman opting Couple option is eligible for 10% exemption under Annexure 1(1)(11), as the conditions such exemption is met, such benefits can be availed. 

Similar interpretation has been provided in the decisions made by Revenue Tribunal in the case of: 
(i) Kathmandu Medical College Limited v/s Large Taxpayer’s Office (Decision# 20742075-06)
(ii) Mega Bank Nepal Limited v/s Large Taxpayer’s Office (Decision# 20742075-02) 
(iii) Sunrise Bank Limited v/s Large Taxpayer’s Office (Decision# 20742075-10)

Revenue Tribunal has stated that the benefit is clearly available under Schedule 1(1)(11) of ITA and limiting such benefits would counter the legislature’s intent to promote women entrepreneurship, growth, and including the ability to maintain self-reliance as a part of special constitutional recognition to women. As of the date, the particular decision of the Revenue Tribunal has not been challenged by the Tax Authorities. This is also a widely accepted market practice. 

There is one caveat though. The Income Tax Directive still disagrees with the decision provided by Revenue Tribunal above.
Para 17.12 of the Directive states that अनुसूची १ को दफा ११ मा उल्लेख भए बमोजिम निवृत्तभरण प्राप्त गर्ने व्यक्ति निवृत्तभरण आय मात्र प्राप्त गर्ने महिला भएमा निजलाई लाग्ने कर रकममा १० प्रतिशत छुट दिनुपर्छ । यो छुट सुविधा पछि महिलाले ऐनको दफा ५० बमोजिम दम्पतीले पाउने छुट सुविधा पाउने छैन । 

How to notify when you have opted the Couple Option?

Under Section50(1) of ITA both a resident individual and his/her resident husband or wife may opt the couple option by giving a notice in writing for the particular income year. 

Further, Para 11.2 of the Income Tax Directive 2066 (with third amendment 2077) provides that the action of filling in the applicable column for opting the “couple option” when filing Income Tax Return shall be treated as duly giving notice in writing.

As to the employees who are not required to file the Income Tax Returns under ITA, it is reasonable to assume that when the employee intimates to the employer regarding the choice of “couple option”, this will be construed as notifying to the authorities in writing. This may be relevant to the resident widower or widow taking care of the dependents who are also treated as opting couple option under Section 50 of ITA. 

Para 11.2 of the Income Tax Directive, ऐनको दफा ५० को व्यवस्था अनुसार दम्पती हुनलाई सामान्यतयाः निम्नानुसारको अवस्था भई छनौट गरेको हुनु पर्दछ ।
• पति पत्नी दुवै जना बासिन्दा व्यक्ति हुनु पर्दछ ।
• दम्पतीको रूपमा मानिने पति वा पत्नी दुवैले लिखित सूचना दिनु पर्दछ । तर आय विवरण फारममा छनौटबारे निर्दिष्ट महलमा जानकारी दिएमा सोही आधारमा छनौट गरेको मानिनेछ ।
•  छनौट एक आय वर्षका लागि मात्र हुन्छ ।
•  कर तिर्ने जिम्मेवारी पति र पत्नी दुवै जनाको संयुक्त र व्यक्तिगत रूपमा हुनेछ ।
• आश्रितलाई भरणपोषण गर्नुपर्ने बासिन्दा विधुर वा विधवाले पनि दम्पती सरह सुविधा दाबी गर्न सक्दछन्।

Filing of Income Tax Return after opting Couple Option

Section 97 read with Section 4(3) of the ITA allows certain employees an exemption from filing income tax return for the particular income year. All employees opting “Couple Option” may not be eligible to receive exemption under Section 97 (e.g. in cases of both working couples). In such case, the couples are liable to file the income tax return under Section 96 of the Act by consolidating the income earned by both.

How will the withholding under Section 87 work in Couple Option?

A common question that is always asked regarding the withholding on employment income is that, whether or not the employer is required to club and consider all the incomes derived by the individual for withholding the taxes on payment of employment income under Section 87. The answer is “No”. An employer can naturally only be expected to consider only the payments made by him for the purpose of computing the taxes to be withheld under Section 87. Similar interpretation should be drawn in the context of making payment to an individual opting couple option as well. So an employer is only responsible to consider the income paid by him to the employee to fulfill the withholding obligations under Section 87.