Chapter 12 - Income From Employment

Chapter 12- Income from Employment
Answer to Question No. 1- Page 127

a. Calculation of Tax Liability of Mr. Wooster (based on provisions for 2072/73)
Statement of Assessable Income from Employment
Section
Refer
Particulars
Reference
W. N.
Basic Salary
8.2
Uniform Allowance
8.2
1
Technical Allowance
8.2
1
Accommodation Facility
8.2/27/
2
Rule 13
Telephone facility
8.2/27
3
Vehicle Facility
8.2/27/
4
Rule 13
Compensation paid by current employer to previous
8.2
5
employer
Advance salary for Shrawan 2072 & Bhadra 2072
6
Leave pay
8.2
7
Value of accumulated leave provision
22
8
Tuition fee directly paid to Tuition center
8.2
5
Airfare of Mr. Wooster from USA to Nepal
8.2
5
Canteen bill paid by employer
8.2
5
Driver salary of vehicle provided by employer
9
Assessable Income from Employment
Amount
350,000
7,000
420,000
7,000
3,500
1,750
200,000
50,000
40,000
100,000
40,000
1,219,250
Statement of Total Assessable Income, Taxable Income & Balance Taxable Income
Section
Refer
Particulars
Amount
Reference
W. N.
Assessable Income from Business
10
1,219,250
Assessable Income from Investment
10
Assessable Income from Windfall Gain
10
Total Assessable Income
1,219,250
Less: Allowable Deductions from Total Assessable
11
Income to arrive at Taxable Income
Taxable Income
1,219,750
Less: Allowable Reductions from Taxable Income as
11
per Schedule 1 (1) of the Act
Balance Taxable Income
1,219,750
Statement of Tax Liability
Particulars
1st Rs. 250,000
Next Rs. 100,000
Balance Rs. 869,250
Tax Liability before Tax Credits
Rate
1%
15%
25%
Refer
W. N.
Amount
2,500
15,000
217,312.50
234,812.50
Less: Tax Credits

Tax Liability after Tax Credits
12
234,812.50
Conclusion:
The Withholding Tax as per Sec. 87, withheld by the employer of Rs. 265,000 is not correct.
Working Notes:
1. All types of allowance form part of assessable income from employment.
2. In case the employer provides accommodation facility, whether it is in owned building of employer
or the space occupied by employment under rental agreement, 2% of Khai paai aaeko talab shall
be included in income.
Income Tax Manual, 2066 (Updated 2068) interprets Khai Paai aaeko talab as sum of basic
salary and grade generated by the employee during the Income Year.
Therefore, amounts to be included in income = 2% of basic salary (as there is no information as
to the grade) = 2% of 350,000 = 7,000
(Please note that when employer pays rent, its the accommodation facility and is not construed
as rent allowance)
3. When employer provides facilities other than accommodation facility, vehicle facility, concessional
loan or remuneration in kind; the cost borne by the employer shall be included in income.
4. In case the employer provides vehicle facility, 0.5% of Khai paai aaeko talab shall be included in
income.
Therefore, amounts to be included in income = 0.5% of basic salary (as there is no information as
to the grade) = 0.5% of 350,000 = 1,750
5. It is reimbursement of personal expenses of the employee, which is included in income.
6. As per Sec. 22 of the Act, natural person must follow cash basis of accounting while calculating
income from employment; i.e. any income for prospective employment received in cash shall also
However, the general practice of employers is to avoid payment of salary in advance, rather they
provides advance against salary, which is loan to be settled against salary to be drawn in future.
In case the income is provided in advance, the amount shall be included in income whilst the
amount is not considered in case when it is loan against salary.
In this case, it is assumed that the amount is not advance income but loan against salary and
thus, not included in income.
Alternatively, in case when it is assumed that the amount is advance income; it must be included
in income as per basis of accounting.
7. Leave pay may be made during the tenure of employment or at the time of retirement. The
payment made during the tenure of employment (as in this case) is included in income, and the
payment at the time of retirement is final withholding and not included in income.
8. Natural person must follow cash basis of accounting, and thus any amount in relation to
employment received in cash is only included. Since, the amount is accrued amount and not
received in cash, hence, it is not included in income.
9. Since vehicle facility is provided, all incidental cost of the vehicle is deemed to be covered by the
amount so quantified in Note (4) above, and thus, the amount is not included in income.
10. In absence of information, it is assumed that there is no other income than the amounts disclosed
in question. Further, it is asked to check the WHT calculation by employer, as such, there is no
need to consider other income, if any.
11. In absence of information as to Mr. Woosters contribution to ARF, Donation to Exempt

organization, or Contribution to PM Relief Fund or National Reconstruction Fund of GON; and
other information, it is assumed that there is no reductions or deductions to arrive at taxable
income and balance taxable income.
12. In absence of information, it is assumed that there are no any tax credits
13. Assumed Individual Assessment.
b. As per Sec. 97 (1), unless IRD requires in writing or through public circular a resident natural person
satisfying all the conditions laid down in Sec. 4 (3) is relieved from submission of income return
unless the taxable income exceeds Rs. 40 lakhs as per Sec. 97 (2).
The conditions laid down in Sec. 4 (3) are as follows:
a. The person shall derive income only from employment having source in Nepal.
b. The employer shall be resident during the Income Year and the person shall have only one
employer at a time.
c. The person shall only claim the Contribution to Approved Retirement Fund paid by the employer
and Medical Tax Credit on medical expenditure incurred by the employer and the person shall not
claim Donation u/s 12 for deduction.
In this case, since Mr. Wooster is a resident natural person (satisfying 183 days test), having taxable
income not more than Rs. 40 Lakhs and satisfying all the above conditions, he is not required to
submit tax return and tax liability as calculated by employee as per the Act & rules is final.
c. Persons tax liability is determined by residential status and source of such income, and not by
Citizenship. Moreover, the taxability is determined by the law of land. Since Mr. Wooster is resident of
Nepal (satisfying 183 days test), he is required to pay tax on global income (as per Sec. 6) in Nepal.
Hence, his contention is not correct.
Even if he were nonresident of Nepal, as he is providing service within the territory of Nepal; the
income is having source in Nepal and as per Sec. 6, nonresident is required to pay tax in Nepal
Sourced Income. Hence he would not be exempted from payment of tax.
Calculation of Tax Liability of Mr. Ram Bahadur (based on provisions for 2072/73)
Section
Refer
Particulars
Reference
W. N.
Basic Salary
8.2
Metro Allowance
8.2
1
8.2/27/
2
Rule 13
Vehicle Facility
8.2/27/
3
Rule 13
Section
Refer
Particulars
Reference
W. N.
4
4
4
Amount
1,200,000
120,000
24,000
6,000
1,350,000
Amount
1,350,000
-

Less: Allowable Deductions from Total Assessable Income
to arrive at Taxable Income
Taxable Income
Less: Allowable Reductions from Taxable Income as per
Schedule 1 (1) of the Act
1,350,000
-
1,350,000
1,350,000

Particulars
1st Rs. 250,000
Next Rs. 100,000
Balance Rs. 1,000,000
Less: Tax Credits
Rate
Refer
W. N.
1%
15%
25%
6
Amount
2,500
15,000
250,000
267,500
267,500
Working Notes:
2. In case the employer provides accommodation facility, whether it is in owned building of employer
or the space occupied by employment under rental agreement, 2% of Khai paai aaeko talab shall
Therefore, amounts to be included in income = 2% of basic salary (as there is no information as
to the grade) = 2% of 1,200,000 = 24,000
(Please note that when employer pays rent, its the accommodation facility and is not construed
as rent allowance)
income.
Therefore, amounts to be included in income = 0.5% of basic salary (as there is no information as
to the grade) = 0.5% of 1,200,000 = 6,000
4. In absence of information, it is assumed that there is no other income than the amounts disclosed
in question.
5. In absence of information as to Mr. Ram Bahadur contribution to ARF, Donation to Exempt
organization, or Contribution to PM Relief Fund or National Reconstruction Fund of GON; and
other information, it is assumed that there is no reductions or deductions to arrive at taxable
income and balance taxable income.
7. Assumed Individual Assessment since it is not compulsory to elect couple even when he is
married.
Calculation of Tax Liability of Mr. Sailesh (based on provisions for 2072/73)

Particulars
Salary & Allowances
Dashain Allowance
Bonus
Employers Contribution to ARF
Pension Income from GON
Section
Reference
8.2
8.2
8.2
8.2
8.2
Refer
W. N.
1
1
2
3
Section
Refer
Particulars
Reference
W. N.
4
4
4
63, Rule 21
5
A. Contribution to ARF
12
6
B. Contribution to PM Relief Fund & National
Reconstruction Fund of GON
6
C. Donation u/s 12 (3)
6
D. Donation u/s 12 (1) & 12 (2)
Taxable Income
7
A. Reduction due to residence in remote area
B. Reduction of Foreign Allowance
8
C. Reduction of Pension Income
9
D. Reduction to an Incapacitated Person
10
E. Reduction for payment of Investment Insurance
Premium
F. Reduction for payment of Medical Insurance Premium
to Resident Insurance company
Amount
600,000
20,000
40,000
12,000
150,000
822,000
Amount
822,000
822,000
24,000
798,000
30,000
75,000
150,000
20,000
523,000

Particulars
1st Rs. 300,000
Next Rs. 100,000
Balance Rs. 123,000
Less: Tax Credits
Rate
Refer
W. N.
1%
15%
25%
11
Amount
3,000
15,000
30,750
48,750
-
48,750
Working Notes:
2. In absence of further information, it is assumed that the total contribution (from employer and
employee) during the year is Rs. 24,000. As per general practice, employers add 10% of basic salary
and deducts the same and deposit it to RF account maintained in the name of employee. As such,
out of total contribution 50% is employers contribution and hence, in this case Rs. 12,000 is assumed
to be contribution by employer.
3. Pension income is the amount received in connection to past employment, which is a part of
employment income and is included as per the Cash basis of accounting.
4. In absence of information, it is assumed that there is no other income than the amounts disclosed in
question.
5. Calculation of eligible amount of deduction for Contribution to ARF
As per Sec. 63 & Rule 21, Minimum of following three amounts is deductible for tax purpose:
a. Actual Contribution to ARF
24,000
(Total amount deposited across all ARF during the year in the
RF account of Natural person)
b. 1/3rd of Total Assessable Income
274,000
(in this case total assessable income is Rs. 822,000)
c. Rs. 300,000
The minimum of above three is Rs. 24,000; which is deductible
6. In absence of information as to the Donation to Exempt organization, or Contribution to PM Relief
Fund or National Reconstruction Fund of GON; it is assumed that there is no deductions to arrive at
taxable income.
7. He resides in Dailekh throughout the year. As per the classification by GON, Dailekh district falls
under Category C remote area where the allowable reduction is Rs. 30,000. (See page 70 of the
book for classification of areas)
8. Calculation of allowable reduction as a result of pension Income
The allowable reduction in case of pension income for a resident natural person is lower of following
two:
a. Actual pension Income
150,000
b. 25% of Basic Exemption Limit
75,000
(As he opted for couple assessment, the basic exemption limit is 300,000)
Allowable amount is Rs. 75,000
9. An incapacitated person is allowed a reduction of 50% of Basic Exemption Limit from taxable Income
before calculating tax liability. Since he opts for couple assessment, the eligible amount is 150,000
(50% of Rs. 300,000)
10. Calculation of allowable reduction against payment of Investment Insurance Premium
The allowable reduction in case of against payment of Investment Insurance Premium for a resident
natural person is lower of following two:
a. Actual payment
25,000
b. Maximum
20,000
Allowable amount is Rs. 20,000

Calculation of Tax Liability of Mr. Ramesh Karki (based on provisions for 2072/73)
Section
Refer
Particulars
Reference
W. N.
Salary for the year
8.2
Allowances
8.2
1
Employers Contribution to ARF
8.2
2
Accommodation facility
8.2
3
Section
Refer
Particulars
Reference
W. N.
4
4
4
63, Rule 21
5
12
6
6
D. Donation u/s 12 (1) & 12 (2)
6
Taxable Income
7
Premium
Amount
600,000
120,000
60,000
12,000
792,000
Amount
822,000
822,000
120,000
672,000
10,000
662,000

Particulars
1st Rs. 300,000
Next Rs. 100,000
Balance Rs. 262,000
Rate
1%
15%
25%
Refer
W. N.
Amount
3,000
15,000
65,5000

Less: Tax Credits
83,500
83,500
Working Notes:
Out of allowance of Rs. 170,000; Rs. 50,000 is paid for official purpose. As per Sec. 8 (3) any
reimbursements meeting the employers business objective is not required to be included in income.
As such, Rs. 50,000 is not included in income.
2. In absence of further information, it is assumed that the total contribution (from employer and
employee) during the year is Rs. 24,000. As per general practice, employers add 10% of basic salary
and deducts the same and deposit it to RF account maintained in the name of employee. As such,
out of total contribution 50% is employers contribution and hence, in this case Rs. 12,000 is assumed
to be contribution by employer.
3. In case the employer provides accommodation facility, whether it is in owned building of employer or
the space occupied by employment under rental agreement, 2% of Khai paai aaeko talab shall be
included in income.
Income Tax Manual, 2066 (Updated 2068) interprets Khai Paai aaeko talab as sum of basic salary
and grade generated by the employee during the Income Year.
Therefore, amounts to be included in income = 2% of basic salary (as there is no information as to the
grade) = 2% of 600,000 = 12,000
(Please note that when employer pays rent, its the accommodation facility and is not construed as
rent allowance)
question.
120,000
RF account of Natural person, i.e. employers contribution to
EPF Plus Rameshs contribution to CIT)
264,000
c. Rs. 300,000
Fund or National Reconstruction Fund of GON; it is assumed that there is no deductions to arrive at
taxable income.
7. He resides in Dhunche of Rasuwa district throughout the year. As per the classification by GON,
Dhunche of Rasuwa district falls under Category E remote area where the allowable reduction is Rs.
10,000. (See page 70 of the book for classification of areas)
9. Assumed Couple Assessment

Accommodation facility
In case the employer provides accommodation facility which is evidenced by:
a. Agreement between house owner and the employer or the owned building of employer, and
b. The withholding tax of the rental payments are withheld as per Sec. 88 by the employer, in case
of leased building
The amount to be included in the employees assessable income is guided by Sec. 27 of the Act; which
requires inclusion of accommodation facility in income and the quantification is directed by Rule 13 of
Income Tax Regulation, which is 2% of Khai Paai Aaeko talab.
There are debates in the interpretation on what constitutes Khai paai aaeko talab, however, the Income
Tax Manual issued by IRD has made it simple to describe Khai paai aaeko talab, which explains the sum
of basic salary and grade derived by an individual during the Income Year as Khai Paai aaeko talab.
In contrast, when the employer provides reimbursement of rental expenses of the employee; it is not
benefit attracting Sec. 27 of the Act, but the reimbursement of expenses of the employees which is to be
included in income as per Sec. 8 (2) of the Act. The key difference between these two are:
a. In facility, it is the employer responsible to deal with house owner, and to make the payment of
house rent where the employee is unconcerned about the rental expenses WHEREAS in
reimbursement, the dealing with the owner is done by the employee and the employer has no
concern about when and where the employee resides.
As such, in the given case:
a. 2% of Khai paai aaeko talab, i.e. 2% of 60,000 * 12 shall be included in Mr. Rabin Sharmas
Income as per Sec. 27 and Rule 13
b. Rs. 25,000 per month shall be included in Mr. Binod Shresthas income as per Sec. 8 (2) as
Payments providing any discharge or reimbursement of costs incurred by the individual
or an associate of the individual
Let the Gross pay from employer be X
In which case the balance taxable income become X-20000 (Perform the test to calculate BTI from Total
Assessable Income)
Since the net income is Rs. 5 Million, the taxable income of the individual exceed Rs. 25 Lakhs; and as
per question:
Gross Pay- Tax Liability = 5,000,000
Calculation of Tax Liability as we have gross pay of Rs. X
1st Rs. 300,000 (Couple)
1%
Next Rs. 100,000
15%
Next Rs. 2,100,000
25%
Balance Rs. (X-20,000-2500000)
35%
3,000
15,000
525,000
0.35X- 882,000
Total Tax Liability

Equating, Gross Pay Total Tax Liability = 5,000,000
X- (0.35X-339000)= 5000000
0.65X = 4661000
X= 7,170,770
Tax Liability= 2,170,770
0.35X-339000

Refer BOX in Page 120 of the book
In case of employment Income, the tax liability is 1% of Rs. 150,000.
The tax liability would be Zero if the income was from business or investment as the income falls within
the Basic Exemption Limit.
Sec. 8 (2) of the Act requires any benefit provided by the employer to employee to be included in the
income. Sec. 27 of the Act describes what benefits are to be included and method of quantification of
such benefits. In case of vehicle and accommodation facility, the quantification is prescribed in Rule 13 of
Income Tax Regulation; which requires inclusion of 0.5% of KHAI PAAI AAEKO TALAB in the employees
income when the facility is provided to employee (salaried individual) and 1% p.a. of Market Value of
Vehicle when the facility is provided to persons other than employee (self-employed person, consultant).
(See the difference of salaried individual and self employer individual in page 118 and 119 of the book)
Though the rule provides guidelines to quantify the amount, the Act and the rule has not defined what
constitutes KHAI PAAI AAEKO TALAB, and there is no consensus in academic discussions regarding
the same. But Income Tax Manual issued by IRD has made it simpler by interpreting Khai paai aaeko
talab as sum of basic salary and grade derived by the individual during the Income Year.
As explained above:
a. The amounts to be included in income of Mr. A (as employee of XYZ Co. Ltd.) is 0.5% of basic
salary and grade derived by him during the income year, which is 0.5% of (12 *
(150000+75000))= Rs. 13500
b. In case he is consultant and not the employee, the amount to be quantified as 1% of Market
Value of Vehicle which is 1% p.a. of Rs. 5,700,000. As the facility is to be provided for four
months, the amount is 4/12*57000= 19,000
Statement of Assessable Income from Employment of Mr. Yubaraj Thapa for 20X1/X2
In absence of other information as to Mr. Thapas income other than retirement payments; it is assumed
that retirement payments are the only income of Mr. Thapa for IY 20X1/X2.
As the payment is made from Approved Retirement fund and assuming all amounts accrued after the
implementation of the Act, the tax withheld by ARF at the time of payment u/s 88 of the Act is final as per
Sec. 95; which is Rs. Zero, as less than Rs. 500,000.
As per Sec. 97 (1) (b), person deriving income only from final withholding payments are not required to
submit income return for the year unless otherwise required by IRD in writing or through public circular.
Hence, as there is no specific information as IRDs demand of income return in the question and Mr.
Thapa has no any other income, he is not required to submit income return in that regard.
Calculation of Tax Liability of Mr. Thapa for 20X2/X3
Particulars
Pension Income
Dashain Allowance
Section
Reference
8.2
8.2
Refer
W. N.
1
2
Section
Reference
7.2
Refer
W. N.
3
Section
Reference
92/8.3
92/8.3
Refer
W. N.
4
4
Amount
252,000
21,000
263,000
Statement of Assessable Income from Business

Particulars
Consultancy Income
Amount
25,000
25,000
Statement of Assessable Income from Investment

Particulars
Interest Income
Dividend Income
Section
Refer
Particulars
Reference
W. N.
5
63, Rule 21
6
12
6
6
6
D. Donation u/s 12 (1) & 12 (2)
Taxable Income
7
Amount
-
Amount
25,000
263,000
288,000
288,000
B.
C.
D.
E.
Reduction of Foreign Allowance

Reduction of Pension Income
Reduction to an Incapacitated Person
Reduction for payment of Investment Insurance
Premium
7
7
288,000

Particulars
1st Rs. 250,000
Next Rs. 38,000
Less: Tax Credits
Rate
0%
15%
Refer
W. N.
8
Amount
2,500
5,700
8,200
8,200
Working Notes:
3. Assuming net profit is calculated as per Income Tax Law, the income from business is reported.
4. Dividend from resident company and interest received by natural person not related to business and
paid by resident banks in deposit is final withholding and thus, not included in income.
question.
Fund or National Reconstruction Fund of GON or Contribution to ARF; it is assumed that there are no
deductions to arrive at taxable income.
7. In absence of further information, it is assumed that there are no reductions as per Schedule 1 of the
Act.
8. Since there is no income from employment except pension income, there shall be no 1% SST
applicable on it.
Requirement for Submission of Income Return:
The return shall be filed u/s 96, none of the conditions in Sec. 97 (1) is satisfied in this case.
Calculation of Tax Liability of Mrs. Thapa for 20X2/X3
Particulars
Salary
Section
Reference
8.2
Refer
W. N.
Amount
120,000
120,000
Statement of Assessable Income from Business

Particulars
Business Income net of deductions
Service Fee
Section
Reference
7.2
7.2
Refer
W. N.
1
2
Section
Reference
92/8.3
Refer
W. N.
3
Amount
150,000
105,000
255,000
Statement of Assessable Income from Investment

Particulars
Rental Income
Section
Refer
Particulars
Reference
W. N.
4
63, Rule 21
5
12
5
5
5
D. Donation u/s 12 (1) & 12 (2)
Taxable Income
6
6
6
6
Premium
6
Amount
-
Amount
120,000
255,000
375,000
375,000
375,000

Particulars
1st Rs. 120,000
Rate
1%
Refer
W. N.
Amount
1,200
Rs. 130,000
Next Rs. 100,000
Balance Rs. 25,000
Less: Tax Credits
0%
15%
25%
7
15,000
6,250
22,450
22,450
Working Notes:
1. Assuming net profit is calculated as per Income Tax Law, the income from business is reported.
2. Setting question paper and checking answer sheets is service fee. Sec. 88 (4) of the Act exempts
withholding of tax on such amounts, which cannot be construed as exemption from the requirement of
tax payment. Assuming the questions are not set and answers are not checked for school, the
amount is to be included as per Sec. 7 (2) (a).
Had we assumed that the payment for setting question paper and checking answer sheets are made
by School employing her, the amount would have been included while calculating assessable income
from employment.
3. It is assumed that she is not involved in operation of rental business, as such, amount received as
rent for her house property not connected to business is final withholding and not included in income.
question.
Fund or National Reconstruction Fund of GON or Contribution to ARF; it is assumed that there are no
deductions to arrive at taxable income.
6. In absence of further information, it is assumed that there are no reductions as per Schedule 1 of the
Act.
Requirement for Submission of Income Return: The return shall be filed u/s 96, none of the conditions in
Sec. 97 (1) is satisfied in this case.
Particulars
Monthly Remuneration
Dashain Allowance
Education Allowance
Expenditure Allowance
Bonus
Remuneration from Shankar Dev Campus
Vehicle Facility
Drivers Remuneration
Petrol Expenditure for Vehicle
Repair expenses of vehicle
Section
Reference
8.2
8.2
8.2
8.2
8.2
8.2
8.2/27/
Rule 13
8.2/27/
Refer
W. N.
Amount
480,000
40,000
24,000
24,000
60,000
72,000
2,760
3
3
3
4
11,040
1
1
1
Telephone Facility
Security Guard Facility
Loan at Concessional Interest Rate
Leave Pay
Contribution of Employer in Retirement Fund Account of
Employee
Rule 13
8.2/27/8.3
8.2/27
8.2/27
8.2
8.2
5&6
6
7
8
9
12,000
36,000
30,000
46,000
55,200
893,000
Section
Refer
Particulars
Reference
W. N.
10
10
10
63, Rule 21
11
12
12
12
D. Donation u/s 12 (1) & 12 (2)
13
Taxable Income
14
Premium
Amount
893,000
893,000
297,667
29,767
565,566
20,000
545,566

Particulars
Rate
1st Rs. 300,000

Next Rs. 100,000
Balance Rs. 145,566
Less: Tax Credits
A. Female Tax Credit (not eligible)
1%
15%
25%
Refer
W. N.
Amount
3,000
15,000
36,392
54,392
-
B. Medical Tax Credit

C. Foreign Tax Credit (no Information)
51
15
750
53,642
Working Notes:
income.
Therefore, amounts to be included in income = 0.5% of basic salary (as there is no information as to
the grade) = 0.5% of 552,000 = 2,760
Nepalese income tax law is based on self assessment, and as the manual suggests inclusion of basic
salary and grade in determining Khai paai aaeko talab, all basic salaries drawn from all employers
during the year shall be considered to determine Khai paai aaeko talab; and as such the amount is
composed of Remuneration from Bank and Shankar Dev Campus.
Provision in Income Tax Manual:
Income Tax Manual, 2066 (Updated 2068) through its Example 17.14.4 (Pg. 344/336 in PDF
Version of the Manual) demonstrates that the quantification of the vehicle or accommodation facility
is based on the Basic Salary and Grade received from the employer providing such facility during
the income year. Which means:
Khai Paai aaeko talab= Rs. 480,000 (i.e. the basic salary- as there is no information as to gradederived from the bank, and excludes the salary derived from Shankar Dev Campus)
The answer may be different in this regard. Students are advised to follow Income Tax Manual
quoting the same in examination.
3. Since the vehicle is provided, all associated cost of vehicles are included as part of quantification as
per Sec. 27 and Rule 13 and hence ignored for tax calculation.
4. In case the employer provides accommodation facility, whether it is in owned building of employer or
the space occupied by employment under rental agreement, 2% of Khai paai aaeko talab shall be
included in income.
Therefore, amounts to be included in income = 2% of basic salary (as there is no information as to the
grade) = 2% of 552,000 = 11,040
(Please note that when employer pays rent, its the accommodation facility and is not construed as
rent allowance)
Nepalese income tax law is based on self assessment, and as the manual suggests inclusion of basic
salary and grade in determining Khai paai aaeko talab, all basic salaries drawn from all employers
during the year shall be considered to determine Khai paai aaeko talab; and as such the amount is
composed of Remuneration from Bank and Shankar Dev Campus.
5. Since out of total telephone expenses, 50% is for official purpose; and the reimbursement or
discharge serving proper business purpose of employer is not required to be included in income as
per Sec. 8 (3). As such, only 50% of discharge of telephone expenses is included in income.
6. In case of other facilities, the cost to be borne by employer shall be included in income.
7. Loan at Concessional Interest Rate:
8.
9.
10.
11.
When the employer provides loan at concessional interest rate, the amount of interest calculated by
using the rate derived from difference in market interest rate and charged interest rate on loan utilized
shall be included in income.
The Income Tax Act & Regulation has not defined market interest rate, and as such, the rate 0f 8%
charged by bank in similar loans to other customer is taken as market interest rate.
Amounts to be included = 3% (8%-5%) p.a. of Rs. 10 Lakhs = 30,000
In absence of other information, it is assumed that both the bank and Shankar Dev Campus has
made payment of leave.
Since the basis of accounting is cash and the amount is obtained during the tenure of employment;
the amount shall be included in income.
In absence of further information, it is assumed that the both the bank and Shankar Dev Campus
makes contribution to ARF, as such the amount to be included is 10% of 552,000, i.e. 55,200.
In absence of information, it is assumed that there is no other income than the amounts disclosed in
question.
Calculation of eligible amount of deduction for Contribution to ARF
350,400
RF account of Natural person; i.e. 55200*2+ 240000)
297,667
c. Rs. 300,000
12. In absence of information as to the Contribution to PM Relief Fund or National Reconstruction Fund
of GON; it is assumed that there are no deductions to arrive at taxable income.
13. Donation to Exempt Organization:
As per Sec. 12 (1) and 12 (2), Minimum of following three amounts is deductible for tax purpose:
a. Actual Donation or Gift to Exempt Organization
6,000
b. 5% of Adjusted Taxable Income
29,767
(ATI= 893,000-297,667): 5% of 595,333
c. Max. Rs. 100,000
100,000
14. Since it is couple assessment, insurance premium paid for both the spouses is eligible to be
considered for actual payment.
The minimum of the following two is deductible:
a. Actual
33,000
b. Max.
20,000
15. Eligible Amount of Medical tax Credit:
Minimum of the following three amounts can be claimed as tax credit:
a. 15% of Approved Medical Expenditure
b. Max.
Requirement of Submission of Tax return:
3,000
750
As per Sec. 97 (1), the following persons are exempted from submission of tax return:
a. a person who has no income tax payable for the year under section 3 (a)
b. a person who derives income exclusively from Final Withholding Payments (discussed in Chapter
8) during the Income Year,
c. A Resident Natural Person satisfying all the following conditions:
The persons income for the year consists exclusively of income from any employment
having a source in Nepal
The person has only one employment at a time during the year, even if the employment
changes during the year, and each employment is by a resident employer; and
The person does not claim the following for the Income Year:
i. a medical tax credit under section 51, other than with respect to medical tax credit paid
through the employer
ii. a reduction in taxable income under section 63 (Contribution to Approved Retirement
Fund), other than with respect to retirement contributions paid through the employer
iii. a deduction from Assessable under Sec. 12 (Donation)
d. In case a person who pays tax on income generated from operation of vehicles as per Sec. 1 (13)
of Schedule 1 happens to be a natural person (The matter of vehicle tax is discussed in Chapter
in 4)
Since the person does not satisfy any of the above conditions, he is not exempted from submission of
Income Tax Return.
Particulars
Salary
House Rent Allowance
Other Allowance
Employee
Pension from GON
Vehicle Facility
Section
Reference
8.2
8.2
8.2
8.2
Refer
W. N.
1
1
3,600,000
240,000
120,000
360,000
8.2
8.2/27/
Rule 13
2
3
144,000
18,000
Section
Refer
Particulars
Reference
W. N.
4
4
4
Amount
4,482,000
Amount
4,482,000
4,482,000
D. Donation u/s 12 (1) & 12 (2)
Taxable Income
Premium
63, Rule 21
12
5
6
300,000
-
6
6
4,182,000
8
8
7
8
75,000
-
4,107,000

Particulars
1st Rs. 300,000
Next Rs. 100,000
Next Rs. 2,100,000
Balance Rs. 1,607,000
Tax Liability
Rate
1%
15%
25%
35%
Refer
W. N.
Amount
3,000
15,000
525,000
401,750
944,750
Working Notes:
income.
Therefore, amounts to be included in income = 0.5% of basic salary (as there is no information as to
the grade) = 0.5% of 3,600,000 = 18,000
question.
d. Actual Contribution to ARF
720,000
RF account of Natural person; i.e. 360,000*2)
e. 1/3rd of Total Assessable Income
1,494,000
(in this case total assessable income is Rs. 4,482,000)
f.
Rs. 300,000

of GON or donation u/s 12 of the Act; it is assumed that there are no deductions to arrive at taxable
income.
7. Eligible reductions due to Pension Income
The MINIMUM of following TWO is eligible for reductions from taxable income:
a. 25% of Basic Exemption Limit
75,000
(Basic Exemption Limit is 300,000 as its couple assessment)
b. Actual Pension Income
144,000
8. In absence of information, it is assumed that there is no any other reduction from taxable income as
per Schedule 1 of the Act.
Particulars
Salary
Traveling Allowance
Employee
Dividend Income from Surya Moon Corporation
Prize on National 1KM Race Competition
Section
Reference
8.2
8.2
8.2
Refer
W. N.
8.3
8.3/88A
3
4
1
2
Section
Refer
Particulars
Reference
W. N.
5
5
5
63, Rule 21
6
12
7
7
7
D. Donation u/s 12 (1) & 12 (2)
Taxable Income
9
9
Amount
480,000
48,000
48,000
576,000
Amount
576,000
576,000
96,000
480,000

Premium
9
9
15,000
465,000

Particulars
Rate
1st Rs. 300,000

Next Rs. 100,000
Balance Rs. 65,000
Tax Liability
1%
15%
25%
Refer
W. N.
Amount
3,000
15,000
16,250
34,250
Working Notes:
1.1. Traveling Allowance related to official travel is exempted from inclusion u/s 8 (3) of the Act, and not
the traveling allowance related to his personal travel. Thus, the allowance for office to home and back
is included in income.
2. Since the question contains additional information as to Mr. Sinhas additional contribution to ARF,
the amount given in the question is deemed to be the Employers contribution.
3. It is assumed that Surya Moon Corporation is resident company, which implies the dividend received
to be final withholding and thus, not included in income.
4. Open competitions are open to all and not related to employment. When a person competes in open
competition, the amount received from victory of such competition cannot be linked to employment,
business or investment income and is related to windfall gain. As such, the organizers are required to
withhold tax at 25% on prize money as per Sec. 88A and as per Sec. 92, such amounts are final
withholding.
question.
96,000
RF account of Natural person; i.e. 48,000*2)
192,000
c. Rs. 300,000
of GON or donation u/s 12 of the Act; it is assumed that there are no deductions to arrive at taxable
income.
8. Eligible reductions in relation to payment of investment insurance premium
The MINIMUM of following TWO is eligible for reductions from taxable income:
a. Actual Payment
15,000
b. Maximum
20,000
9. In absence of information, it is assumed that there is no any other reduction from taxable income as
per Schedule 1 of the Act.
Refer Page 122 to 125 of the book

Chapter 12 - Income From Employment

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Chapter 12- Income from Employment

Answer to Question No. 1- Page 127