1.      Income from Digital or online Services carried by person residing outside Nepal to be taxed in Nepal as Income of Resident

The Finance Act of 2024 introduced a new provision in section 2(ka)(da)(5) to encompass individuals residing outside of Nepal who possess a substantial digital presence in Nepal or engage in transactions related to data or services in Nepal from a server located outside of Nepal for a minimum of ninety days within the previous twelve months. As a result, these individuals will be subject to taxation as resident persons on the income generated from such activities.

2.      Capitalization of profit on capacity enhancement by Information Technology Industry exempted from Dividend Tax.

The Finance Act of 2024 includes a new provision, section 11(tha), which exempts dividend tax on profit capitalization related to capacity enhancement in information technology industries like Technology park, IT park, Bio tech park, Software development, statistical processing, digital mapping, business process outsourcing, data mining, and cloud computing.

3.      Remuneration exceeding Rs25,000 not paid through bank to be disallowed in Expense.

A new provision has been added in section 21(2) prohibiting remuneration exceeding Rs25,000 from being allowed as expenses if not done through a bank.

4.      Method of valuation of transfer pricing between related parties to be determined by IRD

The Finance Act of 2024 has inserted section 33(3) stating that the valuation method for transfer pricing on transactions involving related parties will be as determined by the department (IRD).

5.      Increase in Capital by bringing new shareholder or partner not affect change in control

The Finance Act of 2024 in Nepal has made an amendment to the Income Tax Act, specifically in Section 57, which now excludes the increase in capital resulting from the addition of new shareholders or partners in startup, venture capital, and private equity funds from being considered a change in control. According to Section 57(1) of the Income Tax Act, if there is a change in ownership of an entity by fifty percent or more within a three-year period, the entity will be treated as having disposed of its assets and liabilities. Consequently, tax on the disposal of assets and liabilities will be levied on the variance between the Market Value and the Book Value of the Assets and Liabilities.

6.      Contributory Retirement Fund Defined

The Finance Act of 2024 has eliminated the description in section 65(1) and instead introduced the definition of contribution-based retirement payment through the addition of section 2(tra)(1). According to this definition, contribution-based retirement payment refers to the monthly salary deductions, employer contributions, and investment returns that are deposited in an approved retirement fund.

7.      Advance ruling made mandatory

An amendment to the Income Tax Act, section 76(6), now requires the Inland Revenue Department to strictly adhere to the advance ruling provided under section 76(1) unless it is revoked or overturned.

8.      Department may require to issue invoice by Electronic medium and linking to CBMS

The inclusion of subsections 5 and 6 in section 81 of the Income Tax Act grants the department the authority to require a taxpayer to generate electronic invoices and link the electronic platform to the Central Invoice Monitoring System (CBMS) through a formal notice.

The department is tasked with creating and enforcing a procedure to ensure the security and reliability of software or equipment used for electronic invoicing.

9.      Proceeds of business transactions prohibited to be deposited in personal account

It is now prohibited for individuals to deposit or receive any amount of money received against business transactions in their personal accounts through cash, cheques, QR codes, or any other electronic means.

If there is evidence of breaching Section 81 ka (depositing business funds into personal account), a penalty of Rs. 5,000 per instance or 2 percent of the total sum will be charged, depending on which amount is higher (section 119 ka).

10.    Rate of withholding tax on interest decreased

The TDS rate on interest payment by banks and financial institutions for loans from foreign banks and other financial institutions for investment in sectors prescribed by NRB has been decreased to 5% from 10%.

11.    Prize money to be taxed only if exceeds 2.5 million

The prize money will be taxed as windfall gains only if it exceeds Rs 2.5 million. Section 88 ka(2).

12.    Advance tax on income from disposal of nonbusiness taxable assets not required

Now there is no need to pay an installment of Advance Tax for the income from the disposal of non-business taxable assets as per section 95 ka. (Section 94 ka(2))

13.    Department may require to deposit advance tax

If the Department is certain that the individual responsible for collecting and depositing advance tax under section 95 ka has failed to collect, deposit, short deposit, or deposit within the specified time frame, the Department may instruct them to deposit the amount that was not deposited or short deposited, along with interest under section 119 and fees for advance tax not collected under section 120. A written notice must be issued, allowing the individual to provide clarification within 15 days. (Section 95ka(15))

14.    Tax on unidentified source of assets

Upon receipt of a letter by the Department regarding tax assessment of assets with unidentified sources belonging to an individual under section 28 of the Assets (Money) Laundering Prevention Act, 2064, an investigation may be initiated to determine if any tax-related crime has been committed.

If the investigation does not reveal any tax-related crime, the tax will be collected at the maximum rate applicable for that particular year.

The Department has the authority to conduct thorough investigations in order to ensure compliance with tax laws and prevent any potential tax evasion.

15.    Use of software allowing deletion or alteration prohibited. Section 119 ka

Taxpayers who have or have not received permission under section 81 subsection 4 for issuing electronic invoices, and have used software capable of deleting or amending data, will be charged a fee of Rs. 5 lakhs.

Individuals involved in manufacturing, installing, or operating software or equipment for electronic invoices under section subsection 4, who do not adhere to the procedures issued by the department, will be charged a fee of Rs. 5 lakhs.

16.    Waiver of fine and penalty to nonregistered tax payer

Individuals with taxable income from the previous period who do not have a PAN can obtain one and submit their income statement for the fiscal years 2078/79 and 2079/80 by the end of Falgun (13 Feb 2025) in 2081 to have applicable fees and interest waived.

Those who comply with the above requirements will not be required to submit tax returns, pay taxes, fees, or interest for previous years.

It is important for individuals to ensure they obtain a PAN and submit their income statements within the specified timeframe to benefit from the waiver of fees and interest.

17.    Waiver of fine and penalty to registered tax payer

Individuals with a PAN must submit their tax returns, along with any applicable taxes and 25% interest, by the end of Falgun 2081 (13 Feb 2025).

If the tax returns are submitted by the specified deadline, any applicable fees and remaining interest will be waived. It is mandatory for individuals with a PAN to comply with the tax return submission and payment requirements by the end of Falgun 2081 (13 Feb 2025).