How salary tax is calculated in Nepal
Your employer deducts tax from your salary every month as TDS (tax deducted at source). This guide walks through the same calculation for FY 2083/84, using one employee as a running example: Rs. 60,000 basic salary and Rs. 40,000 allowances a month, a Rs. 60,000 Dashain bonus, EPF membership and a Rs. 25,000 life insurance policy.
Step 1: Add up assessable income
Assessable employment income includes basic salary, allowances, bonuses and other taxable benefits. Your employer's contribution to SSF (20% of basic salary) or EPF (10%) is also a taxable benefit, even though you do not receive it in cash.
Example
Cash pay Rs. 12,60,000 + employer EPF Rs. 72,000 = Rs. 13,32,000
Step 2: Subtract allowed deductions
Retirement contributions to SSF, EPF and CIT, yours and your employer's combined, are deductible up to the lower of Rs. 5,00,000 or one third of assessable income. Insurance premiums have their own limits: life insurance up to Rs. 40,000, health insurance up to Rs. 20,000, and private building insurance up to Rs. 10,000. Employees posted in designated remote areas get a further fixed deduction.
Example
Retirement: Rs. 1,44,000 (within the Rs. 4,44,000 limit, one third of Rs. 13,32,000)
Life insurance: Rs. 25,000
Taxable income: Rs. 13,32,000 − Rs. 1,69,000 = Rs. 11,63,000
Step 3: Apply the tax slabs
Taxable income is split across the FY 2083/84 tax slabs, and each portion is taxed at its own rate. The 1% on the first slab is Social Security Tax, which SSF members do not pay. This employee is in EPF, so it applies.
Example
Up to Rs. 10,00,000: Rs. 10,00,000 × 1% = Rs. 10,000
Rs. 10,00,000 – Rs. 15,00,000: Rs. 1,63,000 × 10% = Rs. 16,300
Tax before credits: Rs. 26,300
Step 4: Subtract tax credits
Credits reduce tax itself rather than taxable income. The medical tax credit is 15% of approved medical expenses, up to Rs. 750 a year. A 10% rebate has historically applied to women with only employment income, but its status for FY 2083/84 is unconfirmed, so check with your employer before relying on it.
Step 5: Spread the tax over 12 months
Your employer usually deducts the annual tax evenly across the year as monthly TDS. If your salary changes during the year, the remaining months are adjusted.
Example
Rs. 26,300 ÷ 12 = Rs. 2,192 TDS per month
Step 6: Work out in-hand salary
Your in-hand salary in a regular month is your monthly basic salary and allowances, minus your own retirement contribution, any CIT deducted from pay, and that month's TDS. The Dashain bonus is paid on top in the month you receive it. Insurance premiums you pay yourself reduce tax but not your payslip.
Example
Rs. 1,00,000 − EPF Rs. 6,000 − TDS Rs. 2,192 = Rs. 91,808 in a regular month
Rs. 91,808 + bonus Rs. 60,000 = Rs. 1,51,808 in the Dashain month
This assumes TDS is spread evenly over the year. Some employers instead deduct the tax on the bonus in the month it is paid, which lowers the Dashain month and raises the other months slightly.