Tax Incentives, Exemptions and Rebates for Industry

An investor asking whether Nepal will tax a project at 25 percent is asking the wrong question. The rate in Schedule 1 is a starting point, and section 11 of the Income Tax Act 2058 (2002) discounts it. The discount is often large enough to change the investment case on its own. A special industry established in a least-developed area is reported to get a 90 percent concession for ten years from the date it begins commercial operation. Against the 25 percent entity rate that is an effective 2.5 percent, and it expires on a date fixed at commencement.

Which statute grants relief

Three statutes get cited in the same breath and do different things.

The Income Tax Act 2058 is where the income tax relief lives, in section 11 as rewritten each year by the Finance Act. That is the operative instrument. A concession absent from section 11 as amended for the relevant year is not an income tax concession.

The Industrial Enterprises Act 2076 (2020) classifies industries, defines what a special industry and a national priority industry are, and grants non-tax facilities. Its role in income tax is to supply the classification that section 11 then attaches relief to. The Department of Industry issues the registration and the classification.

The Special Economic Zone Act 2073 (2016) creates a separate location-based regime with its own concession periods.

The usual failure is a project that qualifies for a label under the Industrial Enterprises Act without holding the registration or the commencement certificate the Inland Revenue Department asks for when the concession is claimed on the return.

Relief by category

The categories below come from a client briefing dated 20 July 2026 by Pradhan & Associates, rather than from the Department’s own notification, which we could not retrieve. Check each figure before relying on it.

Category	Reported relief for FY 2083/84
Special industry, general	20% concession
Special industry in a least-developed area	90% for 10 years from commercial operation
Special industry in an undeveloped area	80% for 10 years
Special industry in an underdeveloped area	70% for 10 years
Special industry in Karnali or Sudurpashchim employing 100+ Nepali citizens	Full exemption, 15 years
Special or tourism industry, investment over NPR 1 billion and 500+ employees	Full exemption 5 years, then 50% for 3 years
Industry relocated out of Kathmandu Valley	50% for the following 2 years
Export income of an entity	20% concession
IT industry in a designated technology park	75% concession
Income from export of IT services (software, BPO, cloud)	50%, reported to run to FY 2084/85
Micro enterprise	Full exemption, 7 years; 10 years where the entrepreneur is a woman
Start-up designated by the Department, turnover up to NPR 100 million	Full exemption, 5 years
Hydropower licensed within the statutory deadline	Full exemption 10 years, then 50% for 5 years
Storage or semi-storage hydropower, 40 MW or more, financial closure by the stated deadline	Full exemption 15 years, then 50% for 6 years
Industry in a Special Economic Zone, Himalayan or hill districts	Full exemption 10 years, then 50% for 3 years
Industry in a Special Economic Zone, other districts	Full exemption 5 years, then 50% for 3 years
Entity listed on a securities exchange, in production, tourism or hydropower	15% concession, no stated end date

Headcount relief runs alongside the categories rather than instead of them. For special, information technology, hotel and resort industries, the reported steps are 10 percent at 100 Nepali employees, 20 percent at 300, 25 percent at 500 and 30 percent at 1,000. A further 10 percent applies where at least a third of the workforce is made up of women, members of scheduled communities or persons with disabilities, and at least 100 Nepali citizens are employed through the year.

The IT concession change

Coverage of the FY 2083/84 budget described the IT concession as cut from 75 percent to 50 percent. That compresses two separate reliefs into one and gets the answer wrong for most companies.

The 75 percent concession attaches to a qualifying information technology industry established inside a designated technology, information technology or biotech park. It is location-based, and it survives.

The 50 percent concession attaches to income from exporting information technology services, including software development, business process outsourcing and cloud services. It is activity-based, available wherever the company sits, and reported to expire after FY 2084/85 (2027/28). A services exporter operating from ordinary commercial premises in Kathmandu falls into this second category. For that company the sunset date matters more than the percentage.

The budget also announced a full exemption on sweat equity received by information technology workers, shifting the taxing point on founder and employee equity from vesting to disposal. For a startup paying in equity because it cannot pay in cash, that changes the payroll arithmetic more than the headline rate does.

How concessions are lost

Relief in Nepal is conditional and continuing. Four failure patterns recur.

A concession tied to a headcount fails in any year the headcount is not maintained, and that year’s return is filed at the full rate. A concession tied to a location fails if operations migrate, including partial migration of the activity that generated the income. A concession running from “the date of commencement of commercial operation” needs that date evidenced; a company treating trial production as commencement can lose a year at the front and be assessed at the back. And where concessionary and non-concessionary activities run together, the income has to be segregated in the accounts from the start of the year. An allocation put together during an assessment carries little weight.

Outdated published guidance

The Department of Industry maintains a facilities and incentives page an investor would reasonably treat as authoritative. It was last updated on 1 Baisakh 2078 (April 2021). It states that corporate tax on non-tobacco industries “shall not exceed 20 percent of profit” and lists income tax rebates of 30, 25 and 20 percent for remote, undeveloped and underdeveloped zones. Those figures do not match the current Finance Act, and the zone rebates in particular fall far below what section 11 is now reported to give.

The customs and excise facilities on the same page are more durable, because they come from the Industrial Enterprises Act rather than the annual Finance Act. They include an 80 percent rebate on customs duty for manufacturing plant, excise rebates for industries in remote and undeveloped areas for ten years from commencement, bonded warehouse and passbook facilities for export-oriented industries against a bank guarantee, and duty drawback on raw materials by reference to quantities exported. Those are set out in customs duty, import procedure and landed cost and export incentives and LDC graduation.

Where a financial model turns on a concession, get the Inland Revenue Department’s section 11 notification for the year in question, and settle which year the concession clock starts before signing anything.

Sources

1. Client Briefing — Income Tax Rates 2083-84 (2026-27 AD)

   Pradhan & Associates · 20 July 2026 · Tier 6 — Professional or news source

   Supports: The categories, percentages and durations of section 11 concessions summarised in this article for FY 2083/84.

   Accessed 26 August 2026

2. आ.व.२०८३।०८४ लागिका लागि दफा ११ बमोजिमका छुट तथा सुविधाहरू (Exemptions and facilities under section 11 for FY 2083/84)

   Inland Revenue Department, Ministry of Finance · 22 Shrawan 2083 (August 2026) · Tier 2 — Official publication

   Supports: That the Department publishes a dedicated annual notification of section 11 concessions. The attachment itself could not be retrieved.

   Accessed 26 August 2026

3. Facilities and Incentives

   Department of Industry, Ministry of Industry, Commerce and Supplies · Last updated 1 Baisakh 2078 (April 2021) · Tier 2 — Official publication

   Supports: The customs, excise, bonded warehouse and duty drawback facilities described under the industrial enterprises regime, and the fact that the page is materially out of date on income tax figures.

   Accessed 26 August 2026

4. Nepal Budget 2083/84 — technology, IT and innovation provisions

   Techsansar · 29 May 2026 · Tier 6 — Professional or news source

   Supports: The budget announcement of a 50 percent income tax exemption on IT service export income and a 100 percent exemption on sweat equity received by IT workers.

   Accessed 26 August 2026

5. आर्थिक विधेयक, २०८३ (Finance Bill 2083), full text

   Government of Nepal, as published by the Nepal Law Commission · Presented 15 Jestha 2083 (29 May 2026); commencement 1 Shrawan 2083 (17 July 2026) · Tier 1 — Primary legal instrument

   Supports: The instrument and commencement date through which the FY 2083/84 concession list takes effect.

   Accessed 26 August 2026