Withholding Tax: Rates, Obligations and Final Withholding

Withholding is the part of Nepali tax that punishes the wrong party. The recipient of a payment usually knows what it is owed. The payer has to characterise the payment, find the right rate, deduct it, deposit it and report it — and the payer is who an under-deduction is recovered from years later, with interest. A finance function treating withholding as the payee’s problem has already made the mistake.

Where the obligation comes from

The Income Tax Act 2058 (2002) splits the withholding obligation across three charging sections. The split matters, because how a payment is characterised decides which section applies.

Section 87 covers payments of remuneration by an employer. The deduction follows the natural-person schedule for the year, which for FY 2083/84 (2026/27) runs 1 percent on the first band, then 10, 20 and 27 percent, with an additional 2 percentage points on income above NPR 4 million.

Section 88 covers payments of investment returns and service fees: interest, natural resource payments, rent, royalty, service charges, commission and similar sums.

Section 89 covers payments under a contract or agreement, which is the section that catches ordinary supplier and works payments above a threshold amount.

Section 90 is the machinery. The withholding agent files a statement and deposits what it has withheld on a periodic cycle. We do not state the current deadline, because we could not verify it against the amended statute. A wrong filing date is worse than no date at all.

Section 92 is the one that changes the economics.

Who is a withholding agent

There is no separate registration. The obligation attaches to the act of making a payment of a described kind, so a newly incorporated company with one employee and one landlord is a withholding agent in its first month, before it has filed anything. Branches and project offices of foreign companies stand in the same position on their Nepali payroll and their local suppliers.

The obligation also survives the commercial relationship. Where a company disputes an invoice, withholds payment and settles months later at a reduced figure, the deduction falls due on what is actually paid, when it is paid. The earlier accrual creates no credit. Where a company pays in kind, or settles a supplier’s liability directly with a third party, the payment has still been made for withholding purposes even though no cash left the supplier ledger.

Recovery runs against the agent. Where tax that should have been withheld was not, the Department looks to the payer, and the payer’s remedy against the payee is contractual and may not exist. That is why the withholding clause in a Nepali supply or services contract deserves proper drafting. It decides who bears an assessment landing two years after the work was delivered.

Final or creditable

A creditable withholding is an instalment. The recipient includes the gross amount in its taxable income, claims the withheld tax as a credit against its final liability, and files a return. A final withholding under section 92 discharges the liability outright. The income never enters the recipient’s assessable income, nothing further is payable, and in many cases nothing has to be filed.

The payments a chartered accountancy handbook for FY 2083/84 lists as final withholding include dividends paid by a resident company, rent on land and buildings paid to a natural person, gains on investment insurance, retirement payments, and payments to non-resident persons under sections 87 to 89.

Three consequences follow, and between them they make the distinction worth more than the rate.

For a shareholder, a final dividend withholding means the corporate rate plus the dividend deduction is the whole story, and the arithmetic against extracting profit as salary fits on an envelope. For a non-resident supplier, the deduction on a service fee ends the matter in Nepal. That is administratively simple and often more expensive than a net-basis computation, because it applies to gross receipts with no deduction for the supplier’s own costs. For the payer, a final withholding carries no downstream reconciliation risk and total exposure at the point of payment, because no later return exists in which the recipient could correct the error.

Advance tax at settlement

Section 95Ka works differently again. It collects at the point a transaction settles rather than by deduction from a payment, and it applies to disposals rather than to income streams.

From 1 Shrawan 2083 (17 July 2026), the reported rates on disposals of listed shares are 7.5 percent where the shares were held for more than 365 days and 10 percent where they were held for 365 days or fewer, collected in the settlement process. On land and buildings the reported rates are 7.5 percent where the property was held for five years or more and 10 percent where it was held for less, with 2.5 percent on acquisition by government. The share gain was also declared a final tax from FY 2083/84, taking it out of the seller’s personal income computation. Capital gains tax sets out the mechanics and the exceptions.

Why there is no rate table

One document is authoritative for FY 2083/84 withholding rates: the Inland Revenue Department’s notification “आ.व.२०८३।०८४ लागि भुक्तानीमा कर कट्टी दर”, dated 22 Shrawan 2083, published on the Department’s own site. The Department serves it as a file attachment. We located the page and could not retrieve the attachment. Every English-language rate table we found for FY 2083/84 was either a professional firm’s own compilation or an unsourced reproduction of one.

Publishing a withholding rate table a payer might act on, sourced from a compilation we cannot check, would be worse than publishing none. Rates here change every year, move half a percentage point at a time, and turn on distinctions such as whether the payee holds a VAT registration, whether a service comes from a registered firm or an individual, and whether a contract payment crosses a threshold in aggregate rather than singly. Those distinctions do not survive summarisation.

The route for a payer is short. Get the notification for the fiscal year the payment falls in, in the original, from the Department. Settle which of sections 87 to 89 applies before looking for a percentage, because the same money can be a service fee or a contract payment depending on how the arrangement is documented. Check whether section 92 makes the deduction final. And keep the aggregation position on contract payments under review through the year, because a series of small payments to one supplier can cross a threshold no single invoice would have crossed.

The two costliest errors

The first is characterisation. A payment documented as a reimbursement, a cost-share or an expense recovery is still a payment for something, and the Department looks at what was supplied rather than at what the debit note calls it. Intragroup arrangements are where this bites, because the invoice is usually drafted for group accounting rather than for Nepali tax.

The second is the non-resident payment made without deduction on an assumption that a treaty applies. A double taxation treaty may reduce or eliminate the Nepali charge. The relief has to be claimed, and until it is, the payer’s obligation to deduct stands. Pay gross first and document the treaty position afterwards and the payer holds the liability. Nepal’s double taxation treaties and how relief is claimed covers the procedure.

Sources

1. आ.व.२०८३।०८४ लागि भुक्तानीमा कर कट्टी दर (Tax withholding rates on payments for FY 2083/84)

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

   Supports: The existence, issuer and date of the authoritative FY 2083/84 withholding rate notification. The attached rate table could not be retrieved and is not reproduced.

   Accessed 26 August 2026

2. आयकर ऐन, २०५८ (आर्थिक ऐन, २०८२ ले गरेको संशोधन सहित) — Income Tax Act 2058, as amended by the Finance Act 2082

   Inland Revenue Department, Ministry of Finance · Posted 18 Poush 2082 (January 2026); Act in force · Tier 1 — Primary legal instrument

   Supports: The statutory architecture of withholding in sections 87 to 92 and advance tax in section 95Ka.

   Accessed 26 August 2026

3. Tax Deducted at Source in Nepal — TDS Rates for FY 2083/84

   Shankar Associates, Chartered Accountants (author Shankar Thapa) · 4 June 2026 · Tier 6 — Professional or news source

   Supports: The categories of payment treated as final withholding under section 92, and that employment withholding follows the natural-person schedule.

   Accessed 26 August 2026

4. चालु आर्थिक वर्षदेखि लागू हुने आयकरका नयाँ दर सार्वजनिक (New income tax rates published for the current fiscal year)

   Nepse Bajar, reporting the Inland Revenue Department · 25 Shrawan 2083 (August 2026) · Tier 6 — Professional or news source

   Supports: The FY 2083/84 natural-person schedule and the advance-tax rates on disposals of shares and of land and buildings.

   Accessed 26 August 2026

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

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

   Supports: The FY 2083/84 natural-person schedule used by section 87 withholding, and the 5 percent charge on repatriated permanent establishment income.

   Accessed 26 August 2026