Nepal Income Tax Guide Fiscal Year 2026/27 (2083/84): New Tax Slabs, NPR 25,000 Child Education Deduction, Corporate Rates, and Foreign Investor Rules

Nepal reformed its direct taxation framework through the Finance Act enacted for Fiscal Year 2026/27 (2083/84). Administered by the Inland Revenue Department (IRD), the updated statutory code eliminates the historical divide between single and married individual filers, doubles the entry-level baseline allowance to NPR 1,000,000, and reduces the peak individual marginal tax rate from 39% down to 29%.

To support middle-income families, the updated code also introduces a dedicated child education tuition fee tax deduction of up to NPR 25,000.

Understanding these statutory provisions ensures accurate payroll tax deductions, maintains corporate compliance, and protects global investments entering Nepal.

1. Key Highlights of the Fiscal Year 2026/27 (2083/84) Tax Reform

• Unified Progressive Table: Single individuals and married couples share an identical progressive tax table.
  
  
• Expanded Base Band: The entry-level 1% band doubled from NPR 500,000 directly to NPR 1,000,000.
  
  
• New Child Education Allowance: Deduction of up to NPR 25,000 against verified tuition expenses paid for children.
  
  
• Lowered Peak Bracket: The top individual marginal tax rate fell from 39% to 29%.
  
  
• Simplified Tiers: Individual income tax tiers dropped from six complex levels down to five consolidated bands.
  
  

2. Tax Residency Determination in Nepal

The Inland Revenue Department enforces tax jurisdiction using statutory residency criteria:

• Resident Natural Person: Residing in Nepal for 183 days or more during a continuous 365-day fiscal period (running mid-July to mid-July) classifies you as a tax resident. Resident taxpayers pay tax on worldwide income.
  
  
• Non-Resident Individual: Residing in Nepal for fewer than 183 days designates you as a non-resident. Non-residents pay tax solely on income sourced within Nepal.
  
  
• Foreign Permanent Establishment (PE): Operating branch offices, liaisons, or construction project sites inside Nepal triggers domestic corporate tax rules.
  
  

3. Official Individual Income Tax Slabs for Fiscal Year 2026/27 (2083/84)

The unified schedule applies to all resident individuals across Nepal:

Annual Taxable Income (NPR)	Income Slice in Band (NPR)	Statutory Tax Rate	Tax on Full Band (NPR)	Cumulative Tax at Top of Band (NPR)
Up to 1,000,000	First 1,000,000	1% Social Security Tax (SST)*	10,000	10,000
1,000,001 to 1,500,000	Next 500,000	10%	50,000	60,000
1,500,001 to 2,500,000	Next 1,000,000	20%	200,000	260,000
2,500,001 to 4,000,000	Next 1,500,000	27%	405,000	665,000
Above 4,000,000	Remaining Balance	29%	Variable	Variable

*Social Security Tax (SST) Exemption Rule

The 1% rate on the first NPR 1,000,000 functions as the Social Security Tax. The IRD waives this 1% liability for:

1. Employees actively enrolled in and depositing monthly payroll contributions into the Social Security Fund (SSF) or approved government pension funds.
   
   
2. Individuals earning revenue exclusively through registered sole proprietorships.
   
   
3. Pension income recipients.
   
   

Qualified SSF contributors pay 0% tax on their first NPR 1,000,000 of taxable earnings.

Non-Resident Individuals

Non-resident individuals pay a flat 25% tax on all assessable gross income earned from sources inside Nepal. Entry-slab deductions do not apply to non-residents.

4. Prior Year vs. Fiscal Year 2026/27 (2083/84) Slabs

Review how the reforms alter tax calculations compared to prior years:

Feature	Prior Law (FY 2082/83)	Current Law (FY 2026/27 - 2083/84)
Schedules	Separate tables for Single and Couple	Single unified schedule
Base Relief Band	NPR 500,000 (Single) / NPR 600,000 (Couple)	NPR 1,000,000 (Universal)
Education Fee Deduction	Not available	Up to NPR 25,000 allowable deduction
Number of Tiers	6 Slabs (1%, 10%, 20%, 30%, 36%, 39%)	5 Slabs (1%, 10%, 20%, 27%, 29%)
Top Marginal Rate	39% on income exceeding NPR 5,000,000	29% on income exceeding NPR 4,000,000

5. Permissible Statutory Deductions and Credits

Taxpayers subtract authorized deductions from gross income before calculating final slab liabilities:

• Child Education Tuition Fee Deduction (New Provision): Resident individuals paying formal school or college tuition fees for dependent children deduct 25% of the verified annual tuition expenses or up to NPR 25,000, whichever amount is lower.
  
  
• Retirement Contributions: Deposits to the Social Security Fund (SSF), Employees Provident Fund (EPF), or Citizen Investment Trust (CIT) qualify for deductions up to the lowest of: actual annual deposits, NPR 500,000, or one-third (1/3) of total assessable earnings.
  
  
• Life Insurance Premiums: Deduction of actual premiums paid up to NPR 40,000 annually.
  
  
• Health / Medical Insurance: Deduction up to NPR 20,000 annually.
  
  
• Residential Home Insurance: Deduction up to NPR 5,000 against valid home insurance policies.
  
  
• Female Employee Tax Credit: Female resident individuals deriving income solely from employment receive a direct 10% tax rebate off their total computed income tax bill.
  
  

6. Corporate Income Tax (CIT) Rates

Entities incorporated under the Companies Act compute net taxable business profits under sector-specific statutory rates:

• General Companies (Trading, Service, Consulting): 25%
  
  
• Commercial Banks and Financial Institutions: 30%
  
  
• Telecommunications and Internet Service Providers: 30%
  
  
• Special Manufacturing and Production Industries: 20%
  
  
• Foreign Permanent Establishments: 25% corporate tax on branch profits, plus a 5% branch profit remittance tax on remitted earnings overseas.
  
  

7. Withholding Taxes (TDS) and Capital Gains

Tax Deducted at Source (TDS) functions as an advance or final settlement mechanism across standard transactions:

• Resident Company Dividends: 5% final withholding tax.
  
  
• Bank Interest Paid to Natural Persons: 5% final withholding tax.
  
  
• Consulting and Professional Fees: 15% for non-VAT invoices; 1.5% for VAT-registered firms.
  
  
• House Rent Paid by Entities: 10% local government tax.
  
  
• Listed Securities Capital Gains:
  
  
  • Resident Individuals (held over 365 days): 5%
    
    
  • Resident Individuals (held 365 days or less): 7.5%
    
    
  • Corporate Entities: 10%
    
    
• Real Estate Disposals: 2.5% to 5% for properties owned over 5 years; 5% to 7.5% for properties owned under 5 years.
  
  

8. Foreign Direct Investment (FDI) & Capital Repatriation

International investors and expatriates operating under the Foreign Investment and Technology Transfer Act (FITTA) retain statutory rights to repatriate net earnings through licensed commercial banks:

• Repatriable Funds: Net corporate dividends, technology royalties, management advisory fees, and liquidation proceeds.
  
  
• Mandatory Documentation: Repatriation requires formal Tax Clearance Certificates (TCC) from the IRD, audited balance sheets, Department of Industry clearance, and foreign exchange authorization from Nepal Rastra Bank (NRB).
  
  
• Double Taxation Avoidance Treaties (DTAA): Foreign corporations operating under bilateral treaties (including India, China, the UK, Norway, and South Korea) access cross-border tax credits or lower treaty withholding percentages.
  
  

9. Frequently Asked Questions (FAQ)

How does the NPR 25,000 child education deduction work?

Taxpayers submit formal tax invoices or tuition fee receipts from registered academic institutions. You deduct 25% of the total annual tuition fees paid, up to a maximum deduction limit of NPR 25,000 from your gross assessable income before applying progressive tax slabs.

Does marital status alter individual tax rates under Fiscal Year 2026/27 (2083/84)?

No. The Finance Act unified the schedules into a single progressive table. Single filers and married couples follow the exact same income brackets and tax rates.

Who qualifies for the 0% base bracket rate on the first NPR 1,000,000?

Employees actively enrolled in and contributing to the Social Security Fund (SSF), approved pension funds, pension earners, and sole proprietors are exempt from the 1% Social Security Tax. They pay 0% on the initial NPR 1,000,000 slab.

How is a foreign national working in Nepal taxed?

Foreign nationals staying in Nepal for 183 days or more during the fiscal year qualify as tax residents and pay taxes under the domestic five-tier progressive schedule on their worldwide earnings. Those staying under 183 days pay a flat 25% tax on Nepal-sourced earnings only.

Can foreign investors repatriate 100% of their net profits from Nepal?

Yes. FITTA legally guarantees full profit and dividend repatriation in foreign currency, provided the company secures a Tax Clearance Certificate from the IRD, audit approval, and foreign exchange permits from Nepal Rastra Bank.

10. Key Takeaways

• Unified Personal Scale: Marital status no longer changes individual tax bands; everyone files under the unified five-tier table.
  
  
• Base Threshold: The entry band covers up to NPR 1,000,000 at 1%, dropping to 0% for active SSF participants.
  
  
• New Education Relief: Parents claim up to NPR 25,000 against qualifying tuition payments for dependent children.
  
  
• Top Bracket: The maximum marginal personal tax rate is capped at 29% for taxable income above NPR 4,000,000.
  
  
• Corporate Standard: The baseline CIT sits at 25%, with preferred manufacturing at 20% and financial institutions at 30%.
  
  
• Foreign Capital Remittance: Repatriation remains fully guaranteed by law upon securing IRD tax clearances and central bank validation.