An income tax slab refers to the progressive tax rate structure applied to individual taxable income in Nepal, where higher income levels are subject to higher percentage rates. The Income Tax Slab Nepal 2026 framework determines how much tax individuals must pay based on their annual earnings, with separate considerations for employment income, business profits, and investment returns.
Year-specific tax slabs are critical because Nepal's Finance Act updates rates annually, and using outdated slabs results in incorrect tax calculations, compliance failures, and potential penalties. The Inland Revenue Department (IRD) enforces these rates through employer withholding systems and individual return filings.
This information is essential for salaried employees verifying their Tax Deducted at Source (TDS) deductions, employers managing payroll compliance, self-employed professionals calculating advance tax, and accountants preparing accurate tax projections for the fiscal year 2025-26 (referred to as 2026 rates).
The Income Tax Act, 2058 (2002) serves as the foundational legislation governing individual taxation in Nepal. This Act establishes the concepts of taxable income, residence status, income categories, and the authority for progressive taxation. Section 4 of the Act defines the tax base, while subsequent sections outline how different income types are aggregated and taxed.
Annual Finance Acts operate as the mechanism for updating specific tax rates and thresholds. Each year, the Government of Nepal presents a Finance Bill that becomes the Finance Act upon parliamentary approval. This Act amends the First Schedule of the Income Tax Act, inserting the current year's tax slabs, surcharge rates, and special provisions. For the 2026 context, the Finance Act for fiscal year 2082-83 BS (2025-26 AD) contains the operative rate schedule.
The Inland Revenue Department (IRD) functions as the administrative authority under the Ministry of Finance. IRD issues circulars, guidelines, and software specifications (particularly for the IRD Tax Calculator Nepal 2026 slab implementations) to ensure uniform application of tax laws. The Department also operates the online tax portal where returns are filed and payments are processed.
Resident Individuals
A resident individual is defined under Section 2(ka) of the Income Tax Act, 2058 as a person who:
Resident individuals are subject to tax on their worldwide income using the progressive Income Tax Slab Nepal 2026 structure. This includes salary earned abroad, foreign business income, and investment returns from international sources, though foreign tax credits may apply to prevent double taxation.
Non-Resident Individuals
Non-resident individuals are persons who do not meet the resident criteria. These taxpayers are subject to:
Special Categories
The Finance Act may specify different thresholds or rates for:
Taxpayer category determination is critical because applying resident slabs to a non-resident results in underpayment, while applying non-resident flat rates to a resident results in overpayment and potential refund complications.
Employment (Salary) Income
Employment income includes wages, salaries, allowances, bonuses, commissions, and any benefits provided by an employer. This is the most common application of the Individual income tax rates Nepal 2026. Employers must project the annual salary, apply the progressive slabs, and withhold TDS monthly. Taxable salary components typically include:
Business and Professional Income
Self-employed individuals, consultants, contractors, and professionals (doctors, lawyers, accountants) calculate tax by applying the slabs to their net business income after deducting allowable expenses. Unlike salary income, business income allows deduction of:
Investment Income Treatment
Investment income is often subject to final withholding tax rather than slab progression:
However, if investment income is not subject to final withholding or if the taxpayer elects to aggregate it, it may be added to other income and taxed through the slabs.
Nepal-Source vs. Foreign-Source Income
Resident individuals must declare worldwide income but may claim foreign tax credits. Non-residents are taxed only on Nepal-source income. The distinction affects:
The Income Tax Slab Nepal 2026 for resident individuals follows a progressive structure with six tax brackets, designed to impose lower rates on basic income and higher rates on substantial earnings. The following rates apply to the fiscal year 2082-83 BS (mid-July 2025 to mid-July 2026) based on the Finance Act for 2025-26:
Resident Individual Tax Slabs (Annual Income)
| Income Bracket (NPR) | Tax Rate | Tax Calculation Method |
|---|---|---|
| Up to 600,000 | 1% | 1% of total income |
| Next 200,000 (600,001 to 800,000) | 10% | NPR 6,000 + 10% of amount exceeding 600,000 |
| Next 200,000 (800,001 to 1,000,000) | 20% | NPR 26,000 + 20% of amount exceeding 800,000 |
| Next 1,300,000 (1,000,001 to 2,300,000) | 30% | NPR 66,000 + 30% of amount exceeding 1,000,000 |
| Next 3,000,000 (2,300,001 to 5,300,000) | 30% | NPR 456,000 + 30% of amount exceeding 2,300,000 |
| Above 5,300,000 | 36% | NPR 1,356,000 + 36% of amount exceeding 5,300,000 |
Key Notes:
Non-Resident Individuals
Non-resident individuals are typically subject to a flat 25% tax rate on Nepal-source gross income, without the benefit of progressive slabs or the basic exemption threshold.
Tax Deducted at Source (TDS) on salary is calculated by projecting the employee's annual taxable income and applying the progressive slabs on a monthly basis. The following steps outline the standard calculation methodology used by employers:
Example Calculation Structure:
For an employee with monthly salary of NPR 100,000 (NPR 1,200,000 annually):
Example 1: Junior Employee (Annual Salary NPR 480,000)
A single resident individual employed as an administrative assistant receives NPR 40,000 monthly salary with no additional benefits.
Example 2: Mid-Level Manager (Annual Salary NPR 1,200,000)
A married resident individual working as a department manager receives NPR 100,000 monthly base salary plus NPR 20,000 annual bonus.
Example 3: Senior Executive (Annual Salary NPR 3,600,000)
A resident financial director receives NPR 300,000 monthly salary, NPR 300,000 annual bonus, and taxable benefits valued at NPR 600,000 annually.
Example 4: Self-Employed Consultant (Net Business Income NPR 900,000)
A resident management consultant operates as a sole proprietor with annual gross receipts of NPR 1,500,000 and deductible business expenses of NPR 600,000.
Certain deductions and rebates may reduce taxable income before applying the Income Tax Slab Nepal 2026 rates. The availability and limits of these deductions are determined by the annual Finance Act and IRD guidelines.
Potentially Available Deduction Categories:
Documentation Requirements:
Important Note: Deduction provisions change annually. Verification of the specific deductions available under the Finance Act 2025-26 and confirmation through IRD circulars is essential before claiming any reduction in taxable income.
Employers bear legal responsibility for correctly calculating, withholding, and depositing TDS on salary Nepal 2026. Failure to comply results in penalties, interest, and potential legal action against the employer entity and responsible officers.
Employer Obligations:
Deposit and Reporting Process:
Consequences of Non-Compliance:
Not all individuals must file annual tax returns in Nepal. Filing obligations depend on income source, amount, and TDS compliance status.
Salaried Individuals:
Filing is generally not required if:
Filing is required if:
Self-Employed and Business Owners:
Other Filing Triggers:
Record-Keeping Checklist:
The designation "Income Tax Slab Nepal 2026" requires careful interpretation to avoid compliance errors. In Nepal's tax system, "2026" refers to the fiscal year 2082-83 BS (Bikram Sambat), which corresponds approximately to the period from mid-July 2025 to mid-July 2026 in the Gregorian calendar.
Fiscal Year Structure:
Common Confusion Points:
Verification Methods:
Incorrect Taxpayer Category Selection
Applying resident slabs to non-resident employees or failing to recognize dual-residence situations leads to significant calculation errors. Employers must verify residence status through passport records, visa stamps, and days-present calculations before selecting the applicable rate structure.
Mixing Fiscal Year Slabs
Using 2025 rates for income earned in fiscal year 2026 results in underpayment and compliance violations. Payroll systems must be updated immediately upon Finance Act publication, and mid-year rate changes require recalculation of projected annual tax liabilities.
Monthly vs. Annual Confusion
Calculating tax by applying monthly slabs to monthly salary (rather than projecting annual income and dividing by 12) produces incorrect results. The slabs are designed for annual income application; monthly withholding is merely the annual tax divided by 12.
Benefit Valuation Errors
Including non-taxable allowances in taxable income or omitting the taxable value of benefits-in-kind (housing, vehicles, utilities) distorts the tax base. Employers must apply IRD-prescribed valuation rules for all non-cash benefits.
Deduction Timing Mistakes
Claiming annual deductions monthly or failing to adjust for deductions provided mid-year results in incorrect withholding. The proper method is to reduce projected annual income by eligible deductions, calculate annual tax, then determine monthly withholding.
Ignoring Surcharge Thresholds
Failing to apply the 36% rate to income exceeding NPR 5,300,000 results in substantial underpayment for high-income employees. Payroll systems must include automatic threshold alerts for surcharge applicability.
Employer Penalties
Individual Penalties
Compliance Risk Mitigation:
For Employees:
For Employers/HR:
For Self-Employed:
Professional legal and tax advisory services support accurate application of the Individual income tax rates Nepal 2026 and ensure comprehensive compliance with IRD requirements.
Advisory Support:
Compliance Review:
Dispute Resolution:
Training and Systems:
What is the income tax slab in Nepal for 2026?
The Income Tax Slab Nepal 2026 for resident individuals features six progressive brackets: 1% on income up to NPR 600,000, 10% on the next NPR 200,000, 20% on the next NPR 200,000, 30% on income between NPR 1,000,001 and NPR 5,300,000, and 36% on income exceeding NPR 5,300,000 annually.
Do I need to file a return if only salary TDS is deducted?
Filing is generally not required if you have only one employer, proper TDS has been deducted, and you have no other income or deduction claims. However, filing is mandatory if you have multiple employers, other income sources, or wish to claim deductions not considered by your employer.
How is monthly salary tax calculated from annual slabs?
Employers project your total annual taxable income (monthly salary × 12 plus bonuses and benefits), calculate tax using the annual slabs, then divide the total annual tax by 12 to determine monthly TDS. This ensures even tax collection throughout the year.
What is the difference between resident and non-resident rates?
Resident individuals pay progressive tax on worldwide income using the six-tier slab structure with rates from 1% to 36%. Non-residents typically pay a flat 25% on Nepal-source income only, without the benefit of progressive slabs or the basic exemption threshold.
How do employers calculate and deposit TDS?
Employers project annual income, apply tax slabs, divide by 12 for monthly withholding, deduct from salary, and deposit the withheld amount with IRD within 25 days of the following month through the online portal or designated banks.
What income types are subject to the progressive slabs?
Employment income, business income, and professional fees are generally taxed through the progressive slabs. Investment income (dividends, interest) is often subject to final withholding tax at source and may not enter the slab calculation unless specifically elected.
Are there different slabs for married and unmarried individuals?
Under the current structure, the same progressive slabs apply to all resident individuals regardless of marital status. The Finance Act for 2025-26 does not provide separate thresholds for single versus married taxpayers.
What happens if my employer fails to deposit TDS?
Employers face interest, penalties, and potential expense disallowance. Employees should verify deposits through the IRD portal and may need to pay the tax directly if the employer fails to remit, subsequently claiming credit for amounts withheld but not deposited.
Can I claim deductions for insurance and provident fund contributions?
Yes, subject to annual limits specified in the Finance Act. Life insurance premiums, medical insurance, and recognized provident fund contributions may be deductible. Documentation requirements include premium receipts and contribution certificates.
What is the penalty for late filing of individual returns?
Penalties typically include fixed monetary amounts plus interest on unpaid tax from the due date. Exact amounts vary based on the delay duration and tax liability; professional consultation is advised for specific penalty calculations.
How do I verify which fiscal year's rates apply to my income?
Nepal's fiscal year runs Shrawan to Ashad (mid-July to mid-July). Income earned from mid-July 2025 to mid-July 2026 falls under the 2026 rates. Check your salary slips for the fiscal year reference and confirm with your employer's payroll department.
What records must I maintain for tax purposes?
Maintain salary slips, Form 16, bank statements, investment receipts, insurance premium receipts, business expense documentation, and foreign income records for a minimum of five years from the relevant fiscal year end.
Is foreign income taxable in Nepal?
Resident individuals are taxed on worldwide income, including foreign salary, business income, and investments. Foreign tax credits may be available to prevent double taxation if taxes were paid in the source country.
What is advance tax and who must pay it?
Self-employed individuals and those with business income must pay estimated tax in quarterly installments if their annual tax liability exceeds the threshold specified by IRD (typically NPR 10,000). Failure to pay advance tax results in interest charges.
How are bonuses and allowances taxed?
Bonuses are added to projected annual income and taxed through the slabs. Allowances may be fully taxable, partially taxable, or exempt depending on type and amount; house rent allowance and vehicle benefits have specific valuation rules.
Can I revise my tax return if I discover errors?
Yes, amended returns can typically be filed to correct errors or omissions. However, revisions after the statutory deadline may attract penalties or interest; voluntary disclosure before detection is generally treated more favorably than discovery during audit.
What is the tax treatment for remote workers or digital nomads?
Tax treatment depends on residence status and income source. Nepal-source income is taxable in Nepal; foreign-source income is taxable for residents. Remote workers present in Nepal for 183+ days may become tax residents subject to worldwide income taxation.
How do I obtain a tax clearance certificate?
Apply through the IRD online portal or local office with required documentation including return filings, tax payment proofs, and supporting documents. Clearance certificates are required for certain government services, foreign employment, and business licensing.
What should I do if my employer miscalculates my TDS?
Request a review of the calculation with supporting documentation. If the error is confirmed, the employer should adjust future withholdings to correct the under or over-deduction. Significant errors may require amended filings or direct payment arrangements with IRD.
Are there special tax provisions for women or senior citizens?
The Finance Act may specify additional deductions or rebates for women in certain income brackets or senior citizens above specified age thresholds. Verification of current year provisions is essential as these benefits change annually.
February 26, 2026 - BY Admin