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If you pay rent, salaries, interest, or contract fees in Nepal, you are legally required to deduct tax before making the payment. This is Tax Deducted at Source (TDS) — and failing to deduct it makes you personally liable for the full tax amount plus 15% annual interest. For fiscal year 2082/83 (July 2025 to July 2026), TDS rates range from 1.5% on VAT-registered service providers to 25% on lottery and windfall gains.
TDS is governed by Sections 87 to 92 of the Income Tax Act 2058 (2002), administered by the Inland Revenue Department (IRD). Whether you are an employer deducting tax from employee salaries, a tenant paying rent to a landlord, or a company hiring a consultant, understanding your TDS obligations is not optional — it is a legal mandate with real financial consequences.
TDS in Nepal is the tax that payers must deduct before making certain payments — including salaries, rent, interest, dividends, and service fees. Under the Income Tax Act 2058, TDS must be deposited to the government within 25 days of the month end. For FY 2082/83, rates range from 1.5% to 25% depending on the payment type and the recipient's tax registration status.
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What Is TDS and How Does It Work in Nepal?
TDS stands for Tax Deducted at Source. Instead of the income earner paying tax later, the person making the payment deducts the tax upfront and deposits it to the government on the earner's behalf. The deducted amount is credited against the recipient's annual income tax liability.
Here is how a typical TDS transaction works in practice:
- Payer identifies the payment type — salary, rent, interest, service fee, contract, etc.
- Payer checks the applicable TDS rate — based on the nature of payment and recipient's registration status (PAN-only vs VAT-registered)
- Payer deducts TDS from the gross amount — calculated on the taxable amount only, never on the VAT portion
- Payer deposits TDS to the IRD — within 25 days of the month in which the deduction was made
- Payer issues a TDS certificate — the recipient uses this to claim credit when filing their annual return
From our experience advising clients, the most common mistake businesses make is deducting TDS on the total invoice amount including VAT. TDS is calculated on the taxable amount only — the VAT component must be excluded before applying the rate.
Who Must Deduct TDS in Nepal?
Under the Income Tax Act 2058, the following entities and individuals are required to deduct TDS:
- Employers — on salary and benefits paid to employees
- Companies and firms — on payments to contractors, consultants, suppliers, and service providers
- Banks and financial institutions — on interest paid to depositors
- Government bodies — on all payments to vendors, contractors, and employees
- Tenants (entities) — on rent paid for land, buildings, or vehicles
- Insurance companies — on commission payments to agents
Individual natural persons making personal payments (such as paying household rent) are generally not required to deduct TDS unless they are operating a business or profession. However, any registered taxpayer making payments above the prescribed thresholds must comply.
What Are the TDS Rates in Nepal for FY 2082/83?
The following table lists all major TDS rates applicable for fiscal year 2082/83 under the Income Tax Act 2058 as amended by the Finance Act 2082:
TDS Rates on Non-Employment Payments
| Payment Type | Recipient Category | TDS Rate |
|---|---|---|
| Rent — land and buildings | Natural person | 10% |
| Rent — land and buildings | Company / entity | 15% |
| Rent — vehicles (VAT-registered) | Any | 1.5% |
| Rent — vehicles (no VAT) | Any | 10% |
| Interest — bank deposits | Natural person (resident) | 6% |
| Interest | Company / non-resident | 15% |
| Dividends | Resident individual | 5% |
| Dividends | Non-resident | 5% |
| Service / consultancy (PAN, no VAT) | Any | 15% |
| Service / consultancy (VAT-registered) | Any | 1.5% |
| Contract payments (VAT-registered) | Resident | 1.5% |
| Contract payments | Non-resident | 5% |
| Commission / insurance agent | Any | 15% |
| Windfall / lottery gains | Any | 25% |
A critical distinction is the difference between VAT-registered and PAN-only recipients. VAT-registered service providers and contractors attract a much lower TDS rate of 1.5%, while those with only a PAN registration (no VAT) face 15%. This is because VAT-registered entities already pay VAT to the government and are considered more compliant.
Cumulative Threshold for Contracts
For contract payments, TDS applies when the cumulative payment to a single contractor exceeds NRS 50,000 in a fiscal year. Once this threshold is crossed, TDS must be deducted on all subsequent payments. Many businesses overlook this rule when making multiple small payments to the same vendor.
How Is TDS Calculated on Employment Income?
TDS on salaries follows the progressive income tax slabs for individuals. The employer estimates the employee's total annual taxable income and deducts TDS monthly based on the applicable slab rates.
Employment TDS Slabs for Single (Unmarried) Individuals — FY 2082/83
| Annual Taxable Income (NRS) | Tax Rate |
|---|---|
| First 5,00,000 | 1% (SST) |
| 5,00,001 – 7,00,000 | 10% |
| 7,00,001 – 10,00,000 | 20% |
| 10,00,001 – 20,00,000 | 30% |
| 20,00,001 – 50,00,000 | 36% |
| Above 50,00,000 | 39% |
Employment TDS Slabs for Married Individuals — FY 2082/83
| Annual Taxable Income (NRS) | Tax Rate |
|---|---|
| First 6,00,000 | 1% (SST) |
| 6,00,001 – 8,00,000 | 10% |
| 8,00,001 – 11,00,000 | 20% |
| 11,00,001 – 21,00,000 | 30% |
| 21,00,001 – 51,00,000 | 36% |
| Above 51,00,000 | 39% |
Married couples benefit from a higher tax-free threshold of NRS 6 lakh compared to NRS 5 lakh for single filers. If you have recently completed court marriage in Nepal, inform your employer immediately so they can adjust your TDS calculation to the married slab — this can save you NRS 10,000 or more annually.
Female employees receive an additional 10% rebate on computed income tax. The employer must factor this rebate into the monthly TDS calculation.
How to Calculate TDS: A Practical Example
Understanding TDS calculation is easier with a real-world example. Consider a company hiring a consultant who is PAN-registered but not VAT-registered.
Scenario: A Kathmandu-based company pays a legal consultant NRS 2,00,000 for a one-time advisory project.
- Consultant has PAN but no VAT registration
- Applicable TDS rate: 15%
- TDS amount: NRS 2,00,000 x 15% = NRS 30,000
- Net payment to consultant: NRS 2,00,000 - NRS 30,000 = NRS 1,70,000
- The company deposits NRS 30,000 to the IRD within 25 days of the month end
If the same consultant were VAT-registered and invoiced NRS 2,00,000 plus 13% VAT (NRS 26,000), the total invoice would be NRS 2,26,000. However, TDS at 1.5% applies only on NRS 2,00,000 (the taxable portion), not on the VAT. The TDS would be NRS 3,000 — a significant difference from the NRS 30,000 in the first scenario.
Need help structuring payments to comply with TDS rules? Consult our legal team for advice tailored to your situation.
How to File TDS Returns in Nepal
All TDS deductors must file returns through the IRD's electronic system. As of April 2026, the eTDS return is mandatory — paper filing is no longer accepted for most categories of deductors.
Step-by-Step eTDS Filing Process
- Log in to the IRD taxpayer portal — access at taxpayerportal.ird.gov.np using your PAN credentials
- Navigate to the TDS section — select "TDS Return" from the filing menu
- Enter payment details — record each payment made during the month, including recipient PAN, payment type, gross amount, and TDS deducted
- Generate the TDS statement — the system calculates total TDS liability for the period
- Submit the return — file electronically before the deadline
- Deposit TDS amount — pay via e-Payment (online banking or card) within the prescribed timeline
TDS Filing Deadlines
| Obligation | Deadline |
|---|---|
| Deposit TDS to government | Within 25 days of the month end in which deduction was made |
| File monthly eTDS return | Same — within 25 days of month end |
| Issue TDS certificate to recipient | Within the filing period |
| Annual TDS reconciliation | With annual income tax return (Ashwin end, ~mid-October) |
What Are the Penalties for TDS Non-Compliance?
The IRD takes TDS violations seriously. Penalties apply both for failing to deduct and for late deposit of deducted amounts:
| Violation | Penalty |
|---|---|
| Failure to deduct TDS | Full tax amount + 15% per annum interest from the date the deduction should have been made |
| Late deposit of deducted TDS | 1.5% per month on the outstanding amount + 15% annual interest |
| Late filing of eTDS return | NRS 100 per day (maximum NRS 5,000) |
| Filing incorrect TDS return | 50% of the short-deducted amount if unintentional; 100% if intentional |
The critical point many deductors miss: if you fail to deduct TDS entirely, the deductor becomes liable for the full tax amount — not the recipient. This means the burden shifts to you, and you cannot recover it from the payee after the fact. In our practice, we have seen businesses face audit assessments running into lakhs because they did not deduct TDS on consultant and contractor payments over multiple years.
TDS on Non-Residents and Double Taxation Agreements
Payments made to non-residents attract specific TDS rates under the Income Tax Act 2058. Nepal has signed Double Taxation Avoidance Agreements (DTAAs) with several countries, which can reduce TDS rates for qualifying non-residents.
| Payment to Non-Resident | Standard TDS Rate |
|---|---|
| Interest | 15% |
| Dividends | 5% |
| Service / consultancy fees | 15% |
| Contract payments | 5% |
| Royalties | 15% |
If a DTAA exists between Nepal and the non-resident's country of residence, the non-resident may apply for a reduced rate or exemption by providing a Tax Residency Certificate from their home country. Without this certificate, the standard Nepal TDS rate applies in full. Nepal currently has DTAAs with countries including India, China, Thailand, South Korea, Austria, Norway, Sri Lanka, Mauritius, and Qatar.
Key TDS Rules Every Business Should Know
Based on our experience advising businesses in Kathmandu, these are the rules that cause the most confusion and compliance issues:
- TDS on taxable amount only — never deduct TDS on the VAT portion of an invoice. Calculate TDS on the pre-VAT amount.
- NRS 50,000 cumulative threshold — for contract payments, track cumulative payments per vendor per fiscal year. Once the total crosses NRS 50,000, TDS applies.
- PAN verification is mandatory — before making any payment subject to TDS, verify the recipient's PAN. Payments to unregistered persons attract higher withholding rates.
- Record retention: 5 years minimum — maintain all TDS certificates, payment records, and eTDS returns for at least 5 years from the end of the fiscal year.
- TDS credit belongs to the recipient — the deducted amount is credited against the recipient's annual tax liability. They can claim a refund if TDS exceeds their actual tax.
If you need to register for PAN before your TDS obligations begin, our guide on PAN card registration in Nepal walks you through the complete process.
TDS and Income Tax: How They Connect
TDS is not an additional tax — it is an advance collection mechanism for income tax. The amount deducted through TDS is adjusted against the recipient's total income tax liability when they file their annual return.
For example, if a consultant's total income tax in Nepal for FY 2082/83 is NRS 1,50,000 and various clients have already deducted NRS 1,20,000 as TDS during the year, the consultant only needs to pay the remaining NRS 30,000 when filing the annual return. If TDS exceeds the actual liability, the taxpayer can claim a refund from the IRD.
Employers must provide employees with a TDS certificate (Form 25-Ka) summarizing total salary paid and TDS deducted during the fiscal year. Employees need this document to file their personal income tax return and claim TDS credit.
Conclusion: Deduct Correctly and Deposit on Time
TDS compliance in Nepal comes down to three fundamentals: know the correct rate for each payment type, deduct only on the taxable amount (excluding VAT), and deposit within 25 days of the month end. The penalties for non-compliance — especially the full liability shift for failure to deduct — make TDS one of the highest-risk areas of tax law for businesses operating in Nepal.
For married taxpayers, the TDS benefit is tangible: a higher threshold of NRS 6 lakh versus NRS 5 lakh for single filers translates to real annual savings. If you have recently registered your marriage or are planning to do so, updating your employer about your marital status ensures your salary TDS is calculated at the correct, lower rate.
Whether you need assistance with TDS compliance for your business, marriage registration to access the higher threshold, or any legal matter in Nepal, our team at Court Marriage in Nepal Pvt. Ltd. is ready to help. Contact us today for expert legal guidance.
Last reviewed: April 2026
Frequently Asked Questions
TDS is Tax Deducted at Source — a system where the payer deducts income tax before making a payment and deposits it to the government on behalf of the recipient.
Employers, companies, banks, financial institutions, government bodies, and any registered taxpayer making payments subject to TDS must deduct tax at source under the Income Tax Act 2058.
10% for natural persons and 15% for companies on land and building rent. Vehicle rent is 1.5% if the recipient is VAT-registered, or 10% if not VAT-registered, for FY 2082/83.
No. TDS is always calculated on the taxable amount only, excluding the VAT portion.
Banks deduct 6% TDS on interest paid to resident natural persons (individuals). For companies and non-residents, the TDS rate on interest is 15% for FY 2082/83 under the Income Tax Act 2058.
TDS must be deposited to the Inland Revenue Department within 25 days of the end of the month in which the deduction was made. Late deposit attracts 1.5% monthly penalty plus 15% annual interest.
The deductor becomes liable for the full tax amount plus 15% per annum interest from the date the deduction should have been made. The IRD treats failure to deduct as a serious compliance violation under Section 90 of the Income Tax Act 2058.
Service and consultancy fees attract 15% TDS if the recipient has only a PAN (no VAT registration). If the recipient is VAT-registered, the TDS rate drops to 1.5%. This distinction applies to all professional service payments.
Employers estimate the employee's total annual taxable income and apply progressive slab rates (1% to 39%). Monthly TDS is one-twelfth of the estimated annual tax. Married employees get a higher threshold of NRS 6 lakh versus NRS 5 lakh for singles.
5% for both resident and non-resident shareholders under FY 2082/83 rates.
Yes. As of 2026, electronic TDS returns are mandatory for all TDS deductors. Returns must be filed monthly through the IRD taxpayer portal at taxpayerportal.ird.gov.np. Late filing attracts NRS 100 per day penalty, up to a maximum of NRS 5,000.
Late filing of eTDS returns attracts a penalty of NRS 100 per day, subject to a maximum of NRS 5,000. Late deposit of the deducted TDS amount incurs 1.5% per month plus 15% annual interest on the outstanding balance.
Yes. Married individuals have a higher first slab threshold of NRS 6,00,000 at 1% SST compared to NRS 5,00,000 for single filers. This means lower monthly TDS on salary. Inform your employer after marriage registration to update your TDS calculation.
TDS on contract payments applies when cumulative payments to a single contractor exceed NRS 50,000 in a fiscal year. Once this threshold is crossed, TDS must be deducted on all subsequent payments to that contractor.
All TDS certificates, payment records, and eTDS returns must be retained for a minimum of 5 years from the end of the relevant fiscal year. The IRD can audit TDS compliance within this period, so maintaining complete records is essential.
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