Master the exact TDS withholding rates (10% rent, 15% consulting, 1.5% goods) and e-TDS reconciliation by the 25th of each month.
Vendor Tax Deduction at Source (TDS - स्रोतमा कर कट्टी) is a statutory withholding mechanism where a payer (company or firm) is legally mandated to deduct a specific percentage of tax from a vendor's payment and deposit it directly into the state revenue account on behalf of the payee.
During annual tax assessments, the IRD audits your vendor expenses. If you paid NPR 10,00,000 to an IT consultant or landlord and failed to deduct TDS, the tax officer will: (1) Disallow the entire NPR 10 Lakh expense, artificially inflating your corporate profit, (2) Demand the un-deducted TDS from YOUR pocket, and (3) Impose a 15% annual compounding interest penalty plus statutory non-compliance fines.
Inspect whether the vendor submitted a VAT tax invoice or a non-VAT PAN invoice. VAT invoices for service/goods typically carry a 1.5% withholding, while non-VAT service invoices trigger 15% TDS.
Deduct the exact legal rate: 10% on office rent, 15% on technical/consulting fees (PAN), 1.5% on contract supplies (>NPR 50K), and 15% on website hosting/software royalties.
Generate an online revenue voucher on the IRD portal and deposit the withheld tax into the designated government bank account by the 25th of the subsequent Nepali month.
Log into the IRD e-TDS module, input the vendor's PAN, enter the gross invoice amount and tax deposited, and generate the official digital TDS verification receipt for the vendor.
| Payment Category | Statutory Provision | Withholding TDS Rate | Payee Tax Credit Status |
|---|---|---|---|
| Office / Commercial House Rent | Section 88 / Local Act | 10.0% Flat | Final withholding in most municipalities |
| Consulting Services (Non-VAT PAN) | Section 88(1) | 15.0% Flat | Advance tax (Vendor claims against annual tax) |
| Services with VAT Invoice | Section 88 / Directives | 1.5% Withholding | Advance tax on taxable service amount |
| Goods Supply Contract (> NPR 50K) | Section 89 | 1.5% Flat | Advance tax on gross procurement |
| Transport & Freight Services (without VAT) | Section 88 | 2.5% Flat | Advance tax for vehicle hiring |
| Software Royalty & Overseas Cloud | Section 88 / Cross-border | 15.0% Flat | Statutory withholding on foreign remittances |
In Nepal, e-TDS has eliminated paper tax deduction certificates. When a business reconciles its monthly withholding on ird.gov.np, the tax credit is instantly populated into the vendor's personal PAN portal. Recent IRD directives have tightened enforcement on office house rent: municipalities (like Kathmandu Metropolitan City and Lalitpur) now enforce local collection of the 10% rental tax directly under the Local Government Operation Act 2074.
Srijana's agency hired an independent brand consultant for NPR 2,00,000. The consultant asked to be paid in full: "Just transfer 2 Lakh to my eSewa, I will pay tax myself at year-end."
Srijana knew that paying gross would leave her agency liable for 15% unpaid TDS. She deducted 15% TDS (NPR 30,000), paid the consultant NPR 1,70,000, and deposited the NPR 30,000 to the IRD on the 22nd of the month via e-TDS. The consultant received an official IRD tax credit receipt in his PAN, and the agency safely claimed the full NPR 2 Lakh as an allowable business deduction.
Goal & Dilemma: Paying monthly commercial office rent of NPR 50,000 in Kathmandu compliant with tax laws.
Pre-TDS total invoiced by vendor.
10% for rent, 15% for non-VAT consulting, 1.5% for VAT services.
Consulting bill = NPR 1,00,000 (Non-VAT PAN). TDS = 15% × 1,00,000 = NPR 15,000. Net payment to consultant = NPR 85,000. Exactly NPR 15,000 must be deposited to IRD revenue account by the 25th of the following Nepali month!
Paying office rent without deducting 10% rental tax because the landlord demanded "cash in hand".
Always formalize lease agreements and withhold 10% rent tax; otherwise, you pay it out of company profit.
Depositing TDS at the bank but forgetting to reconcile the entries in the online e-TDS portal.
Always complete the e-TDS entry linking the payment voucher to the vendor's PAN number.
Treating 15% service TDS as a final tax for individual professionals.
15% service TDS is an advance tax; the consultant must report it on their annual D-01/D-03 return.
Delayed TDS deposits incur a statutory interest penalty of 15% per annum on the unpaid tax amount, calculated on a daily pro-rata basis under Section 117/118 of the Income Tax Act.
No. Retail purchase of goods under NPR 50,000 in a single transaction from a VAT-registered seller does not require withholding under Section 89.
Under the Local Government Operation Act 2074, individual residential/commercial house rent tax is collected by the local municipal ward (10%). However, rent paid to corporate entities is deposited via IRD.
Under Section 89 of the Income Tax Act, public entities and formal registered entities purchasing goods or contracting services exceeding statutory thresholds under a VAT bill withhold 1.5% procurement TDS.
The company itself becomes legally liable to pay the unwithheld tax amount to the IRD, plus 15% annual interest under Section 119, and the underlying expense is disallowed from income tax deductions.