Claim up to NPR 40,000 for life insurance and NPR 20,000 for health insurance every fiscal year - reducing your taxable income legally.
Insurance Tax Deductions in Nepal are statutory tax relief incentives codified under Schedule 1, Clauses 12 and 16 of the Income Tax Act 2058. Designed to foster a national culture of self-funded financial resilience, they permit resident individual taxpayers to subtract life insurance and health insurance premium payments from their gross assessable employment or business income before computing progressive tax slabs.
Many corporate employees in Nepal fail to declare their life and health insurance policies to their company's payroll department, allowing their employer to withhold excessive monthly TDS. For an employee in the 30% tax bracket, claiming both the NPR 40,000 life insurance and NPR 20,000 health insurance limits results in NPR 18,000 in immediate, risk-free annual cash tax savings - effectively subsidizing 30% of their insurance costs.
The policy must be an active life insurance policy on your own life or your spouse's life issued by a licensed Nepali insurer (e.g., Nepal Life, LIC Nepal, National Life, Himalayan Life).
Download official computerized premium renewal receipts from your insurer's customer portal or branch. Ensure the receipt clearly states your PAN and the current fiscal year (Shrawan to Ashadh).
Submit the premium receipts to your employer's accounts department before Magh or Falgun. HR factors the deduction into your payroll system, reducing your monthly TDS deductions for the remaining months.
If filing your own annual return on the IRD portal, enter the actual premium paid under the "Life Insurance Premium" deduction field (system automatically caps it at NPR 40,000).
| Marginal Tax Bracket | Life Insurance Cap | Health Insurance Cap | Combined Deductions | Direct Cash Tax Saved |
|---|---|---|---|---|
| 10% Bracket (NPR 5L - 7L single) | NPR 40,000 | NPR 20,000 | NPR 60,000 | NPR 6,000 / year |
| 20% Bracket (NPR 7L - 10L single) | NPR 40,000 | NPR 20,000 | NPR 60,000 | NPR 12,000 / year |
| 30% Bracket (NPR 10L - 20L single) | NPR 40,000 | NPR 20,000 | NPR 60,000 | NPR 18,000 / year |
| 36% Bracket (NPR 20L - 50L single) | NPR 40,000 | NPR 20,000 | NPR 60,000 | NPR 21,600 / year |
| 39% Bracket (Above NPR 50 Lakh) | NPR 40,000 | NPR 20,000 | NPR 60,000 | NPR 23,400 / year |
Prior to the 2077 budget, the statutory life insurance deduction was capped at NPR 25,000. Recognizing inflation and rising living costs, the Government of Nepal enhanced the threshold to NPR 40,000. Unlike Western jurisdictions that phase out tax perks for high earners, Nepal allows all individual taxpayers across every income slab to fully claim this deduction regardless of total salary.
Santosh was paying NPR 42,000/year for his life insurance policy and NPR 18,000/year for his family health policy. He never bothered submitting receipts to HR, assuming "it's only a few hundred rupees."
He submitted both receipts to payroll in Poush. His taxable income was reduced by NPR 40,000 (life cap) + NPR 18,000 (actual health) = NPR 58,000 total deduction. In his 30% tax bracket, his annual tax fell by exactly NPR 17,400. His monthly take-home pay increased by NPR 2,900 for the final 6 months of the fiscal year.
Goal & Dilemma: Maximizing the NPR 40,000 life insurance tax deduction on an annual salary of NPR 900,000.
Actual premium paid for life insurance in the fiscal year.
Actual premium paid for health insurance in the fiscal year.
Your highest applicable income tax slab rate (10%, 20%, 30%, 36%, or 39%).
Life premium = NPR 45,000 (capped at NPR 40,000). Health premium = NPR 20,000. Total deductible = NPR 60,000. Marginal tax rate = 30%. Annual cash tax saved = 60,000 * 0.30 = NPR 18,000. The government effectively finances NPR 18,000 of your family's insurance bill.
Buying an expensive NPR 80,000 endowment policy just to get tax deductions.
Deductions are strictly capped at NPR 40,000; excess premium yields zero additional tax relief.
Submitting premium receipts for policies held in parents' names.
Deductions apply only to policies in your own name or your legally wedded spouse's name.
Throwing away premium receipts paid online via eSewa or connectIPS.
Always download the official computerized receipt generated by the insurance company.
Yes! If both spouses are employed and earn separate incomes, each individual taxpayer can claim up to NPR 40,000 on their respective tax filings, totaling NPR 80,000 for the household.
Yes. Under Schedule 1, Clause 17, insuring your private residential building against natural disasters (earthquake, fire) grants an additional deduction of up to NPR 5,000 per year.
The tax deduction is capped at NPR 40,000 in the fiscal year the payment occurs. Advance premiums paid for future years cannot be carried forward to claim deductions in future years.
Under the Income Tax Act, the tax deduction is granted against life insurance of the resident natural person (taxpayer). In a married joint filing, insurance paid for either spouse can be included within the overall NPR 40,000 limit.
In addition to the NPR 40,000 life insurance rebate, individuals can deduct up to NPR 20,000 per year against premiums paid for health insurance policies issued by resident non-life insurers.