Demystify Tax Deducted at Source (TDS) - differentiate between final withholding (non-refundable) and adjustable withholding (claimable in annual tax returns).
Tax Deducted at Source (TDS / Srotma Kar Katti) is a statutory tax collection mechanism under Chapter 17 of Nepal's Income Tax Act 2058. The entity paying for services, rent, employment, or capital returns is legally mandated to withhold a specific percentage and remit it directly to the Inland Revenue Department (IRD) under the recipient's Permanent Account Number (PAN).
Freelancers, consultants, and landlords in Nepal frequently suffer financial confusion regarding TDS. Many consultants receive payments with 15% deducted, assuming that money is lost forever, unaware they can claim refunds if their annual net income falls below taxable thresholds. Conversely, landlords unaware of the 10% rent tax face steep municipal back-taxes and penalty audits.
Identify whether the payment is "Final Withholding" (antim kar katti) or "Adjustable Withholding" (milān hune kar). Bank deposit interest (5%), mutual fund cash dividends (5%), and digital IT exports (5%) are final. Service consultancy (15%) is adjustable.
Log into the IRD portal (tax.ird.gov.np) with your PAN credentials. Check the "Taxpayer Portal" → "TDS Details" to ensure your client/employer formally credited the withheld tax to your PAN number.
When invoicing a client as a VAT-registered entity, charge 1.5% TDS on taxable supplies. If billing as a non-VAT freelance professional, the client will withhold 15% under Section 88.
When filing your annual tax return before Ashwin/Poush, input all adjustable TDS deducted throughout the year. If total TDS exceeds your actual slab liability, the IRD issues a formal tax credit or cash refund.
| Income Stream / Transaction Type | Governing Section | Applicable TDS Rate | Classification (Final vs Adjustable) |
|---|---|---|---|
| Bank Savings & Fixed Deposit Interest | Section 88 | 5.0% | Final Withholding (Individual) |
| Listed Company Cash Dividends | Section 88 | 5.0% | Final Withholding (Individual) |
| House Rent (Commercial / Residential to Entities) | Section 88 / Local Act | 10.0% | Local Municipality / Final |
| Professional Consulting / Freelance (Non-VAT) | Section 88 | 15.0% | Adjustable (Can claim refund / credit) |
| Service Invoiced with VAT (VAT-Registered Vendor) | Section 89 | 1.5% | Adjustable Withholding |
| Foreign Tech / IT Exports (Upwork, YouTube, BPO) | Finance Act 2080/81 | 5.0% | Final Withholding Tax |
| Vehicle / Machinery Rental | Section 88 | 10.0% | Adjustable Withholding |
A transformative policy in recent Nepal budgets is the 5.0% flat final withholding tax on foreign currency earned through foreign IT and business process outsourcing (BPO) exports. Programmers and digital creators receiving foreign wires through SWIFT can request their commercial bank to deduct 5% TDS at source under the foreign service code, which permanently settles their income tax liability with zero further audits.
Meena invoiced domestic companies for web design. Clients deducted 15% TDS (NPR 1,44,000 total) from her payments. She believed the government took 15% of all her money and felt freelancing was unfairly taxed.
She learned that consulting TDS is adjustable. When she filed her annual D-01 tax return as a single taxpayer with legitimate business expenses (laptop depreciation, internet, software subscriptions amounting to NPR 2,00,000), her actual slab tax liability was only NPR 38,000. The IRD credited the remaining NPR 1,06,000, which she carried forward against future tax liabilities.
Goal & Dilemma: Optimizing tax cash flows on NPR 1,500,000 annual domestic consulting contracts.
Agreed contract sum before statutory withholding in Nepalese Rupees.
15% for non-VAT consulting, 1.5% for VAT service vendors, 10% for rent.
Final progressive tax calculated on audited annual net income.
Freelancer bills NPR 1,00,000 for a branding project. Client deducts 15% TDS (NPR 15,000) and deposits NPR 85,000 to the designer's bank account. At year-end, if the designer's net profit is NPR 4,50,000 (below the NPR 5,00,000 basic exemption threshold), actual slab tax is only 1% (NPR 4,500). Refund / credit due = 15,000 - 4,500 = NPR 10,500.
Assuming all TDS is a permanent final loss.
15% consulting TDS is adjustable; file your annual tax return to claim refunds.
Failing to collect TDS withholding certificates (Dakhila Praman) from clients.
Ensure clients deposit TDS under your exact PAN; check the IRD online portal.
Paying 15% TDS on software/service invoices that have 13% VAT added.
VAT-registered businesses should only have 1.5% TDS deducted, not 15%.
Log in to tax.ird.gov.np using your PAN number and password. Click "Taxpayer Portal" → "TDS Ledger". You will see every deposit credited to your PAN in real time.
Yes, but the cash refund audit process can be bureaucratic. Most individual taxpayers carry forward their excess TDS credit to offset tax liabilities for subsequent fiscal years.
Under recent Financial Act amendments, personal foreign currency wire transfers from international tech platforms (YouTube, Google AdSense, Upwork) incur a flat 5.0% final withholding tax upon bank deposit.
Under Section 88 of the Income Tax Act (amended by recent Finance Acts), payments received in convertible foreign exchange for software, IT, and data consultancy are subject to a concessional final withholding tax of 5%.
House rent tax on individuals leasing residential or commercial property is collected by the local municipal government (Ward Office) at the rate of 10%, not the federal IRD.