Ongoing Assessment (40 )

Quizzes, Attendance,
Assignment-10
Report and Presentation-5
Exam (Test and Mid
Term)-20
overall impression-5
2
Contents
Unit 1: Basic Concept LH 2
 Concept and meaning of Tax
 Objectives of Tax
 Types of taxes in Nepal
 Cannons/Principles of Taxation
 Historical of Income Tax in Nepal

Unit 2: Definition of Basic Terms: LH 4

 Income year and assessment year
 Cash and accrual basis of tax accounting system
 Capital and revenue nature expenses
 Capital and revenue nature incomes
 Capital and revenue nature loss
 Tax deduction at sources (TDS)
 Advance tax, excess tax and outstanding tax
 Permanent Account number (PAN), E-PAN
 Assessable income
 adjusted taxable income and net assessable income
 Double Taxation Avoidance Agreement (DTAA) and Nepalese status
 Foreign Tax Credit, Capital Gain and Tax
 other basic terms used in under the income tax Act 2058,
Unit 3: Classification and Status of Tax Payer
(Assesses) LH 2
 Natural Person and Entity
 Residential and Non- Residential
 Individual and Family Status

Unit 4: Quantification, Allocation and

Characterization LH 2
 Concept and Definition
 Special Quantification of an Asset Transferred
 special Quantification of Vehicle Facility
 Special Quantification of Accommodation Facility
 Special Quantification of Fringe Benefit
 Interest Benefit and Indirect Payments,
Unit 5: Tax Exemptions, Concessions, Deduction, Tax Rates, Tax Credit
and Set off Loss LH 4
 Presumptive Tax
 Exemptions for Individual and Family and Tax Rate
 Pension holder Employee
 Female Employee
 Physically Differently able Employe
 Residential and Non Residential Perso
 Information and Technology (IT) based Industry, Infrastructure Industry
 Industry Established in Specified Economic Zone
 Rebate and Concession as Per Industrial enterprises act2049
 Remote Area Allowance
 Withholding Payment
 Final Withholding Payment
 Deferred Tax
 Medical Tax Credit
 Provision of Set of Losses,
Unit 6: Meaning and Classification Sources of Incomes, LH 2
 Income from Employment (Remuneration)
 Income from Business Profession
 Vocation
 Income from Investment
 And Income from Wind Fall Gain

Unit 7: Income from Business LH 10

Component of Income from Business, Profession or Vocation Computation of Net Assessable
Income, taxable income and tax liability of Proprietorship, Partnership and Private Limited Company
(other than Industry, Public Limited and Listed Company) Income included under the
Head of Business, Profession or Vocation: Service Fees, Sales of Goods, Net Gain from Disposable
of Business Assets, Gain from Disposable of Depreciable Assets, Liabilities Forgone by Trade
Creditors, Business Gift and Presents, Compensation Received in Control of Business, Amount
Received on Accepting Restrictions, Change in Basis of Accounting Method, Gain from Foreign
Exchange Fluctuation, Income of General Insurance, Recovery of Bad Debts, Unpaid amount of
Outstanding Expenses, Compensation Received Against Loss, Deduction of Expenses, General
Deduction, Interest Expenses, Cost of Goods Sold (Trading Stock), Repair and Improvement
Expenses of Depreciable Assets, Pollution Control Expenses, Research and Development Cost,
Depreciation Expenses, Business Losses, Disallowable Expenses, Expenses of Domestic or
Personal Nature. Income taxes Expenses, Fine and Penalty on Breach of Law, Expenses Incurred
for Final Withholding or Tax Exempted Income, Payment in Cash for more than Rs 50,000 at a
time, Distribution of an Income by an Entity, Expenses not relating to Earning of Income, Capital
Expenditure and Capital Loss ,TDS on Dividend , Disallowed Other than Allowed Expenses,
Special Treatment of Bonus Expenses
Unit 8: Income from Employment (Remuneration) LH 8
Concept of Income from Employment (Remuneration), computation of assessable
income from employment, statement of taxable income and tax liability, Inclusion
of Taxable Incomes from Employment: Wage and Salary, Amount in Lieu of Leave,
Amount for Overtime work, Gift relating to Employment, Bonus, Commission,
Allowances: Dearness, Life Subsistence Entertainment, Local Conveyance, Other
personal Allowance, Reimbursement or Settlement of Personal Cost, Other
payments relating to Employment, Amount for accepting any condition in
Employment, Payment for Retirement or Termination or Loss of Employment,
Retirement Payment or Contribution of Retirement Fund, Provident Fund. Facility
of Vehicle, Accommodation, Kitchen man, Guard, Gardener and Domestic helper,
Amount of Food, Snacks, Entertainment, Utilities paid by employer, Interest
Saving on the privileged loan from employer and other amount of employment
Amount not included in Income from Employment Amount received by an
employee for which exemption under Section 10 (ITA-2058), Final Withholding
e.g. meeting allowance, retirement payments and accumulated leave before and
after Income Tax Act 2058, Uniform, Work-time meals or refreshments provided by
the employer in equal terms, Amount prescribed by the Rule, which are too small
below Rs.500 at a time, Outstation cost like Travelling allowance and daily
allowance etc. Deduction in computing Income from employment: Contribution to
provident fund, retirement fund and citizen investment trust, life insurance
premium, Donation and remote area allowance
Unit 9: Tax Administration, Assessment, Tax Audit, Appeals and
Penalties LH 4
 Tax Authorities and Their power
 rights and duties
 Right and duties of taxpayers
 Assessment of Tax
 Self-Assessment
 Jeopardy Assessment
 Amended Assessment,
 Deferred Tax, Administrative Review
 Appeals to Revenue Tribunal
 Fee: non-compliance in documents
 Interest: Non-Payment of Tax
 Fine and Penalties: Penalty for failure to pay tax and false
statement.
Unit 10: Value Added Tax LH 7
 Concept of Value Added Tax
 Types of VAT
 Method of Calculation of VAT
 Development of Value Added Tax
 Value Added Tax in Nepal
 Need to introduce VAT in Nepal
 Threshold and Rate of VAT
 Tax Invoice and Abbreviated Tax Invoice
 Goods and Services exempted from VAT
 Condition for Zero Rate of VAT
 Assessment, Collection and Refund of VAT
 provision of VAT refund of business firm
 Diplomatic entities and Foreign tourist
 Comparative studies of sales tax and value added tax and Role of Value Added
Tax in total revenue in Nepal
Unit 11: Customs and Excise Duty LH 3
 Basic Concept
 Evolution and tax rate structure of Customs and
Excise Duty in Nepal
 Fine an Penalty for false statement
 Pro-forma Invoice
 Commercial Invoice and Pragyapan Patra
 Automated System for Customs Data (ASYCUDA)
Required documents for import and export of goods.
 UNIT I
BASIC CONCEPT
Unit 1: Conceptual Foundation

Meaning of Tax

Tax is a compulsory levy from individuals, households and firms to central or local government. It
is simply a liability to pay an amount to the government. It is a compulsory contribution from
the taxpayers. Tax is computed and paid as prescribed in the law.
Prof Seligman: “A compulsory contribution from a person to the government to defray the
expenses incurred in the common interest of all without reference to special benefit conferred.”
Prof Shirras defined tax “A compulsory contribution to public authorities to meet the general
expenses of the government which have been incurred for the public good and without
reference to special benefits”

Objectives of Tax

1. Raise More Revenue

2. Prevent Concentration of Wealth in a Few Hands
3. Redistribute Wealth for the Common Good
4. Boost up the Economy
5. Reduce Unemployment
Classification of Taxes

1. Direct Tax
A direct tax is a tax paid by a person on whom it is legally imposed. In direct tax,
the person paying ad bearing tax is the same. It is the tax on income and
property. Eg income tax, property tax, vehicle tax, interest tax, expenditure tax
etc.

Merits
1. It is equitable as it is imposed on person as per the propery or income
2. Time, procedure and amount of tax to be paid is known with certainty
3. It is elastic. The government can change the tax rate with the change in the level
of property and income
4. It enhances the consciousness of the citizens.
Demerits
1. It gives mental pinch to the taxpayer as they have to curtail their income to pay
to the government.
2. Taxpayer feel inconvenience as the government imposes tax progressively
3. Tendency to evade tax may increase to avoid tax burden
4. It is expensive for the government to collect tax individually
2. Indirect Tax
An indirect tax is a tax imposed on one person but partly or wholly paid
by another. In indirect tax, the person paying and bearing the tax is
different. It is the tax on consumption or expenditure.

Merits
1. It is convenient as the taxpayer does not have to pay a lump sum
amount for tax
2. There is mass participation. Each and every person getting goods or
services has to pay tax
3. There is less chance of tax evasion as the taxpayers pay the tax
collected from consumers.
4. The government can check on the consumption of harmful goods by
imposing higher taxes

Demerits
1. It is uncertain. As demand fluctuates, tax will also fluctuates
2. It is regretful as the tax burden to the rich and the poor is same.
3. It has bad effect on consumption, production and employment .
4. Most of the taxes are included in the price of goods and services. As a
result, taxpayer do not know how much tax they are paying to the
government.
Canons of Taxation
1. Canon of Equality or Equity
 Tax should be imposed on the basis of tax paying capacity of the individuals
 Burden of tax should be fair.
 Thus, rich people must be charged higher taxes than poor
 The higher the income , higher the tax

2. Canon of Certainty
 Taxpayer should be certain regarding the time of payment, amount to be paid, method
of payment, place of payment, authority to whom tax is to be paid
 It creates confidence in the contributor of the tax

3. Canon of convenience
 Tax should be collected in such a way that it provides maximum convenience to the
taxpayers
 The authorities should always keep this point in view that the taxpayers suffer the least
inconvenience in payment of tax. For eg land tax should be collected at the harvest time
4. Canon of economy
 It states that the collection expenses of tax should be less than the amount of tax
collected so that a surplus to public revenue is generated
 The amount that goes from the taxpayers should not differ greatly with the amount that
actually goes to government treasury.
5. Canon of productivity
 Fund raised through taxes should be utilized by the government in productive
sector of the economy so that the taxpayers can see the utilization of their hard
earning
 According to this principle, it is better to impose a few productive taxes than
to go in for a large number of unproductive taxes.
6. Canon of elasticity
 Tax should be imposed in such a way that the amount to be collected can be
increased or decreased from time to time
 The government can easily changes the tax rate as per the need of the country.

7. Canon of Diversity
 Tax should not depend only one source of income
 Government should imposed taxes on various sources

8. Canon of Simplicity
 Tax should be simple and understable to general public
 There should be no administrative hassles
 The tax payment procedure should not be too lengthy.
9. Canon of Neutrality
 Tax should be balancing, it mean to say that
the tax must not have any inflationary or
deflationary effect on the economy
 The government should impose heavy taxes on
harmful products and less tax on basic goods
10. Canon of Coordination
 It states that there should be coordination
among various taxes raised in the country
 Taxpayers should not be imposed taxes of
similar nature by various tax authorities (i.e
central and local level)
 Historical Development of Income Tax Laws in Nepal
 Although, the taxes were collected in various form in ancient era, the
history of tax is not very old in Nepal.
 The idea of introducing income tax in Nepal originated in the early 1950s
when a multi- party democratic political system was introduced.
 In 1951. The finance minister in his budget speech declared the intention
of the government to levy as income tax.
 Attempts were made to introduce income tax in subsequent years in 1954,
an income tax with Rs. 10000 basis allowance and progress tax ranging
from 5 to 25% was proposed.
 Due to political instability it could not be introduced until 2057(2000).
 The first elected government in 1959 finally introduced Business profit and
salaries tax Acts, 1960 in Nepal.
 At that time, income tax was levied only on business profit and salaries.
 After about three years experience of income tax, the government replaced
the prevailing tax Act by income tax Act 1962.
 The coverage was extended in Act. In 1974, income tax Act,
19749(2031) was enacted.
 The Act remunerated income source into five groups, a) agriculture, b)
industry trade, profession or occupation, c) remuneration, d) house and
compound rent, e) other sources.
 However, agriculture income was kept outside the income tax net except
few years through the finance Acts.
 To enhance revenue mobilization through effective revenue collection
procedure for the economic development of the nation and to amend and
integrate the laws relating to income tax, the parliament of Nepal enacted
income tax Act, 2002 (2058).
 This act has replaced Income tax Act, 1974 (2031), which was amended
for eight times and existed for a period of 28 years.
 The Government of Nepal framed income tax rules 2059 in 2059 to help
clarifying the Act.
 Nepal is adopting various strict policies to collect income tax.

Features of Income Tax Act 2058
 All tax related matters within one act
 Broad tax base
 Deduction of related expenses
 Block base depreciation
 Introduction of capital gain tax
 Liberal provision relating to set off and carry
forward loss
 Tax on dividend
 Method of stock valuation
 Provision of medical tax credit
 Provision of international taxation
 Residential status
 Self tax assessment system
UNIT 2
DEFINITION OF BASIC TERMS