Income Tax Act 2058

Chapter 4 Exemptible Amounts and Other Exemptions

Section 11 : Professional exemptions and facilities:
1) No tax shall be levied on an income earned by carrying on an agricultural business by getting one registered as a firm, company, partnership or corporate body and on agricultural income other than that earned from an agricultural business in the land as referred to in clauses (d) and (e) of Section 12 of the Act relating to Land, 2021.
Provided that fifty percent tax shall be exempted in earnings from agriculture by any registered firm, company, partnership or corporate body.
2) No tax shall be levied on the income of a cooperative organisation and saving and credit cooperative organisation or institution which has been registered and operated under the Cooperatives Act, 2074 and which carries on professional forest-related business like the agricultural industry as agricultural or forest-based industries such as sericulture and silk production, fruits farming, production and fruits processing, animal husbandry, dairy industry, poultry farming, fishery, tea gardening and processing, coffee farming and processing, herbiculture and herb processing, vegetable seeds farming, beekeeping, honey production, rubber farming, leasehold forestry, agro-forestry etc., cold storage established for the storage of, vegetables, agro-seeds, pesticides, fertilisers and agricultural inputs (except those operated with mechanical power), and cooperative in the area of the Rural Municipality or income of the federation. No tax shall also be levied on the dividends distributed by such organisation or institution.
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2A) No tax shall be levied in interest income up to twenty-five thousand rupees per year if it is generated from the deposits in a micro-financial institution, rural development bank, postal saving bank and cooperative pursuant to sub-section(2).
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2B) Exemption from tax on the income earned by a special industry in full operation throughout the year in any income year shall be as follows:
a) By one-third of the tax if tax is levied at the rate of thirty percent on the income of a resident natural person,
b) by twenty percent on tax leviable on the income of an entity,
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c)…………
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3) Tax shall be levied as follows on the income earned by any person from a special industry and information technology industry in any income year:
a) If the person gives direct employment to a hundred or more Nepali citizens throughout the year, ninety percent of the rate of tax leviable on the income of that year, if the person gives direct employment to three hundred or more Nepali citizens throughout the year, eighty percent of the rate of tax leviable on the income of that year, if the person gives direct employment to five hundred or more Nepali citizens throughout the year, seventy-five percent of the rate of tax leviable on the income of that year, if the person gives direct employment to one thousand or more Nepali citizens throughout the year, seventy percent of the rate of tax leviable on the income of that year,
Provided that an additional ten percent exemption shall be provided if the person gives direct employment to one hundred or more Nepali citizens throughout the year, including thirty-three percent from among women,
Dalits
or persons with disability.
b) If a special industry has been operated in remote, undeveloped and least developed areas, respectively, ten, twenty and thirty percent of the tax leviable on the income of the years for up to ten years from the date of commercial production or transaction by that industry started operating.
Provided that the special industry established in hilly districts of  Karnali Province and Sudurpaschim Province, providing direct employment to more than hundreds of Nepali citizens shall be exempt from income tax for a period of fifteen years from the date of commencement of its transaction.
c) If an industry is established with an investment of more than one arba rupees and providing direct employment to more than five hundred, such special industry and tourism industry (expect casino) shall be provided with a full income tax exemption for five years from the date of starting of its transaction and fifty percent for the three years afterwards,
Provided that if the industry in operation at present increases its installed capacity by at least twenty-five percent, makes its capital two arba rupees, and provides direct employment to more than three hundred, income tax exemption shall be provided in the income so earned from capacity enhancement for five years and fifty percent shall be exempted in tax for the three years afterwards.
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3A) Exemption shall be made from the income tax in the income of the industry established in the special economic zone and tax on dividends distributed by such industry as follows:
a) The industry established in a special economic zone in the mountainous district and hilly district as specified by the Government of Nepal; such special  industry shall be provided with a hundred percent income tax exemption for ten years from the date of starting its transaction and fifty percent afterwards,
b) The industry established in special economic zones in other areas except that mentioned in clause (a) by the Government of Nepal, such industry shall be provided with hundred percent income tax exemptions for five years from the date of starting of its transaction and fifty percent afterward,
c) Dividends distributed by the industry established in the special economic zone, tax exemptions on such dividends shall be hundred percent for five years from the date of starting of its transaction and fifty percent for three years afterwards,
d) Income by the foreign investors from foreign technology or management service charge or royalty in the industry established in the special economic zone, fifty percent of such income tax,
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3B) If a person having a transaction in the exploration and excavation of minerals, petroleum substance, natural gas and fuel continues the commercial transaction till Chaitra of 2080, the whole income tax shall be exempted for the first seven years from the date of operation of its transaction, and fifty percent exemption shall be granted for three years afterwards.
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3C) The industry related to software development, data processing, cyber cafes, and digital mapping established in the operation of the zoological, geological, biotech-related park, technological park specified by the Government of Nepal by notification in the Nepal Gazette shall have a fifty percent exemption from income tax.
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3D) The person having commercial transaction of electricity shall be provided with tax exemption as follows:
a) The licensed person or entity commencing commercial production, transmission or distribution of hydropower, electricity produced from solar, wind and biological substance till Chaitra of 2084 shall be provided full income tax exemption for the first ten years and fifty percent exemption for another five years afterwards,
Provided that in the case of hydroelectric projects with more than forty megawatts (MW) of water bodies and semi-water bodies that have completed financial closure by the Chitra 2085 and are being operated in tandem with those projects, fifty percent income tax exemption will be available for the entire first fifteen years and for six years thereafter.
b) Notwithstanding anything contained in clause (a), the license holder that has already commenced commercial production at the time of commencement of this sub-section, the provision prevailing at the time of issuance of the license shall apply.
3E) Tax exemption on income earned from export in any income year from a source in Nepal shall be as follows:
a) If tax is chargeable at the rate of twenty percent on the income of a natural person resident, twenty-five percent of that tax, and if thirty percent is taxable, fifty percent of that tax.
b) Twenty percent of tax leviable on the income of an entity,
c) If a person earns foreign currency by exporting information technology-based services such as business process outsourcing, software programming, cloud computing, etc., then he will be taxed up to fifty percent of the income earned in foreign currency up to the year 2084/ 85.
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3F) There shall be a rebate in tax for ten years from the date on which a business is carried on on the income derived from it by an entity acting in accordance with the following:
a) Forty percent, in the case of operation of a tram or trolley bus
b) Forty percent, in the case of the build and operation of a ropeway, cable car, railway, tunnel or sky bridge,
c) Fifty percent, in the case of construction and operation of a road, bridge or tunnel, railway, or airport.
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3G) ) The production-based, tourism service, hydropower generation, distribution and transmission entities enlisted in the securities market and the entities mentioned in sub-section (3c) of Section 11 shall have a fifteen percent exemption from the payable tax.
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3H) The industry established in the remote and undeveloped areas producing brandy, cider, and wine based on fruits shall have forty and twenty-five percent exemptions, respectively, from income tax for ten years from the date of commencement of the transaction.
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3I) Any person receiving royalty income from the exportation of intellectual property shall have a twenty-five percent exemption at the rate of income tax leviable on such income.
3J) Any person receiving income from the sale through the transfer of intellectual property shall have a fifty percent exemption at the rate of income tax leviable on such income.
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3K) The industry related to tourism or the airline company operating international flights shall be provided with tax exemption as follows:
a) Established with a capital investment of more than one arba rupees shall have a full exemption for five years from the date of commencement of the transaction and a fifty percent exemption at the rate of leviable income tax for three years afterwards.
b) Established with a capital investment of more than three arab rupees shall have a full exemption for ten years from the date of commencement of the transaction and a fifty percent exemption at the rate of leviable income tax for five years afterwards.
c) Established with a capital investment of more than five arab rupees shall have a full exemption for fifteen years from the date of commencement of the transaction.
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3L) If a special industry or industry related to the tourism sector capitalizes its accumulated profit into shares for an increase in the capacity of the same industry, there shall be a full exemption from the dividend tax leviable in the distribution of dividends from such capitalization.
3M) If any company having a paid-up capital of fifty crore rupees or more operating as a private company converts into a public company and operates its transaction, it shall have a ten percent exemption from the leviable tax for three years from the date of its conversion into a public company.
Provided that a company required to be incorporated as a public company under Section 12 of the Company Act, 2063 (2006) shall not have the facility referred to in this sub-section.
3N) A domestic tea-producing and processing industry, the dairy industry having transactions in milk products, or the textile industry shall have a fifty percent exemption at the rate of income tax leviable on the income earned from the sale of its products.
3O) A health institution operated by a community institution shall have a twenty percent exemption from its taxable income tax.
3P) A micro-enterprise shall have full exemption from leviable income tax for seven years from the date of commencement of its business or transaction. If such a micro-enterprise is operated by a woman entrepreneur, it shall have a full exemption from leviable income tax for an additional three years.
3Q) If any entity in any income year operates any project, such as building and operating a public infrastructure to be transferred to the Government of Nepal or building a powerhouse, generation and transmission of electricity, such entity shall have a twenty percent tax exemption from its taxable income.
3R) The special industry established and operated in an industrial area or industrial village shall have a fifty percent tax exemption for three years of commencement of its transaction and a twenty-five percent tax exemption for five years afterwards.
3S) Twenty percent tax exemption shall be provided in the income earned by selling raw materials or associated raw materials produced domestically to the special industry.
3T) The start-up business using new changing knowledge, thought, and skills having annual transactions of up to one crore, as prescribed by the Department, shall be provided with a hundred percent tax exemption for five years of commencement of its transaction.
3U) Whereas any special industry operated in Kathmandu Valley is translocated outside the valley and operated thereto, a hundred percent tax exemption shall be provided for three years of such translocation and a fifty percent tax exemption for two years afterwards.
3V) The industry producing new goods only from the raw materials of used goods having a direct impact on the environment shall be provided with a tax exemption of fifty percent for the first three years of the commencement of the transaction and twenty- five percent for two years afterwards.
3W) )The industry producing immunization vaccine, oxygen gas and sanitary pads shall be provided with a tax exemption of hundred percent from the date of commencement of its transaction and fifty percent for two years afterwards.
3X) For the purpose of manufacturing and assembling electric vehicles, the industry to be established by the end of the year 2082 will be exempted from forty percent tax for five years from the date of commencement of business.
3Y) For the purpose of producing agricultural implements, the industry to be established by the month of April 2082 will be fully exempted from tax for five years from the date of commencement of business.
4) If any person carries on transactions qualifying for different tax exemption facilities pursuant to this Section, income shall be computed to obtain such facility as if that income were derived by separate persons.
5) A person who is in a position to have more than one exemption in respect of the same income pursuant to sub-section (2B) shall enjoy only one exemption chosen by him or her.
6)    Notwithstanding anything contained in Sub-section (3), if any other person has used the properties used to operate the industry referred to in clause (b) for the operate the industry referred to clause (b) for the operation of the industry of the same type previously, the period during which they have been so used shall also be reckoned while reckoning the time-limit referred to in that Sub-section.
Explanation:
For purposes of this Section:-
(a) “Agricultural business” means a business of producing crops from public or private land or acquiring rent or crops from a tenant using the land.
(b) “Least developed”, “undeveloped”, and “underdeveloped area” means the areas as referred to in Schedule-10 of the Industrial Enterprises Act, 2076.
(c) “Special industry” means a production-oriented industry as classified in sub-section (2) of Section 17 of the Industrial Enterprises Act, 2076, other than any industry producing cigarette,
Bidi
, cigar, tobacco,
Khaini
, G
utkha, Pan Masala,
other goods of the same nature involving tobacco as the principal raw materials, liquors, beer and products of similar kind.
(d) “Micro-enterprise” means any micro-enterprise classified in clause (a) of sub-section (1) of Section 17 of the Industrial Enterprises Act, 2076.
(7) Notwithstanding anything contained in sub-sections (3a) and (3c), if the property used in the operation of the industry or business mentioned in the same sub-sections is an old property used by other people for the operation of industry or business of the same kind or other kinds, the facilities referred to in those sub- sections shall not be available.
1 Inserted by the Financial Act, 2075
2 Extracted from the Financial Act, 2080
3Inserted by the Financial Act, 2078
4 Amended by the Financial Act 2077.