chhatramani/Nepal-Legal-Text-Corpus-44laws huggingface dataset:
Income Tax Act 2058

Chapter 6 Tax Accounting and Time

Section 22 : Method of tax accounting
1) The matter when any person gets any income or makes any expense shall be determined in accordance with the widely recognised accounting principle, subject to this Act.
2) A natural person shall, while computing the income to be earned from his employment and investment, maintain accounts on the cash basis, for purposes of tax.
3) A company shall maintain accounts on an accrual basis for purposes of tax.
4) Except if the Department has otherwise specified by issuing a notice in writing, any person may, for purposes of income tax, maintain accounts on the cash or accrual basis, subject to sub-sections (1), (2) and (3).
5) Any person may make an application to change the method of accounting for tax purposes, subject to sub-sections (2) and (3). If the Department thinks that it is necessary to change the method of accounting to clearly show the income of such person, the Department may give permission to change the method of accounting.
6) If the method of accounting of any person for purposes of tax is changed pursuant to sub-section (5) in computing the income of that person in the income year when such change is made, the adjustment has to be so made that no amounts out of those included, deducted or to be included or deducted are omitted or duplicated.

Income Tax Act 2058

Chapter 6 Tax Accounting and Time

Section 23 : Cash basis accounting
1) Any person shall, in maintaining accounts on the case basis of his income earned from employment, business or investment for tax purposes, subject to this Act, do as follows:-
(a) To treat as income only that which is received at the time when payment is received by him or made available to him and include it in his income.
(b) To deduct for expense only after he pays out.
Income Tax Act 2058

Chapter 6 Tax Accounting and Time

Section 24 : Accrual basis accounting
1) Any person shall, in maintaining accounts on the accrual basis of his income earned from business or investment subject to this Act, for purposes of tax, any income shall be included in the computation of his income, considering that any payment has been received immediately when the right to receive such payment is created.
2) For purposes of making a deduction in computing  income earned by any person as mentioned in sub-section (1), the following expenses shall be deemed to have been borne:-
a) If any payment involving such expenses has been made in lieu of a payment made by any other person, the expenses shall be deemed to have been borne in the following conditions:-
(1) The person has the liability to make that payment,
(2) The value of such liability can be ascertained in a realistic manner, and
(3) Payment has been received from another person.
b) In all other circumstances except those mentioned in clause (a), an expense shall be deemed to have been borne at the time when payment is made.
3) Notwithstanding anything contained in sub-section (1), the Department may recognise the accounting specified by the Nepal Rastra Bank with respect to the banking business, subject to the Nepal Rastra Bank Act, 2058 and prevailing laws relating to banking.
Provided that a cooperative organisation may keep an accounting of interest income on a cash basis.
4) Where, in computing on the accrual basis, the income earned by any person from a business or investment, any payment receivable by that person is included, or any payment to be borne by that person is deducted, and a difference occurs in the amount received or paid by that person because of,
inter alia,
the difference in the exchange rate, the difference has to be adjusted in receiving or making payment.
Income Tax Act 2058

Chapter 6 Tax Accounting and Time

Section 25 : Reverse of the amounts including bad debts
1) When maintaining accounts of the amounts received and expenses borne in the computation of the income earned by any person from any employment, business or investment, the person has to make proper adjustments at the time of reimbursement, recovery, relinquishment of claim, writing off, or remission in any of the following circumstances:-
a) Where the person pays back such amount or recovers the expense, as the case may be,
b) Where the accounts of the amount received have been maintained on the accrual basis, and the person subsequently relinquishes his right to receive that amount or where that amount is a debt claim of that person, and he writes off the debt as a bad debt, or
c) Where the accounts of the expense incurred have been maintained on the accrual basis, and the person subsequently relinquishes his liability to incur such expense or where that expense is a debt claim, the person for whom the debt is to be repaid remits the debt.
2) Any person may relinquish the right to receive any amount or to write off the debt liability of that person as a bad debt only in the following circumstances:-
a) In the case of a debt claim of any financial institution or bank, the debt claim is converted into a bad debt as per the specified criteria and
b) If, after having followed all proper measures to receive payment in circumstances other than those referred to in clause (a), that person is reasonably satisfied that the right or debt claim cannot be realised or recovered.

Income Tax Act 2058

Chapter 6 Tax Accounting and Time

Section 26 : Method of deriving average of amounts includible and deductible under long-term contract
1) For purposes of computing the income earned by any person from any employment, business or investment in any income year, the estimated amounts includible and deductible according to the sum of sequential increase as per the percentage of completion of the contract under the long-term contract of that person, shall be deemed to have been received or spent.
Explanation: For purposes of this section, “long-term contract” means a contract of the following nature”:-
(a) A contract with a validity period of more than twelve months, and
(b) A contract with a deferred consideration except a contract which is concluded for production, installation or construction or for the discharge for relevant services for each of such works or which does not contain such elements.
2) A contract with a deferred consideration, a contract to be included according to the sum of sequential increase, a contract to be deducted according to the sum of sequential increase, an excluded contract and a contract of completion percentage shall be as prescribed.
Income Tax Act 2058

Chapter-7 Quantification, Allocation and Characterisation of Amounts

Section 27 : Quantification of amounts
1) Any payment has to be quantified equal to the following amount:
a) In the case of a payment made by way of transferring property by any person to another person, amount equal to the market value of the transferred property,
b) The amount to be determined as prescribed for the payment made for the provision of the following matters or the amounts to be determined pursuant to clause (e) where there is no provision for determining the amount:-
(1) A motor vehicle used or made available for use for personal purposes of the recipient of payment in full or in part or
(2) A building made available for the recipient of payment.
c) The amount which remains by deducting the contributions of the recipient of payment from the expenditure made by the person making payment for the provision of the following:-
(1) The services of a caretaker of the house, cook, driver, gardener or other domestic assistant,
(2) Any food, drinking or entertainment, or
(3) Services like water, electricity, and telephone installed in the residence of the recipient.
d) If the interest paid by any person who has to receive payment in any income year for a loan is less than the amount of interest to be paid as per the prevailing interest rate, the amount to the extent of such a less,
e) In respect of a payment except the payment referred to in clauses (a), (b), (c) and (d), if a third person receives payment instead of the recipient of payment, the amount equal to the value of benefit derivable generally.
2) The time when payment is earned, received, made, borne or otherwise worked out for tax purposes in respect of clauses (a) and (e) of sub-section (1) shall be the time when the quantification of amounts has been made.

Income Tax Act 2058

Chapter-7 Quantification, Allocation and Characterisation of Amounts

Section 28 : Conversion in money
1) If the income of a person and the amounts to be included and deducted in assessing the income has been quoted in other currencies except Nepali rupees, such amounts have to be converted into Nepali rupees.
2) If the amounts to be included or deducted in computing the income of any person in any income year have been quoted in other currency except Nepali rupees, such currency has to be converted into Nepali rupees as per the exchange rate prevailing at the time when the amount was received, expended, paid, or otherwise worked out for tax purposes.
3) Notwithstanding anything contained in sub-section (2), if the Department has, by issuing a notice in writing, given permission for purposes of that sub-section, any person may apply the average exchange rate prescribed by the Department.

Income Tax Act 2058

Chapter-7 Quantification, Allocation and Characterisation of Amounts

Section 29 : Indirect payments
If any person gets an indirect benefit from the payments made by the payer or a person associated with him or her or specifies other person to receive the payment, the Department may, by issuing a notice in writing, treat such other person or specified person as the recipient of the payment.
Income Tax Act 2058

Chapter-7 Quantification, Allocation and Characterisation of Amounts

Section 30 : Investment under joint ownership
Any person shall allocate the amounts to be included or deducted in computing the income for purposes of computing the income earned from the investment under joint ownership with other persons on the basis of the proportion of the respective interests of the joint owners in that investment.

Income Tax Act 2058

Chapter-7 Quantification, Allocation and Characterisation of Amounts

Section 31 : Characterisation of payment for compensation
If any person or his associated person has received any compensation amount for the following matters, including payments for insurance, at the time of receipt of the amount for the compensation, such amount has to be included, as the case may be, in computing the income earned from employment, business or investment:-
(a) Compensation for any income earned or likely to be earned by that person from any business or investment or for any amount to be included in the computation of that income or
(b) Compensation for any loss suffered or likely to be suffered by that person from any business or investment or for any expenses to be deducted in the computation of that income.
Provided that,
1) The amount of payment of compensation for physical damage of the resident individual from personal accident shall not be included in the income and such expenses in treatment of damage from such accident shall not be claimed for tax adjustment pursuant to Section 51.
2) The compensation amount to be received for the death of a natural person in the income.
Income Tax Act 2058

Chapter-7 Quantification, Allocation and Characterisation of Amounts

Section 33 : Price transferring and other arrangements between associated persons
1) If any provision is made between the associated persons and the provision is operated as per arm’s length, the Department may, by issuing a notice in writing, distribute, appropriate or allocate the amounts to be included or deducted in computing the income between those persons in such a manner as to reflect the taxable income or the payable tax that could be set for them.
2) In carrying anything mentioned in sub-section (1), the Department may do as follows:-
a) To re-characterise any income, loss, amount or source and type of payment or
b) Where various expenses, including main office expenses, which any person had to incur to operate any business have yielded benefits to the associated person or persons, to allocate such expenses between the associated persons on the comparative basis of the turnover of the business.

Income Tax Act 2058

Chapter-7 Quantification, Allocation and Characterisation of Amounts

Section 34 : Division of income
1) If any person attempts to divide his income with another person and it appears that it will anyhow lessen the payable tax, the Department may, in order not to allow such less in liability, have the amounts to be included or deducted in computing the income of each person adjusted by giving a notice in writing.
2) The transfer of the following amounts by one or more interposed entities directly or indirectly between persons and associated persons as mentioned in sub-section (1) and circumstances where attempts are made to divide income to lessen the tax required to be paid by the persons or associated persons by virtue of that transfer shall also be included:-
a) The amounts to be received and expenses to be incurred, or
b) The amounts to be received or used from any property by the transferee of that property or expenses incurred or payment made by that person for the acquisition of ownership of that property.
3) In determining whether or not any person has attempted to divide any income pursuant to sub-section (2), the Department shall take the market value of any payment made for the transfer as the basis.

Income Tax Act 2058

Chapter-7 Quantification, Allocation and Characterisation of Amounts

Section 35 : General rule against tax avoidance
For purposes of ascertaining the tax liability pursuant to this Act, the Department may carry out the following:
(a) To re-characterise any arrangement or any part of such arrangement made or attempted to be made as a part of a tax avoidance scheme,
(b) To disregard any arrangement or any part of such arrangement that does not show any substantial effect or
(c) To re-characterise any arrangement or any part of such arrangement that does not show any substantial element.
Explanation: For purposes of this Section, “tax avoidance scheme’ means any arrangement with a main objective to have avoidance of tax liability or to lessen the tax liability.
Income Tax Act 2058

Chapter 8 Assessment of Net Profit from Property and Liability

Section 37 : Profit and loss made from property and liability
1) The profit derived by any person from the disposal of any property or liability has to be computed, considering it to be the extent that the sum of the income derived from that property or liability exceeds the sum of the outgoings for that property or liability at the time of disposal.
2) The loss suffered by any person from the disposal of any property or liability has to be computed, considering it to be the extent that the sum of the outgoings for that property or liability exceeds the sum of the income earned from that property or liability at the time of disposal.

Income Tax Act 2058

Chapter 8 Assessment of Net Profit from Property and Liability

Section 38 : Expenses and net expenses for property and liability
1) The following expenses shall be included in the expenses for the property or liability of any person subject to this Act:-
a) In respect of any property, the expenses made by that person in acquiring that property, inclusive of the following amounts:-
(1) The related expenses made in the construction and production of that property, and
(2) Any amount required to be included in the computation of the income of that person as a result of the acquisition of such property.
b) The expenses made by that person in obtaining the ownership of that property or liability, inclusive of the expenses incurred in the alteration, improvement, repair and maintenance of the property or liability, and the expenses in the repair and maintenance of the property,
c) The expenses made by him in the disposal of the property or liability and
d) Casual expenses made by him in acquiring the property or bearing liability and disposing of such property or liability.
Provided that the expenses referred to in clauses (a), (b), (c), (d), and (e) of sub-section (1) of Section 21 and the expenses that are allowed to be deducted in the assessment of income are not required to be included in such expenses.
2) The net expenses for any property or liability at any particular time shall be so computed as to consider the amounts to the extent of the excess of the sum of all expenses for that property or liability than the sum of all incomes for that property or liability at that time.
3) The amount of expenses to be deducted in computing the income as referred to in Chapter-6 and 7 shall be deemed as if they were made in respect of the expenses for any property or liability and shall be applicable in respect of the expenses referred to in sub-section (1).
Provided that Section 26 shall not apply to the above-mentioned provision.
Income Tax Act 2058

Chapter 8 Assessment of Net Profit from Property and Liability

Section 39 : Income and net income for property and liability
1) The following amounts shall be included in the incomes for the property or liability of any person subject to this Act:-
a) The amounts received, in respect of the liability, by that person bearing the liability,
b) The amounts to be received by that person in acquiring the property or in respect of bearing the liability, including the amounts acquired by altering or lessening the value of the property or increasing the liability and
c) The amounts received or to be received by that person in respect of the disposal of that property or liability.
Provided that the amount exempted from tax, taxable amount, payment subject to tax deduction finally or the amounts to be included in the income in assessing the income of that person shall not be included in such income.
2) The net incomes for any property or liability at any time shall include the amounts to the extent of the excess of the incomes for that property or liability than the sum of all expenses for that property or liability at that time.
3) The amount to be included in the income in computing the income as referred to in Chapter-6 and 7 shall be deemed as if they were made in respect of the incomes for any property or liability and shall be dealt with pursuant to sub-section (1).
Provided that Section 26 shall not apply in respect of the above-mentioned provision.
Income Tax Act 2058

Chapter 8 Assessment of Net Profit from Property and Liability

Section 40 : Disposal of property or liability
1) If the ownership of any person over any property ceases, he shall be deemed to have disposed of that property. The disposal of the property has to include acts such as distribution of the property by the owner of the property, an amalgamation of the property in other property or liability, sale of the property in instalments or lease out to any other person under a financial lease, cancellation, destroy, loss, expiration or surrender of the same.
2) If the burden of liability of any person ceases, he shall be deemed to have disposed of that liability. The disposal of liability has to include acts such as settlement, cancellation, release and completion of the liability or amalgamation of liability in other liability or property.
3) Notwithstanding anything contained in sub-sections (1) and (2), any person shall be deemed to have disposed of any property or liability in the following circumstances:-
a) In respect of a natural person, immediately before the death of that person,
b) In respect of any property, if the sum of the incomings for that property exceeds the sum of the outgoings for that property,
c) In respect of any property subject to debt claim,-
(1) If it has become a bad debt as per the standards as prescribed in respect of a debt claim of a bank or financial institution and
(2) If, in any other circumstance, that person has reasonably believed the debt claim as non-recoverable.
Provided that the person has to have already pursued all proper measures to recover that debt claim.
d) If any person has started using a business asset, non-business taxable assets, depreciable property or stock-in-trade in a manner to alter the type thereof immediately before the use of the altered form of that property,
e) In the circumstances referred to in Section 57 in respect of any entity and
f) Immediately before that person has become a non-resident person, except the land or building situated in Nepal.
4) If any person disposes of any property by leasing it under a financial lease pursuant to sub-section (1), the lessee of that property shall be deemed to have acquired the ownership of that property at the time of disposal.
5) The following provisions shall apply for purposes of computing the profits derived by any person from the disposal of the property or liability:-
a) The amounts of net expenses for any property under ownership of any person at the time of commencement of this Act shall be deemed to be equal to the market value of the property prevailing at that time,
b) The amounts of net incomes for liability of any person at the time of commencement of this Act shall be deemed to be equal to the amount as per the market value of the liability prevailing at that time.