chhatramani/nepal_legal_acts_corpus_english huggingface dataset:
Casual gain. 6. repealed by the Finance Act, 2063. Determinable Income: Subject to this Act, the following income from any employment, business, investment, or casual gain of any person in any income year shall be considered determinable income:-
 (a) Income from employment, business, investment, or casual gain of a resident person, regardless of the source of income,
 (b) Income from employment, business, investment, or casual gain of a non-resident person, where the source of income is in Nepal. Provided that any income exempted under Section 11 or Section 64 or both sections shall not be included in determinable income. Chapter-3

Calculation of Income

7. Calculation of Income from Business: (1) The profit and gains of any person from the operation of any business in any income year shall be the income of that person from that business for that year. added by the Finance Act, 2063.
(2) When calculating the profit and gains of any person from the operation of a business in any income year, the following amounts received within that year shall be included:-
 (a) Service fees,
 (b) Amount from disposal of trading stock,
 (c) Net gain from the disposal of a business asset or business liability of any person calculated under Chapter 8,
 (d) Amount deemed to be received from the disposal of a depreciable asset of the business under clause (a) of sub-section (2) of Section 4 of Schedule 2,
 (e) Gift received from any person in relation to the business,
 (f) Amount received for agreeing to any restriction in connection with the operation of the business,
 (g) Amount received by a person which is directly related to that person's business, even if such amount is of a nature that would be income from investment, and
 (h) Other amounts required to be included under Chapter 6 or 7, or Section 56 or 60.
(3) Notwithstanding anything contained in sub-section (2), amounts exempt under Sections 10, 54, and 69, and final withholding payments shall not be included when calculating profit and gains from the operation of a business. 8.
8. Calculation of Income from Employment: (1) The remuneration received by a natural person from employment in any income year shall be treated as the employment income of that person for that year.
(2) The following payments made by an employer to a natural person in any income year shall be included when calculating the remuneration from employment of such natural person for that income year:-
 (a) Wages, salary, holiday pay, overtime pay, fees, commission, reward, gift, bonus, and payments for other facilities,
 (b) Any personal allowance payment, including dearness allowance, cost of living allowance, rent, entertainment, or transport allowance,
 (c) Payment received as settlement or reimbursement of expenses incurred by the person or their associate for personal purposes,
 (d) Payments made for agreeing to any condition of employment,
 (e) Payments made on termination, loss, or compulsory retirement of employment,
 (f) Retirement payment and retirement contributions, including amounts deposited by the employer in a retirement fund for that employee,
 (g) Other payments made in relation to employment, and
 (h) Other amounts required to be included under Chapter 6 or 7.
(3) Notwithstanding anything contained in sub-section (2), the following shall not be included when calculating the remuneration from employment of a natural person:-
 (a) Amounts exempt under Section 10 and final withholding payments,
 (b) Food and snacks provided to employees at the workplace by the employer, available to all employees on equal terms,
 (c) Settlement or reimbursement of expenses incurred by an employee for:-
 (1) Expenses that serve the business purpose of the employer, or
 (2) Expenses that are exempt or deductible in the calculation of income from the natural person's business or investment,
 (d) Payments of small amounts as prescribed, where keeping accounts is impractical or administratively difficult. Explanation: For the purpose of this section, "payment" means a payment made:-
 (a) By the employer,
 (b) By an associated person of the employer, and
 (c) By any third party in accordance with an agreement with the employer or its associated person. 9.
Explanation: For the purpose of this section, "payment" means a payment made:-
 (a) By the employer,
 (b) By an associated person of the employer, and
 (c) By any third party in accordance with an agreement with the employer or its associated person. 9. Calculation of Income from Investment: (1) The profit and gains made by any person from investment in any income year shall be the income of that person from that investment for that year. amended by the Finance Act, 2076.
(2) When calculating the profit and gains made by any person from investment in any

However, such industries currently in operation shall, by increasing at least twenty-five percent of the installed capacity and amended by the Finance Act, 2076.by making the capital two billion rupees and providing direct employment to more than three hundred persons throughout the year, be granted a full exemption of income tax on the income derived from such capacity expansion for a period of five years, and thereafter, a fifty percent exemption on the tax payable for the subsequent three years. Inserted by the Finance Act, 2076.(3a) The exemption on income tax applicable to the income of industries established in a Special Economic Zone and the tax on dividends distributed by such industries shall be as follows:-

(a) One hundred percent of the income tax payable for ten years from the date of commencement of business by an industry established in a Special Economic Zone located in a Himalayan district and a hilly district specified by the Government of Nepal, and fifty percent of the income tax payable in the subsequent income years,

(b) Inserted by the Finance Act, 2076.One hundred percent of the income tax payable for five years from the date of commencement of business by an industry established in a Special Economic Zone located in areas other than those mentioned in clause (a), and fifty percent of the income tax payable in the subsequent income years,

(c) One hundred percent of the tax on dividends distributed by an industry established in a Special Economic Zone for five years from the date of commencement of business, and fifty percent for the subsequent three years,

(d) Fifty percent of the income tax on income earned by foreign investors of an industry established in a Special Economic Zone from foreign technology or management service fees and royalties.
Inserted by the Finance Act, 2076.(3b) A person engaged in the business of exploration and extraction of minerals, Inserted by the Finance Act, 2076.petroleum products, natural gas, and fuel shall, if commencing commercial operations by the month of Chaitra of the year 2080, be entitled to full exemption of income tax for the first seven years from the date of commencement of operations and fifty percent exemption of income tax for the subsequent three years. Inserted by the Finance Act, 2076.(3c) There shall be Inserted by the Finance Act, 2076.seventy-five percent exemption from tax on the income of industries related to Inserted by the Finance Act, 2076.software development, data processing, cyber cafes, digital mapping established within a Zoological Park, Geological Park, Biotechnology Park, Technology Park, and Information Technology Park specified by the Government of Nepal by publishing a notice in the Nepal Gazette. Inserted by the Finance Act, 2076. Inserted by the Finance Act, 2076.(3d) Tax exemption shall be granted to a person engaged in the commercial business of electricity as follows:-

(a) Inserted by the Finance Act, 2076.A person who has obtained permission to commence commercial production, transmission, or distribution of electricity generated from hydropower, solar, wind, and biomass by the month of Chaitra of the year 2084 shall be entitled to full exemption of income tax for the first ten years from the date of commencement of commercial operations, and fifty percent exemption for the subsequent five years. Inserted by the Finance Act, 2076.Provided that, in the case of reservoir and semi-reservoir hydropower projects above forty megawatts for which financial closure is completed by the month of Chaitra of the year 2085, and lower riparian hydropower projects operated in tandem operation with such projects, there shall be full exemption of income tax for the first fifteen years and fifty percent exemption for the subsequent six years.

(b) Notwithstanding anything contained in clause (a), in the case of a licensee who has already commenced commercial production at the time of commencement of this sub-section, the provision prevailing at the time of obtaining the license shall remain applicable.
Inserted by the Finance Act, 2076.(3e) Tax exemption on income from Inserted by the Finance Act, 2076.exports in an income year from sources in Nepal shall be as follows:-

(a) In the case of income of a resident natural person, if tax is leviable at the rate of twenty percent, twenty-five percent of such tax, and if tax is leviable at the rate of thirty percent, fifty percent of such tax,

(b) Twenty percent of the tax leviable on the income of an entity,

Inserted by the Finance Act, 2076.(c) If a person earns foreign currency by exporting services based on information technology including Business Process Outsourcing, Software Programming, Cloud Computing, then fifty percent of the tax leviable on the income received in foreign currency by such person up to the fiscal year 2084/85. Inserted by the Finance Act, 2076.(3f) An entity performing the following activities shall be entitled to an exemption on the tax leviable for ten years from the date of commencement of commercial operations on the income derived therefrom, as follows:-

(a) Forty percent, if operating a tram or trolley bus,

(b) Forty percent, if constructing and operating a ropeway, cable car, sky bridge,

(c) Fifty percent, if constructing and operating a road, bridge, tunnel, railway, airport. Inserted by the Finance Act, 2076.(3g) Entities listed in the securities market and engaged in manufacturing, tourism services, hydropower generation, distribution and transmission, and entities mentioned in sub-section (3c) of Section 11 shall be entitled to a fifteen percent exemption on the tax leviable. Inserted by the Finance Act, 2076.(3h) Industries established in the least developed region and underdeveloped region for producing fruit-based brandy, cider, and wine shall be entitled to an exemption of forty percent and twenty-five percent of income tax respectively for up to ten years from the date of commencement of business. Inserted by the Finance Act, 2076.(3i) The rate of income tax leviable on royalty income received by a person from the export of intellectual property shall be exempted by twenty-five percent. Inserted by the Finance Act, 2076.(3j) The rate of income tax leviable on income received by a person from the sale of intellectual property through transfer shall be exempted by fifty percent.
Inserted by the Finance Act, 2076.(3j) The rate of income tax leviable on income received by a person from the sale of intellectual property through transfer shall be exempted by fifty percent. Inserted by the Finance Act, 2076.(3k) Industries related to the tourism sector or airline companies operating international flights shall be entitled to tax exemption as follows:-

(a) For an industry established with a capital investment of more than one billion rupees, there shall be a full exemption on the rate of income tax for five years from the date of commencement of business, and a fifty percent exemption for the subsequent three years.

(b) For an industry established with a capital investment of more than three billion rupees, there shall be a full exemption on the rate of income tax for ten years from the date of commencement of business, and a fifty percent exemption for the subsequent five years.

(c) For an industry established with a capital investment of more than five billion rupees, there shall be a full exemption on the rate of income tax for fifteen years from the date of commencement of business. Inserted by the Finance Act, 2076.(3l) Inserted by the Finance Act, 2076.If a Special Industry, Information Technology Industry, or an industry related to the tourism sector capitalizes its accumulated profits into shares for the capacity expansion of the same industry, there shall be a hundred percent exemption on the dividend tax payable in the form of dividend distribution on such capitalization. Inserted by the Finance Act, 2076

Inserted by the Finance Act, 2076.(3m) If a company operating as a Private Company with a paid-up capital of fifty crore rupees or more Inserted by the Finance Act, 2076.converts into a Public Company and carries on business, there shall be a ten percent exemption on the tax leviable for three years from the date of such 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 shall not be entitled to the facility under this sub-section. Inserted by the Finance Act, 2076.(3n) The rate of income tax leviable on income received by industries producing and processing domestic tea, industries dealing in dairy products, and industries producing textiles from the sale of their products shall be exempted by fifty percent. Inserted by the Finance Act, 2076.(3o) There shall be a twenty percent exemption on the tax leviable on the taxable income of health institutions operated by community organizations.
Inserted by the Finance Act, 2076.(3o) There shall be a twenty percent exemption on the tax leviable on the taxable income of health institutions operated by community organizations. Inserted by the Finance Act, 2076.(3p) A micro enterprise shall be fully exempt from income tax for inserted by the Finance Act, 2076.seven years from the date of commencement of business or operations. If such a micro enterprise is operated by a woman entrepreneur, there shall be a full exemption from income tax for an additional inserted by the Finance Act, 2076.three years. Inserted by the Finance Act, 2076.(3q) If an entity, in any income year, undertakes projects such as constructing and operating public infrastructure structures and transferring them to the Government of Nepal, and constructing, generating, and transmitting power houses, such entity shall be entitled to a twenty percent exemption on the tax leviable on its taxable income. Inserted by the Finance Act, 2076.(3r) A Special Industry established or relocated and operating in an Industrial Area or Industrial Village shall be entitled to a fifty percent exemption on the tax leviable for three years from the date of commencement of production, and a twenty-five percent exemption for the subsequent five years. 116(3s) There shall be a twenty percent exemption on tax leviable on income received from selling raw materials or auxiliary raw materials produced domestically to a Special Industry. 117(3t) A start-up business specified by the Department, using innovative knowledge, ideas, skills, technology, practices, and methods, and having an annual turnover of up to ten crore rupees amended by the Finance Act, 2078.shall be entitled to a hundred percent exemption on the tax leviable for five years from the date of commencement of business. 119(3u) If any Special Industry operating in the Kathmandu Valley is relocated and operates outside the Kathmandu Valley, there shall be a hundred percent exemption on the tax leviable for three years from the date of such relocation and operation, and fifty percent exemption for the subsequent two years. 120(3v) An industry that produces new goods using only used goods that have a direct impact on the environment as raw materials shall be entitled to a fifty percent exemption on the tax leviable for the first three years from the date of commencement of business, and a twenty-five percent exemption for the subsequent two years. 121(3w) An industry producing health vaccines, oxygen gas, and sanitary pads shall be entitled to a hundred percent exemption on the tax leviable for amended by the Finance Act, 2078.five years from the date of commencement of production, and a fifty percent exemption for the subsequent two years.
121(3w) An industry producing health vaccines, oxygen gas, and sanitary pads shall be entitled to a hundred percent exemption on the tax leviable for amended by the Finance Act, 2078.five years from the date of commencement of production, and a fifty percent exemption for the subsequent two years. 123(3x) An industry established by the month of Asar of the year 2082 with the objective of producing and assembling electric vehicles shall be entitled to a forty percent exemption on the tax leviable for five years from the date of commencement of business. 124(3y) An industry established by the month of Asar of the year 2082 with the objective of producing agricultural tools shall be entitled to a hundred percent exemption on the tax leviable for five years from the date of commencement of business. 125(3z) An industry producing green hydrogen shall be exempt from income tax for five years from the date of commencement of business. 126(3aa) An industry producing and assembling charging machines for vehicles operated by electrical energy shall be exempt from income tax for five years from the date of commencement of business. 127(3bb) A person constructing or establishing and operating an Industrial Area or Industrial Village shall be fully exempt from income tax for the first ten years from the date of commencement of business, and fifty percent exempt for the subsequent five years. 128(4) If a person carries out transactions eligible for different tax exemption facilities under this section, while calculating income to avail such facility, the income must be calculated considering it as income received by separate persons. 129(5) A person entitled to more than one exemption under this section in relation to the same income shall, in addition to the facility under amended by the Finance Act, 2078.(2a), be entitled to only one exemption of his/her choice.

(6) Notwithstanding anything contained in sub-section (3), if the assets used to operate an industry pursuant to clause (b) of that sub-section were previously used by another person to operate the same type of industry, the period of such use shall also be counted when calculating the time limit under that sub-section. Explanation: For the purpose of this section,-

(а) "Agri-business" shall be understood to mean the business of producing crops from public or private land or receiving rent or crops from a tenant using the land. 131(b) "Least developed", "underdeveloped", and "less developed region" shall be understood to mean the areas mentioned in Schedule-10 of the amended by the Finance Act, 2078.Industrial Business Act, 2076.
131(b) "Least developed", "underdeveloped", and "less developed region" shall be understood to mean the areas mentioned in Schedule-10 of the amended by the Finance Act, 2078.Industrial Business Act, 2076. 133(c) "Special Industry" shall be understood to mean manufacturing, agriculture and forest produce-based industries, and mineral industries classified in sub-section (2) of Section 17 of the amended by the Finance Act, 2078.Industrial Business Act, 2076, excluding industries producing cigarettes, bidis, cigars, chewing tobacco, khaini, gutka, pan masala, other products of a similar nature whose main raw material is tobacco, alcohol, beer, and goods of a similar type. 135(d) "Micro Enterprise" shall be understood to mean a micro enterprise classified in clause (a) of sub-section (1) of Section 17 of the amended by the Finance Act, 2078.Industrial Business Act, 2076. 136(e) "Information Technology Industry" shall be understood to mean industries related to Technology Park, Information Technology Park, Biotech Park, Software Development, Data Processing, Digital Mapping, Business Process Outsourcing, Data Mining, Cloud Computing. 138(7) Notwithstanding anything contained in sub-sections (3a) and (3c), if the asset used to operate the industry or business mentioned in those sub-sections is an old asset previously used by another person to operate the same type or other type of industry or business, the facility under those sub-sections shall not be available. 139 11a. Tax on construction and operation of infrastructure structures: If an agreement is made between the Government of Nepal and any person for the construction and operation of infrastructure structures, the tax facilities provided by the Act in force at the time of making such agreement shall be available to the person constructing and operating such infrastructure for the duration of the agreement. 140 11b. 141 11c. 142

12. Donations made to tax-exempt organizations: (1) A person may, while calculating his/her taxable income for any income year, claim a deduction for the amount donated to a tax-exempt organization approved by the Department for the purpose of this section. 143(2) Notwithstanding anything contained in sub-section (1), the expenditure deductible under that sub-section in any income year shall not exceed the lower of one hundred thousand rupees or five percent of the adjusted taxable income of such person for that year.

(3) Notwithstanding anything contained in sub-sections (1) and (2), the Government of Nepal may, in a specific case, by publishing a notice in the Nepal Gazette, specify that the amount expended or donated by a person for a particular purpose may be deducted wholly or partially from the income of such person while determining his/her income. 144 12a.
144 12a. Expenditure on heritage conservation and sports development: A company may, in any income year, having obtained prior approval of the Department, claim a deduction while calculating its taxable income for that year, of an amount equal to the lower of up to ten lakh rupees of the expenditure incurred on the conservation and promotion of ancient, religious, and cultural heritage located within Nepal or on the construction of public physical infrastructure for sports, or ten percent of its determinable income. 145 12b. Contribution made to the Prime Minister's Disaster Relief Fund and the Reconstruction Fund established by the Government of Nepal: A person may, while calculating the taxable income for any income year, deduct the amount contributed in that year to the Prime Minister's Disaster Relief Fund and the Reconstruction Fund established by the Government of Nepal. 146 12c. Seed capital provided to start-up businesses: If a person provides seed capital grants of up to one lakh rupees per business to a maximum of five start-up businesses, other than related persons, such amount may be deducted as an expense while calculating taxable income. Chapter 5

Deductible Amounts

13. General deduction: A person shall be entitled to deduct the following expenses related to the business, while calculating income from any business or investment in any income year, subject to this Act:-

(а) Incurred in that income year,

(b) Incurred by that person, and

(c) Incurred in the activity of earning income from the business or investment. 14. Interest deduction: (1) A person shall, for the purpose of calculating income from a business or investment in any income year, be entitled to deduct all interest incurred in that year in respect of the following debt obligation created for the purpose of earning business or investment income of that person as amended by the Finance Act, 2078.:-

(а) If a debt obligation is created for borrowing any amount, such amount has been used in the same year or used to purchase any asset used in that year, or

(b) In any other case, leading to the creation of such debt obligation.
148

(2) Notwithstanding anything contained in sub-section (1), if a resident entity controlled by a tax-exempt organization makes interest payment to the controlling person or a related person in any income year, the amount of such interest deductible under sub-section (1) shall not exceed the total of the following amounts:-

(а) All interest amounts received in that year to be included in the calculation of the entity's taxable income, and

(b) Fifty percent of the amended by the Finance Act, 2078.adjusted taxable income of the entity for that year, calculated without including any interest received from the entity or deducting any interest paid to the entity.

(3) Any interest not allowed or not deducted under sub-section (2) may be carried forward and treated as incurred in subsequent income years. Explanation: For the purpose of this section, for any income year, "resident entity controlled by a tax-exempt organization" shall be understood to mean an entity which is a resident entity in that year and in which, at any time during that year, a beneficial ownership or control of twenty-five percent or more is held by the following persons or organizations:-

(а) A tax-exempt organization and a person related to it,

(b) A person exempt from tax under Section 11 in that year or a person related to such person,

(c) A non-resident person or a person related to a non-resident person, or

(d) Any combination of persons mentioned in clauses (а), (b) and (c). 15.
15. Allowance for cost of trading stock: (1) For the purpose of calculating income from a business of a person in any income year, no expense other than the cost allowance calculated under sub-section (2) in respect of the disposal of the business's trading stock in that year shall be deductible.

(2) The cost allowance under sub-section (1) shall be calculated by deducting the amount in clause (b) from the amount in clause (a) as follows:-

(а) The amount obtained by adding the cost of trading stock acquired by the business in that year to the opening value of the business's trading stock in any income year,

(b) The amount of the closing value of the business's trading stock in the income year under clause (а).

(3) The opening value of a business's trading stock in any income year shall be the closing value of that business's trading stock at the end of the preceding income year.

(4) The lower of the following amounts shall be considered as the closing value of the business's trading stock for that income year:-

(а) The cost of the business's trading stock at the end of the income year, or

(b) The market value of the business's trading stock at the end of the income year.

(5) A person, while calculating the cost of trading stock of the business, shall do so subject to Section 45 and sub-section (6), as follows:-

(а) In the case of a person maintaining accounts on a cash basis for calculating business income, by using the prime cost or absorption cost method, and

(b) In the case of a person maintaining accounts on an accrual basis for calculating business income, by using the absorption cost method.

(6) Amended by the Finance Act, 2072.If the trading stock of a person's business cannot be determined, such person may choose to calculate the cost of trading stock using the First-In First-Out method or Weighted Average Cost method.

(7) While calculating the cost of trading stock under sub-section (5), the calculation shall be done as follows:-

(а) When calculating according to the absorption cost method, the cost of trading stock shall be calculated to be equal to the sum of direct material cost, direct labor cost, and factory overhead cost under generally accepted accounting principles.

(b) When calculating according to the prime cost method, the cost of trading stock shall be calculated to be equal to the sum of direct material cost, direct labor cost, and variable factory overhead cost under generally accepted accounting principles.

(8) While calculating the cost of trading stock under sub-section (6), the calculation shall be done as follows:-

(а) When calculating according to the weighted average cost method, the calculation shall be done based on the weighted average cost of all trading stock of the same type in the business under generally accepted accounting principles.

(b) When calculating according to the first-in first-out method, the calculation shall be done on the basis that trading stock acquired first is disposed of first under generally accepted accounting principles.
Explanation: For the purpose of this section,-

(а) "Direct labor cost" shall be understood to mean labor costs directly related to the production of trading stock.

(b) "Direct material cost" shall be understood to mean the cost of materials that are or will be an integral part of the trading stock.

(c) "Factory overhead cost" shall be understood to mean the total cost incurred in producing trading stock, excluding direct labor and direct material cost. Inserted by the Finance Act, 2072.Provided that factory overhead cost shall not include any amount for repairs and improvements and depreciation deductions.

(d) "Variable factory overhead cost" shall be understood to mean factory overhead costs that change directly with changes in the quantity of trading stock produced. Inserted by the Finance Act, 2072.Provided that variable factory overhead cost shall not include any amount for repairs and improvements and depreciation deductions.

(9)

(10)

16. Repair and improvement expenses: (1) A person shall, while calculating income from any business or investment in any income year, be entitled to deduct all expenses incurred in that year on the repair or improvement of depreciable assets owned and used for earning income from that business or investment.

(2) Amended by the Finance Act, 2072.Notwithstanding anything contained in sub-section (1), the deductible expense under that sub-section shall not exceed seven percent of the depreciation base amount of the class of assets at the end of that income year. Provided that this limit shall not apply to the maintenance expenses incurred by a person providing air transport services on testing aircraft in accordance with the standards determined by the Civil Aviation Authority of Nepal.

(3) Amended by the Finance Act, 2072.Any excess expense for repairs and improvements that cannot be deducted as a result of the limit under sub-section (2), or a part thereof, may be added to the depreciation base amount of the relevant class of assets at the beginning of the subsequent income year. 17. Pollution control expenses: (1) A person shall, for the purpose of calculating income from any business in any income year, be entitled to deduct pollution control expenses to the extent incurred in that year in operating that business.

(2) Amended by the Finance Act, 2072.Notwithstanding anything contained in sub-section (1), while calculating the limit of deductible expenses under that sub-section in any income year, it shall not exceed fifty percent of the adjusted taxable income of all businesses operated by such person.

(3) Any excess expense not deductible beyond the limit mentioned in sub-section (2), or any part thereof, may be capitalized at the beginning of the amended by the Finance Act, 2072.subsequent income year and depreciated in accordance with Schedule 2.
Explanation: For the purpose of this section, "pollution control expense" shall be understood to mean an expense incurred by a person in connection with any process for the purpose of controlling pollution or otherwise protecting or preserving the environment. 18. Research and development expenses: (1) A person shall, for the purpose of calculating income from any business in any income year, be entitled to deduct research and development expenses to the extent incurred in that year in operating that business.

(2) Amended by the Finance Act, 2072.Notwithstanding anything contained in sub-section (1), while calculating the limit of deductible expenses under that sub-section in any income year, it shall not exceed fifty percent of the adjusted taxable income of all businesses operated by such person.

(3) Any excess expense not deductible beyond the limit mentioned in sub-section (2), or any part thereof, may be capitalized at the beginning of the amended by the Finance Act, 2072.subsequent income year and depreciated in accordance with Schedule 2. Explanation: For the purpose of this section, "research and development expense" shall be understood to mean an expense incurred by a person for the purpose of developing his/her business and improving commercial products or processes. Provided that such expense shall not include the cost of acquiring any asset mentioned in sub-section (3) of Section 1 of Schedule 2. 19.
Provided that such expense shall not include the cost of acquiring any asset mentioned in sub-section (3) of Section 1 of Schedule 2. 19. Depreciation deduction expense: (1) A person shall, for the purpose of calculating income from any business or investment in any income year, be required to amended by the Finance Act, 2072.deduct a depreciation expense on depreciable assets owned and used by him/her in that business or investment in that year, in accordance with Schedule 2.

(2) Notwithstanding anything contained in sub-section (1), in respect of depreciation deductions for machinery, equipment, and other machinery installed in projects where an entity constructs and operates public infrastructure structures and transfers them to the Government of Nepal, and projects for the construction, generation, and transmission of power houses, it shall be as follows:-

(а) If machinery, equipment, and other machinery currently installed become old or worn out and unusable, and new machinery, equipment, and other machinery must be installed in their place, the value remaining after deducting the depreciation up to that income year from the cost of the old or worn out unusable assets installed previously may be deducted as an expense in the income year of such installation.

(b) In respect of assets other than the old assets replaced under clause (а), if any value remains after deducting the depreciation up to the income year of transfer from the cost of such assets at the time such entity transfers such projects to the Government of Nepal, such remaining value may be deducted as an expense. 20. Loss from business or investment: (1) A person shall, for the purpose of calculating income from a business or investment in any income year, be entitled to deduct the following losses:-

(а) Any unabsorbed loss of that year incurred by such person from any other business, and

(b) Amended by the Finance Act, 2072.The unabsorbed losses of the preceding seven income years incurred by such person from any business.
Provided that, in the case of a project for constructing and operating public infrastructure structures and transferring them to the Government of Nepal, a project for constructing, generating, and transmitting power houses, and an entity carrying out petroleum operations under the Nepal Petroleum Act, 2040, the unabsorbed losses of the preceding twelve years.

(2) Amended by the Finance Act, 2072.For the purpose of calculating income from any investment of a person in any income year, such person shall be entitled to deduct the unabsorbed loss of that year incurred from any other investment, and the unabsorbed losses of the preceding seven income years incurred by such person from that investment and any other investment.

(3) Subject to sub-sections (1) and (2), for the purposes of those sub-sections, any unabsorbed loss incurred by a person in respect of foreign sources shall be deductible only when calculating income of that person from foreign sources, and any unabsorbed loss incurred when receiving non-taxable income shall be deductible only when calculating the non-taxable income of that person.

(4) Subject to sub-sections (1) and (2), if a person incurs a loss in the income year in which a long-term contract obtained through international competition is completed or otherwise disposed of, or if any unabsorbed loss that may be carried forward to subsequent years under clause (b) of sub-section (1) relates to a long-term contract, the Department may, by providing written notice, permit such loss to be treated as follows:-

(а) Carried back to a preceding income year or years, and

(b) The loss shall be considered unabsorbed only to the extent that the amounts to be included as income exceed the amounts to be deducted as expenses in calculating the income of the business related to that long-term contract for that year or years.

(5) The following losses incurred by a person in any income year shall be allocated and deemed to relate to the long-term contract or contracts of such person:-

(а) Loss arising from the long-term contract or contracts related to the business, and

(b) For each such contract, the loss arising from the excess of expenses deductible in calculating the income from the business for the year related to that contract over the amounts to be included related to that contract.

(6) If a person is entitled to deduct an unabsorbed loss from more than one business or investment while calculating income from more than one business or investment in any income year, such person may determine the priority of the business or investment from which to deduct such loss or portion of the loss.

(7) While calculating the loss incurred by a person from any business or investment in any income year, if the deductible amounts exceed the amounts to be included in calculating the income of such person from that business or investment without applying this section, the calculation shall be made for the amount of such excess.
Explanation: For the purpose of this section, -

(а) "Expenses of a domestic or personal nature" shall be understood to include the following expenses:-

(1) Private expenses of a as amended by the Finance Act, 2076.natural person, including interest on loans to the extent used personally, the following expenses:-

(а) Expenses incurred for the natural person, including providing residence, food, snacks, recreation, or other leisure activities,

(b) Expenses incurred by a natural person for traveling from home to the place of business or investment, except traveling in the course of business or investment,

(c) Expenses incurred for the purchase of clothes for a natural person, except clothes unsuitable for wearing outside of working hours, and

(d) Expenses incurred for education or training. Provided that expenses incurred solely for education directly related to business or investment of a type that does not result in obtaining a degree or diploma shall be deductible.

(2) Expenses incurred by a person in connection with payments made to a natural person, and expenses incurred for a third party, except under

(e) In relation to payments other than those mentioned in clauses (a), (b), (c) and (d), an amount equal to the value of the benefit that would ordinarily arise if a third party received the payment on behalf of the person entitled to receive it.

(2) In relation to clauses (a) and (e) of sub-section (1), the time when the payment is earned, received, made, borne, or otherwise accounted for for tax purposes shall be considered the time when the amounts are quantified. 28. Conversion into Nepalese Rupees: (1) For the purposes of this Act, if the income of any person and the amounts to be included in or deducted from the determination of such income are denominated in a currency other than the Nepalese Rupee, such amount shall be converted into Nepalese Rupees.

(2) Where an amount to be included in or deducted from the calculation of income for any income year of a person is denominated in a currency other than the Nepalese Rupee, such amount shall be converted into Nepalese Rupees at the exchange rate prevailing at the time the amount was received, expended, given, paid, or otherwise accounted for for tax purposes.

(3) Notwithstanding anything contained in sub-section (2), for the purposes of that sub-section, if the Department has, by notice in writing, granted permission, a person may use the average exchange rate specified by the Department for that income year. Added by Finance Act, 2063.29.
Added by Finance Act, 2063.29. Indirect Payments: If any person indirectly benefits from a payment made by the payer or a person associated with the payer, or nominates another person to receive the payment, the Department may, by notice in writing, treat the person who so benefits or nominates such other person as the person receiving the payment. 30. Investment in Joint Ownership: For the purposes of calculating the income derived by any person from an investment held in joint ownership with another person, the amounts to be included in or deducted from the calculation of income shall be allocated among the joint owners in proportion to their respective interests in the investment. 31. Characterization of Compensation Payments: Where any person or an associated person receives any compensation amount, including an insurance payment, in respect of the following, such compensation amount shall, at the time of receipt, be included in the calculation of income from employment, business, or investment, as the case may be:-
(a) compensation for any income received or receivable by that person from any business, employment, or investment, or for any amount included in the calculation of such income, or
(b) compensation for any loss incurred or likely to be incurred by that person in any business or investment, or for any expenditure amount deductible in the calculation of that person's income. Added by Finance Act, 2063.Provided that:
(1) Compensation payment received for physical injury resulting from a personal accident of a resident natural person shall not be included in income, and the expenses incurred for the treatment of such injury shall not be eligible for a medical tax credit claim under Section 51.
(2) Compensation amount received upon the death of a natural person shall not be included in income. 32.
If such a schedule cannot be provided, the interest and capital elements shall be allocated among the payments under sub-section (1) by treating the annuity, installment sale, or finance lease as a blended loan with interest compounded semi-annually.

(4) Where payments under sub-section (1) are treated as a blended loan, the interest rate shall be uniform throughout the loan term, and the interest portion shall be calculated on the outstanding principal (capital) at each payment time, with the debtor making a partial payment of principal and a partial payment of interest.

(5) For a lease under this section to be a finance lease, the following conditions must be satisfied:-
(a) the lease agreement provides for the transfer of ownership at the end of the lease term or grants the lessee an option to purchase the asset at a fixed or predetermined price at the end of the lease term,
(b) the lease term exceeds seventy-five percent of the useful life of the asset,
(c) the estimated market value of the asset at the end of the lease term is less than twenty percent of the market value of the asset at the inception of the lease,
(d) for a lease commencing within the last twenty-five percent of the asset's useful life, the present value of the minimum lease payments equals or exceeds ninety percent of the market value of the asset at the commencement of the lease term, or
(e) the asset is specially tailored for the lessee and, after the lease term ends, the asset is of no practical use to any person other than the lessee.

(6) Each payment under sub-section (1) shall be divided into two parts as per sub-section (3), and the interest element shall be treated as interest paid or payable under a debt claim, and the capital element shall be treated as a repayment of capital.

(7) The lessee under a finance lease shall be treated as the owner of the leased asset, and the lessor shall be treated as having a debt claim against the lessee.

(8) The present value of lease payments shall be calculated using a discount rate equal to the normal interest rate. Explanation: For the purposes of this section, "lease term" shall include any additional period for which the lessee has the option to renew the lease. 33.
Explanation: For the purposes of this section, "lease term" shall include any additional period for which the lessee has the option to renew the lease. 33. Transfer Pricing and Other Arrangements between Associated Persons: Amended by Finance Act, 2063. (1) Where an arrangement exists between associated persons, the Department may, by notice in writing, distribute, apportion, or allocate the amounts to be included in or deducted from the calculation of income between those persons in a manner that reflects the taxable income or tax payable that would have arisen for them had the arrangement been conducted at arm's length.

(2) In doing anything under sub-section (1), the Department may:-
(a) recharacterize the source and nature of any income, loss, amount, or payment, or
(b) where expenses, including head office expenses, incurred by a person in carrying on a business benefit an associated person or persons, allocate such expenses among the associated persons on a basis commensurate with the business transactions. Added by Finance Act, 2063.(3) The method for evaluating transfer pricing between associated persons under this section shall be as determined by the Department. 34. Fragmentation of Income: (1) In order to prevent a person from attempting to split their income with another person, thereby reducing the tax liability payable, the Department may, by notice in writing, adjust the amounts to be included in or deducted from the calculation of the income of each person.

(2) The circumstances mentioned in sub-section (1) shall include attempts to split income, directly or indirectly through one or more intermediaries, by transferring the following amounts between a person and an associated person for the purpose of reducing tax payable by that person or the associated person:-
(a) amounts receivable or expenses payable, or
(b) amounts receivable by the person to whom any property is transferred from such property, amounts consumed, expenses incurred, or payments made for owning such property.

(3) In determining whether a person has sought to split income under sub-section (2), the Department shall base its determination on the market value of any payment made for the transfer. 35. General Anti-Avoidance Rule: For the purposes of ascertaining tax liability under this Act, the Department may:-
(a) recharacterize any arrangement or part of an arrangement made or sought to be made as part of a tax avoidance plan,
(b) disregard any arrangement or part of an arrangement that does not have any substantial economic effect, or
(c) recharacterize any arrangement or part of an arrangement that lacks substantial effect. Explanation: For the purposes of this section, "tax avoidance plan" means any arrangement whose main purpose is to obtain relief from a tax liability or to reduce a tax liability.