chhatramani/nepal_legal_acts_corpus_english huggingface dataset:
Income Tax Act, 2002

Explanation: For the purposes of this section, "tax avoidance scheme" means any arrangement whose main purpose is to obtain exemption from tax liability or to reduce tax liability. Chapter 8

Determination of Net Gain from Assets and Liabilities

36. Net gain from assets and liabilities: (1) For any income year, the net gain from the disposal of business assets or liabilities of a business of a person shall be calculated by deducting the following losses from the total of all gains from the disposal of business assets or liabilities of that business in that income year:-
(a) the total of all losses incurred in that year from the disposal of business assets or liabilities of the business;
(b) losses, to the extent not otherwise deducted, from the net loss incurred in that year from any other business of that person; and
(c) losses, to the extent not otherwise deducted, from the net loss incurred in previous years from that business or any other business of that person.
(2) For any income year, the net gain from the disposal of taxable non-business assets of an investment of a person shall be calculated by deducting the following losses from the total of all gains from the disposal of taxable non-business assets of that investment in that income year:-
(a) the total of all losses incurred in that year from the disposal of taxable non-business assets of that investment;
(b) losses, to the extent not otherwise deducted, from the net loss incurred in that year from any other business or investment of that person; and
(c) losses, to the extent not otherwise deducted, from the net loss incurred in any previous income year from that investment, any business, or any other investment of that person.
(3) In respect of losses from the disposal of foreign source assets or liabilities, a person may claim a deduction under sub-section (1) or (2) only to the extent of gains from the disposal of foreign source assets or liabilities.
(4) Where a person may deduct a net loss incurred from a business or investment under more than one calculation under sub-section (1) or (2), that person may choose the calculation or calculations for the purpose of deducting that loss or a part thereof.
Income Tax Act, 2002

Explanation: For the purposes of this section,-
(1) "net loss" means:-
(a) in relation to a business, the amount by which the losses from the disposal of business assets or liabilities of that business in an income year exceed the gains from the disposal of business assets or liabilities of that business in that year; and
(b) in relation to an investment, the amount by which the losses from the disposal of taxable non-business assets of that investment in an income year exceed the gains from the disposal of taxable non-business assets of that investment in that year.
(2) "undeducted net loss" means, in relation to a business or investment,-
(a) the portion of the net loss of that business or investment for an income year that has not been deducted under clause (b) or (c) of sub-section (1) or clause (b) or (c) of sub-section (2); and
(b) any undeducted loss of that business or investment under sub-section (7) of that section that cannot be waived due to the time limit under sub-section (1) or (2) of section 20. 37. Gain and loss from assets and liabilities: (1) The gain of a person from the disposal of any asset or liability shall be calculated as the amount by which the total of the receipts in respect of that asset or liability exceeds the total of the outgoings in respect of that asset or liability at the time of disposal.
(2) The loss of a person from the disposal of any asset or liability shall be calculated as the amount by which the total of the outgoings in respect of that asset or liability exceeds the total of the receipts in respect of that asset or liability at the time of disposal. 38.
Income Tax Act, 2002

38. Outgoings and net outgoings in respect of assets and liabilities: (1) Subject to this Act, the outgoings of a person in respect of an asset or liability shall include the following:-
(a) in relation to an asset, outgoings incurred by that person in acquiring the asset, including:-
(1) the relevant cost of constructing or producing the asset; and
Amended by the Finance Act, 2075.(2) any amount that is required to be included in calculating the income of that person by reason of the acquisition of such asset.
(b) outgoings incurred by that person in holding the asset or liability, including outgoings for alteration, improvement, and maintenance of the asset or liability, and in the case of an asset, outgoings for its maintenance;
(c) outgoings incurred by that person in disposing of the asset or liability; and
(d) incidental outgoings incurred by that person in acquiring the asset or incurring the liability and in disposing of such asset or liability. Provided that such outgoings shall not include outgoings under clauses (a), (b), (c), (d), and (e) of sub-section (1) of section 21 and outgoings to the extent they are deductible in determining income.
(2) At any particular time, the net outgoings in respect of an asset or liability shall be calculated as the amount by which the total of all outgoings in respect of that asset or liability exceeds the total of all receipts in respect of that asset or liability at that time.
(3) Amounts deductible in calculating income under Chapters 6 and 7, when referring to outgoing amounts in respect of any asset or liability, shall be treated as being applicable to outgoings under sub-section (1), provided that section 26 shall not apply in relation to the above provision. 39. Receipts and net receipts in respect of assets and liabilities: (1) Subject to this Act, the receipts of a person in respect of an asset or liability shall include the following amounts:-
(a) amounts received by that person in respect of a liability when incurring the liability;
(b) amounts to be received by that person in respect of acquiring an asset or incurring a liability, including amounts received by way of change or reduction in the value of an asset or increase in a liability; and
(c) amounts received or to be received by that person in respect of the disposal of such asset or liability.
Income Tax Act, 2002

Provided that such receipts shall not include tax-exempt amounts, finally deductible Amended by the Finance Act, 2075. payments, or amounts included in income when determining the income of that person.
(2) At any particular time, the net receipts in respect of an asset or liability shall be calculated as the amount by which the total of the receipts in respect of that asset or liability exceeds the total of the outgoings in respect of that asset or liability at that time.
(3) Amounts included in income when calculating income under Chapters 6 and 7, when referring to receipt amounts in respect of any asset or liability, shall be treated as being applicable to receipts under sub-section (1), provided that section 26 shall not apply in relation to the above provision. 40. Disposal of asset or liability: (1) If a person ceases to be the owner of an asset, that person shall be deemed to have disposed of that asset. The disposal of an asset shall include acts such as distribution of the asset by the owner, merging the asset into another asset or liability, selling by installment or through a financial lease to another person, cancellation, destruction, loss, expiry, or surrender.
(2) If a person is released from a liability, that person shall be deemed to have disposed of that liability.
Income Tax Act, 2002

The disposal of a liability shall include acts such as settlement, cancellation, discharge, termination, or merging of the liability into another liability or asset.
(3) Notwithstanding anything contained in sub-sections (1) and (2), a person shall be deemed to have disposed of an asset or liability in the following circumstances:-
(a) in the case of a natural person, immediately before the death of that person;
(b) in the case of an asset, when the total of the receipts in respect of that asset exceeds the total of the outgoings in respect of that asset;
(c) in the case of a debt claim,-
(1) in the case of a debt claim of a bank or financial institution, when it becomes a bad debt according to specified criteria; and
(2) in any other case, when that person reasonably believes that the debt claim is irrecoverable,
provided that such person has exhausted all appropriate measures to recover the debt claim.
(d) in the case where a person begins to use a business asset, non-business taxable asset, depreciable asset, or trading stock in a manner that changes its character, immediately before such changed use;
(e) in the case of an entity, the circumstances under section 57; and
(f) in the case of a person other than land or buildings situated in Nepal, immediately before that person becomes a non-resident person.
(4) Where a person disposes of an asset under a financial lease as per sub-section (1), the person to whom the asset is leased shall be deemed to have acquired ownership of that asset at the time of disposal.
(5) For the purpose of calculating the gain of a person from the disposal of assets and liabilities, the following shall apply:-
(a) The amount of net outgoings in respect of any asset owned by that person at the commencement of this Act shall be deemed equal to the prevailing market value of that asset at that time.
(b) The net receipts in respect of a liability of a person at the commencement of this Act shall be deemed equal to the amount according to the prevailing market value of that liability at that time. 41.
Income Tax Act, 2002

41. Disposal with retention of asset or liability: Where a person disposes of any asset or liability in any of the ways mentioned in clauses (c), (d), (e), and (f) of sub-section (3) of section 40, the following shall apply:-
(a) in the case of an asset,-
(1) that person shall be deemed to have received an amount equal to the market value of that asset at the time of disposal for the disposal; and
Amended by the Finance Act, 2075.(2) upon a subsequent disposal of such asset, the net outgoings made in respect of that asset up to the time of disposal under this section shall be deemed equal to the amount of receipt.
(b) in the case of a liability,-
(1) that person shall be deemed to have incurred an expense equal to the market value of that liability at the time of disposal for that disposal; and
Amended by the Finance Act, 2075.(2) upon a subsequent disposal of such liability, the net receipts in respect of the liability under sub-clause (1) up to the time of disposal under this section shall be deemed equal to the expense amount. 42. Disposal by way of installment sale or financial lease: Where a person disposes of any asset to another person by way of installment sale or under a financial lease, the following shall apply:-
(a) the person disposing of the asset shall be deemed to have received an amount equal to the market value of that asset at the time of disposal from that disposal; and
(b) the person acquiring the asset from the disposal shall be deemed to have incurred a cost equal to the amount under clause (a). Provided that this provision shall not apply where the provision of section 45 applies. 43. Transfer of assets to spouse or former spouse: Where a natural person who is separated by divorce or partition transfers an asset to that person's spouse or former spouse, thereby disposing of the asset, and if the spouse or former spouse makes a written election to have this section apply, the following shall apply:-
(a) that person shall be deemed to have received an amount equal to the net outgoings in respect of that asset immediately before the disposal for that disposal; and
(b) the person acquiring the asset by transfer shall be deemed to have incurred a cost equal to the amount under clause (a). 44.
Income Tax Act, 2002

Provided that this provision shall not apply where the provisions of sections 43 and 44 apply. Added by the Finance Act, 2075.7(ga) In the case of an asset transferred pursuant to sub-clause (5) of clause (da) of section 2 of the Act, the cost of the transferor shall be deemed to be the cost of the person acquiring the asset by transfer.

(2) Notwithstanding anything contained in sub-section (1), where a person disposes of the ownership of an asset in the form of a business asset, non-business taxable asset Amended by the Finance Act, 2075., or trading stock by transfer to a related person, and the conditions under sub-section (6) are fulfilled, the following shall apply:-
(a) that person shall be deemed to have received an amount equal to the net outgoings in respect of that asset immediately before the disposal for that disposal; and
(b) the person acquiring the asset by transfer shall be deemed to have incurred a cost equal to the amount mentioned in clause (a).
(3) Notwithstanding anything contained in sub-section (1), where a person disposes of the ownership of a depreciable asset by transfer to a related person upon fulfilling the conditions under sub-section (6), or if such asset belongs to any group of such depreciable assets, the following shall apply:-
(a) that person shall be deemed to have received an amount equal to the residual value of the declining balance of that group under section 4 of Schedule 2 at the time of disposal for that disposal; and
(b) the person acquiring the asset by transfer shall be deemed to have incurred a cost equal to the amount mentioned in clause (a).
(4) Where a person disposes of a liability by transferring it to a related person or by transferring it to any other person without any consideration Amended by the Finance Act, 2075., the following shall apply:-
(a) that person shall be deemed to have incurred a cost for that disposal equal to the lower of the market value or the net receipts in respect of that liability immediately before the disposal; and
(b) the person to whom the liability is transferred shall be deemed to have received an amount equal to that liability in respect of assuming the liability.
Income Tax Act, 2002

Provided that this provision shall not apply where the provisions of sections 43 and 44 apply.
(5) Where a person disposes of a liability incurred in earning income from any of that person's businesses by transferring it to a related person upon fulfilling the conditions under sub-section (6), the following shall apply:-
(a) that person shall be deemed to have incurred a cost for that disposal equal to the net receipts in respect of that liability immediately before the disposal; and
(b) the related person shall be deemed to have received an amount equal to that amount in respect of assuming the liability.
(6) For the purposes of sub-sections (2), (3), and (5), the following conditions must be fulfilled:-
(a) The business asset, trading stock, or depreciable asset of the business that is disposed of shall, immediately after the transfer from the transferor, become a business asset, trading stock, or depreciable asset of the business of the related person.
(b) The non-business taxable asset or depreciable asset of an investment that is disposed of shall, immediately after the transfer from the transferor, become a business asset, non-business taxable asset, depreciable asset, or trading stock of the related person.
(c) In the case of a liability, the liability must be transferred to the related person for earning income from any business or investment of that related person.
(d) At the time of transfer, the transferor and the related person must be residents, and the related person must not be a tax-exempt person.
(e) At least fifty percent of the ownership inherent in the asset or the burden inherent in the liability, as the case may be, must remain.
(f) A written request must be made by both the person and the related person to apply the election under sub-section (2), (3), or (5), as the case may be. 46.
Income Tax Act, 2002

46. Involuntary disposal with replacement of asset or liability: (1) Where a person involuntarily disposes of any asset in any of the ways mentioned in sub-section (1) of section 40, and within one year acquires ownership of another asset of the same kind in replacement, and makes a written request to have this section apply, the following shall apply:-
(a) that person shall be deemed to have received an amount equal to the sum of the following amounts for that disposal:-
(1) the net outgoings in respect of that asset immediately before the disposal; and
(2) the amount by which the amount received from the disposal exceeds the cost incurred in acquiring the replacement asset, if any; and
(b) that person shall be deemed to have incurred expenses equal to the sum of the following amounts when acquiring the replacement asset:-
(1) the net outgoings in respect of the disposed asset immediately before the disposal; and
(2) the amount by which the cost incurred in acquiring the replacement asset exceeds the amount received from the disposal, if any.
(2) Where a person involuntarily disposes of any liability in any of the ways mentioned in sub-section (2) of section 40, and within one year assumes another liability of the same kind in replacement, and makes a written request to have this section apply, the following shall apply:-
(a) that person shall be deemed to have incurred an expense for that disposal equal to the amount resulting from deducting the amount under sub-clause (2) from the amount under sub-clause (1):-
(1) the amount in respect of net receipts in respect of that liability immediately before the disposal;
(2) the excess expense amount, if any, by which the cost incurred in the disposal exceeds the amount received when assuming the replacement liability;
(b) that person shall be deemed to have received an amount equal to the sum of the following amounts when assuming the replacement liability:-
(1) the net receipts in respect of the disposed liability immediately before the disposal; and
(2) the amount by which the amount received when assuming the replacement liability exceeds the cost incurred in the disposal, if any.
(3) Circumstances where an involuntary disposal arises from a change in an interest in an entity or a restructuring of an entity, resulting in the replacement of one interest in the entity with another interest (security), shall be as prescribed. 47.
Income Tax Act, 2002

47. Disposal by merger of assets and liabilities: (1) Where a person acquires an asset or assumes a liability, and as a result, another asset owned by that person or another liability assumed by that person is extinguished or merged, resulting in a disposal, the following shall apply:-
(a) In the case of net outgoings in respect of the merging asset or liability immediately before the disposal, that person:-
(1) shall be deemed to have received an amount equal to those net outgoings in respect of the disposal of the merging asset or liability,
provided that such amount shall not exceed the amount received by that person in respect of the merged liability.
(2) shall be deemed to have incurred an expense equal to that amount when holding the ownership of the merged asset or bearing the burden of the merged liability.
(b) In the case of net receipts in respect of the merging liability immediately before the disposal of that liability, that person:-
(1) shall be deemed to have incurred an expense for the disposal of the merging liability equal to those net receipts,
provided that, in the case of the merged asset, it shall not exceed the expense incurred by that person when acquiring that asset.
(2) shall be deemed to have received an amount equal to that amount when holding the ownership of the merged asset or assuming the burden of the merged liability.
(2) Without prejudice to the matters contained in sub-section (1), that sub-section shall also apply in the following circumstances:-
(a) where that person performs an act of acquiring or selling any asset;
(b) where that person acquires an asset that has been leased out by that person; and
(c) where a liability for which a guarantee has been given by the transferor is transferred. Added by the Finance Act, 2075.47A. Special provisions regarding disposal arising from business merger: (1) Where entities of the same nature engaged in banking and financial business or insurance business merge (merger or acquisition), the provisions of clauses (a), (b), (d), (e), (f), and (chha) of sub-section (2) and sub-section (3) of section 47 shall not apply. Provided that if the entity that ceases to exist upon merger has any undeducted loss, such loss shall be deducted in equal installments over the next seven years.
Income Tax Act, 2002

48. Disposal of assets and liabilities arising from division: Where rights relating to an asset acquired by ownership or burdens relating to a liability assumed are created in another person, including through a lease of an asset or part thereof, the following shall apply:-
(a) if the rights or burdens are permanent, the first person shall be deemed to have disposed of a part of that asset or liability but not to have acquired any new asset or liability; and
(b) if the rights or burdens are temporary or contingent, the first person shall be deemed not to have disposed of any part of that asset or liability,
provided that it shall be deemed that, as the case may be, a new asset has been acquired or a new liability has been assumed. 49. Disposal arising from allocation of outgoings and receipts: (1) Where a person acquires, assumes, or disposes of any asset or liability in the following circumstances, the outgoings or receipts incurred or received in respect thereof shall be allocated between assets and liabilities on the basis of market values at the time of acquisition, assumption, or disposal, as the case may be:-
(a) where more than one asset is acquired or more than one liability is assumed at the same time; or
(b) where more than one asset or liability is disposed of at the same time.
(2) Where a person who owns an asset or bears a liability disposes of a part of that asset or liability, the net outgoings or net receipts in respect of that asset or liability immediately before the disposal shall be apportioned between the part disposed of and the part retained on the basis of their respective market values immediately after the disposal. Chapter 9

Special Provisions Relating to Natural Persons

50. Couples: (1) A resident natural person and that person's resident spouse may, by giving written notice, elect to be treated as a single natural person for tax purposes for a particular income year.
(2) In respect of an income year, a couple that elects the arrangement under sub-section (1) shall be jointly and severally liable for the tax payable by either spouse for that year.
(3) Notwithstanding anything contained in sub-sections (1) and (2), a resident widow or widower with a dependent shall be treated as a couple. 51.
Income Tax Act, 2002

51. Medical treatment tax credit: (1) A resident natural person may claim a medical treatment tax credit for an income year for approved medical treatment expenses incurred by that person, either directly or through another person, for that person.
(2) For any income year, the amount of the medical treatment tax credit of a natural person shall be calculated at the rate of fifteen percent of the approved medical treatment expenses under sub-section (1), plus any amount referred to in sub-section (4), if any.
(3) Notwithstanding anything contained in sub-section (2), the medical treatment tax credit claimed by a natural person for an income year shall not exceed the specified limit.
(4) For any income year, in the case of a natural person, the excess amounts under clauses (a) and (b) to the following extent may be carried forward and included in the amount under sub-section (2) for future years:-
(a) to the extent the amount under sub-section (2) exceeds the limit under sub-section (3); and
(b) to the extent that the person under clause (a) of section 3 cannot use the medical treatment tax credit due to the tax payable by that person for that year being less than the credit amount. Explanation: For the purposes of this section, "approved medical treatment expenses" means approved medical treatment expenses as prescribed. Chapter 10

Special Provisions for Entities

52. Tax principles applicable to entities: (1) An entity shall be responsible separately from its interest holders for the purpose of filing tax.
(2) Distributions from an entity shall be as provided in section 53, and such distributions shall be taxed to its interest holders under section 54.
(3) Amounts received and expenses incurred by an entity shall be deemed to be received and incurred by the entity, regardless of whether the entity has received or not received, or incurred or not incurred, such amounts or expenses on behalf of another person.
(4) Assets owned and liabilities assumed by the entity shall be deemed to be owned or borne by that entity.
Income Tax Act, 2002

Such owned assets and assumed liabilities shall not be deemed to be owned or borne by

Added by the Finance Act, 2075.(1a) For the purpose of calculating a change of fifty percent or more than fifty percent ownership of any entity as referred to in sub-section (1), only the following ownership of such entity shall be included:

(a) Ownership taken by a shareholder or partner acquiring one percent or more than one percent of the total ownership, amended by the Finance Act, 2079. and

(b) Ownership taken by an associated person of a shareholder or partner acquiring more than one percent of the total ownership of such entity, among those shareholders or partners acquiring less than one percent of the total ownership. amended by the Finance Act, 2079.

(2) If there is a change of ownership of any entity as referred to in sub-section (1), such entity shall not be permitted to do the following after such change:

(a) deduct interest carried forward under sub-section (3) of Section 14, which was incurred by such entity prior to the change of ownership,

(b) deduct losses incurred by such entity prior to the change of ownership in accordance with Section 20,

(c) carry back losses incurred after the change of ownership to any income year prior to such change of ownership in accordance with sub-section (4) of Section 20 deleted by the Finance Act, 2075. ,

(d) adjust in accordance with sub-section (4) of Section 24, in a case where any amount or expenditure was accounted for under sub-section (4) of Section 24 prior to the change of ownership and such amount or expenditure is corrected under amended by the Finance Act, 2075. sub-section (4) of Section 24 after the change of ownership,

(e) adjust in accordance with sub-section (1) of Section 25, in a case where any amount was accounted for under clause (b) of sub-section (1) of Section 25 prior to the change of ownership and the right to receive such amount is relinquished after the change of ownership or, if such amount becomes an uncollectible debt claim of a person and that person writes off such debt treating it as a bad debt,

(f) reduce, in accordance with Section 36, the income derived from the disposal of assets or liabilities after the change of ownership by the loss incurred upon the disposal of assets or liabilities prior to the change of ownership,

(g) claim expenditure in accordance with sub-clause (1) of clause (b) of sub-section (2) of Section 60, in a case where a premium was accounted for prior to the change of ownership and such premium is returned to the insured after the change of ownership, or

(h) carry forward to the following year, in accordance with sub-section (3) of Section 71, the tax deposited in respect of foreign income prior to the change of ownership.

(3) If there is a change in the ownership of any entity in any income year in the manner referred to in sub-section (1), the parts of that income year before and after the change of ownership shall be treated as separate income years.
Income Tax Act, 2002

58. Provision disallowing reduction of dividend tax: amended by the Finance Act, 2075.(1) An arrangement made by an entity maintaining all of the following conditions shall be deemed to be an arrangement to reduce dividend tax:

(a) if such entity has accumulated, current, or expected profits,

(b) if a person acquiring an interest acquires any interest in such entity, and such interest recipient or his associated person has made any payment to the current or former interest holder of such entity or his associated person, whether or not related to the acquisition of the interest, and whether or not paid at the time of acquisition of the interest,

(c) if such payment is reflected, wholly or partly, in the profits of the entity, and

(d) if such entity distributes a dividend to such interest recipient and such dividend wholly or partly includes the said profits.

(2) Where a dividend is distributed by an entity under an arrangement to reduce dividend tax made in accordance with sub-section (1), such arrangement shall be deemed to be as follows:

(a) The payment made by the interest recipient or his associated person shall not be deemed to be a payment made by that person, but shall be deemed to be a distribution of a dividend by such entity to the former or current interest holder referred to in clause (b).

(b) The dividend distributed by such entity to the interest recipient shall be deemed to be an amount equal to the amount arrived at by deducting the amount referred to as such payment from the dividend referred to in clause (a). Chapter-11

Special Provisions Relating to Banking and Insurance Business

59. Banking business: (1) While calculating the income or loss derived from the business of a person engaged in banking business in any income year, the banking business shall be treated as a separate business distinct from any other business carried on by that person, and shall be calculated separately. Added by the Finance Act, 2075.(1a) Subject to the standards prescribed by Nepal Rastra Bank, an amount up to five percent of the loan amount remaining to be recovered kept in the risk-bearing fund and the amount provisioned for non-banking assets, etc., by a person engaged in banking business, shall be allowed as a deduction as an expense. Added by the Finance Act, 2075.(1b) An amount up to five percent of the loan amount remaining to be recovered kept in the risk-bearing fund by a cooperative institution shall be allowed as a deduction as an expense.
Income Tax Act, 2002

Added by the Finance Act, 2075.(1b) An amount up to five percent of the loan amount remaining to be recovered kept in the risk-bearing fund by a cooperative institution shall be allowed as a deduction as an expense. Added by the Finance Act, 2075.(1c) If an expense is debited to profit as 'bad and doubtful debts' while the risk-bearing fund under sub-sections (1a) and (1b) remains, it shall not be allowed, and if the amount in such fund is capitalised or distributed as profit or dividend, it shall be included in the income of the year in which it is distributed. Deleted by the Finance Act, 2075.(2)

Deleted by the Finance Act, 2075.(3)

60. General insurance business: (1) While calculating the income or loss derived from the business of a person engaged in general insurance business in any income year, the insurance business shall be treated as a separate business distinct from any other business carried on by that person, and shall be calculated separately.

(2) While calculating the income of a person engaged in general insurance business for any income year, the following shall be done:

(a) On the income side, in addition to any other amounts required to be included under this Act, the following amounts shall also be included:

(1) the amount received by that person in that year as premium for insurance, including reinsurance premium, derived from carrying on that business, and

(2) amounts received in that year from payments under clause (1) of clause (b) in respect of any contract of reinsurance, guarantee, security, or indemnity.

(b) On the expenditure side, in addition to amounts allowable as deduction under this Act, the following amounts shall also be allowed as deduction:

(1) payments made by that person in that year as an insurer while carrying on that business, and

(2) premiums returned to the insured in that year which were included in accordance with sub-clause (1) of clause (a) while calculating income from that business for that or prior years. Added by the Finance Act, 2075.(3) The sum of the following amounts kept in the risk-bearing fund:

(a) an amount up to fifty percent of the net insurance premium shown in the profit and loss account for any year, and

(b) an amount up to one hundred fifteen percent of the amount outstanding as claims payable at the end of any year. Provided that the amount for which deduction has been taken under this sub-section in any year shall be included in income while calculating the income from the insurance business in the following income year. Repealed by the Finance Act, 2075.(3)

Repealed by the Finance Act, 2075.(4)

61.
Income Tax Act, 2002

Provided that the amount for which deduction has been taken under this sub-section in any year shall be included in income while calculating the income from the insurance business in the following income year. Repealed by the Finance Act, 2075.(3)

Repealed by the Finance Act, 2075.(4)

61. Life insurance business: (1) While calculating the income or loss derived from the business of a person engaged in life insurance business in any income year, the life insurance business shall be treated as a separate business distinct from any other business carried on by that person, and shall be calculated separately.

(2) While calculating the income of a person engaged in life insurance business for any income year, the following shall be done:

(a) Include other amounts includible under this Act except the following amounts:

(1) the amount received by that person in that income year as premium for insurance, including reinsurance, derived from carrying on that business, and

(2) amounts received in that year from payments under clause (1) of clause (b) in respect of any contract of reinsurance, guarantee, security, or indemnity.

(b) Deduct other amounts allowable as deduction under this Act except the following amounts:

(1) payments made by a person as an insurer while carrying on that business, and

amended by the Finance Act, 2075.(2) premiums referred to in sub-clause (1) of clause (a) that are returned to the insured.

(3) The amounts referred to in sub-clauses (1) and (2) of clause (a) and sub-clauses (1) and (2) of clause (b) of sub-section (2) shall not be deemed to be income or amended by the Finance Act, 2075. expenses in respect of the assets or liabilities of that person.

(4) The life insurance contract of the life insurance business of a person shall not be deemed to be the assets and liabilities of that person. 62. Amount received from insurance: (1) For the purpose of calculating the income of a person, the amount received by that person from insurance shall be as referred to in Section 31.

(2) Notwithstanding anything contained in sub-section (1), the profit derived from life insurance shall be as follows:

(a) in the case where a resident person has paid such amount, tax shall be levied on the insured by way of final withholding tax, and

(b) in the case where a non-resident person has paid such amount, such amount shall be included in the income of the insured and calculated. Explanation: For the purpose of this section, "profit derived from life insurance" means the amount by which the payment received by a person in respect of such insurance exceeds the premium paid by that person.
Income Tax Act, 2002

Explanation: For the purpose of this section, "profit derived from life insurance" means the amount by which the payment received by a person in respect of such insurance exceeds the premium paid by that person. Chapter-12

Special Provisions Relating to Retirement Savings

63. amended by the Finance Act, 2062.Retirement fund: (1) Deleted by the Finance Act, 2062

(2) A natural person who is a beneficiary of an approved retirement fund may claim a deduction, while calculating his taxable amended by the Finance Act, 2075. income, for the retirement contribution made to such fund in any income year. Added by the Finance Act, 2062.Explanation: For the purpose of this section, "approved retirement fund" means the Employees' Provident Fund established under the Employees' Provident Fund Act, 2019; the Citizen Investment Fund established under the Citizen Investment Fund Act, 2047; the retirement fund operated by the Social Security Fund established under the Contribution-based Social Security Fund Act, 2074; and the retirement fund operated by the Pension Fund established under the Pension Fund Act, 2075.

(3) Notwithstanding anything contained in sub-section (2), the amount claimed as deduction by a person in any income year under that sub-section shall not exceed the prescribed limit for retirement contribution. 64. Tax on retirement fund: (1) For the purpose of determining the income of a retirement fund, amounts includible or deductible under this Act shall be included or deducted while calculating the fund's income. Provided,-

(a) contributions received by such fund shall not be income of such fund and such contributions shall not be included in the calculation.

(b) retirement payments shall not be expenses of such fund and such payments shall not be allowed as a deduction while calculating income.

(c) the interest of any beneficiary in the retirement fund shall not be a liability of such fund.

(2) Income of an approved retirement fund shall be exempt from tax.

(3) If an approved retirement fund ceases to be such a fund, such fund shall pay tax on the amount arrived at by deducting the amount under clause (b) from the amount under clause (a), at the rate of tax referred to in sub-section (1) of Section 2 of Schedule-1 amended by the Finance Act, 2075..

(a) all retirement contributions accumulated in such fund and all income which would have been deemed taxable income had sub-section (2) not applied, during the period from the date of approval as an approved retirement fund to the date of termination of approval,

(b) all retirement benefit payments made by such fund during the period from the date of approval as an approved retirement fund to the date of termination of approval. 65.
Income Tax Act, 2002

65. Retirement payments: (1) Retirement payments made from a contribution-based interest added by the Finance Act, 2075. held in an approved retirement fund by a natural person added by the Finance Act, 2075. or made by the Government of Nepal, for the purpose of calculating income, shall be as follows:

(a) retirement payments made by such fund in respect of the interest held in such fund shall be included in income, and

(b) notwithstanding anything contained in clause (a), if such payment is made as a lump sum, the payment after deducting from such payment amount the higher of fifty percent of such payment amount or five hundred thousand rupees, shall be deemed to be a gain from the disposal of non-business taxable assets of that natural person. Deleted by the Finance Act, 2081

(2) For the purpose of calculating the benefit derived from an interest held in an unapproved retirement fund by a natural person, the following shall apply:

(a) in the case where the payment is made by a resident person, tax shall be levied on such beneficiary by way of final withholding tax on such amount, and

(b) in the case where the payment is made by a non-resident person, such amount shall be included while calculating the income of such beneficiary. Explanation: For the purpose of this section, "benefit derived from an interest held in an unapproved retirement fund" means the amount by which the retirement payment made to that person from such fund in respect of his interest exceeds the amount of retirement contributions paid by the beneficiary natural person to the unapproved retirement fund in respect of the interest. Added by the Finance Act, 2075.Provided that a payment made from a non-contributory fund shall not be deemed to be a benefit derived from an interest held in an unapproved retirement fund. Repealed by the Finance Act, 2075.66. Chapter-13

International Tax

67.
Income Tax Act, 2002

Explanation: For the purpose of this section,-

(a) "assets situated in Nepal" means land or buildings situated in Nepal, and assets other than land or buildings of a resident person situated in a foreign country, or if that person is associated with a controlled foreign entity under Section 69, includes that person's interest in that entity.

amended by the Finance Act, 2062.(b) "liability to be borne in Nepal" means a liability created from the activities conducted in Nepal by a resident person. 68. Foreign permanent establishments: (1) Notwithstanding anything contained in Section 3, subject to other provisions of this Act, the responsibility for depositing tax on the income of a foreign permanent establishment in Nepal of a non-resident person shall lie with that establishment itself.

(2) The income of the owner of a foreign permanent establishment under Section 69 shall be separated from the income of that establishment.

(3) Tax shall be levied on a permanent establishment as referred to in clause (b) of Section 3 on the income remitted abroad by a foreign permanent establishment in Nepal of a non-resident person.

(4) The income remitted abroad by a foreign permanent establishment in Nepal of a non-resident person in any income year shall be equal to the amount of dividend distributed by that foreign permanent establishment in that year. 69.
Income Tax Act, 2002

69. Controlled foreign entities: (1) If an entity, being a controlled foreign entity at the end of any income year, distributes a dividend in respect of its associated income for that year, it shall be deemed to have distributed a dividend proportionately to its interest holders as follows:

(a) according to the rights of those interest holders in that income at the time of dividend distribution, or

(b) if those rights are not reasonably determinable, in a manner deemed appropriate by the Department according to the circumstances.

(2) Dividends distributed by an entity that is a controlled foreign entity at the end of any income year, other than in accordance with sub-section (1), in that income year shall not be subject to tax.

(3) In respect of dividends deemed to be distributed in accordance with sub-section (1) from an entity to interest holders associated with the controlled foreign entity at the time of dividend distribution, the following shall be deemed to apply:

(a) such dividends shall have the same character as the type and source of the entity's associated income, and

(b) the distribution shall be deemed to be made proportionately from each type and source of the entity's associated income.

(4) Any tax deposited by a controlled foreign entity, including tax deemed deposited under sub-section (5) or sub-section (5) of Section 52, in respect of amounts deemed distributed under sub-section (3), shall be set aside for the benefit of the interest holders associated with that entity.

(5) Tax set aside under sub-section (4) shall be deemed to have been deposited by the interest holder at the time of apportionment, and the interest holder may avail the benefit of tax adjustment as provided in Section 71 for such tax.

(6) The amount deemed distributed to an interest holder in accordance with sub-section (1) at the time of distribution shall be included in the expense in respect of any asset or liability held as an interest in the distributing entity by that recipient interest holder.

(7) The dividend distributed to an interest holder entitled to tax exemption under sub-section (2) at the time of distribution shall be included in the income in respect of any asset or liability held as an interest in the distributing entity by the recipient interest holder.

(8) For the purposes of this Act, foreign income tax deposited, or deemed deposited by a controlled foreign entity under sub-section (5) or sub-section (5) of Section 52, shall be deemed to be tax deposited or deemed deposited by that entity under this Act.
Income Tax Act, 2002

Explanation: For the purpose of this section,-

(a) "associated income" means the taxable income of a controlled foreign entity for any income year calculated as if that entity were a resident entity.

(b) "controlled foreign entity" means a non-resident entity in which a resident person has an interest, directly or indirectly through one or more intermediary non-resident entities, and that person is associated with that entity, or if that person and up to four other resident persons are associated with that entity, such entity shall also be deemed to be a controlled foreign entity. 70. Tax applicable to non-residents providing water transport, air transport, or telecommunication services in Nepal: (1) The taxable income of a non-resident person operating water transport, charter service, or air transport for any income year shall include amounts derived from the following activities, except amounts received from transshipment in that year:

(a) the carriage of passengers departing from Nepal, or

(b) the carriage of mail, animals, or goods despatched from Nepal.

(2) The taxable income of a non-resident person operating a business of wire, radio, optical fiber, or satellite communication for any income year shall include amounts derived from the transmission of news or information, whether or not originating in Nepal, from mechanisms established in Nepal.

(3) Amounts included in the taxable income of a non-resident person under sub-section (1) or (2) shall be subject to tax at the rate specified in sub-section (7) of Section 2 of Schedule-1. Provided,

(a) such amounts shall not be taken into account when calculating the tax payable in respect of any remaining taxable income of that person,

(b) expenses related to the calculation of those amounts shall not be allowed as deduction when calculating such remaining taxable income, and

(c) in respect of those amounts, that person shall not be entitled to any tax adjustment benefit from the tax amount payable by that person under this section. Explanation: For the purpose of this section, "non-resident person" means a resident entity within a group of associated entities whose principal office is outside Nepal. 71.