chhatramani/nepal_legal_acts_corpus_english huggingface dataset:
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. Chapter 8

Determination of Net Gain from Disposition of Assets and Liabilities

36. Net Gain from Disposition of Assets and Liabilities: (1) For any income year, the net gain from the disposition 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 disposition of business assets or liabilities of that business in that income year:-
(a) the total of all losses incurred in that year from the disposition of business assets or liabilities of the business,
(b) losses from the net loss incurred in that year from any other business of that person, to the extent not otherwise deducted, and
(c) losses from the net loss incurred in prior years from that business or any other business of that person, to the extent not previously deducted.

(2) For any income year, the net gain from the disposition 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 disposition of taxable non-business assets of that investment in that income year:-
(a) the total of all losses incurred in that year from the disposition of taxable non-business assets of that investment,
(b) losses from the net loss incurred in that year from any other business or investment of that person, to the extent not otherwise deducted, and
(c) losses from the net loss incurred in any prior income year from that investment, any business, or any other investment of that person, to the extent not previously deducted.

(3) A person may claim a deduction under sub-section (1) or (2) for a loss from the disposition of a foreign source asset or liability only to the extent of gains from the disposition of foreign source assets or liabilities.

(4) If a person can deduct a net loss incurred from more than one business or investment calculation under sub-section (1) or (2), the person may choose which calculation or calculations to deduct the loss or portion thereof.
Explanation: For the purposes of this section:-
(1) "Net loss" means:-
(a) in relation to a business, the amount by which losses incurred in any income year from the disposition of business assets or liabilities of that business exceed the gains from the disposition of business assets or liabilities of that business in that year, and
(b) in relation to an investment, the amount by which losses incurred in any income year from the disposition of taxable non-business assets of that investment exceed the gains from the disposition 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 loss from the net loss of that business or investment for any income year that is not 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 section 20 that cannot be relieved as an expense due to the time limitation in sub-section (1) or (2) of section 20. 37. Gain and Loss from Assets and Liabilities: (1) The gain of a person from the disposition of any asset or liability shall be calculated as the amount by which the total receipts in respect of that asset or liability exceed the total outgoings in respect of that asset or liability at the time of disposition.
(2) The loss of a person from the disposition of any asset or liability shall be calculated as the amount by which the total outgoings in respect of that asset or liability exceed the total receipts in respect of that asset or liability at the time of disposition. 38. Outgoings and Net Outgoings on Assets and Liabilities: (1) Subject to this Act, the outgoings of a person in respect of an asset or liability shall include the following expenses:-
(a) in respect of any asset, expenses incurred by that person in acquiring the asset, including:
(1) relevant expenses for the construction or production of the asset, and
(2) any amount required to be included in the calculation of that person's income by reason of the acquisition of such asset.
(b) expenses incurred by the person in holding the asset or liability, including expenses for alteration, improvement, and maintenance of the asset or liability, and in the case of an asset, expenses incurred for its maintenance,
(c) expenses incurred by the person in disposing of the asset or liability, and
(d) incidental expenses incurred by the person in acquiring the asset or incurring the liability and in disposing of such asset or liability.
Provided that such expenses shall not include expenses under clauses (a), (b), (c), (d), and (e) of sub-section (1) of section 21 and expenses to the extent 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) Where expenditure amounts deducted in calculating income under Chapters 6 and 7 are considered as outgoings in respect of an asset or liability, the provisions of sub-section (1) shall apply. Provided that section 26 shall not apply in relation to the aforementioned provisions. 39. Receipts and Net Receipts on 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 the person in respect of incurring the liability,
(b) amounts receivable by the person in connection with acquiring the asset or incurring the liability, including amounts received by way of change or diminution in the value of an asset or increase in a liability, and
(c) amounts received or receivable by the person in connection with the disposition of such asset or liability. Provided that such receipts shall not include tax-exempt amounts, finally deducted Amended by First Amendment. payments, or amounts included in the income of that person in determining the income.

(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 receipts in respect of that asset or liability exceeds the total outgoings in respect of that asset or liability at that time.

(3) Where amounts included in income in calculating income in relation to matters mentioned in Chapters 6 and 7 are considered as receipts in respect of an asset or liability, sub-section (1) shall apply. Provided that section 26 shall not apply in relation to the aforementioned provisions. 40. Disposition of Asset or Liability: (1) A person is considered to have disposed of an asset if the person ceases to have ownership of it. Disposition of an asset shall include acts such as distribution of the asset by the owner, merging the asset into another asset or liability, sale by way of installment sale, leasing to another person under a finance lease, cancellation, destruction, loss, expiry, or surrender.
(2) A person is considered to have disposed of a liability if the person is relieved of the burden of that liability.
Disposition of a liability shall include acts such as settlement, cancellation, release, termination, or merging 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 respect of an asset, if the total receipts in respect of that asset exceed the total outgoings in respect of that asset,
(c) in respect of a debt claim:-
(1) in relation to a debt claim of a bank or financial institution, when it becomes a bad loan according to specified criteria, and
(2) in any other case, where the person reasonably believes that the debt claim is irrecoverable. Provided that the person must have taken all reasonable steps to recover the debt claim.
(d) in a situation where a person changes the type of business asset, non-business taxable asset, depreciable asset, or trading stock by commencing to use such asset in a different form, immediately before using the changed form of the asset,
(e) in relation to an entity, in the circumstances under section 57, and
(f) in the case of a non-resident person, except for land or buildings situated in Nepal, immediately before the person becomes a non-resident.
(4) If a person disposes of an asset by leasing it under a finance lease as per sub-section (1), the person to whom the asset is leased shall be deemed to have acquired ownership of the asset at the time of the disposition.
(5) For the purposes of calculating the gain derived by a person from the disposition of assets and liabilities:-
(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 amount of net receipts in respect of any 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.
41. Deemed Disposition with Retention of Asset or Liability: If a person disposes of any asset or liability in any manner mentioned in clauses (c), (d), (e), and (f) of sub-section (3) of section 40, the following shall apply:-
(a) in respect of an asset:-
(1) the person shall be deemed to have received, as consideration for the disposition, an amount equal to the market value of the asset at the time of disposition, and
Amended by Finance Act, 2076.(2) upon a subsequent disposal of such asset, the net outgoings (net outgoings) made in respect of that asset up to the time of the deemed disposal under this section shall be deemed to be equal to the receipt amount.
(b) in respect of a liability:-
(1) the person shall be deemed to have incurred, as consideration for the disposition, an expense equal to the market value of the liability at the time of disposition, and
Amended by Finance Act, 2076.(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 the deemed disposal under this section shall be deemed to be equal to the expense amount. 42. Disposition by way of Installment Sale or Finance Lease: If a person disposes of any asset to another person by way of an installment sale or a lease under a finance lease, the following shall apply:-
(a) the person disposing of the asset shall be deemed to have received, from the disposition at the time of disposition, an amount equal to the market value of the asset, and
(b) the person acquiring the asset from the disposition shall be deemed to have incurred a cost equal to the amount mentioned in 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: If a natural person who is divorced or separated after partition disposes of an asset by transferring it to their spouse or former spouse, and that 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, as consideration for the disposition, an amount equal to the net outgoings in respect of that asset immediately before the disposition, and
(b) the person acquiring the asset through the transfer shall be deemed to have incurred a cost equal to the amount mentioned in clause (a). 44.
Amended by Finance Act, 2076.(c) In the case of an asset transferred under sub-clause (5) of clause (d) 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), if a person disposes of ownership of an asset held as a business asset, non-business Amended by Finance Act, 2076. taxable asset, or trading stock by transferring it to an associated person, and the conditions in sub-section (6) are met, the following shall apply:-
(a) that person shall be deemed to have received, as consideration for that disposition, an amount equal to the net outgoings in respect of that asset immediately before the disposition, and
(b) the person acquiring the asset through the 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), if a person disposes of ownership of a depreciable asset by transferring it to an associated person, or if such asset falls under any group of depreciable assets, and the conditions in sub-section (6) are met, the following shall apply:-
(a) that person shall be deemed to have received, as consideration for that disposition, an amount equal to the written down value under the diminishing balance method for that group according to section 4 of Schedule 2 at the time of the disposition, and
(b) the person acquiring the asset through the transfer shall be deemed to have incurred a cost equal to the amount mentioned in clause (a).

(4) If a person disposes of a liability by transferring it to an associated person, or to any other person without any Amended by Finance Act, 2076. consideration, the following shall apply:-
(a) that person shall be deemed to have incurred, as consideration for that disposition, an expense equal to the lower of the market value or the net receipts in respect of that liability immediately before the disposition, and
(b) the person to whom the liability is transferred shall be deemed to have received, in connection with assuming that liability, an amount equal to that liability.
Provided that this provision shall not apply where the provisions of sections 43 and 44 apply.

(5) If a person disposes of a liability incurred in deriving income from a business by transferring it to an associated person, fulfilling the conditions in sub-section (6), the following shall apply:-
(a) that person shall be deemed to have incurred, for that disposition, an expense equal to the net receipts in respect of that liability immediately before the disposition, and
(b) the associated person shall be deemed to have received, in connection with assuming that liability, an amount equal to that amount.

(6) For the purposes of sub-sections (2), (3), and (5), the following conditions must be satisfied:-
(a) The business asset, trading stock, or depreciable asset of the business disposed of shall immediately become a business asset, trading stock, or depreciable asset of the business of the associated person after the transfer from the transferor.
(b) The non-business taxable asset or depreciable asset of an investment disposed of shall immediately become a business asset, non-business taxable asset, depreciable asset, or trading stock of the associated person after the transfer from the transferor.
(c) In the case of a liability, the liability must be transferred to the associated person for the purpose of deriving income from any business or investment of that associated person.
(d) At the time of the transfer, both the transferor and the associated person must be residents, and the associated person must not be an exempt person.
(e) Ownership inherent in the asset or the burden inherent in the liability must, as the case may be, remain at least fifty percent, and
(f) Both the person and the associated person must make a written request for the election under sub-section (2), (3), or (5), as the case may be, to apply. 46.
46. Involuntary Disposition with Replacement of Asset or Liability: (1) If a person involuntarily disposes of an asset in any manner mentioned in sub-section (1) of section 40 and, within one year, acquires ownership of another asset of the same kind in replacement of that asset, and makes a written request for this section to apply, the following shall apply:-
(a) that person shall be deemed to have received, as consideration for that disposition, an amount equal to the sum of the following amounts:-
(1) the net outgoings in respect of that asset immediately before the disposition, and
(2) the amount, if any, by which the amount received from the disposition exceeds the cost incurred in acquiring the replacement asset, and
(b) the person shall be deemed to have incurred, in acquiring the replacement asset, an amount equal to the sum of the following amounts:-
(1) the net outgoings in respect of the disposed asset immediately before the disposition, and
(2) the amount, if any, by which the cost of acquiring the replacement asset exceeds the amount received from the disposition.

(2) If a person involuntarily disposes of a liability in any manner mentioned in sub-section (2) of section 40 and, within one year, assumes another liability of the same kind in replacement of that liability, and makes a written request for this section to apply, the following shall apply:-
(a) that person shall be deemed to have incurred, as consideration for that disposition, an amount equal to the amount resulting from subtracting the amount mentioned in sub-clause (2) from the amount mentioned in sub-clause (1):
(1) the amount in respect of the net receipts in respect of that liability immediately before the disposition,
(2) the amount, if any, by which the expense incurred in the disposition exceeds the amount received from assuming the replacement liability,
(b) that person shall be deemed to have received, in assuming the replacement liability, an amount equal to the sum of the following amounts:-
(1) the net receipts in respect of the disposed liability immediately before the disposition, and
(2) the amount, if any, by which the amount received from assuming the replacement liability exceeds the expense incurred in the disposition.

(3) Circumstances where an interest in an entity is replaced by another interest (security) in the same entity as a result of a change in the interest or restructuring of the entity, creating an involuntary disposition, shall be as prescribed. 47.
47. Disposition by Merger of Assets and Liabilities: (1) If, as a result of a person acquiring an asset or incurring a liability, another asset owned or another liability incurred by that person is terminated or merged, resulting in a disposition, the following shall apply:-
(a) In relation to the merging asset or liability, if there were net outgoings in respect of the merging asset or liability immediately before the disposition, that person shall:-
(1) be deemed to have received, in respect of the disposition of the merging asset or liability, an amount equal to those net outgoings. Provided that such amount shall not exceed the amount received by that person in respect of the merged liability.
(2) be deemed to have incurred, in holding ownership of the merged asset or bearing the burden of the liability, an amount equal to that amount.
(b) In relation to the merging liability, if there were net receipts in respect of the merging liability immediately before the disposition, that person shall:-
(1) be deemed to have incurred, in respect of the disposition of the merging liability, an amount equal to those net receipts. Provided that, in the case of the merged asset, it shall not exceed the amount expended by that person in acquiring the asset.
(2) be deemed to have received, in holding ownership of the merged asset or assuming the burden of the liability, an amount equal to that amount.

(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 acts to acquire or sell an asset,
(b) where that person receives an asset that was leased out by that person, and
(c) where a liability for which a guarantee was provided by the transferee is transferred. Amended by Finance Act, 2079.47A. Special Provisions regarding Disposition due to Business Mergers: (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 (ch) of sub-section (2) and sub-section (3) of section 47 shall not apply. Provided that, if the entity that ceases to exist after the merger has any undeducted loss, such loss shall be deducted in equal installments over the next seven years.
Added by Finance Act, 2079.(8) Entities that merge with each other after the commencement of this section but have not availed of the facility under this section may also avail of the same facility. Added by Finance Act, 2079.(9) In the case of an entity that does not submit a letter of intent within the period specified in sub-section (6) and an entity that does not complete the merger process by the date mentioned in sub-section (7), the provisions of this section shall be deemed not to apply. 48. Disposition of Assets and Liabilities by way of Partition: If rights relating to any asset owned by a person or burdens relating to a liability incurred by a person are created in another person, including through a lease of the asset or any part thereof, the following shall apply:-
(a) if the rights or burdens are permanent, the first person shall be deemed to have disposed of 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 not be deemed to have disposed of part of that asset or liability. Provided that the person shall be deemed to have acquired a new asset or incurred a new liability, as the case may be. 49. Allocation of Outgoings and Receipts Resulting in Disposition: (1) Where a person acquires, incurs, or disposes of any asset or liability, outgoings or receipts must be allocated among the assets or liabilities on the basis of their market values at the time of the acquisition, incurrence, or disposition, as the case may be:-
(a) if one or more assets are acquired or one or more liabilities are assumed at the same time, or
(b) if one or more assets or liabilities are disposed of at the same time.

(2) If a person holding ownership of an asset or bearing a liability disposes of part of that asset or liability, the net outgoings or net receipts of that asset or liability immediately before the disposition shall be allocated between the part disposed of and the part retained on the basis of their respective market values immediately after the disposition, as the case may be. Chapter 9

Special Provisions relating to Natural Persons

50.
Chapter 9

Special Provisions relating to Natural Persons

50. Couples: (1) A resident natural person and that person's resident spouse may both, by giving written notice, elect to be treated as a single natural person for tax purposes for a particular income year.

(2) For an income year in respect of which a couple makes the election under sub-section (1), the husband or wife shall be jointly and severally liable for the tax payable by either of them in that year. Amended by Finance Act, 2076.(3) Notwithstanding anything contained in sub-sections (1) and (2), a resident widow or widower who has a dependent to support shall be treated as a couple. 51. Medical Tax Credit: (1) A resident natural person may claim a medical tax credit for any income year for approved medical treatment expenses incurred by that person for themselves or through any other person.

(2) The amount of medical tax credit for a natural person in any income year

(b) Where the person to whom the liability is transferred assumes the liability, such person shall be deemed to have received an amount equal to the amount mentioned in clause (a).

(3) If an entity distributes a dividend other than profit as a dividend to any beneficiary, the amount of such dividend shall be included in computing the income of such entity. Provided, however, that provision may be made that the matter mentioned in this sub-section shall not apply in any prescribed circumstances. 57. Change in control: (1) If there is a change of fifty percent or more in the ownership of an entity compared to its ownership during the immediately preceding three years, such entity shall be deemed to have disposed of its owned assets or liabilities borne by it. Added by the Finance Act, 2076.Provided, however, that this sub-section shall not apply in a case where new shareholders or partners are added and capital is increased in a startup venture capital and private equity fund while the number of shares and capital of the existing shareholders and partners remain unchanged.
Added by the Finance Act, 2076.(1a) For the purpose of calculating a change of fifty percent or more in the ownership of an entity pursuant to sub-section (1), only the ownership of such entity as follows shall be included:-

(a) ownership acquired by a Amended by the Finance Act, 2076.shareholder or partner who acquires one percent or more of the total ownership, and

(b) ownership acquired by an associated person of a Amended by the Finance Act, 2076.shareholder or partner who, among the Amended by the Finance Act, 2076.shareholders or partners acquiring less than one percent of the total ownership, acquires more than one percent of the total ownership of such entity.

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

(a) deduct interest carried forward pursuant to sub-section (3) of section 14 that was expended by such entity before the change in ownership,

(b) deduct losses incurred by such entity before the change in ownership pursuant to section 20,

(c) carry back losses incurred after the change in ownership to the income year prior to such change in ownership pursuant to sub-section (4) Amended by the Finance Act, 2076 of section 20,

(d) adjust any amount or expense accounted for pursuant to sub-section (4) Amended by the Finance Act, 2076 of section 24 before the change in ownership, and such amount or expense Amended by the Finance Act, 2076.adjustment pursuant to sub-section (4) of section 24 after the change in ownership,

(e) adjust any amount accounted for pursuant to clause (b) of sub-section (1) of section 25 before the change in ownership, and if the right to receive such amount is relinquished after the change in ownership or if such amount is a debt claim of a person and such person treats the debt as bad debt and writes it off, adjust pursuant to sub-section (1) of section 25,

(f) reduce, pursuant to section 36, the loss incurred on the disposal of an asset or liability before the change in ownership against the income derived from the disposal of an asset or liability after the change in ownership,

(g) claim expenditure for a premium accounted for pursuant to sub-clause (1) of clause (b) of sub-section (2) of section 60 before the change in ownership, if such premium is refunded to the insured after the change in ownership, or

(h) carry forward tax paid on foreign income to a future year pursuant to sub-section (3) of section 71.

(3) If there is a change in the ownership of an entity in any income year in the manner specified in sub-section (1), the parts of that income year before and after the change in ownership shall be treated as separate income years.
58. Provision to prevent reduction of dividend tax: Amended by the Finance Act, 2076.(1) An arrangement made by an entity while maintaining all of the following conditions shall be deemed to be an arrangement made to reduce dividend tax:-

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

(b) where any person acquiring an interest acquires any interest in such entity, and such interest acquirer or an associated person of such acquirer makes any payment to a current or former beneficiary of such entity or an associated person of such beneficiary, whether or not related to the acquisition of the interest and whether or not made at the time of acquisition of the interest,

(c) where such payment is reflected in whole or in part in the profits of the entity, and

(d) where such entity distributes a dividend to such interest acquirer, and such dividend includes such profits in whole or in part.

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

(a) The payment made by the interest acquirer or the associated person of such acquirer shall be deemed not to be a payment made by such person, but rather the entity shall be deemed to have distributed a dividend to the former or current beneficiary mentioned in clause (b).

(b) The dividend distributed by the entity to the interest acquirer shall be deemed to be equal to the amount arrived at after deducting the amount referred to as that payment in clause (a). Chapter-11
Special Provisions Relating to Banking and Insurance Business

59. Banking business: (1) In computing the income or loss derived from the business of any person who carries on a banking business in any income year, the banking business shall be treated as a separate business distinct from any other business carried on by such person, and shall be computed separately. Added by the Finance Act, 2076.(1a) Subject to the standards prescribed by Nepal Rastra Bank, a person carrying on a banking business may deduct as an expense an amount up to five percent of the total of the outstanding loan amount and the amount set aside for non-banking assets placed in a risk-bearing fund. Added by the Finance Act, 2076.(1b) A cooperative institution may deduct as an expense an amount up to five percent of the outstanding loan amount placed in a risk-bearing fund.
Added by the Finance Act, 2076.(1b) A cooperative institution may deduct as an expense an amount up to five percent of the outstanding loan amount placed in a risk-bearing fund. Added by the Finance Act, 2076.(1c) Where a risk-bearing fund maintained pursuant to sub-sections (1a) and (1b) exists, expenses written off from profits as bad debts shall not be waived, and if the amount in such fund is capitalized or distributed as profit or dividend, it shall be included in the income of the year in which such distribution is made.

(2) Repealed by the Finance Act, 2076

(3) Repealed by the Finance Act, 2076

Explanation: For the purpose of this section, "banking business" shall be understood to mean the banking business conducted by banks and financial institutions authorized to carry out banking transactions under the prevailing law. 60. General insurance business: (1) In computing the income or loss derived from the business of any person who carries on a 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 such person, and shall be computed separately.

(2) In computing the income of any person carrying on a 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) amounts received by such person in that year as insurance premiums, including reinsurance premiums, from carrying on that business, and

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

(b) On the expenditure side, in addition to amounts deductible under this Act, the following amounts shall also be deductible:-

(1) payments made in that year by such person in the capacity of an insurer while carrying on that business, and

(2) premiums refunded to the insured in that year, which were included pursuant to sub-clause (1) of clause (a) in computing the income from that business for that year or any prior year. Amended by the Finance Act, 2076.(3) The total of the following amounts placed in a risk-bearing fund:-

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

(b) an amount up to one hundred and fifteen percent of the amount remaining to be paid for claims at the end of any year.
Provided, however, that an amount deducted as expenditure pursuant to this sub-clause in any year shall be included in income when computing the income from the insurance business for the following income year.

(3) Repealed by the Finance Act, 2076

(4) Repealed by the Finance Act, 2076

Explanation: For the purpose of this section, "registered general insurance business" shall be understood to mean an insurance business registered in Nepal under the prevailing law and carrying on general insurance business. 61. Life insurance business: (1) In computing the income or loss derived from the business of any person who carries on a life insurance business in any year, the life insurance business shall be treated as a separate business distinct from any other business carried on by such person, and shall be computed separately.

(2) In computing the income of any person carrying on a life insurance business for any income year, the following shall be done:-

(a) Include other amounts includible under this Act, excluding the following amounts:-

(1) amounts received by such person in that income year as insurance premiums, including reinsurance premiums, from carrying on that business, and

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

(b) Deduct other amounts deductible under this Act, excluding the following amounts:-

(1) payments made in that year by a person in the capacity of an insurer while carrying on that business, and

(2) Amended by the Finance Act, 2076.(2) premiums referred to in sub-clause (1) of clause (a) that are refunded 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, 2076.expenditure of such person in respect of their assets or liabilities.

(4) A life insurance contract of a person's life insurance business shall not be deemed to be an asset or liability of such person. 62. Amounts received from insurance: (1) For the purpose of computing the income of a person, amounts received by such person from insurance shall be as provided in section 31.

(2) Notwithstanding anything contained in sub-section (1), with respect to gains derived from life insurance, the following shall apply:-

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

(b) where such amount is paid by a non-resident person, such amount shall be included in the income of the insured and computed.
Explanation: For the purpose of this section, "gain derived from life insurance" shall be understood to mean the amount by which the payment received by a person in respect of life insurance exceeds the premiums paid by such person in relation to that insurance. Chapter-12

Special Provisions Relating to Retirement Savings

63. Amended by the Finance Act, 2076.Retirement fund: (1) Removed by the Finance Act, 2076

Removed by the Finance Act, 2076

(2) An individual beneficiary of an approved retirement fund may claim a deduction, in computing his or her taxable Amended by the Finance Act, 2076.income, for retirement contributions made to such fund in any income year. Added by the Finance Act, 2076.Explanation: For the purpose of this section, "approved retirement fund" shall be understood to mean 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 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 a deduction by a person in any income year pursuant to that sub-section shall not exceed the prescribed limit for retirement contributions. 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 in computing the income of the fund.
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 in computing the income of the fund. Provided, however, that,-

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

(b) Retirement payments shall not be expenses of such fund, and such payments shall not be deductible in computing 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) Where 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 specified in sub-section (1) of section 2 of Schedule-1 Amended by the Finance Act, 2076.:-

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

(b) all retirement payments made by such fund during the period from the date of obtaining approval as an approved retirement fund to the date of expiry of recognition. 65. Retirement payments: (1) For the purpose of computing income, retirement payments made from a Amended by the Finance Act, 2076.contribution-based interest in an approved retirement fund of an individual Amended by the Finance Act, 2076.or from the Government of Nepal shall be as follows:-

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

(b) Notwithstanding anything contained in clause (a), if such payment is made in a lump sum, the payment remaining after deducting from such payment amount the higher of fifty percent of the payment amount or five hundred thousand rupees shall be deemed to be a gain derived from the disposal of a non-business taxable asset of such individual. Removed by the Finance Act, 2076

(2) For the purpose of computing the benefit derived from an interest in an unapproved retirement fund of an individual, the following shall apply:-

(a) where the amount is paid by a resident person, such amount shall be subject to tax on the beneficiary by way of final withholding tax, and

(b) where the amount is paid by a non-resident person, such amount shall be included in computing the income of such beneficiary.
Explanation: For the purpose of this section,-

(a) "property located in Nepal" shall also be understood to include land or buildings situated in Nepal, and assets other than land or buildings of a resident person situated in a foreign country, or if such person is associated with a controlled foreign entity under section 69, such person's interest in that entity.

(b) Amended by the Finance Act, 2076."liability to be borne in Nepal" shall be understood to mean a liability created for a resident person from activities carried on in Nepal. 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 be with that establishment itself.

(2) The income of the entity owning such establishment under section 69 shall be separated from the income of the foreign permanent establishment.

(3) Tax shall be levied on the permanent establishment as mentioned in clause (b) of section 3 on 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 dividends distributed by such foreign permanent establishment in that year. 69.
69. Controlled foreign entities: (1) If an entity, being a controlled foreign entity at the end of any income year, distributes dividends on its related income for that year, it shall be deemed to have distributed dividends proportionately to its beneficiaries as follows:-

(a) according to the rights of those beneficiaries in such income at the time of dividend distribution, or

(b) where such rights are not reasonably ascertainable, according to the manner deemed appropriate by the Department considering the circumstances.

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

(3) A dividend deemed to be distributed under sub-section (1) from such entity to a beneficiary associated with the entity at the time of dividend distribution shall be deemed to have the following characteristics:-

(a) the same nature as the type and source of the related income of such entity, and

(b) distributed proportionately from each type and source of the related income of such entity.

(4) Any tax deposited by a controlled foreign entity, including any tax deemed to be deposited under sub-section (5) or sub-section (5) of section 72, in respect of amounts deemed distributed under sub-section (3), shall be allocated to the beneficiaries associated with such entity.

(5) The tax allocated under sub-section (4) shall be deemed to have been deposited by the beneficiary at the time of distribution, and the beneficiary may avail of the tax credit facility as provided in section 71 for such tax.

(6) The amount deemed distributed to a beneficiary under sub-section (1) at the time of distribution shall be included in the cost of any asset or liability held as an interest in the distributing entity by the receiving beneficiary.

(7) A dividend distributed to a beneficiary exempt under sub-section (2) at the time of distribution shall be included in the income from any asset or liability held as an interest in the distributing entity by the receiving beneficiary.

(8) For the purpose of this Act, foreign income tax deposited, or foreign income tax deemed to be deposited by a controlled foreign entity under sub-section (5) or sub-section (5) of section 72, shall be treated as tax deposited or deemed to be deposited by such entity under this Act.
Explanation: For the purpose of this section,-

(a) "related income" shall be understood to mean the taxable income of a controlled foreign entity for any income year computed as if such entity were a resident entity.

(b) "controlled foreign entity" refers to a non-resident entity in which a resident person has an interest, directly or indirectly through one or more intermediary non-resident entities, in any income year, and where such person is associated with such entity or is deemed to be associated, and where up to four other resident persons are associated with such entity, such entity shall also be understood to be a controlled foreign entity. 70. Tax on non-residents providing sea navigation, air transport or telecommunications services in Nepal: (1) The taxable income of a non-resident person operating sea navigation, charter service, or

air transport for any income year shall include amounts derived from the following activities, excluding amounts derived from transshipment in that year:-

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

(b) the carriage of mail, livestock, or goods consigned from Nepal.

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

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

(a) such amounts shall not be taken into account in computing the tax payable on any remaining taxable income of such person,

(b) expenses related to the computation of such amounts shall not be deductible in computing such remaining taxable income, and

(c) such person shall not be entitled to any tax credit facility in respect of the tax payable by such person under this section on such amounts. Explanation: For the purpose of this section, "non-resident person" shall be understood to mean a resident entity within a group of related entities whose head office is outside Nepal. 71.
Explanation: For the purpose of this section, "non-resident person" shall be understood to mean a resident entity within a group of related entities whose head office is outside Nepal. 71. Foreign tax credit: (1) A resident person who has deposited any foreign income tax in any income year may claim a credit for such foreign income tax in that income year, to the extent of the tax paid on the person's determinable foreign income.

(2) In computing the foreign tax credit claimed under sub-section (1), the following shall be done:-

(a) a separate computation shall be made for the determinable foreign income sourced in each country, and

(b) in respect of each computation, the foreign tax credit claimed shall not exceed the average rate of Nepalese tax for that person in that year on the determinable foreign income.

(3) Any foreign income tax deposited in respect of determinable foreign income of a person for which the credit facility under sub-section (1) is not granted due to the limit set in clause (b) of sub-section (2) may be dealt with as follows:-

(a) it may be carried forward to the following year, and

(b) it shall be deemed to have been deposited in respect of the person's determinable foreign income for a future income year sourced in that foreign country.

(4) Notwithstanding anything contained in sub-section (1), for any income year, a person may forgo the foreign tax credit claim for that year and instead claim as an expense the amount of foreign income tax for which such credit facility is available. Explanation: For the purpose of this section,-

(a) "determinable foreign income" shall be understood to mean the following income of a resident person for any income year from any employment, business, or investment, included in such person's determinable income for that year:-

(1) income from a foreign source, or

(2) income of a non-resident person deemed to be distributed to such resident person under section 69, whatever its source. Amended by the Finance Act, 2076.(b) "average rate of Nepalese tax" shall be understood to mean the rate arrived at by dividing the tax amount payable in a year by a person mentioned in clause (a) of section 3 before any foreign tax credit for that year by that person's taxable income for that income year, multiplied by one hundred. Chapter-14

Tax Administration and Official Documents

72. Department: (1) The Department shall be responsible for the implementation and administration of this Act.