INCOME TAX ACT 2058
FOR BBS 3RD YEAR STUDENTS
INCOME TAX ACT 2058
• Enacted by the Parliament of Nepal with effective from
Chaitra 19, 2058 BS. to enhance revenue mobilization
through effective revenue collection procedure and
amend and integrate all laws relating to income tax.
Objectives:
a)to bring all income generating activities into tax net.
b)to confine all income tax related matters within the Act.
c)to minimize tax avoidance and tax evasion.
d)to make income tax elastic and revenue productive
e)develop a taxpayer- friendly taxation system making it
clear and transparent.
FEATURES OF INCOME TAX ACT 2058
a) Confinement of all tax related matters within the Act
b) Deduction of related expenses: all real expenses incurred
in generating income from business or investments are
allowed for deductions.
c)Block base depreciation: Altogether, all assets are
classified into five categories for taxation. Assets under the
last category (E) have been classified as intangible assets
with provision to charge depreciation.
d) Method of tax accounting: Tax accounting methods i.e.
Cash basis or Accrual basis have been clearly specified for
different taxpayers under different income heads.
FEATURES OF INCOME TAX ACT 2058
e) Residential Status: The act has distinguished
between the resident and non-resident persons for
taxing the residents global income or non-residents
income with sources in Nepal.
f) Medical tax credit: In case of approved medical
expenses, medical tax credit is available to resident
natural persons as deduction from tax liabilities.
g) Self tax assessment: The Act has followed fullfledged self tax assessment system to establish
taxpayer-friendly environment.
RELATION OF INCOME TAX ACT WITH OTHER ACTS
a) Income tax Act and Constitution:
Income tax Act 205 is fully guided by the constitution
of Nepal. The constitution of Nepal states that no tax
will be raised without laws. Income tax Act has been
formulated to raise income tax as per the provision in
the constitution. So, it ,must be consistent with the
spirit of the constitution. Any portion of income tax
Act found inconsistent with the constitution will be
deemed invalid.
RELATION OF INCOME TAX ACT WITH OTHER ACTS
b) Income Tax Act and Financial Act:
Income Tax Act is generally of permanent(long term ) nature
whereas Financial Act generally remains effective for the
particular fiscal year. The government enacts Financial Act
each year to amend temporarily the provisions in Income Tax
Act. So, Financial Act is a complementary to Income Tax Act.
c) Income tax Act and Income tax Rules:
Income Tax Rule is a subsidiary of Income Tax Act. Income Tax
Rules are framed to help clarifying the provisions in the Income
Tax Act and fulfil the objectives of the Act. Income Tax Rules are
consistent with the Income Tax Act. If Income Tax Rules are
found inconsistent with the Act, the portion found inconsistent
will be invalid.
RELATION OF INCOME TAX ACT WITH OTHER ACTS
d) Income tax Act and Provisional Tax Realization Act:
When Finance Act isn’t enacted timely by the parliament,
the government has no right to collect tax revenue without
approval of tax laws. In this condition, Provisional Tax
Realization Act uses as a bridge to collect the tax. It gives
orders for the tax realization up to the Finance Act becomes
enacted by the parliament. When Finance Act is enacted,
such orders will automatically be invalid. If the amount of
tax levied by such order is more than by Financial Act, the
excess amount will be refunded and vice versa. Provisional
Tax Realization Act is a tool for the government for the
realization of tax continuously.
RELATION OF INCOME TAX ACT WITH OTHER ACTS
e) Income Tax Act and Legal Precedents established by the
court:
The Supreme Court often interprets the unclarified matters
of the Act when there is a dispute between the tax payer
and tax authorities. The disputes are cleared by the court
and the clarifications(decisions) of the court becomes legal
precedents (नजिर). Until and unless such unclarified matters
are clarified in the Act, the precedents of the court will be
enforced as laws.