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How to Calculate Income Tax in Nepal (FY 2083/84)

📅 Last Updated: Shrawan 2083 (July 2026) — Finance Act 2083

✍️ Reviewed by: NepaCalc Research Team

📍 Applies to: All resident individuals in Nepal, FY 2083/84

Learning how to calculate income tax in Nepal is essential for every salaried employee, self-employed professional, and business owner. Nepal uses a progressive income tax system administered by the Inland Revenue Department (IRD), where different portions of your income are taxed at different rates. The FY 2083/84 Finance Act introduced a completely unified 5-band structure — making the calculation simpler than previous years. This guide walks through every step with formulas, worked examples across multiple salary levels, and common mistakes to avoid.

Skip to calculator: Use the Income Tax Calculator Nepal to get your exact result instantly.

How Income Tax Works in Nepal — Quick Answer

How is income tax calculated in Nepal?

Income tax in Nepal is calculated progressively using the FY 2083/84 IRD slabs. First subtract eligible deductions (SSF/EPF/CIT up to Rs. 5 lakh or 1/3 of income, life insurance up to Rs. 40,000, health insurance up to Rs. 20,000) from gross annual income to find Net Assessable Income, then apply each slab rate only to the portion of income that falls within that band. Sum all slab results for total annual tax.

What is the formula to calculate income tax in Nepal?

The income tax formula for Nepal FY 2083/84 is:

Net Assessable Income (NAI) = Gross Annual Income − Eligible Deductions

Annual Tax = [NAI up to Rs. 10L × 1%] + [NAI Rs. 10–15L × 10%] + [NAI Rs. 15–25L × 20%] + [NAI Rs. 25–40L × 27%] + [NAI above Rs. 40L × 29%] − Female Rebate (10% if applicable)

Monthly TDS = Annual Tax ÷ 12

SSF exception: If you contribute to the Social Security Fund (SSF), the first band [NAI up to Rs. 10L × 1%] becomes zero.

How much tax will I pay if my salary is Rs. 1 lakh per month?

On Rs. 1 lakh monthly salary (Rs. 12 lakh/year) with no deductions: Rs. 10,000 (1% on first Rs. 10 lakh) + Rs. 20,000 (10% on next Rs. 2 lakh) = Rs. 30,000 annual tax (Rs. 2,500/month). If you are an SSF contributor: Rs. 20,000/year (Rs. 1,667/month). See full worked examples below.

Complete Step-by-Step Guide to Calculating Nepal Income Tax

Follow these 14 steps exactly to calculate your income tax manually for FY 2083/84.

Step 1 — Calculate Total Annual Gross Income

Add all income components:

  • Monthly basic salary × 12
  • All fixed monthly allowances × 12
  • Festival bonuses (Dashain, Tihar — typically one month's basic)
  • Performance bonuses received during the year
  • Any other taxable allowances

Example: Monthly basic Rs. 80,000 + allowances Rs. 20,000 = Rs. 1,00,000/month
Annual gross = Rs. 1,00,000 × 12 + Rs. 80,000 Dashain bonus = Rs. 12,80,000

Step 2 — Calculate Retirement Contribution Deduction

Add your contributions to approved retirement funds:

  • Social Security Fund (SSF)
  • Employee Provident Fund (EPF)
  • Citizen Investment Trust (CIT)

Apply the cap: deduct the LOWER of:
(a) Your actual total retirement contribution
(b) One-third (1/3) of your gross annual income
(c) Rs. 5,00,000 maximum

Example: EPF contribution Rs. 96,000/year. One-third of Rs. 12,80,000 = Rs. 4,26,667.
Deduction = Rs. 96,000 (lowest of the three).

Step 3 — Calculate Insurance Premium Deductions

Add deductible insurance premiums:

  • Life insurance premium paid: deduct actual amount up to Rs. 40,000
  • Health/medical insurance premium paid: deduct actual amount up to Rs. 20,000

Example: Life insurance Rs. 36,000/year + health insurance Rs. 15,000/year = Rs. 51,000 total.
Deduction = Rs. 51,000 (both within caps so full amount deducted).

Step 4 — Calculate Net Assessable Income (NAI)

Subtract all deductions from gross:
NAI = Gross Annual Income − Retirement Deduction − Insurance Deductions

Example:
NAI = Rs. 12,80,000 − Rs. 96,000 − Rs. 51,000 = Rs. 11,33,000

Step 5 — Check SSF Status

If you or your employer contributes to the Social Security Fund (SSF):
The entire 1% first-band tax is waived. Mark Band 1 as Rs. 0.

If you do not contribute to SSF:
Band 1 tax = Rs. 10,000 (1% on Rs. 10 lakh, or 1% of NAI if NAI is below Rs. 10 lakh).

Step 6 — Apply Band 1 (1% on First Rs. 10 Lakh)

If NAI ≤ Rs. 10,00,000: Band 1 tax = NAI × 1%
If NAI > Rs. 10,00,000: Band 1 tax = Rs. 10,00,000 × 1% = Rs. 10,000

Example: (NAI = Rs. 11,33,000, non-SSF):
Band 1 tax = Rs. 10,000

Step 7 — Apply Band 2 (10% on Rs. 10–15 Lakh)

Only applies if NAI exceeds Rs. 10,00,000.
Band 2 taxable amount = NAI − Rs. 10,00,000 (maximum Rs. 5,00,000)
Band 2 tax = Band 2 taxable amount × 10%

Example: (NAI = Rs. 11,33,000):
Band 2 taxable = Rs. 11,33,000 − Rs. 10,00,000 = Rs. 1,33,000
Band 2 tax = Rs. 1,33,000 × 10% = Rs. 13,300

Step 8 — Apply Band 3 (20% on Rs. 15–25 Lakh)

Only applies if NAI exceeds Rs. 15,00,000.
Band 3 taxable amount = NAI − Rs. 15,00,000 (maximum Rs. 10,00,000)
Band 3 tax = Band 3 taxable amount × 20%

Example: (NAI = Rs. 11,33,000): NAI does not reach Rs. 15 lakh. Band 3 = Rs. 0.

Step 9 — Apply Band 4 (27% on Rs. 25–40 Lakh)

Only applies if NAI exceeds Rs. 25,00,000.
Band 4 taxable amount = NAI − Rs. 25,00,000 (maximum Rs. 15,00,000)
Band 4 tax = Band 4 taxable amount × 27%

Step 10 — Apply Band 5 (29% above Rs. 40 Lakh)

Only applies if NAI exceeds Rs. 40,00,000.
Band 5 taxable amount = NAI − Rs. 40,00,000
Band 5 tax = Band 5 taxable amount × 29%

Step 11 — Sum All Band Results

Total Annual Tax = Band 1 + Band 2 + Band 3 + Band 4 + Band 5

Example:
Rs. 10,000 + Rs. 13,300 + Rs. 0 + Rs. 0 + Rs. 0 = Rs. 23,300/year

Step 12 — Apply Female Rebate if Eligible

If you are a resident female employee whose ONLY income source is employment:
Female Adjusted Tax = Total Annual Tax × 90% (i.e., reduce by 10%)

Example: (female employee, non-SSF):
Rs. 23,300 × 90% = Rs. 20,970/year

Step 13 — Calculate Monthly TDS

Monthly TDS = Annual Tax ÷ 12

Example:
Rs. 23,300 ÷ 12 = Rs. 1,942/month (non-SSF, non-female)
Rs. 13,300 ÷ 12 = Rs. 1,108/month (SSF contributor, same salary)

Step 14 — Verify with the Calculator

Use the Income Tax Calculator Nepal to confirm your manual calculation. Enter gross monthly salary, SSF status, retirement contributions, and insurance premiums for an instant verified result.

Income Tax Calculation Formula Summary

For quick reference, here is the complete Nepal income tax formula for FY 2083/84:

Step A — Net Assessable Income:

NAI = Gross Annual Income − min(Retirement Contributions, Rs. 5L, 1/3 × Gross) − Life Insurance (max Rs. 40K) − Health Insurance (max Rs. 20K)

Step B — Progressive Tax:

Tax = [min(NAI, 10L) × 1%*]

+ [max(0, min(NAI−10L, 5L)) × 10%]

+ [max(0, min(NAI−15L, 10L)) × 20%]

+ [max(0, min(NAI−25L, 15L)) × 27%]

+ [max(0, NAI−40L) × 29%]

*Replace 1% with 0% if SSF contributor

Step C — Female Rebate:

If female salary-only employee: Final Tax = Tax × 0.90

Step D — Monthly TDS:

Monthly TDS = Final Tax ÷ 12

Worked Examples — How to Calculate Income Tax for Every Salary Level

These examples show how to calculate income tax in Nepal across common salary ranges using FY 2083/84 IRD slabs.

Example 1 — Rs. 25,000/Month (Rs. 3 Lakh/Year)

No deductions. Non-SSF.

  • NAI: Rs. 3,00,000
  • Band 1: Rs. 3,00,000 × 1% = Rs. 3,000/year (Rs. 250/month)
  • SSF contributor: Rs. 0/year
  • Female (non-SSF): Rs. 2,700/year (Rs. 225/month)

Example 2 — Rs. 50,000/Month (Rs. 6 Lakh/Year)

No deductions. Non-SSF.

  • NAI: Rs. 6,00,000
  • Band 1: Rs. 6,00,000 × 1% = Rs. 6,000/year (Rs. 500/month)
  • SSF contributor: Rs. 0/year
  • Female (non-SSF): Rs. 5,400/year (Rs. 450/month)

Example 3 — Rs. 1,00,000/Month (Rs. 12 Lakh/Year)

EPF contribution: Rs. 72,000/year. Non-SSF.

  • NAI: Rs. 12,00,000 − Rs. 72,000 = Rs. 11,28,000
  • Band 1: Rs. 10,00,000 × 1% = Rs. 10,000
  • Band 2: Rs. 1,28,000 × 10% = Rs. 12,800
  • Total: Rs. 22,800/year (Rs. 1,900/month)
  • SSF contributor (band 1 = 0): Rs. 12,800/year (Rs. 1,067/month)
  • Female non-SSF: Rs. 20,520/year (Rs. 1,710/month)

Example 4 — Rs. 1,50,000/Month (Rs. 18 Lakh/Year)

EPF Rs. 1,08,000/year. Non-SSF. Life insurance Rs. 30,000.

  • NAI: Rs. 18,00,000 − Rs. 1,08,000 − Rs. 30,000 = Rs. 16,62,000
  • Band 1: Rs. 10,00,000 × 1% = Rs. 10,000
  • Band 2: Rs. 5,00,000 × 10% = Rs. 50,000
  • Band 3: Rs. 1,62,000 × 20% = Rs. 32,400
  • Total: Rs. 92,400/year (Rs. 7,700/month)
  • SSF contributor: Rs. 82,400/year (Rs. 6,867/month)

Example 5 — Rs. 3,00,000/Month (Rs. 36 Lakh/Year)

CIT Rs. 2,16,000/year. Non-SSF.

  • NAI: Rs. 36,00,000 − Rs. 2,16,000 = Rs. 33,84,000
  • Band 1: Rs. 10,000
  • Band 2: Rs. 50,000
  • Band 3: Rs. 2,00,000
  • Band 4: Rs. 8,84,000 × 27% = Rs. 2,38,680
  • Total: Rs. 4,98,680/year (Rs. 41,557/month)
  • SSF contributor: Rs. 4,88,680/year (Rs. 40,723/month)

Example 6 — Rs. 5,00,000/Month (Rs. 60 Lakh/Year)

No deductions. Non-SSF.

  • NAI: Rs. 60,00,000
  • Band 1: Rs. 10,000
  • Band 2: Rs. 50,000
  • Band 3: Rs. 2,00,000
  • Band 4: Rs. 4,05,000
  • Band 5: Rs. 20,00,000 × 29% = Rs. 5,80,000
  • Total: Rs. 12,45,000/year (Rs. 1,03,750/month)

Common Mistakes When Calculating Income Tax in Nepal

Mistake 1 — Applying the Slab Rate to Total Income

The most common error. Nepal uses a PROGRESSIVE system — each rate applies ONLY to the income falling within that specific band, not to your full income.

WRONG: Rs. 18 lakh × 20% = Rs. 3,60,000

CORRECT: [Rs. 10L × 1%] + [Rs. 5L × 10%] + [Rs. 3L × 20%] = Rs. 10,000 + Rs. 50,000 + Rs. 60,000 = Rs. 1,20,000

Mistake 2 — Not Subtracting SSF/EPF Before Applying Slabs

Retirement contributions reduce your gross income before slabs are applied. Forgetting this step means you calculate tax on a higher NAI than is correct.

Mistake 3 — Using Last Year's Slabs for FY 2083/84

The Finance Act 2083 doubled the first-band threshold from Rs. 5–6 lakh to Rs. 10 lakh and cut the top rate from 39% to 29%. Using FY 2082/83 slabs for 2083/84 payroll significantly overstates tax liability.

Mistake 4 — Forgetting the Female Rebate

Many payroll departments manually calculate and forget to apply the 10% female rebate. This results in female employees overpaying tax throughout the year.

Mistake 5 — Applying the EPF Deduction Without Checking the Cap

EPF deduction is capped at the LOWER of your actual contribution, Rs. 5 lakh, or one-third of gross income. High-income earners often hit the one-third cap before Rs. 5 lakh, making the cap the binding constraint.

Mistake 6 — Treating the 1% Band as Tax-Free for Non-SSF Employees

The 1% Social Security Tax applies to non-SSF employees on income up to Rs. 10 lakh. It is often mistakenly described as a "tax-free threshold" — it is a preferential rate, not a full exemption, unless SSF is active.

How Income Tax Differs for Self-Employed and Freelancers

Self-employed individuals and freelancers in Nepal calculate income tax using the same FY 2083/84 progressive slabs as salaried employees but with key differences:

  • No employer deducts TDS — they must pay advance tax themselves
  • Business expenses are deductible from gross business income before applying slabs
  • IT and software freelancers earning convertible foreign currency may qualify for a flat 5% final withholding tax on up to Rs. 40 lakh
  • Three advance tax installments to the Inland Revenue Department (IRD): 40% by end of Poush, 70% by end of Chaitra, 100% by end of Ashad

For salary-based income tax calculations, use the Income Tax Calculator Nepal. For TDS on contractor and freelancer payments, use the TDS Calculator Nepal.

How Income Tax Is Paid — TDS vs Self-Filing

TDS (Tax Deducted at Source) — For Salaried Employees

Employers deduct TDS from salary monthly using the calculation method described in this guide. The monthly deduction equals Annual Tax ÷ 12. Employers deposit the collected TDS with the IRD on behalf of employees. Salaried employees with a single employer generally do not need to file a separate tax return.

Advance Tax — For Business Owners and Self-Employed

Business owners and self-employed professionals must calculate and deposit estimated tax in three mandatory installments to the Inland Revenue Department. Late payment attracts 15% annual interest.

Filing Returns — When Required

Tax return filing with the IRD is required for individuals with multiple income sources, business income, rental income, capital gains from NEPSE share transactions, or foreign income. Returns are filed through the official IRD Taxpayer Portal at ird.gov.np.

Related Nepal Income Tax Tools

Data Sources and Official References

This guide is based on publicly available data from:

  • Inland Revenue Department (IRD) Nepal — ird.gov.np
  • Finance Act 2083 — FY 2083/84 Budget
  • Budget Speech: Finance Minister Dr. Swarnim Wagle, Jestha 15, 2083 (May 29, 2026)
  • Income Tax Act 2058 BS (as amended through 2083)
  • IRD Employer TDS Filing Guidelines

Last Updated: Shrawan 2083 (July 2026)

Verify final gazette-notified rates at ird.gov.np before formal payroll or filing.