Compare the tax regime of Nepal and the

United States of America

Tax Deduction and Rebate
Tax deduction is a reduction from taxpayers’ gross income, commonly a result of
expenses like transportation charges, medical expenses, tuition fee, etc. The aim of
deductions is to reduce amount of income that is subject to tax.

A tax rebate is a refund on taxes when an individual has lower tax liability than the taxes
paid. Tax rebate helps to reduce the tax burden on the low-income bracket.

Tax Deduction and Rebate in USA

A tax deduction lowers your taxable income and thus reduces your tax liability. You
subtract the amount of the tax deduction from your income, making your taxable income
lower. The lower your taxable income, the lower your tax bill. Generally in the US, there
are two ways to claim tax deductions: Take the standard deduction or itemize deductions.
You can’t do both.

The standard deduction basically is a flat-dollar, no-questions-asked reduction in your

AGI. The amount you qualify for depends on your filing status.

Filing status 2019 tax year 2020 tax year

Single $12,200 $12,400
Married, filing jointly $24,400 $24,800
Married, filing separately $12,200 $12,400
Head of household $18,350 $18,650

People over age 65 or who are blind get a bigger standard deduction.

However, if you choose to itemize deductions, itemizing lets you cut your taxable income
by taking any of the hundreds of available tax deductions you qualify for. The more you
can deduct, the less you’ll pay in taxes.
A tax return is the form you file annually that outlines your income, expenses,
investments and other tax-related information. It is the form you file with the IRS and the
state government if you have a state with income taxes. In the US, you get a tax refund
when you pay more taxes to your state government or the federal government – through
payroll withholding, for example – than your actual tax liability. In this case, the
government will cut you a check for the amount overpaid. The average 2019 tax refund,
as of May 10, 2019, was nearly $3,000, according to the Internal Revenue Service. As of
that date, about three-quarters of the 136 million returns processed had resulted in refund
checks issued, according to the IRS.

Tax Deductions and Rebate in Nepal

In Nepal, income-tax payments are made in the year in which the income is earned in
the form of withholding tax and advance tax. The taxpayer is required to estimate
taxable income and make advance payments in three installments spread over the year.
Income from services including contract payment is subject to tax withholdings that may
be adjusted for the purpose of calculating advance tax. Arrangements have been made
by IRO to refund within 60 days the excess money deposited by taxpayers (in
practice may take longer and too much hassle)

Tax Deductible at Source (TDS)

Tax Deducted at Source (TDS) is a system introduced by Income Tax Department,
where person responsible for making specified payments such as salary, commission,
professional fees, interest, rent, etc. is liable to deduct a certain percentage of tax before
making payment in full to the receiver of the payment.

Tax Deductible at Source (TDS) in Nepal

Tax Deduction at Source (TDS) Rates (FY 2075-76)

Nature of Transaction TDS Rate

Interest income from deposit up to Rs 10000 under 'Micro Finance Program', Exempt
 Nature of Transaction TDS Rate
'Rural Development Bank', 'Postal Saving Bank' & Co-Operative (u/s-
from tax
11(2ka) in village municipality areas(Previously rural areas)
Wind fall gains 25%
Wind fall gains from Literature, Arts, Culture, Sports, Journalism, Science
Nil
& Technology and Public Administration amount received up to 5 lacs
Profit and Gain from Transaction of commodity future market 10%
Profit and Gain from Disposal of Shares: TDS rates
In case of Individual
- Listed Shares 7.5%
- Non Listed Shares 10%
Resident Entity
- Listed Shares 10%
- Non Listed Shares 15%
Others
- Listed Shares 25%
- Non Listed Shares 25%
On dividend paid by the resident entity.
- To Resident Person 5% for both
- To Non Resident Person
On payment of gain in investment insurance 5%
On payment of gain from unapproved retirement fund 5%
On payment of interest or similar type having source in Nepal to natural
person [ not involved in any business activity ] by Resident Bank, financial 5%
institutions or debenture issuing entity, or listed company
Payment made by natural person relating to business or other payments
No TDS
relating to house rental except house rent
Payment for articles published in newspaper No TDS
Interest payment to Resident bank, other financial institutions No TDS
Interregional interchange fee paid to credit card issuing bank No TDS
Interest or fees paid by Government of Nepal under bilateral agreement No TDS
On payment of general insurance premium to resident insurance company No TDS
On payment of premium to non-resident insurance company 1.5%
Contract payment exceeding Rs 50000 for a single contract within 10 days. 1.5%
Interest & Dividend paid to Mutual Fund No TDS
Payment of consultancy fee:
- to resident person against VAT invoice 1.5%
- to resident person against non VAT invoice 15%
TDS deducted on payment of dividend made by Mutual fund to natural
5%
Person is final withholding Tax.
TDS on Payment by Resident Person for utilizing services related with
Satellite, Bandwidth, Optical Fiber, equipment relating to 10%
telecommunications or electric transmission
 Nature of Transaction TDS Rate
Dividend Paid by Partnership Firm to its Partners 5%
Payment for the freight to transportation service 2.5%
Payment made against question setting, answer evaluation 15%
Payment to Non Resident Company against Insurance Premium 1.5%
Payment to Non Resident Company against Commission paid for
1.5%
Reinsurance
Payment made to Consumer Committee 1.5%
5% of
Commercial Import of Buffalo, Goat, Sheep, Fresh & Frozen Fish, Fruits, Custom
Value

Set Off and Carry Forward of Losses

Set off of losses means adjusting the losses against the profit or income of that particular
year. Losses that are not set off against income in the same year can be carried forward to
the subsequent years for set off against income of those years. A set-off could be an intra-
head set-off or an inter-head set-off. The losses from one source of income can be set off
against income from another source under the same head of income. After the intra-head
adjustments, the taxpayers can set off remaining losses against income from other heads.

After making the appropriate and permissible intra-head and inter-head adjustments,
there could still be unadjusted losses. These unadjusted losses can be carried forward to
future years for adjustments against income of these years. The rules as regards carry
forward differ slightly for different heads of income.

Set Off and Carry Forward of Losses in USA

A Tax Loss Carry Forward carries a tax loss from a business over to a future year of
profit. For losses arising in taxable years beginning after Dec. 31, 2017, the net operating
loss carryover is limited to 80 percent of taxable income (determined without regard to
the deduction). In years before 2018, tax loss carry forwards could only be used for 20
years, but under the new tax law, tax losses may be carried forward indefinitely.
Businesses can use these provisions against a net operating loss, capital losses in excess
of capital gains, and certain gains from the sale or exchange of qualified small business
stock. Individual taxpayers may also use a tax loss carry forward for several different
purposes. For example, if you have made excess contributions to a state's 529 plan
(saving for education costs) you can't deduct the excess amount, but you may be able to
carry the amount over to future years, subject to the 80 percent limit.

Set Off and Carry Forward of Losses in Nepal

Inter-Source Adjustment under Same Head of Income

Person can set off its LOSS FROM BUSINESS situated in Nepal from:

 Profit from another business situated in Nepal irrespective of different rates of

taxes as per Schedule 1 of ITA, 2058 on profit from business.
 Profit from another business situated in foreign country
 Profit from disposal of business assets of the person.

Person can set off its LOSS FROM INVESTMENT situated in Nepal from:

 Profit from another investment in Nepal

 Profit from disposal of non-business chargeable assets or business assets
 Profit from investment in foreign country

Inter-Head Adjustment in Same Income Year

In case of loss from business:

 Loss from business in Nepal can be set off from income from investment in
Nepal or outside
  Loss from business in foreign country can be set off from income from
investment in same foreign country
 Loss from investment cannot be set off from income from business

Carry Forward or Carry Back of Losses

Loss from business or loss from investment, which could not be set off during the year,
can be carried forward and set off against income from business or investment up to
maximum period of seven years, subsequent to year of loss. However, losses can be
carried forward only by person who has incurred the loss.