Withholding Tax (Sec 95 Ka)

a) Explain the condition and time of withholding tax as per IT Act, 2058?
b) During the month of Baishak, 2078 a branch of commercial bank in Putalisadak, Kathmandu
collects fee of Rs. 750,000 by providing foreign exchange facility for language test to students
going abroad.
Whether the bank is required to collect any tax while providing such foreign exchange facility to
students going abroad for study. 7

Answer No. 2 (b)

Conditions for Withholding of Tax

If all these three conditions are satisfied, then withholding tax is applicable:
i) The person making the payment is resident (there shall not be any withholding of
tax on payments by natural person other than in course of conduct of business u/s
88 and 89),
ii) The source of income is in Nepal (for payments covered u/s 87 and 88), and
iii) The payments shall be the payments as specified in Section 87 to 89 of IT Act, 2058.
Timing for withholding of Tax:
The tax shall be withheld at the time of payment (1 mark for this statement)
The definition of payment and interpretation of the definition (0.5 marks for the definition
and
0.5 marks for the interpretation that amount shall be considered paid at the time of
outflow of cash when a person follows cash basis of accounting and at the time of accrual
of expense or liability when a person follows accrual basis of accounting)
Collection of Advance Tax on foreign exchange facility for language test to students
going abroad
As per section 95KA(6Ka) of IT, Act;
Resident bank & financial institutions (BFIs) providing foreign exchange facility for
language test or standardized test to students going abroad shall withhold tax at 15% at
the time of providing such facility.
Hence, a branch of such commercial bank of Putalisadak need to withhold tax at the rate
of 15% on Rs. 750,000 (i,e, Rs. 112,500) while providing foreign exchange facility for
language test and need to deposit it with due date to revenue office.

c) Witholding tax rate:

Particulars Rate Remarks
Gain from transaction of Commodity Future 10%
Market
Gain on transaction of Securities
Listed Less than 365 days, 7.5% Natural person
and more than 365 days
5%
10% Resident Entity
25% Non resident
Unlisted 10% Natural person
15% Resident Entity
25% Non resident
 Gain on disposal of Land and Building(Natural 7% Less than 5yrs
Person)
5% More than 5yrs
Gain on disposal of Land and Building(Resident 1.5% Of disposal value
entity)
Exchange facility 15% of payment
Passive income through export/service by an 1%
individual not involve in business activity
At custom frontier 2.5% Meat, dairy
product, egg,
herbs, sugarcane,
product related
to plants, millet
5% Flower, fruits,
Fish,
buffalo,goar,shee
p,chyangra,
vegetable, potato
,onion, dry vege,
garlic, baby
cone.

Failure to submit Return (sec 117 1, kha) 1.5% p.a. of tax amount
Failure to pay withholding tax, 15% p,a on tax amount calculated

From the following, determine the withholding tax to be deducted if any on following payments by
mentioning relevant provision

i) Mr. Dinanath Raya, an Indian citizen was employed by TU to conduct a research assignment
on how to conduct virtual online classes of TU and its affiliate college and was paid Rs.
320,000 (INR 100,000×2Month×1.6). He resided in Nepal only for 2 months in the year.

According to Article 20 of Agreement between Nepal and Republic of India on “For The
Avoidance Of Double Taxation And The Prevention Of Fiscal Evasion With Respect To
Taxes On Income “A professor, teacher or research scholar who is or was a resident of the
Contracting State immediately before visiting the other Contracting State for the purpose of
teaching or engaging in research, or both, at a university, college or other similar approved
institution in that other Contracting State shall be exempt from tax in that other State on any
remuneration for such teaching or research for a period not exceeding two years from the
date of his first arrival in that other State. Since the stay of Mr. Raya is not more than 2
years, there shall be no TDS on income earned by him

ii) Interest paid by Mr. Ramnarayan Rauniyar to Nation Development Commercial Bank Ltd. of
Rs. 120,000 on Loan obtained to finance his partnership firm.

According to section 88(4(a)), no TDS is deducted on payment made by natural person

except business related payment. In the given case, loan is obtained to finance the business
by the partner of the firm. Hence no TDS is required.
iii) Fly Nepal Air Pvt. Ltd., a Nepalese company has paid Rs. 32,000,000 to Fly Ireland Ltd. of
Ireland for leasing an aircraft. Aircraft of Ireland’s company was used due to ongoing
 repair of its own aircraft. For repair works, Fly Nepal has paid Rs. 42,000,000 and
aircraft was sent to Ireland for repair
According to section 88(1(3)), 10% TDS shall be deducted while paying for lease of
aircraft. Hence, Fly Nepal Air Pvt. Ltd. has to deduct the TDS of Rs. 3,200,000.00 (10% of
lease payment) while paying lease of aircraft to Fly Ireland Ltd.
Similarly, according to section 89(3(a)) of Income Tax Act, while paying for contract of
aircraft repair, a resident person shall withhold 5% TDS. Hence, Fly Nepal Air Pvt. Ltd. has
to deduct the TDS of Rs. 2,100,000.00 (5% of craft repair fee) while paying lease of aircraft
to Fly Ireland Ltd.
iv) Secure Life Insurance Ltd. has paid Rs. 6,500,000 compensation to wife of Mr. Ram
Niraula on his demise.
According to explanation clause of section 31(b(2)) compensation received against death of
the natural person shall not be included in calculating income of the natural person. Hence,
compensation received from insurance company on death of Mr. Ram Niraula is not subject
to TDS