Particulars Section Ref

Inlcusions
Sales Section 7(2)
Gain on sale of business assets Section 7(2)
Prize from display competition' Section 7(2)

Misc Income Section 7(2)

Bad debt recovered Section 25

Dividend received Section 7(3)

Balancing Charge (Pool Dissolved) Section 7(2)
Total Inclusions

Deductions
Cost of Goods Sold Section 15
Admin Expenses Section 13
Interest Expenses Section 14(1)
Misc Expenses Section 13
Audit Fee Section 13
Entertainment Expenses Section 13
Depreciation Section 19
Repair Section 16
Total Deductions

Assessable Income from business before Section 14(2), 17, 18 & 12

Less: Pollution Control Cost Section 17
Less: Research and development cost Section 18
Assessable Income from business/ Total Assessable Income
Less: Section 12(1) & 12(2) Section 12
Less: Section 12(3)
Less: Section 12Ka
Less: Section 12Kha
Balance Taxable Income
Effective Rate
Tax Liability
 Note Amount (Rs)

18000000
600000
200000

750000

Only 80% will be included in income

cause 20% were not allowed to be
expense in previous year 240000

Dividend income is assumed to be

received from resident company.
Such dividend is subject to TDS @
5% U/S 88 and final withholding U/S
92 0
500000
20290000

WN 1 10650000
WN 2 300000
ection 14(1) 700000
100000
400000
200000
WN 3 3534300
WN 4 500000
16384300

3905700
WN 6 -500000
WN 7 -200000
3205700
WN 8 -100000
0
0
0
0
3105700
WN 9 6%
186342
1
2
WN 1 : Calculation of COGS

Particualrs
Opening Stock

Less: Repair and Improvement Cost (45000*10)

Rectified Opening Stock

Add: Cost of Production

Purchase of RM
Frieght Inwards
Direct wages
Manufacturing Expenses

Less: Closing Stock

Given Closing Stock
Less: Repair Included in Closing Stock (50000*10)
Rectifed Closing Stock

COGS

WN 2: Depreciation Calculation Under Sec 19 & Schedule 2

Particulars
Opening
Add: Absorbed Addition
Less: Disposal Proceeds
Balancing Charge (Included in Income)
Depn Base
Rate (Accelerated)
Depn
Remaining Value after depn
Add: Unabsorbed Addtion
Add: Unabsorbed Repair
Add: Unabsorbed PCC
Add: Unabsorbed R &D
Opening Depn base of next year

WN 3: Repair and improvement expenses under section 16

Particulars
Acutal Repair
7% of depn base
Lower

WN 2: Calculation of Allowed Admin Expenses

Particulars
Given
Less: Wages more than 3000 paid to labors without PAN
Allowed Admin Expenses
Note: It is assumed that the wage payment are made to the labors who donot have their permanent account number

WN 5 : Calculation of ATI
Particulars
Assessable Income before Section 14(2), 17, 18 and 12
Less: Actual PCC
Less: Actual R& D
ATI

WN6: Calculation of Allowed PCC U/S 17

Lower of :
a) Actual PCC
b) 50% of ATI
Allowed PCC

WN7: Calculation of Allowed R&D U/S 18

Lower of :
a) Actual R&D
b) 50% of ATI
Allowed R&D

WN 8: Calculation of donation U/S 12

Lower of:
a) 100000
b) 5% of ATI = 160285
c) Actual Donation = 200000
Allowed Donation

WN9: Calculation of effective Rate

Particulars
Normal Rate
Less: Rebate provided to special industry (20% of AR)
Reduced Rate
Effective Rate as per section

Note: Effective rate for the entity shall be 6% as it would be more beneficial to the entity.

Opening Stock consists of damaged goods of Rs 20,00,000 which was sold for Rs 6,50,000 inclusive of VAT
which is not included in above income

Opening stock
Details Rs
4500000 Remarks

Such repair cost is of previous year and prior

period expenses cannot be claimed in current
year as per section 13. Repair cost cannot be
-450000 included in cost of production and stock.

4050000

10900000
8500000
400000
800000
1200000

4800000
-500000
-4300000

10650000

Pool A (Exist) Pool B (Pool Exist) Pool C (Pool Disposed) Pool D (Exist)
30,000,000 1,000,000 1,000,000 4,000,000
2000000
-1500000
500000
30,000,000 1,000,000 0 6,000,000
6.67% 33.33% 26.67% 20%
2001000 333300 0 1200000
27,999,000 666,700 0 4,800,000
N/A
N/A
Lapsed (Income Tax Directive)
Lapsed (Income Tax Directive)
 Pool A (Exist) Pool D (Exist)
200000 300000
2100000 420000 Allowed
200000 300000 500000

Rs
400000
-100000
300000
nent account number

Section 17 Section 18 Section 12

3905700 3905700 3905700
-500000 -500000
-200000 -200000
3705700 3405700 3205700

500000
1852850
500000

200000
1702850
200000

100000
 Special Industry +
Special Industry + less developed area
Employment > 300 People (Within 10 years)
25% 25%
5% 5%
20% 20%
16.00% 6.00%

20000000
Total
3534300
Section 7(1)
A Person's income from business for an income year is = Person's Profit and gains = from conducting the bbusines

Section 7(2)
Inclusions
A) Service Fees
B) Disposal of trading stock
C) Net gain on disposal of business asssets or liability U/S 36
D) Balancing charge or gain on disposal of depreciable assets under schedule 2
E) Business related gifts
F) Business restriction amount
G) Investment nature income received through direct involvement in business
H) Other amount under chapter 6 (basis of accounting, bad debt reversal and income from long term contract),
7, 56 (Transaction between entity and beneficiary) , 60 (General Insurance Business)

Directive 6.2.2
Company can only have income from business but not from investment or employment. Even if the transaction are of inv
such transaction falls withing business transaction of the company. Interest received by bank and financia institutions fro
various loans should be included in income under this section.

Section 7(3)
Not to be included in Inclusions

1) Section 10 exempt amount.

2) Section 92 final witholding amount
3. Exempt U/S 54
4. Exempt U/S 69
ucting the bbusines

g term contract),

if the transaction are of investment nature

and financia institutions from making investment in
Calculation of Tax Liability of Entity

Step 1) Calculation of Balance Taxable Income

Particulars Section Reference Note
Inlcusions
a Section 7(2)
b Section 7(2)
c Section 7(2)
d Section 7(2)
e Section 7(2)
f Section 7(2)

A . Total Inclusions

Less: Deductions
Interest Section 14(1)
COGS Section 15
Repair and Improvement Expenses Section 16
Depreciation Section 19
General Deductions
a Section 13
b Section 13
c Section 13
d Section 13
e Section 13
Loss Set off Section 20
B. Total deductions

Assessable Income from business

before section 12,14(2),17 and 18 A-B

Less: Section 14(2) Interest

Less: Section 18 R&D

Assessable Income from business

Calculation of BTI after calculation of Assessable income from business

Assessable income from business
Assessable income from employment (NP only)
Assessable income from investment (NP only)
Total Assessable Income
Less: Sec 63 reduction [Actual comparison]
Less: Sec 12 (1,2,3)
Sec 12 ka
Sec 12 kha
Sec 12 Ga
Taxable Income
Less: Sch 1 Reductions
BTI
Amount (Rs)

xxx
xxx
xxx
xxx
xxx
xxx

xxx

xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx

xxx

(xxx)
(xxx)
(xxx)

xxx

xxx
xxx
xxx
xxx
xxx
Section 20

Source of loss
India Business loss
India Investment loss
China business loss
china investment loss
nepal investment loss
nepal business loss
Nepal Business Loss
Nepal Business Loss
New York Busines
Loss
can be set off from
India business income, india investment income
India investment income
china business income, china investment income
China investment income
nepal investment, china investment and india investment income
india, nepal and china business income & nepal, china, india investment income

Section 20 Loss Set off Questions

1) A hardware manufacturer established under companies act, 2063 furnished the

folowing result for the previous year
Year Profit /(Loss)
1 -200000
2 -400000
3 -175000
4 400000
5 200000
6 300000

On Scruitny, it revealed that donation of Rs 3,00,000 was given to red cross society and
charged in PL Account of year one. Similarly, profit of 4th year was derived after
dedcuting PCC of Rs 4,00,000 and before dedcuting interest of bank loan Rs 50,000.
Calculate correct balance taxable income of each year

Particulars 1 2
Profit/(Loss) -200000 -400000
Add: Donation 300000
Add: PCC
Less: interest U/s 14(1)
Assessable income from business before Sec 14(2),17,18 and 12 / ATI for PCC 100000 -400000
Less: Section 17 PCC [Lower of : 50% * 750000 = 375000 & Rs 400000
Assessable income from business / Total Assessable Income 100000 -400000
Less: Donation U/S 12 [Lower of: -5000
a) 100000
b) 5% of ATI (WN 1) = 5% of 100000 = 5000
c) Actual 300000
Balance Taxable Income (Kahani Suru vayo balla. Loss Set off garna ta baki nai cha) 95000 -400000
Less: Loss Set off U/S 20 0 375000
25000
Rectified Balance Taxable Income (After loss set off) 95000 0
WN1 Calcualtion of ATI For Donation
Particulars Rs
Assessable income from business before Sec 14(2),17,18 and 12 / ATI for PCC 100000
Less: Actual PCC 0
Less: Actual R& D 0
Less: Actual Interest 14(2) 0
Less: Section 63 reduction (on the basis of fake assessable income) 0
ATI 100000

Mr Amir is the owner of the following business: Kathmandu Enterprise, Biratnagar

enterprise, New delhi enterprise, new york enterprise

Biratnagar enterprise incurred a loss of Rs 20,000 including a profit of Rs 1000 from

disposal of business assets
Kathmandu enterprises has a profit of Rs 50,000 including a loss of Rs 500 from the
disposal of a business assets
New delhi enterprises has a profit of 30000 including a profit of Rs 500 from the disposal
of business assets
New york enterprisses has a loss of Rs 20,000 including a loss of Rs 500 from the
disposal of business assets
Calculate taxable Income. What will be your answer if all business are independent
company owned by Mr Amir?

Particulars Amount (Rs)

Inclusions
Profit on disposal of business assets (biratnagar enterprise) 1000
Profit of Kathmandu enterprises 50500
Profit of new delhi enterprise 29500
Profit of new delhi enterprise (disposal of business assets) 500
Total Inclusions 81500

Less: Loss set off U/S 20

Biratnagar loss from business -21000
Loss from business assets(biratnagar) -500
Loss from New york (This cannot be set off as per section 20 as there is no any business
or investment income from new york 0
Total Loss Set off -21500

Balance Taxable Income after loss set off 60000

 3 4 5 6
-175000 400000 200000 300000

400000
-50000
-175000 750000 200000 300000
-375000
-175000 375000 200000 300000

-175000 375000 200000 300000

-375000 -25000
175000 -175000
0 0 0 300000
Calculation of Adjusted
Taxable Income (ATI)

Particulars For section 14(2) For section 17 For section 18 For section 12

Assessable Income from

emp (NP) [Section 8) Nill Nill Nill xxx

Assessable Income from

Inv (NP) [Section 9] xxx Nill Nill xxx

Assessable Income from

business before section
14(2), section 17,
section 18 and section
12 (NP & Entity both) xxx xxx xxx xxx
Less: Actual interest
paid to controlling
person - (xxx) (xxx) (xxx)
Less: Actual Pollution
control cost (xxx) - (xxx) (xxx)
Less: Actual Research
and devt cost (xxx) (xxx) - (xxx)
Fake Assessable Income
(For NP) xxx

Less: Section 63
Reduction [Based on this
fake assessable income
before this reduction) (xxx)
Adjusted Taxable
income xxx xxx xxx xxx

M/S Solar power

private limited is
engaged in solar power
system production for
sale in which
60% share capital is
subscribed by DFID
which is a tax exempt
organziation under
income tax act of nepal.

The following
informtion is availabe
from account of the
company

Expenses Rs Income Rs
RM consumption 40 lakhs Sales
Dividend net 12300000
Salary and wages 18 lakhs of tax 190000
Finished goods stock
decreased 5.10 lakhs Scrap Sales
Consulting 140000
Admin Overhead 6 lakhs Income 450000
Donation 3.10 lakh
PCC 6.90 lakh
R&D Cost 13 lakh
Interest paid to DFID 29 lakh 50,000
Interest to bank 70000
Repair of plants 2 lakh 30000
profit of the year (b/f) 432000
Total 188000
13080000 Total 13080000
Note: Donation to tax
exempt organization is
Rs 220000 only
Required: Balance
taxable income and tax
liability

Calculation of Balance
Taxable Income of M/S
solar power company
for IY…..
Particulars
A. Inclusions Sec reference Note Amount (Rs)
Sales
Dividend 7(2) 12300000

Section 92
Final
withholding
Scrap Sales 7(3) income 0
Consulting Income 7(2) 140000
Total Inlcusions 7(2) 450000
12890000
B. Deductions
Cost of Goods Sold
Raw material,
FG stock
Salary and wage 15 decreased 4510000
Admin Overhead 13 1800000
Interest to bank 13 600000
Repair of plant 14(1) 70000

In the absence
of details
regarding the
depreciation
base of pool, it
has been
assumed that
repair given in
P/l account is
as per section
16 of income
Depreciation as per tax 16 tax act, 2058 230000
Total deductions 19 432000
7642000

Ass Income from

business before section
14(2),17,18 and 12
Less: Interest U/S 14(2) A-B 5248000
Less: PCC U/S 17 WN2 1664000
Less: R&D Cost U/S 18 WN3 499000
WN4 804000
Assessable Income from
Business
Assessable Income from
Employment 2281000
Assessable Income from
Investment 0

Total Assessable Income 0

Less: Donation U/S 12 2281000
Less: Donation U/S 12
Ka WN5 15400
Less: Donation U/S 12
Kha
Less: Donation U/S 12
Ga
Balance Taxable Income
Rate as per schedule
1(2) 2265600
Tax Liability 25% and rebate of 20% leads to eff 20%
453120

WN1 : Calculation of
Adjusted Taxable
Income as per Section 2
Particulars
Ass income from emp
(NP) For section 14(2) For section 17 For section 18 For section 12
Ass income from inv
(NP) - - - -

Ass Income from

business before section
14(2), section 17,
section 18 and section
12 - - - -
Less: Actual interest
paid to controlling
person 5248000 5248000 5248000 5248000
Less: Actual Pollution
control cost 0 -2950000 -2950000 -2950000
Less: Actual Research
and devt cost -690000 0 -690000 -690000
Less: Sec 63 (NP) -1300000 -1300000 0 -1300000
Adjusted Taxable
income -
3258000 998000 1608000 308000
WN2 : Deductible
Interest expenses U/S
14(2)

WN3 : Allowed
PCC U/S 17
Lower of:

a) Interest Income + 50
% of (ATI - interest
income + interest
expense u/s 14(1) Lower of:
a) Actual
Pollution
or 1664000 Control Cost 690000
b) Actual Interest Paid to
controlling person +
Opening carried forward or
b) 50% of ATI
2950000 for section 17 499000
Allowed interest exp
u/s 14(2)
Allowed PCC
1664000 U/S 17 499000

WN4: Allowed R&D

Cost U/S 18
WN5:
Donation U/S
12
Lower of:
a) Actual R&D Cost Lower of
or 1300000 a) 5% of ATI 15400
b) 50% of ATI for Section
18 b) 100000 100000

c) Actual
Allowed R&D Cost U/S donation to tax
18 804000 exempt entity 220000
Allowed
Donation U/S
804000 12 15400
Steps to identify whether any expenses are deductible or not
Step 1 : Check basis of accounting
Step 2: Check wether such expenses are listed in sec 21 or not.
Step 3: If pass from step 2 then now expenses are deductible if the conditions are met for below sections

Section 14: Interest

Section 15: COGS
Section 16: Repair and Improvement
Section 17: PCC
Section 18: R&D
Section 19: Depreciation
Section 20: Loss set off
Section 13: General deductions
t for below sections
 Expenses non deductible

1) Domestic or personal nature expenses

* All personal expenses of natural person including cost of maintaing life, meals, refreshment and shelter.
* Expenses borne for travelling from resident to workplace and workplace to residence
* Dress Provided to the employees which can be worn outside the workplace also
* Cost incurred in educating, individual for which he/she will get degree
* Interest incurred on loan used for private purpose.

However, such personal expenses are deductible if any of the following conditions satisfied.
a. If it is included in calculating income of individual.
b. If the amount of benefit is returned to the employer.
c. Small nature of expenses upto Rs 500

2) Penalties paid for the violation of any law.

3) Income tax payable under Income Tax Act, 2058.
4) Expenses incurred to earn the exempt amount U/S 10.
5) Expenses incurred to earn the final withholding income U/S 92.

6) Payment exceeding Rs 50,000 at a time in cash by the person whose turnover exceeds Rs 20 lakhs

Where,
Cash payment = means all of the payment except the following :
a) Payment credited in the account of receipents through the mode of letter of credit (LC), Account Payee cheque, d
money order, money transfer
b) Digital payment permitted by NRB
Note: Bearer Cheque is cash payment

Exception to this section (Deductible cash expenses)

a) Payment made to GON.
b) Payment made to the constitutional bodies.
c) Payment to public enterprises having ownership of GON.
d) Payment to bank and financial institutions
e) Payment to farmer producing primary agro products and even when the product are primarily processed.
f) Payment for retirement contribution
g) Retirement Payment.
h) Payment in such area where banking facility is not available within 10 km.
i) Payment in such days when banks were closed.
j) When there is unavoidable compulsion to make payment in cash.
k) Payment made in bank account of payee.
l) Deduction without appropriate supportings/evidence.
m) Payment to employees without having permanent account number (PAN)

n) Payment to labor without having Permanent Account Number (PAN)

* Exception to point n)
Payment to casual labor Rs 3000 per time
 o) Payment not supported by PAN or VAT Invoice
* Exception to point o)
* Invoice Upto Rs 2000
Expenses related to purchase of agro based. Forestry based, animal based and other domestic goods directly from a
not engaged in commercial transaction.

p) Distribution of Income (Dividend Payment)

q) Expenditure for capital nature unless otherwise deductible u/s 14,15,16,17,18,19,20

* What is Capital Nature ?
* Expenditure incurred in prospecting, exploration and development of natural resources.
* Expenses incurred on acquiring any assets with a useful life exceeding 12 months.
Expenses incurred on disposal of a liability.

r) Foreign tax expenses unless specified by section 71.

hment and shelter.

eds Rs 20 lakhs

(LC), Account Payee cheque, draft, Telegraphic Transfer (TT)

re primarily processed.
domestic goods directly from a natural person
General Deductions
1. Incurred during the income year
2. Incurred by the person
3. Incurred for generating income from business or investment
A) 14(1) Interest
We have to see the purpose of the loan
a) If the purpose of loan is to purchase or construct the assets = interest is deductible only is such assets are put to
otherwise such interest will be capitalized.
b) If the loan is used for general purpose to grow the business = then interest is deductible if a person can demons
business to earn the income
c) If such loan is used for personal purpose = then its personal expenses and cannot be deducted

B) 14(2) Interest

Resident entity controlled (25% or more) by Controlling person

a) Non resident and its associates
b) Tax exempt organization and its associates
c) Person availing consessions u/s 11 and its associates
d) combination of above

Now if controlling person provides loan to such resident entity then now full interest cannot be deducted.
Deductible interest expense is lower of :
a) Actual interest paid to controlling person + opening carried forward
b) Interest Income + 50% of [ATI for section 14(2) - interest income included in ATI Calculation + interest u/s 14(1) d
e only is such assets are put to use on any point during income year.

uctible if a person can demonstrate that such loan has been utilized in the

be deducted

its associates
u/s 11 and its associates

cannot be deducted.

lculation + interest u/s 14(1) dedcuted while calculating ATI]

 Cost of Goods Sold (COGS)

A) For trading company B) For manufacturing company

Particulars Rs Particulars
Opening Stock xxx Opening Stock
Add: Purchase xxx Add: Cost of production/Cost of conversion
Less: Value of Closing Stock (xxx) Less: Value of Closing Stock
Cost of goods sold (COGS) xxx Cost of goods sold (COGS)

Where,
Value of Opening Stock = Value of Closing Stock of previous year
Purchase = Purchase as per NAS 02
Value of Closing Stock = Lower of (Cost or Market Value), where cost is calculated as follows

Calculation of Cost
A) For trading company A) For manufacturing company

1st priority = Specific identification method Step 1 : Calculation of Cost of production/Cost of conversion [if ac
2nd priority = FIFO or weighted average and if cash basis then - choose between absorbtion or marginal co
A) Absorbption Costing Method
Particulars
Direct Material
Direct Labor
Variable production overhead (except
repair and maintenance &
depreciation)
Fixed production overhead (except
repair and maintenance &
depreciation)
Total Cost of production/Conversion

Step 2: Calculate cost per unit

Method 1 - FIFO
Cost/unit = Total cost of production/ produced units

Method 2 - Weighted Average

Cost/unit = Opening cost + total cost of production/ (Opening stoc

Step 3 : Calculation of Cost of closing stock

Cost/unit as per step 2 * Closing stock units
 Rs
xxx
xxx
(xxx)
xxx

on/Cost of conversion [if accural basis - absorbtion costing

n absorbtion or marginal costing]
A) Marginal Costing Method
Amount (Rs) Particulars Amount (Rs)
xxx Direct Material xxx
xxx Direct Labor xxx

Variable production overhead (except

xxx repair and maintenance & depreciation) xxx

xxx xxx
xxx Total Cost of production/Conversion xxx

oduced units

production/ (Opening stock units + produced units - normal loss units)

 Section 16 Repair and improvement expenses

1 Conditions
a) Incurred during the income year by the person
b) On depreciable assets
c) depreciable assets shall be used for the generation of income from bu

2 Scope of repair and improvement

Repair and improvement
trading stock sec 15 cogs
business assets sec 38 outgoings
leased assets sec 13
Pool E Sec 13
depreciable assets Sec 16

3 Limit of deduction under section 16

Pool A Pool B Pool C Pool D

1 Actual repair xx xx xx xx
2 7% of depreciation base xx xx xx xx
U/s 16 Allowed Repair Lower of 1 or 2 xx xx xx xx
Unabsorbed repair xx xx xx xx it shall be added on closing de
(1-allowed repair) opening depreciation base fo

4 Exception of section 16
a) If pool of depreciable assets is actually disposed.
b) Overhauling expenses on aircraft as per the standard of CAAN
generation of income from business or investment

it shall be added on closing depreciation base when pool exists to calculate

opening depreciation base for next year.

the standard of CAAN

 Process and equipment adopt to control the pollution and sustain the enviornment is polluton

Conditions
Shall be incurred for the business purpose.

Allowed Pollution Control Cost

Lower of :
A) Actual Polluton control cost
B) 50% of ATI for Section 17

Note
1 Unabsorbed PCC are added to the respective pool to calculate the opening depreciation base
in the enviornment is polluton control cost (PCC)

he opening depreciation base of next year.

 Cost incurred by the person for the purpose of development of business, product a

Allowed R&D Cost

Lower of :
A) Actual Research and development cost
B) 50% of ATI for Section 18

Note:
1 Exploration, prospecting, development and feasiblity study of natural resources are
2 Unabsorbed R&D cost are capitalized to the respective pool to calculate the openin
opment of business, product and production process.

study of natural resources are not covered by secton 18.

ve pool to calculate the opening depreciation base of next year.
1) Conditions to claim depreciation
a) Nature of assets test - Depreciable
Assets
b) Ownership Test - Owned by the
person
c) Use of Assets Test - Used during the
income year
d) Used to generate income from
business or investment.

2) Classification of depreciable assets

(Schedule 2)
Pool A = Building, structures and similar
work of permanent nature
Pool B = Office Furniture, fixtures, office
equipment , data handling equipment
and computers.
Pool C = Automobile, bus and minibus

Pool D = Construction and earthmoving

equipment (Extraction, Exploration and
development of natural resources) and
other depreciable assets
Pool E = Intangible Assets and
Leasehold Assets

Note : When any of the assets of the

pool is used, then it is deemed that all
of the assets of the pool is used.
Note: Each Assets under Pool E are
considered as Separate Pool

IRD Circular on POOL

Pool A = Building, Road, Tunnel, Dam,

Swimming pool, Hall, Power House,
Godown, View Tower, irrigation
channel, parking lot, bridge.
Pool C = Automobiles that run through
engine and goods transporting vehicle,
car, truck, motorcycle.

Pool D = Industry specific assets also

machine, electircity, generator, ATM of
banks, telecommunication equipment,
switching equipment, etc.
Pool E = Leasehold Development under
operating lease. (Depreciation
according to lease period)

3) Rate of depreciation
Pool A = 5% WDV
Pool B = 25% WDV
Pool C = 20% WDV
Pool D = 15% WDV
Pool E = SLM (Based on Useful life) 1/ul*100%

Note: Accelerated rate on Pool A, B,C,

D (Additional 1/3rd of normal rate will
be added) is provided to the following
entites:
a) Cooperatives incorporated under
cooperative act except tax exempt
cooperative U/S 11.
b) Entity constructing and operating
projects under built, own, operate and
trasnfer (BOOT)
c) Entity involved in construction of
power house, production and
transmission of electricity.
d) Special Industry as per section 11

e) Entity involved in following industry ;

Trolley bus, building & operation of
ropeway, cable car and overhead
bridge.

f) Building an operation of road, bridge,

tunnel, railway, subway, airport

4) Calculation of depreciation

Case 1: If Pool not dissolved

Particulars Pool A Pool B Pool C Pool D

Opening Depreciation Base xx xx xx xx
Add: Absorbed Addition xx xx xx xx
Less: Disposal proceeds xx xx xx xx
Depreciation base xx xx xx xx
Depreciation rate xx xx xx xx
Depreciation U/S 19 xx xx xx xx
(Depn base * Depn rate)
Remaining Value xx xx xx xx
(Depreciation base - depn)
add: unabsorbed addition xx xx xx xx
add: unabsorbed repair xx xx xx xx
add: unabsorbed PCC xx
add: unabsorbed R&D xx
add: Interest Us/ 14(1) if assets not put
to use during income year xx
Opening Depreciation base of next
year xx xx xx xx

Note:
1) Absorbed Addition
Month of pooling Absorbed addition Unabsorbed addition
Shrawan- Poush, 20X0 Full No
magh- chaitra, 20X0 2/3rd of cost 1/3rd of cost
baisakh - ashad, 20X1 1/3rd of cost 2/3rd of cost

2) if depreciation base if less than 2000,

then full amount will be claimed as
terminal depreciation.
3)if depreciation base is negative, it will
be included in gain from disposal of
depreciable assets.

Case 2: If Pool dissolved

Particulars Pool A Pool B Pool C Pool D

Opening Depreciation Base xx xx xx xx
Add: Absorbed Addition xx xx xx xx
add: unabsorbed addition xx xx xx xx
Less: Disposal proceeds xx xx xx xx
Depreciation base xx xx xx xx

If positive = claim as terminal

depreciation
if negative = then claim as balancing
charge

5) Examples of calculation of
depreciation

Example 1 : Calculate the allowed

depreciation U/ 19 and repair
improvement expenses U/s 16
a) Opening depreciation base of POOL
B = 20,000
b) Purchased office furniture in chaitra
20x1 for Rs 30,000.
c) Disposal of office equipment = Rs
45000
d) Repair at furniture and fixtures =
10,000

Would your answer be different if

office equipment was disposed for Rs
35000?

Example 2 : Calculate the allowed

depreciation U/ 19 and repair
improvement expenses U/s 16
a) Opening depreciation base of POOL
B = 20,000
b) Purchased office furniture in chaitra
20x1 for Rs 30,000. Case - 1
c) Disposal of all furnitures = Rs 45000 Depn 5000 Terminal
d) Repair at furniture and fixtures =
10,000 ` Repair 10000

Would your answer be different if

office furniture was disposed for Rs
55000?

6) Some important note on

depreciation

1) As per section 19(2) public

insrastructure BOOT Project and
project on construction of powerhouse,
generation & transmission of electricity
a) when assets replaced = closing
depreciation base of old assets can be
claimed as "terminal depreciation"

b) when assets trasnferred to

government of nepal = closing
depreciation base of transferred assets
can be claimed as "terminal
depreciation"
2) As per schedule 2 section 3(3) and
(4)
Generator purchase = 50% depreciation
can be claimed directly.
Fiscal Printer and cash machine = 100%
of cost can be claimed as depreciation
in that income year.

3) Depreciation allowance of Pool E

Example 1:
Patent Purchased 2076/04/01 = 10
years = Rs 10,00,000
Copyright Purchased 2076/10/01 = 10
years= Rs 12,00,000
Required : Calculate depreciation
allowance

PATENT
Particualrs 2076/77 2077/78 2078/79
Opening depn base 0 900000
Add: Absorbed Addition 1000000 0
Less: Dipsosal 0 0
Depn Base 1000000 900000
Rate 10% 10%
Depn 100000 100000
Closing depn base 900000 80000
Add: Unabsorbed 0 0
Opening depn base for next 900000 800000

Copyright
Particulars 2076/77 2077/78 2078/79
Opening depreciaton base 0 1120000 1000000
Add: Absorbed addition 800000 0 0
Less: disposal proceeds 0 0 0
Depn base 800000 1120000 1000000
Rate of depn (%) 10 10 10
Depn amount 80000 120000 120000 120000
Closing depn base 720000 1000000 880000
Add: unabsorbed addition 400000 0 0

Opening depreciaton base of next year 1120000 1000000 880000

Total
Sec 19 total depn
Pooling Date
Later date of :
a) Purchase date
b) Date of put to use

case 1
 Open depn base

Add: Absorbed addition

Less: Disposal
Depn base

depn base
Depn

Closing depn base

Add: unabsorbed addition

Case -2 Add: unabsorbed repair

5000 balancing charge Opening depn base of next year

10000
Repair

Actual
7% of depn base
Lower
Unabsorbed repair
 UL

2085/86
100000

100000
10%
100000
0
0
0

Useful Life
4
2085/86 2085/86 4.1
4.2
4.3
4.4
4.5
4.6
160000 4.7
0 4.8
0 4.9

0 5
 Case -2

POOL B
20000 20000

20000 20000

-45000 -35000
-5000 Include in income 5000

0
0 1250

0 3750

10000 10000

10000 9650
20000 23400

10000 10000
0 350
0 350
10000 9650
 4

UL for POOL E
Depn
4
4
4
4.5
4.5
4.5
4.5
4.5
5
5

5
Section 12 Donation to tax exempt organization

Lower of:
a) 100000
b) 5% of Adjusted Taxable Income
c) Actual donation to tax exempt organization

Section 12ka Donation for development of promotion at heritage and development at sports
Conditions = Company + priror approval of deparment + for (conservation and promotion at religious ancient & cutural heritag
Deduction allowed:
Lower of :
a 10 lakhs
b 10% of total assessable income
c Actual donation provided

Section 12kha contribution in prime minister disaster relief fund and reconstruction fund established by GON
Allowed deduction = Full Donation Provided

Secton 12 Ga
Contribution of seed capital + to startup business + upto 1 lakh per business + as a grant + maximum upto 5 startup + other th
ancient & cutural heritage of nepal) or (construction of physical infrastructure for sports)

upto 5 startup + other than associated person.

Calculation of COGS
Absorbtion costing method
Following are the details: Particulars Rs
Opening stock = Rs 50,000 Opening Stock 50000
Raw Material = Rs 100000 Add: Cost of Production (WN1) 800000
Closing stock units = 5000 Less: Closing Stock (WN2) -400000
Labor Cost = Rs 1,50,000 COGS 450000
Variable Overhead = Rs Rs 5/unit
Fixed OH = Rs 500000
Production units = 10,000 units
WN1 : Calcualtion of Cost of Production
Find COGS if followed Particulars Absorbption
a) Absorbtion costing method Material 100000
b) Prime costing method Labor 150000
Variable OH (5*10000) 50000
Fixed Overhead 500000
Total Cost of Prodcution 800000

WN2: Closing stock shall be valued at lower of cost or MV

A) Calculation of cost of closing stock [as per FIFO Method] - Absorbptio

Cost/unit = 800000/10000 = Rs 80/unit
Cost of Closing stock = 80* 5000 = 400000

A) Calculation of cost of closing stock [as per FIFO Method] - Marginal

Cost/unit = 300000/10000 = Rs 30/unit
Cost of CS = 5000*30 = Rs 150000
Note: In the absence of information regarding the market value, we as
cost of closing stock is lower than its market value.
 Marginal Costing Method
Particulars Rs
Opening Stock 50000
Add: Cost of Production (WN1) 300000
Less: Closing Stock (WN2) -150000
COGS U/S 15 200000

Marginal
100000
150000
50000
0 Under marginal costing
300000 such fixed overhead of Rs 500000
shall be deducted as general deduction
er of cost or MV under section 13

per FIFO Method] - Absorbption

per FIFO Method] - Marginal

rding the market value, we assume that

Qn 1
Miss sharma Pvt.ltd purchased a generator costing Rs 900000 on magh 20 2080. Miss Sharma
Pvt.Ltd is manufacturing company. Opening depn base of POOL D was Rs 12,00,000.

Particulars [POOL D]
Opening Depn Base
Add: Absorbed Addition [450000 + 450000*2/3]
Less: Dipsosal Proceeds
Less: Terminal Depn due to generator purchase
Depn Base
Rate (Accelerated)
Depn

Depn = Terminal Depn(450000 + 300000) = Rs 750000

Amount (Rs)
1200000
750000
0
-450000
1500000
20%
300000
 Jun-19

Particulars Section Ref Note

A. Inclusions
Sales 7(2) 1
Business gift (Vehicle) 7(2)
Total Inclusions

B. Deductions
Salary and wages 13 2
Office expenses 13 3
Referral commission 13

COGS 15

Business Promotion expenses 13

Interest expense 14(1)

Marketing expenses 13
Lawyer Fee 13
Depreciation 19
Repair and improvement 16
Total deductions

Income before sec 14(2),17,18 and 12

/ Assessable income from business/
Balance taxable income
Rate of tax Schedule 1(2)
Tax Liability
Solution
Particulars Secton Ref Note
A. Inclusions
Sales 7(2)
Gain on sale of business assets 7(2)
Prize from display competition 7(2)

Miscalleneous Income 7(2)

Previous allowed bad debt was

80% only. Hence 80% will only be
included in the income as bad
Bad debt recovered 25 debt recovered

Dividend income is subject to 5%

tds as per section 88 and final
witholding under section 92.
Hence As per 7(3) such income
Dividend Income 7(3) shall not be included in income

Balancing charge 7(2)

Total

B. Deductions
COGS 15 1
Administrative expenses 13 3
Entertainment expenses 13
Miscallenous expenses 13

Audit fee 13
Interest expenses 14(1)
Depreciation 19 4
Repair and improvement 16 5
Total deductions

Income before sec 14(2), 17 and 18

Less: Sec 14(2) interest 14(2)
Less: Sec 17 PCC 17 7

Less: Sec 18 r&d 18 8

Assessable income from business
Less: Donation U/s 12 9

Less: Donation U/s 12 kha Full donation can be deducted

Balance Taxable Income

Tax Rate (Effective) 10

Tax liability
Amount (Rs) WN1 Calculation of sales

55234100 Particulars
220000 Sales
55454100 Add: prior period commission
Gross Sales

3233646 WN2 Salary and wages

38000 Particulars
30000 Given Salary
Less: Wages for installation of
44155280 plant
Less: TDS paid on the behalf of
500000 employees
Add: Tution fee of children of
marketing director as per the
250000 terms of employment
441550 Salary and wages (adjusted)
45000
1967660 WN3 Office Expenses
338933.3 Particulars
51000069.3 Given
Less: Tution fee of children of
marketing director as per the
terms of employment

4454030.7 Office Expenses (adjusted)

25%
1113507.675

WN4 Calculation of
depreciation

Particulars Pool A
Opening depn base 11123750
Add: Absorbed addition
Less: Disposal Proceeds
Depn base 11123750
Rate 5%
Depn 556187.5

WN5 Repair and

Improvement Expenses
Particulars Pool A
 Depn base 11123750
a) 7% of depn base 778662.5
b) Actual repair
Allowed repair
(lower of a or b)

Amount (Rs)

18000000
600000
200000

750000 WN 1 - Cost of Goods Sold

240000 Particulars Details

0 1 Opening Stock 4500000

Less: Cost of repair
500000 included in O/S -450000
20290000
2 Add: Cost of production
Purchase of Raw material 8500000
13575000 Freight inward 400000
300000 Direct wages 800000
200000 manufacturing expenses 1200000
100000 Factory fixed overhead 1800000

400000 3 Less: Value of closing stock

700000 (Lower of Cost or MV)
3534300
620000 COGS
19429300

860700
330350

180350 WN 2 Cost of closing stock

350000
8035 Step 1: Cost of Production 12700000
Step 2: Cost/unit (As per
100000 FIFO) 63.5
Step 3: Cost of Closing
241965 stock 3175000

6%
WN 3: Admnistrative
14517.9 Expenes

Particulars Rs
Given 400000
Less: Wages paid to labor
without having PAN 100000
Gross Wages 300000

WN4: Calculation of depreciation under schedule 2

Particulars POOL A

Opening depreciation base 30000000

Add: Absorbed addition
Less: Disposal Proceeds
Depn Base 30000000
Rate (Accelerated Rate) 6.67%
Depn 2001000

5 lakh negative depn base of pool c will be included in inclusion as balancing charge

WN 5: Calculation of allowd repair U/s 16

Particulars Pool A
Depn base 30000000
a) 7% of depn base 2100000
b) Actual repair of pool 200000
Lower 200000

WN 6 Calculation of Adjusted Taxable Income

Particulars For Sec 17

Income before sec 14(2),
17, 18 and 12 860700
Less: Actual PCC
Less: Actual R&D -200000
ATI 660700

PCC
Actual 500000
50% of ATI 330350
Lower 330350

R&D
Actual 200000
50% of ATI 180350
Lower 180350

Calculation of donation U/s 12

Lower of:
a) 5%of ATI 8035
b) 100000 100000
c) Actual Donation to tax
exempt 200000
Lower 8035

WN….
Calculation of tax rate

A) Normal rate 25%

Special industry rebate 20%
Reduced rate 20%

Option 1 : Employment more than 300 nepalese citizen

Effective rate 16.00%

Option 2: Operated in less

developed area
Effective rate 6.00%

As effective rate under

option 2 is more beneficial,
it will be selected 6%
Rs
55194100
40000
55234100

Rs
3311646

-50000

-40000

12000
3233646

Rs
50000

-12000

38000

Pool B Pool C Pool D

556190 2500000 4449500
220000 700000
-220000
556190 2500000 5149500
25% 20% 15%
139047.5 500000 772425 1967660

Pool B Pool C Pool D

 556190 2500000 5149500
38933.3 175000 360465
75000 300000

38933.3 300000 338933.3

Rs

4050000

12700000

( 200000 units produced current year incurrs rs 15

-3175000 per unit fixed factory overhead which leads to total

fixed overhead of Rs 30 lakhs. Among which 12 lakh manufacturing expense has already been booked
in profit and loss account. So remainig 18 lakhs will be added as fixed factory overhead
13575000
In the Given question information regarding MV is not given. So, we assume that market value is higher
than the cost of closing stock
 (Pool dissolved)
POOL B POOL C POOL D

1000000 1000000 4000000

2000000
-1500000
1000000 -500000 6000000
33.33% 20%
333300 1200000 3534300

ded in inclusion as balancing charge

Pool D
6000000
420000
2300000
420000 620000

For Sec 18 For sec 12

 860700 860700
-500000 -500000
-200000
360700 160700
s already been booked

at market value is higher

Mixed Income types
Mfr + Local Sales
Import + Local Sales
Mfr + Export Sales
MFr + Local Sales
1

2
Opening stock consists of damaged goods of Rs 2,000,000 which was
sold for Rs 6,50,000 inclusive of VAT (Sp before VAT 575221) which is
not included in above income

Particulars Rs
Opening Stock 20,000,000
Less: Sale of damaged goods -575221 Included in Sales
Rectified Opening Stock 19,424,779
Add: Purchase
Less: Closing Stock
COGS

Software 78/79 Depn Calculation

Purchase Date (2077/04/25) X

Useful Life 6 Years
Depn for 2077/78
Software Opening Depreciation Base (2078/04/01) 2500000
X - X/6 = 2500000
X = (2500000*6)/5 = 3000000
Depn / Year = 30,00,00/6 =5,00,000
Opening Stock 20,000,000
Less: Remove of damaged goods -2000000
Add: Cost of damaged goods 1,424,779
(2000000-575221)
Recrtified OS 19,424,779

Op dep 0 2500000
Purchase 3000000 0
Less: Diposal 0 0
Depn Base 3000000 2500000
Rate 0.1666666667 0.166667
Depn 500000 500000
Remaining value 250000
Add: Unabsorbed 0
Op Depn base for next year 2500000