Income From business

Step:1 Assessable income from Business/ Profession

Step:2 Computa:on of Taxable income
Step:3 Tax liability/ tax payable

Step:1 Calcula:on of assessable income from Business or profession of Mr./Mrs….. for the previous
income years
Par:cular Rs. Rs.
Gross income from Business/Profession XXX
Less: total allowable deduc:on before PCC and R&D XXX
Adjusted taxable income before Business loss (within 7 years period) XXX
Less: Business loss (XXX)
Adjusted taxable income for PCC and R&D XXX
Less: Allowable PCC and R&D
50% of adjusted taxable income for PCC and R&D XXX
OR, Actual PCC and R&D (Given in the Qns. – whichever is lower XXX (XXX)
Assessable income from Business/ profession
Key point:
Following point are not adjusted in above step:
1. Balance c/d, Balance b/d, Opening cash balance and closing cash balance
2. Domes:c expenses, household expenses, Personal expenses
3. Provision for tax, Provision for dividend, proposed dividend, Dividend paid, Provision for bad debts
or reserve for bad debts
4. Reserve for future loss, Transfer to general reserve, Reserve for con:ngencies, Reserve and surplus
5. Profit and loss account
6. Refund of income tax
7. Capital nature expenditure (e.g. Purchase of furniture, repayment of loan instalment, Expenses on
raising loan)
8. Fine and penal:es (note: fine and penal:es related to water and electricity is allowable foe
deduc:on)
9. Expenses related to income tax appeal
10. Black marke:ng
11. Drawing
12. Suspense account
13. Cash payment more than Rs.50000 when banking service are available (if annual turnover is above
Rs.2million) are not deduc:ble.
14. Agriculture income of an individual is non-taxable income
15. The remunera:on and wages paid to an employee not having PAN is not allowable for deduc:on.
16. Excess income over expenditure and excess expenditure over income are not adjusted.
17. Expenses related to final withholding income
Following point are related to final withholding income
1. Mee:ng allowance up to Rs.20000 per mee:ng
2. Locery win
3. Income from part :me lecture
4. Divided received from resident company
5. Rent received from house of an individual is related to final withholding income. But in case of
sole proprietorship Business and Company house rent received is included in income.
6. Interest credited to provident fund
7. Interest on fixed deposit, Interest on saving deposit, Interest on bank saving account of an
individual is related to final withholding income but in case of company such point included in
business income
8. Gain on sales of investment in insurance company
9. Income received from checking examina:on copy and amount received from seeng ques:on
10. Dividend received from mutual fund and return received from mutual fund

Following point are related to income from investment

1. Interest received from friends, interest received from private money lending ac:vi:es, interest
received from unorganized sector, interest from unrecognized sector
2. Natural resources payment received
3. Gain on sales of listed or not listed share
4. Gain on sales of land and building
5. Gain on sales of non-business chargeable assets
6. Royalty received related to investment
7. Rent received from machinery and furniture
8. Gih received related to investment

Working Notes side

WN.1) Calcula,on of cost of trading stock – CTS
Par:cular Amount
Opening stock xxx
Add: purchase xxx
Carriage/ carriage inward xxx
Wages xxx
Manufacturing expenses xxx
Royalty on produc:on xxx
Custom duty xxx
Less: Closing Stock (xxx)
Cost of trading stock xxx

WN.2) Calcula:on of Allowable deprecia:on

Par:cular Amount
Opening WDV xxx
Add: Addi:on during the year – period wise purchase
1st shrawan to end of poush (cost X 3/3) xxx
1st magh to end of Chaitra (cost X 2/3) xxx
1st Baishakh to end of ashadh (cost X 1/3) xxx
 Less: Disposal during the year (xxx)
Deprecia:on basis value xxx
Rate of deprecia:on …..
Allowable deprecia:on xxx
Closing WDV (Dep. base – allowable dep.) xxx

WN.3) Calcula:on of allowable repairs

7% of Deprecia:on basis amount = XXX
OR, actual repairs (given in qns.)- WL = XXX
Allowable repairs = XXX s

WN.4) Calcula:on of allowable interest paid to controlling en:ty:

Par:cular Rs.
Gross income excluding interest income XXX
Less: Total deduc:on before interest expenses XXX
Adjusted taxable income for interest XXX
Less: allowable interest
50% of adjusted taxable income for interest xxx
add: interest income xxx
OR, Interest expenses (WL) xxx
Allowable interest paid to controlling en:ty xxx
Step 2) Computa,on of taxable income
Par,cular Rs. Rs.
Assessable income from Business/ Profession XXX
Assessable income from Investment XXX
Assessable income from employment XXX
Total assessable income XXX
Less: allowable reduc,on
1. Re,rement fund contribu,on
1/3 of total assessable income XXX
OR, Actual (20% of annual salary) XXX
OR, Maximum limit (WL) XXX (XXX)
2. Dona,on to tax exempt organiza,on
5% of (Adjusted taxable income for PCC and RD+ income from employment+ income from XXX
investment – re=rement fund contribu=on) XXX
OR, Actual dona,on (given in ques,ons) 100000 (XXX)
OR, Maximum limit (WL)
3. Dona,on top religious heritage and Development of sports
10% of Total assessable income – Re,rement fund contribu,on) XXX
OR actual dona,on (given in ques,ons) XXX
OR maximum limit (WL) 1000000 (XXX)
4. Dona,on to prime minister relief fund (Fully allowable) (XXX)
Taxable income before exemp,on XXX
Less: Exemp,on
1. Life insurance premium
Actual LIP (given in ques,ons) XXX
OR maximum limit (WL) 40000 (XXX)
2. Health insurance premium
actual HIP (given in ques,ons) XXX
OR maximum limit (WL) 20000 (XXX)
3. Remote area exemp,on
A=50000, B=40000, C=30000, D=20000 and E=10000 (XXX)
4. Foreign allowance exemp,on
75% of foreign allowance (XXX)
5. Exemp,on for disable tax payers
50% of Rs.500000 (single)
50% of Rs.600000 (couple) XXX
6. Pension exemp,on
25% of Rs.500000 (single) XXX
25% of Rs.600000 (couple) XXX
OR actual pension income (WL) XXX XXX
7. private building insurance exemp,on
Actual insurance premium XXX
OR maximum limit (WL) 5000 (XXX)
Taxable income including capital gain XXX
Less: Capital gain (Gain on sales of listed or not listed share, Gain on sales of
land and building, Gain on sales of non-business chargeable assets) (XXX)
Taxable income excluding capital gain XXX
Key point:
1. Unapproved, unorganized, unrecognized provided fund are not allowed for deduc,on
2. Following dona,on are not deduc,ble
Dona,on to staff union
Dona,on to student union
Dona,on to beggar
Dona,on to private boarding school
Dona,on to private nursing home
Dona,on to poor student

Step:3) Calcula,on of tax liability/ Tax payable

For individual Tax rate For couple Tax rate
UP to Rs.500000 Nil UP to Rs.600000 Nil
Next Rs.200000 10% Next Rs.200000 10%
Next Rs.300000 20% Next Rs.300000 20%
Next Rs.1000000 30% Next Rs.900000 30%
Balance Above Rs.2000000 36% Balance Above Rs.2000000 36%
Tax liability XXX
Less: (1) Advance tax paid (XXX)
(2) Medical tax credit – MTC
15% of medical approved expenses xxx (xxx)
OR, maximum limit (WL) 750
(3) Foreign tax credit – FTC (WN) (XXX)
(4) Women tax rebate
10% of tax liability (XXX)
Tax payable XXX

WN:1 Calcula,on of allowable foreign tax credit – FTC

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Step.1) Average income tax rate in Nepal = X 100%
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Step.2) Assessable income from foreign sources X average tax rate in Nepal = XXX
OR actual tax paid to foreign government (WL) = XXX

Tax applied on gain on sales of share

Listed company share Not listed company
More than 365 days Less than 365 days
Individual 5% 7.5% 10%
Company 10% 15%
Non resident 25% 25%

Tax applied on gain on sales of land and building

More than 5 years Less than 5 years
Gain on sales of land and building 5% 7.5%

Basis of accoun,ng
Adjusted Not adjusted
Cash basis of accoun,ng prepaid expenses, advance income O/s expenses, income receivable
Accrual basis of accoun,ng O/S expenses, Income receivable Prepaid expenses, advance income