AIMS CA CAP ll Aspirant a.ans As per the provision (Sec.96) of Income Tax Act 2058, the tax payer has an obligation to submit the tax return on time. Actual Self Assessment: Under (Sec.99), the person submits a tax return including the information regarding the total tax payable during the year, and the tax due for payment on the date of submitting the return; it is believed that the income tax assessment is complete. In general terms, the filling of an annual return is the self-assessment made by the tax payer that is treated as assessment unless the Jeopardy Assessment (u/s100) & Amended Assessment (u/s 101) prevail. Deemed Self Assessment: Even in the case of a person who fails to file the annual tax return, the income tax for the year is deemed as assessed on due date of Asoj-end under the following basis: i) The total tax liability of the tax payer during the year is equal to the amount of withholding tax deducted by withholding agents on its payments, and the amount of advance tax paid by it. ii) The deemed tax assessment shows that there is no more tax payable for the year by such tax payerAccording to Section 21, of Income Tax Act, 2058 any expenditure paid through cash for more than Rs 50,000 by a taxpayer having annual turnover for more than Rs. 20 lakh cannot be deductible. However, the following payments are deductible even though, they exceed the cash payment limit of Rs. 50,000. • Payment to GON, Constitutional bodies, public enterprises and BFI, • Payment to producer of primary agricultural produces even when the products are primarily processed, • Payment of retirement contribution or retirement payment • Payment made on the day of closure of banking service or on circumstances to be paid only in cash, or • Payment made in such area where banking facility is not available • Amount deposited into the bank account of the receiver. b.ans "Interest" means the following payment or profit: (1) Payment under debt liability except the principal, (2) Profit made from concession, premium, alteration payment or from similar payment, and (3) The amounts referred to in Section 32 receivable as an interest out of the payment to be made by a person who acquires any property under annuities or installment sale or of the payment made to any person for the use of any property under a financial lease. c.ans As per Section 101 of Income Tax Act, 2058, Inland Revenue Officer (IRO) can make an amended assessment of any return filed by any tax payers solely on the ground that the IRO deemed fit to do such amended assessment based on the IRO‟s best judgement, and should be done in the manner that is consistent with the intention of the Act. In case IRD thinks it proper to do so, the assessment may be done as many times as the
IRD thinks appropriate but within 4 years of: • In the case of an assessment under section 99, the due date of filling of the return, or • In the case of jeopardy assessment, the date on which the notice of assessment is served to the tax payer under sec.102. The maximum time limit of 4 years is not applicable in case of fraudulent assessment identified by IRD, when the assessment shall be completed within one year of the information of fraud. Amended assessment is not allowed within 4 years time limit as well when the matters in relation to the assessment are finalized by revenue tribunal or competent court unless such courts or tribunal permits the re-assessment. Before finalizing the amended assessment, a show cause notice shall be sent to tax payer for defense by providing a time limit of 15 days. d.ans As per Section 78, the following provisions are stipulated about PAN. a. Subject to this Act, the Department shall issue a person with a number to be known as a Permanent Account Number for the purposes of identifying the person. b. The Department may require a person to show their Permanent Account Number in any return, statement, or other document used for the purposes of this Act. c. GON may prescribe situations in which a person is required to show or quote their Permanent Account Number. d. Notwithstanding anything contained in subsection 1, person mentioned in subsection 3 must receive PAN before commencement of business transaction. e. A person cannot relieve from tax liability by reason of not having PAN. e.ans Valuation of closing stock of a business for income year is done at a lower of the following: i) Cost of closing stock that remains at the end of year or ii) Market price of the closing stock at the end of year; Where identification of each items stock is not possible IT Act permit first in first out (FIFO) OR weighted average method for valuation of closing stock. The cost of closing stock (trading stock) shall not include repair and improvement cost and depreciation of depreciable asset f.ans As per section (ka na) of the Income Tax Act, 2058, Associated person means a. a person or b. more than one person or c. a group of such persons who acts as per intention of each other, And includes – a. Natural person and relative of such natural person, or any person and partner of such person b. Foreign Permanent Establishment and a person having ownership in such establishment c. Any entity either directly or indirectly through (a) other person or (b) related entity or
(c) other person or entities related with such related entity, Have control over or are entitled to have benefit of 50% or more than 50% of income, capital or voting power of any entity. But below persons shall not be treated as associated person a. Employee, b. Any other person as specified by the Department g.ans As per the Section 74(2) of Income Tax Act 2058,following rights are available to the tax payers: i) Right to get respectful behavior ii) Right to receive any information related to tax as per the prevailing laws iii) Right to get an opportunity of submitting a proof in one‟s own favor as regards tax matter iv) Right to appoint lawyers or auditors for defense, and v) Rights to secrecy in respect of tax matters and to keep it inviolable. h.ans As per the provision (Sec.96) of Income Tax Act 2058, the tax payer has an obligation to submit the tax return on time. Actual Self Assessment: Under (Sec.99), the person submits a tax return including the information regarding the total tax payable during the year, and the tax due for payment on the date of submitting the return; it is believed that the income tax assessment is complete. In general terms, the filling of an annual return is the self-assessment made by the tax payer that is treated as assessment unless the Jeopardy Assessment (u/s100) & Amended Assessment (u/s 101) prevail. Deemed Self Assessment: Even in the case of a person who fails to file the annual tax return, the income tax for the year is deemed as assessed on due date of Asoj-end under the following basis: i) The total tax liability of the tax payer during the year is equal to the amount of withholding tax deducted by withholding agents on its payments, and the amount of advance tax paid by it. ii) The deemed tax assessment shows that there is no more tax payable for the year by such tax payer i.ans Means Taxable Income of a Person without reducing any amount under Section12 and without deducting expense under Section14(2), S17 or 18 in an Income Year. j.ans To achieve consistency in the implementation of this Act and to make the tax administration simple and provide guidance to persons affected by this Act, including officers of the Department, the Department may issue in writing public circulars setting out the Department’s interpretation of this Act. The Department shall make public circulars issued under subsection (1) available to the public on website of department or national level newpaper, or telecast or publish through any other electronic medium. A public circular issued shall be binding on the Department. k.ans As per Section 6, Subject to this Act, the following income of a person for an income-year from any employment, business, investment or windfall gain shall be the assessable income:-
(Ka) income of a resident person from the employment, business, investment or windfall gain of the year irrespective of the location of the source of the income; and (Kha) income of a non-resident person from the employment, business, investment or windfall gain of the year but only to the extent the income has a source in Nepal. Provided that, the assessable income does not include any income exempt under sections 11 or 64 or both. l.ans For the purpose of Section 26, a long-term contract of a person means a contract of the following conditions- (Ka) the term of the contract exceeds 12 months; and (Kha) the contract is either a contract for manufacture, installation, or construction, or, in relation to each, the performance of related services; or a contract with a deferred return that is not an excluded contract. m.ans Section 110 of the Income Tax Act states the following with respect to recovery of tax from agent of non-resident: 1. Where a non-resident person (the tax debtor) fails to pay tax on or before the date it is payable, the Department may by service of a notice in writing require a person who is in possession of an asset owned by the tax debtor to pay tax on behalf of the tax debtor up to the market value of the asset but not exceeding the amount of tax payable by the tax debtor. 2. Where a person makes a payment to the Department pursuant to a notice under subsection (1) (a) The person may recover the payment from the tax debtor; (b) For the purposes of paragraph (a), the person may retain out of any assets including money of the tax debtor in or coming into the possession of the person an amount not exceeding the payment; and 3. The tax debtor or any other person may not make a claim against the person referred to in subsection (1) (b) with respect to the retention. n.ans Section 106 of the Income Tax Act states the following with respect to departure prohibition order: (1) Where a person fails to pay tax on or before the date the tax is payable, the Department may, by notice in writing serve on the concerned office of Nepal Government, an order to prevent the person from leaving Nepal for a period of 72 hours after the expiry of time limit specified in a notice served for the purpose of paying tax. (2) Where an extension to the period referred to in subsection (1) is required, the Department shall be required to get pre-approval from the concerned appellate court for the purpose. (3) Where the person referred to in subsection (1) pays the tax or makes an arrangement for payment satisfactory to the Department, the Department may by notice in writing served on the office referred to in subsection (1), withdraw the order. o.ans Trustee: As per Section 2 (Pa) of IT, Act 2058, "Trustee" means a natural person, trust (Guthi) or other body corporate who, individually or jointly with other natural person, trust (Guthi) or corporate body, holds a property in trust, and this term includes the following person: (1) The operator or administrator of the assets of a deceased, (2) A liquidator, recipient or trustee,
(3) Any person who protects, directs, controls or manages the assets of an incapacitated person in individual or official capacity, (4) Any person who manages the assets under a private enterprise or similar other enterprise, and (5) Any other person in a position similar to that of the person as referred to in clauses (1), (2), (3) and (4) above. p.ans As per section 69 Clarification (b) of Income Tax Act, 2058, Controlled foreign entity for an incomeyear means a non-resident entity in which a resident person holds an interest, directly or indirectly through one or more interposed non-resident entities, and the person is associated with the entity or would be if the person and not more than four other resident persons were associated. Similarly section 69 clarifications (a) defines, Attributable income of a controlled foreign entity for an income year is its taxable income for the year calculated as if the entity were a resident entity. q.ans Non- Business Chargeable asset is defined in section 2 of the Income Tax Act, 2058. Non-business chargeable asset means securities or an interest in an entity as well as land and buildings but excludes the following assets: (1) business assets, depreciable assets, or trading stock; (2) a private residence of an individual that has been- (A) owned continuously for ten years or more; and (B) lived in by the individual continuously or intermittently for a total of ten years or more; For the purpose of this section private residence means the building and land occupied by the building or one ropani land whichever is less (3) An interest of a beneficiary in a retirement fund (4) Land and a private residence of an individual that is disposed of for less than Rs. 10,000,000/-; or (5) non-business assets of an individual that is disposed of by way of any type of transfer other than sales and purchase made within three generations. r.ans Underlying ownership is defined in section 2 of the Income Tax Act, 2058, and means the following: (1) in relation to an entity, an ownership created on basis of an interest held in the entity directly or indirectly through one or more interposed entities by an individual or by an entity in which no individual has an interest; or (2) in relation to an asset owned by an entity, an ownership of the asset that is determined on basis of proportion to the ownership held by the persons having underlying ownership of the entity. s.ans As per sec 2 of Income tax Act, 2058, Royalty means any payment made under a lease of an intangible asset and includes any payment made for the following purpose:- (i) The use of, or the right to use, a copyright, patent, design, model, plan, secret formula or process, or trademark; (ii) The supply of know-how; (iii) The use of, or right to use, a cinematography film, video tape, sound recording, or any other like medium and the supply of information concerning industrial, commercial, or scientific experience; (iv) the supply of assistance ancillary to a matter referred to in paragraphs (i), (ii) or (iii); or (v) A total or partial forbearance with respect to a matter referred to in paragraphs (i), (ii), (iii) or (iv).
provided that, the term. t.ans As per section 50, i) A resident natural person and a resident spouse of the person may, by notice in writing elect to be treated as a single individual for a particular income year. ii) Each spouse of a couple making an election as above with respect to an income-year is jointly and severally liable with the other spouse for any tax payable by the couple for the year. iii) What so ever mentioned in above (i) and (ii) resident widow or widower responsible to take care of dependents shall be treated as couple. u.ans As per Section 16, Repair and Improvement Costs provision is as follows; i) For the purpose of calculating a person’s income for an income – year from any business or investment, there shall be deducted all costs to the extent incurred during the year in respect of the repair or improvement of depreciable assets owned and used by the person during the year in the production of the person’s income from the business or investment. ii) Notwithstanding mentioned in (i), the deduction allowed with respect to all depreciable assets in a particular pool of depreciable assets of the person shall not exceed seven percent of depreciation basis of the pool at the end of the income year. However, the limitation shall not be applicable on overhauling of aircraft as required by Standards of Civil Aviation Authority of Nepal. iii) Any excess cost of repair and improvement, or a part thereof, for which a deduction is not allowed as a result of the limitation of (ii), can be added to the depreciation basis prevailing in the beginning of the subsequent income year, of the pool to which it relates. v.ans As per Section 10 of Income Tax Act, the following amounts are tax exempted incomes: i) Amounts derived by a person entitled to privileges under a bilateral or a multilateral treaty concluded between Nepal Government and a foreign country or an international organization. ii) Amounts derived by an individual from employment in the public service of the government of a foreign country. Provided that The individual is a resident person solely by reason of performing the employment or is a non-resident person; and The amounts are payable from the public funds of the country. iii) Amounts derived from public fund of the foreign country by an individual who is not a citizen of Nepal as referred to in paragraph (ii) or by a member of the immediate family of the individual. iv) Amounts derived by an individual who is not a citizen of Nepal from employment by Nepal Government on terms of tax exemption. v) Allowances paid by Nepal Government to widows, elder citizens, or physically disabled individuals. vi) Amounts derived by way of gift, bequest, inheritance, or scholarship, except as required to be included in calculating income under section 7, 8 or 9 and vii) Amounts derived by an exempt organization by way of a) Gift; or b) Other contributions that are directly related to the organization’s function referred to in paragraph(s) (1) of the definition of exempt organization in section 2, whether or not the contribution is made in return for consideration provided by the organization, or
c) Income earned by Nepal Rastra Bank as per its objective, or d) Income earned by Securities Board of Nepal as per its objective. viii) Pension received by a Nepali citizen retired from the army or police service of a foreign country provided the amounts are payable from the public fund of that country. ix) Any income of Nepal Government. w.ans If a resident natural person becomes ill, his treatment cost is qualify for medical tax credit under Sec. 51. Eligible Medical Cost (EMC) is cost of treatments including fee paid to doctor, lab cost, dispensary cost and other associated costs. In EMC, cosmetic medical cost is not included. If a person has medical insurance, premium paid for it is deemed as EMC. Medical Tax Credit Limit (MTCL) is as: (EMC + Medical Insurance Premium – Insurance Compensation) * 15% Maximum limit of medical tax credit is Rs. 750 for a year. If a person has MTCL is more than Rs. 750 or have tax payable is less than Rs. 750, any unrelieved MTCL is carried forward to next years. As per Rule 17(1), the following shall be treated as approved medical expenses: •Health Insurance Premium •Amount as per bill including medical expenses of approved hospital, nursing home, health center or doctor As per Rule 17(2), the following shall not be included in approved medical expenses: •Expenses of Cosmetic Surgery •Insurance claimed medical expenses x.ans As similar in accounting, basis of accounting is also cash basis of accounting and accrual basis of accounting. Both cash basis and accrual basis are not conceptually same for both tax and accountings. Statutory Cash Basis for Tax: Income from employment and income from investments in case of a natural person has to be accounted in cash basis of accounting. Statutory Accrual Basis for Tax: Company should keep its tax accounts on accrual basis of accounting. Banking business, as licensed from Nepal Rastra Bank can keep its accounts based on directives. Again, co-peratives can maintain its interest income in cash basis. Optional Basis for Tax: Income from business of a natural person and income of entity other than a company (partnership and trust) may opt either basis for taxation. y.ans Permanent Establishment as per section 2 (Ka) (Da)( s) (b): „Permanent Establishment‟ (PE) means an establishment where a person wholly or partly carries on a business. The establishment refers to the head office, factory, premises, site office, branch office etc. In additional to that, these undernoted establishment are also defined as PE : a) An establishment where a person wholly or partially carries on a business through an agent, when the agent is not a general agent of independent status. b) An establishment where a person has, is using, or is installing main equipment or machineries (factory premises). c) One or more establishment within a country where a person furnishes, whether through employees or otherwise, technical, professional, or consultancy service for a period or periods aggregating more than 90 days within any 12 months. d) An establishment where a person is engaged in a construction, assembly, or installation project for 90
days or more, and a place where a person conducting supervisory activities in relation to such a project. z.ans As per paragraph (w) of Section 2 of Income Tax Act, exempt organization means the following entities: - Following entities registered with the Department as an exempt organization: i) A social, religious, educational, or a charitable organization of public character established without having a profit motive, ii) An amateur sporting association formed for the purpose of promoting social or sporting facilities not involving the acquisition of gain. - A political party registered with the Election Commission - A village municipality, municipality/sub-metropolis/metropolis or district coordination committee, provided that, any entity, giving benefit to any person from the assets of, and amounts derived by the entity except in pursuit of the entity’s function as per its objectives or as payment for assets or service rendered to the entity by the person, is not exempt from tax. A.ans As per paragraph (8) of Section 2, company means a company established under the company laws for the time being in force and the following institutions shall also be treated as company for tax purpose: - Corporate body established under the laws for the time being in force - Any unincorporated association, committee, institution, society, or group of persons other than a partnership or a proprietorship firm (whether or not registered) or a trust - A partnership firm (whether or not registered under the laws for the time being in force) that has 20 or more partners, a retirement fund, a co-operative, a unit trust, or a joint venture; - Foreign company; and - Any foreign institution prescribed by the Director-General B.ans As per paragraph (s d) of section 2, service fee means any fee paid to a person based on market values, for services rendered by the person and includes a commission or a meeting allowance, management fee, or technical service fee. C.ans As per section 2 (ka yng) of Income Tax Act, 2058, "Trading Stock" means the assets owned by a person and for sale in the ordinary course of business, work-in-progress on such assets and inventories of materials that are to be included into such assets. Provided that the term shall not include an asset in foreign currency D.ans As per section 2 (ka, ra) of Income Tax Act, 2058, "Depreciable Asset" means an asset which is used for generation of income from any business or investment and whose value declines due to wear and tear, obsolescence, or the passing of time. Provided, the term shall not include trading stock. E.ans As per section 2(ka ta) of Income Tax Act, 2058, "Business Asset" means an asset used in business. Provided, the term shall not include trading stock or a depreciable asset in business.
F.ans In Income Tax Act 2058, there is no definition of Insurance, but there is definition of Investment insurance. The insurance in understandable way is general insurance for Income Tax Act 2058. The same is dealt by section 60. There is specific provision for deduction of reserve (unexpired risk reserve) for general insurance. The investment insurance in general understandable language refers to Life Insurance and definition of same is given in section 2(am). The taxation of investment insurance is dealt by section 61. As per sec 2(am) of Income tax Act, 2058, "Investment insurance" means insurance of any of the following classes: (i) insurance where the event covered is the death of an individual who is the insured or an associate of the insured; (ii) insurance where the event covered is an individual who is the insured or an associate of the insured sustaining personal injury or becoming incapacitated in a particular manner; (iii) insurance where the insurance agreement is expressed to be in effect for at least five years or without limit of time and is not terminable by the insurer before the expiry of five years except in special circumstances specified in the contract; (iv) insurance under which an amount or series of amounts is to become payable to the insured in the future; and (v) reinsurance of insurance referred to under subparagraphs (i), (ii),or (iv); and (vi) reinsurance of reinsurance referred to under subparagraph (v). G.ans If tax within a income year or after income year but before statutory time limit of filing of return is Jeopardy assessment. It is of two types Jeopardy assessment as self- assessment [Section 100(1)] Jeopardy assessment by tax authorities [Section 100(2)] Jeopardy assessment by the IRO is possible only under anyone of these conditions a. The person becomes bankrupt, is wound-up, or goes into liquidation. b. The person is about to leave Nepal indefinitely. c. The person is about to leave the business conducting in Nepal. d. The IRD otherwise considers it appropriate. Under any one of the above conditions the IRO may serve a notice to the taxpayer to submit a tax return for the specified period of the year within specified days. In the case of a taxpayer who submits the return as per the notification or does not submit it, in either case, the income tax assessment is supposed to be made as per the provisions of Sec. 99(2). But Sec 100(2) has given an authority to respective IRO to make a jeopardy assessment in the above case on the basis of the best judgement adopted by the IRO. The period taken by the IRO for such a jeopardy assessment may be a part of the year or the whole year. In such a case, the notice is meant for an assessment of the whole year, and the taxpayer has to file the return within the time specified in the notice but in no way can wait for the period as specified in Section 96.The respective IRO can make a jeopardy assessment only if it has a reasonable belief that the figures produced or deemed to be produced by the taxpayer do not exhibit the real position of the tax liability of the taxpayer for the period. According to Section 100(2), the following
pieces of information are considered for the jeopardy assessment a) Assessable income of the taxpayer from business, employment or investment, i.e. from all the sources. b) Taxable income of the taxpayer during the year and the total amount of tax due to the taxpayer, and c) In the case of a taxpayer, which is a foreign permanent establishment, the income remitted to a foreign country during the period and tax payable on such a remittance. Before issuing an order for jeopardy assessment, the IRO has to serve a notice to the taxpayer stating the reason of disagreement over the figures given in the return field or the figures available to the IRO. A period of seven days should be given to the taxpayer to explain and produce evidence against the IRO‟s contention. In case a jeopardy assessment is made for a whole year, the taxpayer is not required to submit a tax return under Sec. 96(1). But if it is for part of the year, the taxpayer has to file a return under sec. 96(1) and the treatment of tax paid as per the jeopardy assessment shall be as advance payment of tax and could be adjusted against the tax payable as calculated as per the self assessment for the year. When the IRO has made a jeopardy assessment, it has to issue an order to the taxpayer stating the following assessment: a) The total tax payable by the taxpayer for the period of assessment and the tax due to him; b) The method of calculation of the tax liability. c) The reason of the Jeopardy assessment by the IRO. d) The period within which the tax due is payable; and e) Where, when and how to appeal against the order if the taxpayer is not satisfied with the jeopardy assessment. In case of competent authority of contracting state having treaty regarding “Avoidance of Fiscal Evasion” seek any tax arrears on that country to be collected from the person in Nepal, then taxation authority can collect the tax to the extent of valid and bona fide request of competent authority. The assessment based on these request are assessment classified as jeopardy assessment of tax collecting for another country. H.ans Advance Rulings (Sec.76a) a) The department may, upon application in writing by a person, issue to the person by notice in writing a personal ruling setting out the Department’s position regarding the application of this Act to the person with respect to an agreement proposed or entered into by the person. b) Notwithstanding subsection (a), the department may not issue a ruling under subsection(a) with respect to an issue involving the application of this Act that is presently before a court or that has been decided by a court. c) Where the person makes the following prior to the issue of a ruling under subsection (a), the ruling binding on the Department with respect to the application of this Act (as in force at the time of the ruling) to the person with respect to the arrangement. i. A full and true disclosure to the Department of all aspects of the arrangement relevant to the ruling; and ii. The arrangement proceeds in all material respects as described in the person’s application for the ruling. d) Where a personal ruling issued under subsection (a) and a public circular issued under section (75) contradict each other, priority shall be given to the terms of the personal ruling in respect of the person to whom the ruling is issued.
e) Before issuing ruling, Department may permit applicant or his representation to furnish any deficiency of documents. As per Rule 22; i. Applicant should file application in prescribed format. ii. Department has to give decision within 45 days of application. iii. If department didn’t issue personal ruling within 45 days, applicant may file for administrative review or appeal to revenue tribunal. I.ans As per sec 2 (Dha), "Tax" means income tax imposed under the Income Tax Act and includes following payments:- i. Expenses incurred in the process of creating charge and performing auction of the property of tax Debtors by the department as mentioned in section 104 (8) (a); ii. Amount payable by a withholding agent Withholding agent or withholdee under section 90, or amount payable by an installment payer under section 94, and on assessment under sections 99, 100,and 101; and amount payable by person who required to deposit tax under section 95 ka iii. Amount payable to the Department in respect of a tax liability of a third party under section 107(2), 108(3) or (4), 109(1), and 110(1); iv. Amount payable by way of interest and fees under Chapter 22; and v. Amount payable by way of fines in order of the department as per section 129. J.ans As per Sec 2(Tha) of Income Tax Act, Debt claim means a right of one person to receive a payment from another person and includes a right to repayment of an amount paid by one person to another person as well as deposits in banks and other financial institutions, accounts receivable, notes, bills of exchange, bonds, and rights under annuities, finance leases and installment sales. K.ans As per section 2(ab), "Lease" means the provisional right of any person to enjoy or use any property except movable property belonging to another person, and this term also includes a license, rent agreement, trenches, royalty agreement or right of a lessee/ tenant. L.ans As per Section 108 of Income Tax Act, 2058 ―Receive means any of the following persons: (1) a liquidator; (2) a receiver appointed out of court or by a court in respect of an asset or entity; (3) a mortgagee in possession; (4) an executor, administrator, or direct heir of a deceased individual's estate; or (5) any person conducting the affairs of an incapacitated individual. M.ans Natural person as defined by section 2 (wa) as follows: a. A single natural person; b. A proprietorship firm 100% owned by a single natural person; c. A couple opted being as a single taxation unit under section 50; d. A natural person being widow or widower with dependent opted being as a single taxation unit under section 50.
N.ans Section 2(ha) of Income Tax Act, 2058 defines the term "Payment" as follows; Payment means; • The transfer of money, an asset, or a liability by a person to another person; • The creation of an asset by one person that on creation it is owned by another person or the taking of an obligation of liability owned by another person; • Service provided by one person to another person; and • The use, or making available for use, of an asset owned by one person to another person. O.ans As per section 2(al),"Investment" means the act of holding one or more properties or investing such properties, except with the followings: (1) Holding any property used by the owner thereof in personal use, or (2) Employment or occupation. Provided that holding non-business taxable property shall be deemed as investment. P.ans As per Section 2(Ga) of Income Tax Act, 2058, final withholding payment is defined as the payments specified under Section 92 such as dividend, rent, gains, interest and payment to a nonresident person, which is to be made after withholding final tax. Final withholding payments are the payments made after deducting tax at source at specified rate prescribed under Income Tax Act, 2058. The tax, thus, deducted shall be the final tax. The person receiving the final withholding payments does not have to include this amount in his other taxable income. According to Section 92 of Income Tax Act, 2058, following payments are treated as final withholding payments: ¬ Dividend paid by a resident company. ¬ Rent for lease of land or building and associated fittings and fixtures, having a source in Nepal, and that is received by an individual other than the individual carrying on business. ¬ Payment made by resident person for gains from investment insurance. ¬ Payments made as gain from unapproved Retirement Fund. ¬ Interest payment, as specified under Section 88(3), made by bank, financial institution or any entity issuing bond or company listed as per the prevailing law. ¬ Payments made to non-resident persons that are subject to withholding tax under section 87, 88, or 89. ¬ Retirement payments made by Nepal Government or from the Approved or Unapproved Retirement Fund including all types of retirement payments (except regular pension payment). ¬ Meeting fee, payments made for occasional teaching. ¬ Payment against windfall gain. Q.ans As per Section 75 of the Income Tax Act 2058, public circular is the circular issued in writing by Inland Revenue Department setting out the Department's interpretation of Income Tax Act in order to achieve consistency in the implementation of the Act and to make the tax administration simple and provide guidance to persons affected by the Act, including officers of the Department. The circular, thus, issued will be made public and shall be binding on the Department also.
On the other hand, if there is any confusion in the application of the provisions of Income Tax, 2058, or for the sake of clarification of any doubt relating to the provisions of the Act, an individual or entity may opt for seeking Advance Ruling from IRD under Section 76 In case an individual or entity makes a written application to IRD seeking IRD's position or view regarding the application of this Act with respect to an arrangement proposed, IRD under the signature of Director General may issue, in writing, an advance ruling in this regard. However, IRD should not issue an advance ruling on the matters under consideration of any court or decided by a court. R.ans When tax authority makes amended assessment, the taxpayer has the right to go for administrative review. The review petition can be filed within 30 days of obtaining notification issued under Sec 102. In case a taxpayer cannot file a review petition within the specified days, the due date may be extended for another 30 days if an application is filed within 7 days of expiry of the due date of first 30 days. A deposit of 33% of disputed tax is required for application. In case Inland Revenue Department (IRD) does not decide in the review within 60 days of filing the review petition or decides against the tax payer, the taxpayer may file an application to Revenue Tribunal within 35 days. The application deadline may be extended further by 30 Days. A deposit of 50% of disputed tax is required for application. S.ans A Foreign Permanent Establishment (FPE) is a permanent establishment of such a person who is a resident of some other country. (Section 2 (KaNga) read with 2 (Bha)). The person may be a company or a partnership registered in a foreign country, a trust established abroad, a foreign government or its political subdivision up to village level etc. When any one of these foreign persons establishes a foreign permanent establishment in Nepal under the same incorporated status in Nepal, the permanent establishment is said to be a foreign permanent establishment. Test of a foreign permanent establishment: ♣ It is entirely owned by a foreign person. Owner foreign person may be controller foreign entity too. ♣ It is a branch, a division, warehouse, construction site, factory, sales outlet or site office of a foreign person. ♣ It has not got any incorporated status in Nepal. ♣ It has its effective control and management situated outside Nepal. T.ans Transfer pricing is an arrangement of transferring the profit by way of cost rather than by repatriation of income after tax. Transfer pricing generally happens between associated parties where the resulting loss and profit from the planned transaction go to the same person. The better test of whether transfer pricing has happened or not is whether the transaction is at the arm‘s length or not. According to the test, the payment for transaction is ‗over‘ or ‗under‘ if it is greater or lesser than the hypothetical price (the arm‘s length price), which the parties would have been paid, had their ties been unrelated to business. Tax authorities see the risk of transferring the income of one person to another between associated person, Inland Revenue Department or Inland Revenue Office may by a notification in writing, distribute, apportion, or allocate the amounts to be included or deducted in the income between the persons as to reflect their taxable income or tax liability.
U.ans Perquisite is a facility provided in kind by the employer to an employee under the terms of employment. Such facilities include residence facility, vehicle facility, facility from driver for vehicles, facility of house maid, gardeners, telephone facility for his/her residence etc. All facilities other than residence and vehicle are included in income from employment of the employee on the basis of the actual expenses incurred by the employer. But Rule 13 of the Income Tax Rules has quantified the residence facility and the vehicle facility and the expenses borne by the employer in providing the facility. Residence facility: Quantification for house facility is 2% of the salary for the year. Here salary means the basic salary and the grades. There is no difference whether the house provided is furnished or unfurnished one. Also it does not matter if the house was taken on rent and the employer paid different amount to the land lord. Vehicle facility: Quantification for vehicle facility by the employer for employees exclusive use or for a part time use, an amount equal to 0.5% of the salary regularly being paid is quantified as income. V.ans A. Final TDS The TDS that is deducted from the payment by the TDS withholding agent cannot be used to reduce the income tax liability of the withholdee. The payment itself is not considered income of the withholdee when calculating income tax. It is simply ignored when calculating the income tax liability of the withholdee. B. Non-final TDS The TDS that is deducted from the payment by the TDS withholding agent can be used to reduce the tax liability of the withholdee. The withholdee claims non-final TDS as tax credits. Nonfinal TDS reduces the income tax payable (i.e. tax liability) of the withholdee because it was paid by the TDS withholding agent on behalf of the withholdee. The payment itself is considered income (or an inclusion) of the withholdee when calculating the witholdee‘s income tax liability. “What we think we became”