Salary TDS Calculation (Nepal – FY 2082-83)

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The calculation of Tax Deducted at Source (TDS) on salary is different from TDS on purchases and sales.
This document explains how TDS is calculated on employee salaries in accordance with Nepal Government rules FY 2082/83.

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1. Payroll Head

What Is Payroll Head?

Definition: A Payroll Head is a salary component that represents either an addition (income/allowance) or a deduction from an employee’s salary.

Examples

• Additions (Income):

  • Basic Salary (BS): Rs. 10,000

  • Dearness Allowance (DA): Rs. 5,000

• Deductions:

  • Social Security Fund (SSF): Rs. 3,100

✅ Payroll heads are the specific items used to calculate Gross Salary, and then arrive at Net Payable Salary after deductions.

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2. Types of Payroll Heads

Payroll heads are divided into two categories: Taxable and Non-Taxable.

2.A. Additions

• Taxable Addition (करयोग्य कमाइ):
  Salary components considered for TDS.

  • Example: Basic Salary, Allowances (except exempted by law).

• Non-Taxable Addition (कर अयोग्य कमाइ):
  Salary components not included in TDS.

  • Example: Certain government-approved allowances/benefits.

2.B. Deductions

• Government Approved Deductions (करयोग्य कटौती):
  Reduces taxable salary. Government-approved deductions include:

  • SSF (Social Security Fund)

  • CIT (Citizen Investment Trust)

  • Life Insurance

  • Medical Insurance

  • Approved Retirement Funds

  ✅ Maximum deductible limit: Rs. 500,000 per FY.

• Non-Government Approved Deductions (कर अयोग्य कटौती):
  These don't help reduce tax. Examples: Loan repayments not part of government schemes.
  

  • Example: Loan repayments not under govt. schemes.

📌 Formula After Insurance

• Taxable Salary = Taxable Additions – Government-Approved Deductions
  

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3. Tax Slab & Tax Influencing Factors

3.A. Insurance Deduction

• Life Insurance → up to Rs. 40,000 per year

• Medical Insurance → up to Rs. 20,000 per year

📌 Formula After Insurance:

• Net Taxable Salary = Taxable Salary (After Taxable Deduction Subtracted Value) – Life Insurance – Medical Insurance

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3.B. Remote Area Discount (कर छुट – दूरदराज क्षेत्र)

Employees working in government-defined remote areas get additional rebates from taxable income (for the year):

Example:

• Taxable Income = Rs. 50,000

• If Area A → Discount = 50,000 → Net Taxable = 0 → No TDS payable

• If Area B → Discount = 40,000 → Net Taxable = 10,000 → 1% slab applies

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3.C. Differently Abled Discount (अपाङ्गता कर छुट)

If you're differently abled, you get a 50% extra on the basic tax-free limit, or Rs. 250,000 (whichever is smaller). This applies to the starting slab limit, not the tax amount itself.

• 50% rebate on taxable income limit OR

• Rs. 250,000 (whichever is minimum)
  👉 Applied on taxable income limit (slab base), not directly on tax amount.

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3.D. Tax Slabs FY 2082/83

For Single Individuals

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For Married Individuals

📌 Note:
Important Note: If you contribute to SSF, the 1% slab doesn't apply. You start from the 10% slab.

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3.E. Medical Expense Rebate

• Any employee can claim this. It's the lower of Rs. 750 or 15% of approved medical costs (like hospital bills, but not cosmetic surgery or reimbursed amounts).

Example:

• Tax as per slab = Rs. 15,000
• Medical rebate = Rs. 750
• ✅ Final Tax = Rs. 14,250

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3.F. Female Employee Rebate

• Single female employees (including widows, divorcees, or separated women) with only salary income get 10% off the final tax amount.

Example:

• Tax = Rs. 14,250
• Female rebate = 10% (Rs. 1,425)
• ✅ Net Tax = Rs. 12,825

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4. Retirement Fund Threshold

The government lets you deduct contributions to retirement funds, up to Rs. 500,000 max.

Eligible Components:

• Employees Provident Fund (EPF)

• Citizen Investment Trust (CIT)

• Approved Retirement Fund

• Social Security Fund (SSF)

✅ Total limit for all combined: Rs. 500,000 per year.

4.A.1. Maximum Deduction Rules

The maximum deduction for retirement fund contributions is determined as the lowest of the following:

• Rs. 500,000,
• Total contributions to approved retirement funds (e.g., EPF, CIT, SSF, or other approved funds), or
• One-third (1/3) of the assessable income. (Assessable income = Total taxable income (e.g., salary, bonuses, taxable allowances) before subtracting taxable deduction)
  

This rule ensures that high earners cannot claim deductions exceeding the proportional limit of their assessable income, maintaining compliance with Nepal's Income Tax Rules for FY 2082/83.

4.A.2. Private Building Insurance Premium Deduction

The Income Tax Act allows a deduction for premiums paid towards private building insurance, such as homeowner’s insurance for residential properties. This deduction is designed to encourage property insurance and reduce the taxable income of employees.

Example:

• If you pay Rs. 6,000 for insurance, you can deduct only Rs. 5,000. For someone with Rs. 600,000 taxable salary, this drops it to Rs. 595,000.

4.A.3. 75% Deduction on Foreign Allowances for Diplomats

Nepali diplomats working abroad get 75% of their foreign allowances exempt from tax.

Example:

• Basic salary Rs. 600,000 + Foreign allowance Rs. 400,000. Exempt: 75% of Rs. 400,000 = Rs. 300,000. Taxable: Rs. 600,000 + Rs. 100,000 = Rs. 700,000 before other deductions.

Example :

• A diplomat’s annual Basic Salary Rs. 600,000
• Foreign Allowance: Rs. 400,000
• After applying the 75% exemption, only Rs. 100,000 of the allowance is taxable, making the assessable income Rs. 600,000 + Rs. 100,000 = Rs. 700,000 before other deductions.

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5. Step-by-Step TDS Process

1. Start with Taxable Additions

2. Subtract Government Approved Taxable Deductions (max Rs. 500,000)

3. Subtract insurance deductions (life + medical, up to Rs. 60,000 total).

4. Apply Remote Area Rebate (if applicable)

5. Apply Differently Abled Rebate (if applicable)

6. Compute Net Taxable Income

7. Apply Tax Slabs to calculate tax.

8. Subtract Medical Expense Rebate (Rs. 750, if eligible)

9. Subtract Female Employee Rebate (10% if eligible)

✅ That's your Final Payable TDS

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6. Net Payable Salary

📌 Formula:
Formula: Net Payable = Total Additions (taxable + non-taxable) – Total Deductions (taxable + non-taxable) – Final TDS

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7. Key Notes (Important Points)

• Taxable Salary = Taxable Additions – Taxable Deductions – Insurance – Remote Area Rebate

• Non-taxable components are excluded from TDS computation.

• Maximum deductible limit (Retirement Funds) = Rs. 500,000 fer FY8283.

• Life Insurance limit = Rs. 40,000, Medical = Rs. 20,000

• Correct classification of payroll heads is essential for accurate tax deduction.

• Order of calculation matters → deductions → rebates → slab → tax

• Consider Special Rebates (Female, Differently Abled, Remote area) before finalizing tax

✅ This framework ensures correct and compliant salary TDS calculation under Nepal Income Tax Rules FY 2082/83.

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Practical Example – Salary TDS Calculation

Employee Details:

Monthly Salary Components:

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Step 1: Annual Taxable Salary

• Taxable Additions : (50,000+5,000+12,000)×12=8,04,000
• Taxable Deductions : (15,500+3,333.33)×12=2,25,999.96
• $$\text{Taxable Salary :}8,04,000–2,25,999.96=5,78,000$$

Note: For mid-year salary posting, multiply monthly taxable values by remaining months, then add special additions (e.g., bonuses, OT).

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Step 2: Apply Remote Area Discount

Remote Area C → Rs. 30,000, (discount for the year)

• 5,78,000–30,000 = 5,48,000
• No differently abled discount for John.

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Step 3: Apply Tax Slabs

• Annual Taxable Salary: 5,48,000

• SSF deposited → 1% slab ignored

• Remaining slabs:

Second slab (10%):

Taxable = 5,48,000

• Ignore 1% slab (SSF deposited)

• Second slab (10%): 5,48,000 – 5,00,000 = 48,000 → 48,000 × 10% = 4,800

✅ Annual TDS = Rs. 4,800

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Other Cases – Salary touches multiple slabs (Full-year example)

Case 1: Salary touches multiple slabs (full slab)

• Annual taxable salary = 10,00,000

• SSF applicable → ignore 1% slab

• Second slab: 2,00,000 × 10% = 20,000

• Third slab: 3,00,000 × 20% = 60,000

Total TDS for the year = 80,000

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Case 2: Salary mid-slab (partial slab)

• Annual taxable salary = 7,50,000

• SSF applicable → ignore 1% slab

• Second slab: 2,00,000 × 10% = 20,000

• Third slab: 7,50,000 – 5,00,000 (first slab) – 2,00,000 (second slab) = 50,000

• Third slab TDS: 50,000 × 20% = 10,000

Total TDS for the year = 20,000 + 10,000 = 30,000

✅ Always apply slabs sequentially, ignoring first slab only if SSF deposit exists.

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Step 4: Apply Rebates

After slabs are applied, two types of rebates may be considered:

1. Single Female Employee Rebate → 10% on TDS (if applicable)

2. Medical Expense Rebate → Maximum Rs. 750

Example:

• John wants to claim medical expenses = Rs. 1050 of 15% of Medical Expenses Rs. 7000. but he only can claim up to 750.

• Maximum allowed = Rs. 750

• Medical rebate applied = 750

John eligible for medical → Final TDS : 4,800 - 750 = 4,050 (Annual)
Monthly : 4050/12 = 337.5

✅ Final Annual TDS: Rs. 4,050
✅ Monthly TDS: Rs. 337.50

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Step 5: Net Payable Salary

Calculations:

• Total Monthly Additions = 50,000 + 5,000 + 12,000 = 67,000

• Total Monthly Deductions = 15,500 + 3,333.33 + 10,000 = 28,833.33

• Net Payable Salary = 67,000 – 28,833.33 – 337.50 = 37,829.17

✅ Net Salary (Monthly): Rs. 37,829.17
✅ Monthly TDS Deducted: Rs. 337.50

This framework can be applied to all employees, with their specific additions, deductions, and applicable rebates.

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Document By - Sundar Mishra.