* : rs er TAXAT: ro OV LON \ JA COMPLETE TU SOLUTION TO TAXATIO in 4Nepal Edition 2079 Published by Asmita Books Publisher & Distributors (P) Ltd. Kathmandu, Nepal. Phone: 01:4168207 | 4168216 | 4168220 Website: asmitapublication.com facebook: www.facebook.com/asmitapublication info.asmitapublication@ gmail.com Distributed by Kasthamandap Pustak Pasal Bhotahity, Kathmandu, Nepal. Phone: 01-5324048 Price: Rs. 325 Printed in Kathmandu, Nepal. 1 2 3 4. 5. 6. 7. 8. 9. 20. a. 42 13. 14. 15. 16. ra CONTENTS Conceptual Foundation Taxation of Income in Nepal tax Accounting and Timing location and Characterization of Amounts Quantification, Capital and Revenue Exempt Amounts, Concessions, Tax Rates and Withholding Payments Deductions not Allowed Income from Employment Provision for Depreciation Income from Business Capital Gain Tax Income from Investment Residential Status Set-Off and Carry Forward of Losses Special Provisions for Individuals, Entities and Retirement Savings Revenue Administration Official Documentation, Record-keeping and Information Collection Returns of Income and Assessment Collection, Remission and Refund of Tax ‘Adrhinistrative Review and Appeal Penalty and Offence Value Added Tax (VAT) Tax Auditing Ean 147 149 174 186 198 201 204 206 210 214 215 220 232CONCEPTUAL FOUNDATION Teeeur ik ssi Cimeusce sing 1. BOFSGENGLA] what is tax? what are its types? 12) vv Tax is a compulsory contribution from a person, firm or company to the government to defray the expenses incurred in the common interest of all, without reference to special benefit conferred. There are two types of tax: (a) Direct tax and (b) Indirect tax. BOTS GINGTZ] wnat do you know about "Canon of certainty"? Canon of certainty states that the taxpayers should feel certainty regarding the time of payment, amount to be paid, method of payment, the place of payment and the authority to whom the tax is to be paid. Every taxpayer must know the time of payment. manner and mode of payment, so that he may adjust his expenditures accordingly. What is direct tax? Give any three examples. (21 = A direct tax is a form of tax paid by a person on whom it is legally imposed. It is collected by the government from the person who bears the tax burden. Three examples of direct tax are: income tax, property tax and vehicle tax. A] What do you know about "Canon of Equality"? - 2) = Canon of equality requires tax be levied according to tax paying capacity of the individuals. The burden of taxation should be fair and just. The rich people must be charged higher taxes than the poor. The higher the income higher the tax, lower the income lower the tax. Tax policy should not discriminate the persons with same income level, Differentiate between direct and indirect tax. y QI) rw _The differences between direct tax and indirect tax are as follows: Direct Tax Indirect Tax Direct tax is paid by @ person on | a. Indirect tax is imposed on one person whom itis legally imposed. but partly or wholly paid by another. b. itis the tax on income and property. | b. It .is the tax on consumption or (€.9. income tax, property tax, vehicle expenditure. (e.9. value added tax, tax) excise duty, import duty)JO TAXATION IN NEPAL ‘wo canons of taxation. == CONCEPTUAL FOUNDATION 3 are as explained below. 5 nig canon states that tax must be levied accor duals 91 ty, RO = canon states that the taxpayers should yment, amount to be paid, method of payment ty to whom the tax is to be paid Lhe Hd] Write the concept of tax and describe about indirect tax with Serta ei i) (51 Canon of cet " Place +") ee Tax can be defined as a levy or other type of financial charge or fee imposed by state or time of Pa arding the time - the author {able exampl pay eee = central government on legal entities or individuals. It is a compulsory levy from Define tax. Enumerate three objectives of tax. a individuals, households and firms to cer local government. It may be levied’ on 2. from a person, firm , Property and even at tt purchasing. commodity. A taxpayer is not sory contribution 5 OF comy as a compulsory © ncurred in the common interest el tote to compel the government, while paying taxes, to give something to him in + to defray the expenses Of all, thoy of the amount he has paid. c yee to special benefit conferred. f On the basis of shifting of burden, tax can be classified into two broad categories: direct — ‘and indirect tax. The tree objectives of tx are repent b. to redistributing weal Cp theme & Brief state any four objectives of tax. ww The four objectives of tax are: | ‘a. to prevent concentration of wealth | ation of wealth tax: A direct tax is a form of tax paid by a person on whom it is legally imposed. ith for the common good It is collected directly by the government from the person who bears the tax burden. it is. me and property. Examples include income tax, property tax, vehicle tax, expenditure tax, death tax, gift tax, etc. in indirect tax is a form of tax imposed on one person but partly or wholly paid by another. It is collected by mediators who transfer the taxes to the government and also perform functions, associated with filing tax returns. Hence, indirect tax can be shifted, It is the tax on consumption or expenditures. Examples include VAT, excise b. to redistributing wealth forthe common good di port and export duty, etc. fm ¢. to boost up the economy d. to reduce unemployment problem 1: indirect tax, there exists an agent between taxpayer and government.” _ esses Discuss this staternent with suitable example. [5] Brey mention the sources of Le i We we An indirect tax is a form of tax imposed on one person but partly or wholly paid by = The goverment mobiizes the funds through different sources; mainly from debt an! “other. 1s collected by, m who transfer the taxes to the govemment and also revenve. The debt may be internal and external while the revenue of the governmet| ~ erform functions associa tax returns. For example, when a final consumer comes from two sources tax and non-tax. Income tax, property tax, values added tat, Gi rchases an item from he pays the purchase price of that item along with excise duties, customs duties etc. fall under the head of tax revenue. The revenue lt) applicable VAT: The r fects VAT from consumer pays the colecied tax ta gifs, grants, revenue from public enterprises, administrative revenues Such # the government after adjusting the VAT which he paid while purchasing from registration fees, fines and penalties fall under tHe head of non-tax revenue. | wholesaler. This example makes it clear that the middiemen or the agent collects and deposits tax to the government on behalf of the person who is actually bearing the 410, Define indirect tax. State any two advantages of indirect tax. burden of tax. w= An indirect tax is a form of tax imposed on one person but partly or wholly paid} ; 14. | Write in short about the cannons of taxation. (s] another. It's collected by mediators who transfer the taxes to the government and SRE r= Canons of taxation are a set of criteria used to judge or evaluate the faimess of tax system. They are the basic principles upon which a good tax system is built. The canons of taxation were first introduced by Prof. Adam Smith, This four canons, which are still widely accepted as providing a good basis to judge tax system, include perform functions associated with fling tax returns. . The following are the advantages of indirect tax: 2 @. Indirect tax is more convenient as the taxpayer does not have to pay @ lump amount for tax. vices'@ * canon of equality b {he's ass patiépaton as each and every person getting goods O° |< canon of certainty pay tax i ‘canon of convenience ‘+ canon of economy Other canons developed by modem economists include: 411, State the four canons of taxation outlined by Adam Smith: : v= The four canons of taxation outlined by Adam Smith are as follows: ~ 3 Canorrof equality + canon of productivity b. Canon of certainty = canon ease © Canon of convenience canon 4 Canon of economy * canon of co-ordination ‘NTO TAXATION IN NEPAL fr financing government expenditure few hands through progressive tax system, lity. (5) based on the principle of ied according to tax paying capacity of the 3 2 F peop! income higher the Je must be charged higher taxes than the poor. The higher the tax, lower the income lower the tax. Tax policy should not discriminate the persons wth ‘same income level. I {7 BBETEINEI] occ in bret te canon of diversity with appropriate example. ‘= The tax system should not totally depend on one source of revenue. It is risky fc ‘government to depend on a single source. The government should levy various instead of imposing a single tax. The burden of tax should be scattered among different kinds of people. The burden of paying tax should not centralize on one group of people, bbut it should be diversified in such a way that it ensures 2 smooth collection in different, years. For example, the government should not rely on VAT only but also on other) forms of tax such as excise duty or custom duty. *= Canon of economy: This principle state less than the amount of tax collected so ‘and the country will be benefited. The amount that goes from the taxpayers pockel should not differ greatly with the amount that actually goes to government's treasury. This principle also implies that a tax should interfere as little as possible with the productive activity and general efficiency of the community so th: adverse effect on production and employment. For example, the government to collect house rent tax should be lower than the hou: by such means. Canon of neutrality: The tax system should not affect badly to the.production and) distribution aspect of the nation rather it should facilitate them. The government should impose heavy taxes on harmful products arid less tax or no tax on basic goods in such) a way that the total tax revenue is not affected. The tax must not have any inflationayy (r deflationary effect on the economy, CONCEPTUAL FOUNDATION 5 and economic pe of wealth in a few hands, the common good. up the economy. reduce unemployment problem a! disparities. are still widely accepted a. Canon of equality: Carion of equality principle requires tax be levied according to tax paying capacity of the individuals. The burden of taxation should be fair and just. The rich people must be charged higher taxes than the poor. The higher the income higher the tax, lower the income lower the tax. Tax policy should not discriminate the persons with same income level. ig a good basis to judge tax system, include b. Canon of certainty: This canon states that the taxpayers should feel certainty regarding the time of payment, amount to Be paid, method of payment, the place of nt and the authority to whom the tax is to be paid. This helps tax payers to make his expenditures accordingly. In the words of Adam Smith, “the tax which ial is bound to pay ought to be certain and not arbitrary: The time of uantity to be paid, all ought to be clear and plain to the contributor and to every other person.” Thus, certainty creates confidence in the contributor of the tax. ¢. Canon of convenience: Tax should be levied and collected in such a manner that it provides maximum convenience to the taxpayers. The pubiic authorities should always ' keep this point in view that the taxpayers suffer the least inconvenience in payment of tax. For example, land revenue should be collected at the harvest time. The income tax from the salary class be collected only when they get their salaries from their ‘employers. To quote Adam Smith, “Every tax ought to be levied at the time or in the ‘manner which is most likely to be convenient for the contributor to pay it.” This cannon helps to reduce tax evasion to a great extent. d. Canon of economy: This principle states that the collection expenses of tax should be less than the amount of tax collected so that a surplus to public revenue is generated and the country will be benefited. The amount that goes from the taxpayers pocket should not differ greatly with the amount that actually goes to government's treasury. This principle also implies that a tax should interfere as little as possible with the productive activity and general efficiency of the community so that it may not create ‘adverse effect-on production and employment. For example, the cost. incurred by the. government to collect house rent tax should be lower than the house rent tax collected by such means aTAXATION OF INCOME IN NEPAL \umerate any four characteristics of Income Tax Act 2058. .come Tax Act, 2058 are given below: related matters in a single act. key terminologies a. confinement of D. detailed definit broad tax base d. allowed deduction for all related expenses 2. State any four objectives of Income Tax Act, 2058. m= The four objectives of Income Tax Act, 2058 ae listed below. : = to reduce the scope of discretionary intefpretation of the tax authorities. = to minimize tax avoidance and tax evasion. E = to make taxpayers more responsible by enforcing the self-assessment systems, + to integrate Nepalese tax system with the tax system of foreign countries. 3. Briefly define the term ‘income Year’ with an example. t = Income year means the period from the 1% day of Shrawan of a year to the end of, ‘Ashad of the following year. Income Tax Act, 2058 has considered Nepalese fiscal year) ‘as an income year. For example, income Year Assessment Year FiY 2078179 Fry 2079/80 4, How do you define a ‘resident individual"? s= Arresident individual is a natural person = whose normal piace of abode is in Nepal; = who has resided in Nepal for 183 days or more during a continuous ree of 365) days; or * who is deputed by Government of Nepal to a foreign country in any time of income year _ 5. Define the term ‘trading stock’ with an example. = Trading stocks are (2) assets owned by a person that are intended to be sold in ‘otdinary course of a business, (b) work: in-progress on such assets, and (c) inven! of materials to be incorporated into such assets. Motor cars of an automobile dealer trading stocks, for example. TAXATION OF INCOME INNEPAL 7 the heads or sources of income as mentioned in Income Tax Act, 2058, dose ina are the heads or sources of income as mentioned in Income Tax Act ._Income from Employment b. Income from Business. ¢. Income from Investment d. Casual Gain lain about the relation of Income Tax Act with Finance Act. 15] | = Income Tax Act is generally of permanent nature. For example, income Tax Act, 2031 lasted for about 28 years. On the other hand, Finance Act is of temporary nature. It is generally for one fiscal year and its provision will remain effective for that year only. Each year, the government enacts Finance Act to amend temporarily the provisions in Income Tax Act. For permanent change, income Tax Act has to be amended through Parliament. Income Tax Act and Finance Act both are passed by the Parliament. This “shows that Finance Act is a complementary to Income Tax Act. [Write in short, any five features of income Tax Act, 2058, [5] The five tures of Income Tax Act, 2058 are: * All income tax related matters are confined within the Act by abolishing all tax related concessions, rebates and exemption provided by different Acts. This Act has been made super in regard to all income tax matters. * The Act has broadened the tax base. Unlike previous tax Act, tax rates are spelied out in the Act. The tax rates and concessions are harmonized on equity grounds. + The Act has introduced a pool system of charging depreciation. A provision has also been made for depreciating intangible assets. $ + The Act has first introduced the taxation of capital gains. «The Act has_provided liberal loss set-off and carry forward/back ward provisions. Inter-head adjustments of losses are clearly specified. Such provisions have been ‘made from international perspective. 9. BGBSEUNGER] write short notes with example where necessary: [25425] 2. Previous year b. Tax deduction at source ‘a. Previous year: In tax laws, pervious year refers to the year in which income was earned. Income Tax Act, 2058 has defined income year (sec. 2 Jha) as the period from the 1" day of shrawan of a year to the end of Ashadh of the following year. Nepalese fiscal year has been regarded as income year (previous year), Tax deduction at source: The tax deducted by payer on the behalf of recipient at the time of payment is known as ‘Tax Deduction at Sources (TDS). The TDS is also known {as withholding tax. The person who withholds or deducts the tax is withholding agent | and the person whose income is taxed or deducted is the withholdee. The TDS or ‘withholding tax can be final or non-final (advance or adjustable).8 ASMITA'S TUSOLUTION TO TAXATION IN NEPAL es, 2 per of atleast ten years ether continuous « TAA ACCOUNTING AND TIMING id of a beneficiary. rivate building of an individual that is disposed in less than refers to "building and the lang sales and purchase made withi generations. share is an example of non-business asset. 1. Briefly state the accounting methods to be applied by different taxpayer. = Describe n short, the objectives of Income Tax Act, 2058. [5] "~The accounting methods to be applied by different taxpayers are summarized below. Persons Income Head ‘Accounting Method The main objectives of Income Tax Act, 2058 are: Sanaa SSS scour bringing all income generating activities into tax'net. Sole traderiproprietor | Business Cash or accrual basis ‘+ harmonizing tax rates and concessions on equity grounds. Partnership firm Business, Investment Cash or accrual basis 5 Witerioa ie usc base ‘Compan Business. Investment ‘Acerval basis + confining all the income tax related matters within the Act. 2. How do you treat an amount as derived and an expense as incurred under cash basis + making income tax elastic and revenue productive, accounting? ‘= developing a tax payer-friendly-taxation system by making it clear and transparent. we A person who keeps tax account on a cash basis in calculating the person's income ‘= _ reducing the scope of discretionary interpretation of the tax authorities. from employment, business or investment should: + minimizing tax avoidance and tax evasion. : * treat an amount as derived and include in income only when the payment is ‘+ making taxpayers more responsible by enforcing the self-assessment systems. received or made available to the person. * treat an expense as incurred and deduct in that calculation only when the payment 12. Write short notes with example where necessary: is made. 2. Medical tax credit b. Assessment year “fasa25) 3. Briefly describe accrual basis. aS - r= Aperson who keeps tax account on an accrual basis should treat an amount as derived a. Medical tax credit: income Tax Act has given medical tax credit facility to a resident and include in income when the person becomes entitled to receive the payment. The natural person for the medical costs paid by him or through ot expense is treated as incurred: treatment. The maximum amount that can be deducted from tax * when the person is obliged to make the payment, ‘exceed 15% of approved medical cost or Rs. 750. Any excess amout the value of obligation can be determined with reasonable accuracy and or lack of tax payable can be carried forward and added to the amount for the next year, _ * _ the other payment has been received. b. Assessment year: The year in which tax is assessed is known as the assessmenl 4 Briefly describe the cases, where a person can write off bad debts? Explain. year. Actually, the year following the income year is the assessment year. For te SA , person is allowed to write-off bad debt only in the following case: pe eone 081 2078(79; the assessment year's 2079/00, + if the outstanding loan of a bank or financial institution has become a bad-debt in accordance with the standards prescribed by Nepal Rastra Bank. = in other case, if the person after taking all reasonable steps believes that the amount could not be recovered. 13. State in brief how the term ‘Natural Resource Payment’ Is defined in Income Tax Act, 2058. = Natural resource payment means amounts of any of the following payments. * amount received for the right to take water, .minerals or other living or non-living fesource from the land or z ‘© amount as cal in whole or part by reference to the quantity or value of minerals, ora living or non-living resource taken from the land. Define the terms ‘Long-term Contract’ and ‘exclude contract’. A long term contract is a contract the term of which exceeds 12 months and that is either a contract for manufacture, installation or construction ot in relation to each, the performance of related services, or a contract with a deferred return that is not an excluded contract. zs . aEPAL NINN 40 ASMITA’S TU SOLUTION TO TAXATION TAXACCOUNTING AND TIMING 14 ‘account on a cash basis for tax pur} ure dealer, keeps his Income fo be included: (cash basis accountng) Debtor collection of last year Expense to be included 3s otherwise by notice in writing, an individual shou on a cash basis in calculating the individua's income from 4 and a company on an accrual basis. a change in the basis of accounting, the Departmey is satisfied that the change is necessary to clearly reg (r. Rohit kept accounts on acenial basis; Ifa person applies in Income of expenses to be included for 2078/79 may approve the change a See ee ee 8 details ofits frst two years of its 3year 5 ae treated under cash basis of accounting? contract. = method specifies the method of recognizing income and expense, Year tax purpose. There are two tax accounting methods: 3 ‘The contract pric 60 billion and the total estimated cost RS. 40 billion. Calculate the ‘cumulative inclusions, cumulative deductions and the amount to be included as income for each Under césh basis of accounting, an amount is treated as derived and included ony tnree sean ere when the payments received. Litewise, an amount is treated as incurred and dedutet sou non ffom income only when the payment is made. Under cash basis of accounting, the da Tol contract pric Rs 60 bison ‘on which transactions are made the date on which Total estimated cost Rs 40 bilion Payment is received. An individual While accounting income and expenses tobe included income from employment and investment. ider or proprietor has: Year t Choice: He can apply ether cash or accrual be 9 } Percentage of work completed = 32 100% = 25% ~ How long-term contract has been defined in the Act? What is the provision for recognition a income and expenses for such contract in the Act? [23] “Total income tobe included = (573) = 15 billion’ v= Acontract has been classified into two broad categories: Total expenses to be included = 10 bilion + Long-term contract i ice = =Rs5 bil f =Rs.15— 10=Rs5 lion + Excluded contract _. : A long-term contract means a contract of the following conditions: | Year2 * the term of which exceeds 12 months and. E: =, 100% = * that s either a contract for manufacture, installation or construction or the conta Percentage of work completed = 4p 100% = 62.5% with a deferred return. 2 Ft the Purpose af calculating a person income for an income year, the estimated Toalincome be incded =(10 7) ESakaZ2o iors 's are treated as derived or incurred according to the Total expense to be included = Rs 15 billion -d during the year. t ‘cumulative inclusions and deduction: Percentage of the contract complete ‘Netincome =225~15=Rs7.5 bilion Year3 Total income to be included = Rs 60 Total expenses to be incuded = 40 ( = Rs 22 .2f USD 15,000 from UK in 2077/78, The compan) Net = h s- 120 per dollar. However, the payment wa 2 Tonle in 2078/79. The rate of exchange rate at thava, f a : - Fra canes tan or os) that should be ncuded in naneng 20:catelate the af E "MEO ayaa bx TET TDD *RS.129) : tres Bt et. pay 20778 55,00 «Rs 3) xchange gain o be included in income 15 +22.5)=Rs 225QUANTIFICATION, ALLOCATION ANp CHARACTERIZATION OF AMOUNT _ CARE Tt & mployee or others for wholly ing ways , -r, providing motor vehicle facili ae benefit lary sho ould be included in employment income. : 2. Explain how do you quantify accommodation facility provided to employee or others. = An employer providing accommodation facility to an employee or others, should quant fF viduals other than (a) 25% of actual rent (in case of rei ing rent (in case of own building) should be included individual receiving mon. in employment income. 7. - How fringe benefits quantified according to TA, 2058? Describe with an ilustration. Is other than mentioned above, 1% of market vale - QUANTIFICATION, ALLOCATION AND... to prevent any should consider Seeae G The payments made other than in % of market value of @ payee. ‘Similarly, if a salary in respect of employee ur, oF any other Person receiving monthly salary or 25 % of actual rent (or fent) in respect of others is included in the income of a payee. (51 19 facilities, the ammount of éxpenses incurred by the payer as ution of the is included in the income of the payee. a housekeeper, driver, gardener or other domestic assistant. sshment or entertainment. electricity, telephione and the like utilities in respect of the payee's - sidence employee was provided by an employer a service of a house keeper at a ‘of Rs. 3,000. For this, the employer deducted Rs. 1,000 from the employee's salary. In this case; characterized amount for house keeper facility is ‘computed as follows: House keeper's salary (Rs. 3,000 x 12) For the provision of followin in case a person has a joint investment with another person, amounts to 20 dediicted should be apportioned among the joint owners in ratio of their “For example, Rs. 36,000 Less: Employee's contribution (Rs. 1,000 « 12) 12,000 Taxable benefit to be included in the employee's income Bs_24.000 8. Define ‘general anti-avoidance rule’. Also state the related provision in the Act. = 23) Tax avoidance scheme refers to any arrangement, one of the main purposes of which is the avoidance or reduction of tax liability. The tax office may: a. recharacterize an arrangement or part of an arrangement that is entered into or carried out as part of a tax avoidance scheme. S b. disregard an arrangement or part of an arrangement that does not have substantial economic effect. ¢. recharacterize an arrangement or part of an arrangement the form of which does Not reflect its substance. ~ In a nutshell, the tax office may determine tax liability by disregarding any such arrangement. ).. What do you mean by income splitting? Briefly mention the related provision in the act. [2+3] Tax Act, 2058 has made a provision of income splitting. With a view to reducing lity, a person may attempt to split income with another person. The tax office ice in writing, adjust amounts to be included or deducted in calculating the . income of each’person to prevent any reduction in tax payable as a result of spitting of income, In determining whether or not a person is seeking to split income, the tax office ‘should consider the market value of any payment made for the transfer.(0 TAXATION IN NEPAL, [ASMITA’S TU SOLUTION T —__—_— borrowed loan of Rs, ,dhan is an employee an of previous year at Q) 20,000 income. ‘Quantity of petrol free of cost 25 litres, Market pce of peo per itre uated benefit = 25 «109 ven by his office. Calculate his assessable income, ¢ SoA Calclation of assessable incomie provided her a housing ympute the characterize 8% interest on loan provided office into employment office. Total interest benefit = 1,000,000, hi = Rs. 80,000 5, Mr. Anish is 2 manager in a private company. He is enjoying services of a housekeeper at a Calculate the characterised amount of benefit. ‘SQLUTION A Monthly salary of house keeper paid by office Rs.6,000 p.m. ‘Deduction from his salary Rs.2,000 p.m. (Characterized benefit of house keeper facility = 6,000 — 2,000 = Rs 4,000 p.m. ‘Total amount to be included = 4,000 x 12 = Rs.48,000. Mr. X and Mr. ¥ made a joint inves ‘earned Rs. 400,000 by incurring Rs. 120,000 as expenses. Calculate the income and expenses that should be apportioned between them. ‘S0uuTION Rs.400,000 420.000 280,000 X= (ze0000 *4)=Rs.56,000 y= (220,000 if ) *Rs. en 3. Mr. Rahul is an employee of a private company. His annual salary and other allowances are | 20. Mr. Kafle is a seni an amount. Ms. Sushma requires to include | monthly salary of Rs. 6,000. The company deducts Rs. 2,000 from his monthly salary. |- 't of Rs. 500,000 in 1:4 ratio to undertake a job. They | QUANTIFICATION, ALLOCATION AND... 15, for official as well as private tis needed to be included in in a reputed firm. The 1,800,000. What is the Contract period = 3 months Market value of car = Rs. 1,800,000 ‘Amount of car facity to be included = ( 18,00,000 = im) * =Rs.4.500 9. Mr. Krishna provided the following information: ‘* Total salary Rs. 325,000 (including Dashain Kharcha) ‘+ He has been provided vehicle facility and accommodation facility by the office. Driver's salary ,000 p.m. is paid by the office. Required: Amount of vehicle and accommodation facility to be included in his income. SOLUTION 325,000 Salary per month, ==533— = Rs.25,000 Total salary for 12 months = 25,000 x 12 = Rs.300,000 ‘Amount of car facility = (0.5% of 300,000) = Rs.1,500 ‘Amount of accommodation facility = (2% of 300,000) = Rs.6000. onsultant in a reputed bank. The bank has provided him a flat free of cost. The prevailing monthly rent of the flat is Rs. 25,000. The bank has also provided Hyundai Santro, the market value of which was Rs. 2,000,000. | Required: Amount of accommodation and vehicle facility to be included in income. | SOLUTION ‘Accommodation facility: Total rent of fla for the year = 25,000 x 12 = Rs 300,000 ‘Accommodation facility = (25% of 300,000) = Rs.75,000 Amount of vehicle facility: Market value of vehicle = Rs.2,000,000 Vehicle facility to be included = (2000.000 x73) = R5.20,000 11. Mr. Agrawal is an employee of a company. The company has provided a cook and guard facility. Monthly salary of the cook Rs. 6,000 and guard RS. 8,000 paid by the office. The office hhas deducted Rs. 6,000 from his salary for these facilities. Required: Amount of facility to be included in his employment income. Characterized benefit to be included in income: » $ Total salary of cook and guard paid by office (6,000 + 8,000) « 12 Rs.168,000 Less: Deduction from his salary by office (6,000 x 12) 72;000 Net amount to be included in income 96,000 12, Mr. Bhandari is an employee of a reputed insurance company, The company has provided a loan at an interest rate of 5%. The prevailing interest rate in the market is 10%. The amount of loan was Rs. 800,000 taken on Ast Magh of the previous year. Required: Amount of interest subsidy that isto be included in employment income. ‘Amount of interest benefit = (800.000 «755 <= Rs:20,000 ; aCAPITAL AND REVENUE | Sa CAPITAL AND REVENUE 17 the act? « 5} nditure and revenue expenditure. Capital is not deductible but the revenue expenditure is very essential to know the distinction between ywing expenses as capital expenditure study, exploration and development of natural assets with useful life of more than 12 months. ‘+ Expenditure incurred on the dispo: { | | t q f [bret Answer Questions | ‘expenses that are treated as capital expenditure according to Income Tax Act, 2058, | ‘Act, 2058 has treated the following expenses as capital expenditure. incurred for feasibility study, exploration and development of natural | E red for obtaining assets with useful life of more than 12 months. incurred on the disposal of a liability. ‘Mention any three differences between capi [1 The three differences are: 6 ‘eceipts and revenue receipts. Capital Receipts ‘An amount received as fixed capital or for fixed assets is a capital receipt; €.g., amounts received by a company on the issue of its shares, sale proceeds of a motor car by a cloth merchant. ‘A receipt in substitution of a source of income is a capital receipt, eg. compensation received by an employee from his employer for the termination of his service: Revenue Receipts. T. An amount received as circulating capital or for floating assets is a revenue receipt; e.g., sale proceeds of a motor car by a car dealer. 7 2. A receipt in substitution of an income is a revenue receipt, e.g., a prize teceived by an employee from his employer in consideration of his good services is a revenue receipt. as fixed capital a capital receipt; for floating asset: eg, sale of a motor car by a car dealer. ‘An amount’ received as a ‘compensation for the surrender of| 3. An amount received under an agreement, as tompensation for loss certain tights under an agreement is. a| of future profits is a revenue receipt. capital receipt. car by a cloth lution of a source of termine the nature of receipts whether with appropriate example, 7. How would you distinguish a capital loss from a revenue loss? Explain with illustrations. (3+2] t= The excess of expenditure over income is defined as loss. Losses are also of two types: capital loss and revenue loss (business loss). The distinction between the two is important because the rules of set off and carry forward of losses are different. There are no hard and fast rules to distinguish between the two. The following tests are generally helpful in this connection: ‘© Loss on account of fixed capital asset (loss on sale of machine) is a capital loss while loss on account of circulating capital assets (loss due to damage of inventory) is a revenue loss. ‘+ Loss incidental to business is a revenue loss. Income Tax Act, 2058 has made following provisions relating to capital losses: pool of depreciable assets is shown as deduction from business n-business chargeable assets can be carried forward forever gain on disposal of non-business chargeable assets. Loss on dispos ness assets (oF liabilities) can be carried forward forever and adjusted with gain on disposal of business as well as non-business chargeable assets. :iON TO TAXATION IN NEPAL +8 aSMiTa’s TUSOLU ce company for loss of furniture in warehouse cay) E f f Capital Receipts f Rs.40,000 | Loan from bank Rs.100,000 200,000 | Disposal of non business land aa 50000 | Total 290,000 a 6) EXEMPT AMOUNTS, CONCESSIONS, TAX RATES AND WITHHOLDING PAYMENTS 1. Briefly state any two tax-exempt amounts. _ m= Two tax-exempt amounts are: ‘a. Amount received by a person entitied to tax exemption privileges. under a bilateral or a multilateral treaty or agreement concluded between the Government of Nepal and a foreign country or an international organization. Pipes tal sca oS eau eens thé public service of the government of a foreign country. b. 2. Explain the tax rates applicable to industry established in Special Economic Zone (SEZ)? Bere of an industry established in Special Economic Zone (SEZ) is taxed as follows: Income of an industry established in SEZ located at mountainous district and GON- specified hilly districts is exempt from income tax for the first ten years of its ‘operation and then taxed at 50% of the tax rate otherwise applicable. = Income of an industry established in SEZ other than areas specified above is ‘exempt from income tax for the first five years of its operation and then taxed at ‘50% of the income tax raté otherwise applicable. © |. State any two payments that do not attract tax-deduction at source. = Payments ‘= Payment of interest to a resident bank or other resident financial institutions. 4, State any four payments that attract final withhold tax. s= Following payments are treated as final withholding payments: + Payment of dividend by a resident company or a partnership firm; = Payment of rent of land or building and associated fittings and fixtures (and equipment) with a source in Nepal to an individual other than conducting a business; + Payment made by resident person for gain trom investment fe insurance): = Payment for gain from unapproved retirement fund by a resident person.EXEMPT AMOUNTS, CONCESSIONS... 24 ‘ce in Nepal received by an individual not conducting a business, a tax-exempt organization BERETS] sive the concept of withholding of tax (tax deducting a source) Write any five final withholding payments as prescribed in prevailing Income tax Act. {s} The tax deducted by payer on the behalf of recipient at the time of payment is known as "Tax Deduction at Sources: (TDS)'. The TDS is also known as withholding tax. The person who withholds or deducts the tax is withholding agent and the person whose income is taxed or deducted is the withholdee. Income Tax Act 2058 has prescribed the tax that must be deducted at the time of payment made by the payer to the recipient of tt E such payment with respect to business, employment or investment activities. The TDS payment mage for Part-imeloceasionl| or withholding tax can be final or non final (advance or adjustable) hear oe five final withholding payments prescribed in prevailing Income Tax Act are as ayments made by the Govern Unapproved Retirement Fund (© int of dividend by a resident company or a partnership firm. ‘Meeting fee up to Rs. 20,000 per meeting Mr. Sachin has disclosed total income from a sole proprietorship business Rs. 800,000 before deducting donation paid to a tax-exempt social organization Rs. 60,000 and his life insurance premium of Rs. 40,000. Compute tax liability for the current income year. - Statement showing total taxable income of Mr. Sachin for the previous (2078/79) : Particulars orga vidual from employment in the public service of: Assessable income from business Assessable income from ivestment employment if any) Total assessable income [a Donaton toa tax-exempt social organization {6% of Rs. 600,000 or maximum Rs, 100,000 or Actual Rs, 60,000} . ”Exetption fr ife insurance pram {Actual premium paid Rs. 40,000 or Maximum Rs. 25,000) Total taxable income | Amount earned by Nepal Rasta Bank as pe : kc Amounts earned by Waler Supply and Sanitatior per Water Resouces Act 2046 fo saniation Consumer Organization regi 'ts objective.ASMITA’S TU SOL To TAXATION IN NEPAL n of income tax liability 3. Mrs. Sharma, CEO of a finance compa exer Question states »DON business « i 20% and 24% would be applicable instead of 30% and only and does not state special indust incomes of Rs. 4,000,000 and Rs. 7,500,000 in its tenth and the eleventh year of operation. Calculate the tax liabilities for those two years. ‘SOLUTION Industry located in SEZ situated in mountainous district is exempt tax for the first 10 years and then taxed at 50% of normal rate. I. Mr. Wagle reported total taxable income of Rs. 950,000 (including Rs. 60,000 net gain from ‘disposal of chargeable assets) for the previous income year. Calculate his tax liability. ‘SOLUTION ‘Statement of Total Taxable Income of Mr. Wagle for the previous income year Taxable income incuding capial gain ‘Less: Gain on non business chargeable assets (capital gain) ‘Taxable income (excluding capital gain) Computation of tax liability 1 Rs.400,000 (Single) (assuming no employment income) Next Rs. 100,000 @ 10% Next Rs. 200,000 @ 20% Balance Rs. 190,000 @ 30% Capital gain Rs 60,000 @ 10% Total tax abity hhis own in Kathmandu Valley. Except this, he does not have any other business. He reported Rs, 4,000,000 as income and Rs. 2,500,000 as expenses for the previous income year. How do you derive his tax liability? "SOLUTION fax liability of Rohit: 10 buses @ Rs. 8,000 per bus Rs.80,000 10 taxis @ Rs. 4,000 per taxi Bs.80,000 Total taxable income ‘5.160.000 Note: The public transporter (natural person) is taxed at flat amount of tax per year as per the pes. of vehicles, , total income and expenses from public transport are to be ignored. Mr. Rohit is involved in public transportation services with.10 buses and 20 taxis (800 CC) ofAsmITA's TU SOLUTION TO TAXATION IN NEPAL 2 wus of government of Nepal. He received Rs, agg =~" ability with respect to retirement pays meng Rs.900,000 Rs.450,000 s.500.000 Rs. $00,000 DEDUCTIONS NOT ALLOWED heoretical Question: CGNs 1. State any two expenses not allowed for deduction. v= The expenses not allowed for deduction are as follows: «Fines and penalties paid to any government or its local bodies for breach of any law 1 Rs.400,000 (single) @ 1% Next Rs.100,000.@ 10% Balance Rs $0,000 @ 20% Total tax kebity Less: Tax rebate @ 10% or regulations. = Expenses incurred to derive the tax exempted amounts or final withholding payments. For example, seeds and fertilizer expenses to derive agriculture income are not allowed for deductions. ‘Amount of tax rebate = Rs. 2,400 for a resident woman having employment income only. | a business and investment under section 21 of income Tax Act, 2058. The following expenses are expressly disallowed for deduction: ‘a. Personal or domestic expenses. b. Income tax payable under Income Tax Act except tax paid to state government and local level. c. Fines and penalties paid to any government or its local bodies for breach of any law or regulations. 1d. Expenses incurred to derive the tax exempted amounts or final withholding payments. e. Cash payments over Rs. 50,000 (except in certain circumstances) by an individual or an ‘entity with an annual turnover of more than Rs. 2 million. = {Distribution of profits by an entity such as dividend, reserves, etc. g. Capital nature expenditure. h. Foreign income tax paid. 3. Gi] n which conditions the cash payment above Rs. 50,000 is deductibie, [5] = Cas ts over Rs. 50,000 except for below mentioned circumstances made by an individual or an entity having an annual tumover more than Rs. 20 Lakhs, it payment is made to the Government of Nepal, a constitutional body, a corporation ‘owned by the Government of Nepal, or a bank or financial institution. = if payment is made to a farmer or a producer producing primary agricultural products = ifpayment is made to a retirement contribution or retirement paymentJEPAL services are not available, An area hy ‘ere are no banking facilities waitin gt 1y be made in cash or on a day when banking Serve x account of the payee ‘expenses? Give any two examples. 7 spect of themselves are personal or domes expenses that an individual spends for q¢) ‘onal needs. Such expenses are not deduct | caroralordonerie ses are. A t shelter as well as meals, refreshment, entertainment g | other i it t Cloth expenses for iniduals other than clothing that is not suitable for — outside of work. E janation whether the following expenses are allowed for deduction or not. 1. State with expl to pay bills in time 2 loan borrowed to buy a personal car.is not allowable for deduction, asi) Late fees paid to electricity authority is allowable as financial charges. f Dividend paid to shareholder is not allowed for deduction as it is not an expense bul distribution of profit. Ne 4. Purchase of computers a capital expenditure, so its not deductible, Emergency medical expenses up to Rs. 500 incurred for employee is allowable f0| ee z Eaoisin with brie explanation on whether the following expenses are allowed for deduction | ~ 4 Cash payments of Rs. 35,000 for purchase of offi le b. Foreign income tax pad Rs. 40,000, poe G _ Penalties paid to income tax office, : Z pe fee loan borrowed to purchase office furniture, ransportation expenses fr commuting between home and office. DEDUCTIONS NOT ALLOWED 27. the following incomes are'included in taxable income of beneficiary or not. a b « J. e a b. c 1d. Not included up to Rs. 500 at a time being petty expenses. e. Not included (if such uniform is not suitable for wearing outside of work) aco) INCOME FROM EMPLOYMENT 29 Explain the provisions regarding the contribution to an approved retirement fund. | N Cc fe) M E F RO M E M P LOYM E NT ee ees ted Ge ee 0 provident fund, gratuity fund, a 2 ES [bier Answer Questions J 1 lst : v= Two incomes excluded from employment income are: ‘a. Meals and refreshment provided to all employees on equal ground. bb. Reimbursement of petty expenses relating to tea expenses, stationeries, tips, prog, ‘and emergency medical treatment of up to Rs 500. a eee ee Lee 2. State whether the following incomes are related to employment or profession. ty on behalf of employer. ‘Amount received from past employment, Profession Employment b. Profession Employment 3. Describe in brief the situation of master-servant relationships in profession and employment. lationship while in profession, the person Bee eee 4: Point out any two differences between business and employments : ‘= The two differences between business and employment are: \ 8 Payable on retirement or on leaving of the Contributions, the employer also. generally ‘h retirement contributions be deposit either with approved fund or unapproved fund. aioe An individual may claim a reduction for " retirement contributions made to an approved fund in an income year not exceeding Rs. 300,000 or one-third of the assessable income. Sut any two incomes excluded from employment income. Define employment. Differentiate — ut any > Employment is a contract between two parties: employer and employee where a former hires later to get mental or physical services against a regular Payment of salary, wages and other benefits. The employer has the power or right to control and direct the ‘employee in the material details of how the work is to be performed. Income Tax Act has not given a specific definition of employment. But it has used the term broadly that includes past, present and prospective employment. & Employment and profession are conceptually different. In employment, the master ié., employer can order his servant ie., the employee how it should be done while in Profession the master can require only what is to be done. The basic distinction between employment and profession lies in the distinction between a contract of service and contract for Service. Contract of service & employment while contract for service is Profession. In employment, there is a master-servant relationship while in profession, the person carries out activities independent. How the term employment has been defined in the Act? List any five incomes included in ‘employment income. 2 Definition of employment: Please see the first paragraph in Q.No. 7 “The five incomes included in employment heading are: -a,_ Salary and wages ©. Pay for overtime e. Deamess allowance. b. Leave pay 4. Prizes and gifts related to employment Qualification ‘and trainings as prescribed by the employer is essential for , ing may not be essential for business. ; b. In business, the retuns (ie, profit) be uncertain and irregular while * Employment the returns (.¢, salary and allowances) are certain and regular: 4 She is disabled as well 250 assessing income. FE Additional exemption for disabled resident. | |. Point out any five incomes excluded from employment heading. The five incomes excluded from employment heading are as follows: a. Amounts exempted from tax. 3 b. Final withholding payments. ¢ Meals and refreshments provided to employees on equal terms at cess premisesiwork site. 4. Settlement by or reimbursement to an employee of expenses incurred solely for the purpose of business. # + @, Payments by the employer for petty expenses relating to tea expenses, stationeries, = tips, prizes and emergency medical treatment up to Rs. 500 at a time.INCOME FROM EMPLOYMENT 34 ny after taking a voluntary retirement from a jh 1, 2067 at a pay scale of Rs 10,000 ~ 1,000 ~ employment for the previous Year Caleulat lary for the previous income year. elected as couple status. souumot Te is assur “7 adequate of ce i Particulars a 000 First Rs 450,000 @ 1% (couple) Since Mr. Kalle is receiving lat scale from FY 207: Y eoqaite neat ry from FY 2073/74, his annual salary for FY Next Rs. 200,000 @ 20% Balance Rs 100,000 @ 30% 5. Mr. Gautam retired from 1" Shrawan, 2070. He received Rs 197,000 after deducting his contribution to provident fund Rs 24,000 and tax at source Rs 39,000 and including Dashain j Kharcha equal to one month's salary. Calculate his monthly salary. SOLUTION Rs 197,000 + 24,000 + Monty satan = £8 197000 + 26000 + 98,00 25 09 2 GREENER miss. sanju is a government employee drawing salary of Rs. 30,000 per month, Besides, she is receiving residential and vehicle facility from the office: She has donated ” ed | © Mr. Gautam is an employee of Nepal government provides the following Information Required: Taxable income of Miss. Sanju. a regarding his employment income. squTos z ‘© Total salary Rs 240,000 p.a. Computation of assessable income of Miss Sanju, a govemment employee, for the previous oof Mating atoearce Rs 9.t00 ear) zane ye a). + The office provided free accommodation to him. | Say es 30m e2) or | Required: Calculate assessable income from employment. | Dashain allowance (Rs. 30,000 1) 20,00 at ot as ; Particulars z Rs. Total salary 240,000 Dashain kharcha (one month's salary) 20,000, PE contribution by office (10% of Rs. 240,000) 24,000 ‘Accommodation facility (2% of Fs 240,000) | 4.800: t ‘Assessable income from employment. 288,800 ~ Mrs. Janaki, a disable individual supplied the following details of her employment income * Monthly salary and allowance Rs 40,000 - f ‘* Annual tax liability (before tax rebate) Rs 24,000 @. A ees sa Ds of rement fund ((1/3rd of Rs. 435,000 i.e. Rs. Required: Calculate the monthly TDS and cash-in-hand amount. of Rs. 360,000 ie. Rs. 72,000 R SOLUTION ‘300,000; the lowest ,000 or maximum Rs. f i b. Donation to a Soa 72,000) ‘Calculation of monthly TDS and cash-in-hand amount 4 15% of (Rs, 435,000 — Tax liability (after 10% rebate) = Rs 24,000 ~ 10% of Rs 24,000 = Rs 21,600 £,000 or maximum Rs. 100,000; the lowest Rs. 72,000) or actual Rs. 60 lity ( ae a MITER aS : 3. Mrs. Rina, an employee in a school Monthly cash-in hand = Rs 40,000 - Rs 1,800 = Rs 38,200 oo" i inaiiname wo. ote ee 8, BRFRGINESS) mrs. Ganga was appointed as an officer of Nepal Government on 1st Shrawan 2058 B.S. at the pay scale of Rs. 40,000 ~ 1,000 ~ 50,000 - 2,000 ~ 64,000. The other details of _ her income and expenditures of previous income year are given below:INCOME FROM EMPLOYMENT — 3: '2. Contribution to approved retirement fund {1/3 of Rs. 1,129,800) or ‘aciual 20% of Rs. 768,000 or maximum Rs, 300,000, whichever is the least) 'b. Exemption for fe insurance premium (Actual Rs. 30,000 or maximum Rs. 25,000; lower) Total taxable income Working notes: ota bil (000 per meeting is a final withholding income. 1. Meeting allowance upto Rs. 20,000 per meeting #18 = & ~ Appointed year = 2077/78 ~ 2062/83 = 15 ‘pipes bapa have Bd F Nance kar Goku slays Re. $6,000 ashes reeling the 15" pera AI AOE oe ‘Mes. Ganga was ir be approved and had been claimed for tax credit. 3, No expense (here fuel expense) Is allowed for deduction while assessing incgme from. yymen years). ria a Sale 85 noo aden (17) is less than 1 ie perl van:JON TO TAXATION IN NEPAL soLuT 7 nt appointed on 1" Jestha 2065 5, INCOME FROM EMPLOYMENT . 35 000, The other details of his incomes eS ) as salary from 207! ot been considered. Ha appointed an officer of Nepal Government as on first Falgun 2068. 30,000 ~ 1,500 - 36,000 — 2,000 ~ $6,000. His office is situated at ‘esides salary she furnished the following details of her income and ‘of which Rs. 10,000 for her husband. rsed by office Rs. 6000. (74142) t E Rs, 95,000. ‘employment of Mr. Shi i | as of Mr. Shiva, an officer of | me Rs. 100,000. a Cane aoe ' Ulsted corapany) Rs. 80,000. t following expenses for the year: contribution to Citizen Investment. RIG | Trust. Rs 60,000, donation to a public schoo! RS. 30,000, children education expenses Salary (Rs. 55.000 50,000. Dashain expenses (Rs. 55,000 * 1) t Required: Assessable income from employment, statement of taxable income and Contribution to Employee Provident Fund by office (10% of Rs: 660,000) f SOLUTION k Computation of assessable income from employment, taxable income and tax liability b ‘of Mrs. Kamala, an officer of GON for the previous income year. ; Particulars Rs. ~ | Approved medical expenses paid by office ‘Salary (WN) ‘562,000 i eee Dashain Kharcha (Rs. 48,000 * 1) 48,000 pas soe en acy of Rs: 660,000) Dearness allowance (RS. 2,000 « 12) 24,000 Education allowance # 40,000 ‘Accommodation facility (2% of Rs. 562,000) = 11,240 Vehicle facility (0.5% of Rs. 562,000) 2.810 Clothing allowance 12,000 LIP paid by office including his husband 25,000 ‘Medical bill reimbursed by office 6,000 Remote area allowance (Rs. 3000 x 12) 36,000 1. Contribution to approved retirement fund [1/3rd of Rs. 904,200 or actual 20% of Ris. 660,000 or maximum Rs, 300,000; Lowest of the three] 1. Exemption for ie insurance premium [Actual Rs,” 25, 25,000) Se l Rs. 25,000 or maximum Gain on sale of share of listed company. ‘Assessable income from investment. ‘Statement of taxable income Particulars ‘Assessable income from employment Fotal tax lability Less: Medical fax credit (assuming claimed) 15% of Rs. 15,000 or maximum Rs. 760INCOME FROM EMPLOYMENT Of a8sessable income from employment of Mr. Basnet for the previou iy [(Rs. 442,000 + Rs. 48,000 + Rs. 30 O00VT: oa0 O0OVIS = 12 LIP paid by employer \ccommodation facility (2% of Vehicle facility (05% of Re 130.000). sea Household servant faciity (Rs. 2,000 « 12) [ Assessable income from employment ..._ Statement of Taxable Income Particulars ea RE ‘Assessable income from employment T Assessable income from business a Assessable income from investment Nil [ Total assessable income rag 909 Less: Allowable reduction Retirement cantribution (1/3 of Rs. 748,000 or actual Rs. 96,000 or maximum Rs. 300,000) ‘96,000 b. Donation to a government school [5% of (Rs. 748,000 — Rs. 96,000) or maximum RS, 100,000 or actual Rs. 10,000} 10,000 4 LIP (Actual Rs. 30,000 or maximum Rs. 25,000) 25,000 ‘Total taxable income (617,000. 3. Tax Lia! = First Rs. 400,000 (assumed single) @ 1% x Next Rs. 100,000 @ Rs. 10% 10,000 Less: nova ax Rs 30,000 + Medial tax credit (max. Rs. 750 or 15% of = Rs. 70,000)) Sere Total tax aaa es years soma 30, ere “equal to one month salary. ‘ a. ‘Saving rom TADA Ss not axle ‘Saving from TADA Rs. $0,000. ci Dividend from a resident company is a final withholding income. ‘Deamess allowance Rs. 2,000 p.m. 13. BGZAEENGIS) mw. Mukesh appointed as a officer of Nepal Government on 1* Baisakh 2067 at a pay scale of Rs. 22,000-1500-28,000-2000-38,000, Besides. salary he disclosed the foncrepe ares soescene he crv 4 coer os ga city eeryarowaes OND jedica allowance Ks. 60,000 (actual medical expenses was Rs. 70,00)! + City compensa fe aia : * Clothing allowance Rs, 30,000. + * Meeting allowance Rs. 17,000. * Dearness allowance Rs, 3,000 p.m. 2 ‘Medical expenses reimbursed by the office Rs. 10,000. = Education allowance Rs. 50,000. “ Ba? Sacra ae oe eee _ He claimed the following for deduction: SP '* Tuition fees of children Rs. 20,000. * Purchase of books which are useful for his job Rs. $,000. _Life insurance premium Rs. 23,000 ores 2. Net Assessable income from employment 'b. Statement of total taxable income tet (7242210)NEPAL eee Ue. Uhm lO aswita’s TU SOLUTION TO TAXATION _ jeyment of Mr. Mukesh, an officer of Go empl SOLUTION on of assessable income from ee a cal PE vious year. Big ee SO a eee ie ‘AGE & ployment of Mrs, 5 : Tc k abana, 2 gover e 8.0m rent employee 45,600 E ton 240,000 289 20,000 4 24,000. 0 24,000 2am 36,000 [ata 1,200 oo) mis x The following incomes : b siars ERT,“ ‘year are given below: and expenditure statement of Mr. X for the previous = Sete ea Oo7ee) . ble income From employment ; ee ere ceassable income from business! investment if any) |—eat | svt a ce er ‘assessable income Alowable reduction to approved retirement fund (EPF) 3 fda Be ‘691 880 or actual (20% of Rs. 456,000) or Maximum Rs. 300,000; lowest] Total taxable income cee Lie insurance premium (Actual Rs. 23,000 or Maximum 25,000) Remaining taxable income Calculation of tax liability: 1 Rs-400,000 @ 1% I Next Rs. 100,000 @ 10% ’ : eae "- | Balance Rs.77,680 @ 20% 3 536 | e 3 b. Total Taxable Income and tax liability {5+2+1-9} ‘@. Computation of assessable income from employment and investment ne and of Me. X for the ~ [Particulars aii Income from employment: ‘Salary {(339,000 + 12,000 + 39,000 +13) x 12) 360,000 Dashain expenses (Rs.30,000 * 1) 30,000 Contribution to PF by employer 39,000 Entertainment allowance (12% of Rs.960,000) 43,200 Department head allowance 30,000 -_ {LIP pad by employer 25,000 ‘Assessable income from employment = 327200 Income from investment: Interest from private money lending transaction : 150,000 Assessable income from investment [450,000 b. Statoment of taxable income : Particulars Rs. ‘Assessable income from employment 527,200 ‘Assessable income from investment 450,000 Total assessable income : 677,200 Less: Allowable reduction . Ee Retirement contribution (1/3 of Rs.677,000 or maximum Rs.300,000 or * 78,000 2,000 p.m. S actual Rs.78,000) Caron anes TER ol monty salary : cae Total taxable income 599,200 Provided by Nepal Government ae Sle >| Less: Life insurance premium ‘Medical treatment expenses paid by her of Rs.5,000 | (Actual Rs.25,000 or maximum Rs.25,000) 25,000 During the previor aa “ __ [Remaining taxable income 574,200 E ear she had purchased jo 2 i -Resuire: Net (Assessable income trom emplomee 000.INCOME FROM EMPLOYMENT 41 Loss: Allowable reductions: a. Contribution to approved retirement fund {000 oF 20% of Rs.360,000 or maximum Rs.300,000) 72,000 72,000) or actual Rs.5,000 or maximum Rs. 100,000} 5,000 542,000 deposit recelved by an individual are fing | et spcer of a government owed ‘organization had started his joy aor ae of 85.20,000-500 25,000 EB 2,000'— 30,000. He had eer his incomes and expenditures ‘of previous year are its regaror E interest from saving f a Salary Rs 16,000 pm. E b._Deamess allowance Rs 2,000 p.m. t ¢._ Meeting allowance Rs.17,000 (Net) the office i = i ere f raveling & daily allowance Rs.50,000 wards recognized. PrOMces fUNd. cee. Wee ‘e.Dashain allowance Rs 20.000 equal amount: Contribution to. an unrecognised provident fund by the bank 10% of salary and she also contributed an equal amount. 00 (net) from a bank. I Required: Net Assessable Income from employment tI et) from 2 resident company. | sown 3 ‘vided by an office to him: | Computation of assessable income from employment of Miss Dipa, 2 banker, for 3 sempted social club during the previous year. f the pervious year as La «Fc daimed for deducting of Rs 5,000 for transportation expenses of his own. E Barictdars: = from natural resources of Rs.42,S00 (net). & ‘Salary (Rs. 16,000 « 12) 792,000) I lie aes <[Dearnessatowance (Rs. 2000 12) 24.000 aoa sabe se . Dashain allowance 20,000 2 Heiss) nae rom enpleren Contribution to unrecognized provided fund by bank (10% of Rs. 182,000) 419,200 ~ b. Statement of total taxable income E [Assessable income from employment 255,200 PRARTGERGREY wr. vasner furnished the following information about his employment income: . : ‘2. He was appointed as a Senior Officer in a government owned organisation on 2° Falgun 2063, at a pay scale of Rs.20,000 -S00-23,000-£8-1,000-35,000. b. He is getting remote area allowance 10% of salary. cc. He received salary in lieu of leave Rs.15,000, Meeting allowance Rs.8,500. ‘ Dividend from Nepal Bank Ltd. - Rs.170,000. '* Interest from Bank deposit Rs.42,000. He claimed the following deductions: ‘+ Medical expenses Rs.10,000 < <* Premium of life insurance policy Rs.23,000. Required: ~~ a, Net asseisable income from employment, ae b, Taxliability ‘ é (5+2)rnment schoo! Rs. 10,000. ‘C. . a Requir income of Mr: Pandey for the previous year. ‘SOLUTION 3. Computation of assessable income from employment and taxable income of Mr. Pandey, a disable person working in Nepal Telecom, for the previous year. INCOME FROM EMPLOYMENT 43 fo} Particulars Rs. Salai ,000 + Rs. 24,000)90 « 100} 360,000 NTC's n to recognized provident fund (10% of Rs. 360,000) 36,000 Dash 360,000 + 12) 30,000 Head of department allowance (Rs. 2,000 « 12) 24,000 Best employee award from employer 20,000 Interest benefit (Rs. 500,000 10%) 50,000 Free accommodation facility by the employer (2% of Rs. 360,000) 7.200 Assessable income from employment $27,200 ‘Statement of total taxable income Particulars: fe ~_ |TAssessable income from employment = 527,200 Assessable income from professionvbusiness (if any) Ni Total assessable income seen Less: Allowable reductions: asena aes 0 0 Contribution to recognized provided fund un Less: Medical tax credit (15% of Rs. 10,000 or maximum Rs. 750) Gepost received by an individual are subject to final withholding tax. a > ‘Stee wens sch has nt been Seary menoned, exemption has not been provided ox | [1/3rd of Rs. 27,200 or actual Rs. 20% of Rs. 360,000 or maximum Rs. 300,000} 'b, Donation to a government schoo! : 10,000 [5% of (627,200 - 72,000) or actual Rs. 10,000 or maximum Rs. 100,000} ¢.- Exemption for remote area 'c’ 30,000 d.__ Exemption for disabled individual (50% of Rs. 400.000 basic exemption) | 200,000 Total taxable income 215,200 . BOTEENGTS| mr. Rat joined retail shop as a salesman. He disclosed the following details of his income and expenditures of the previous year for tax purpose. He claimed contribution to provident fund and transport expenses for deduction. Required: Net (Assessable) Income from Employment “8AL f sion TO TAXATION IN NEP / 44 AsmiTa’s TU SOLU’ ane (20% of Rs. 216,000) from employment 6t Mr. Ral, a salesmay e 4 es able income as institution Computation of assess 18,784 of eee u ’s. 25.000 ae c oF actual 6,009) 4.000 Teal iaable income TEs Calculation of tax liability First RS. 312,480 @ 1% (assumed Sngiey 35 Total liability, 3.125 Less: paid in advance 15,000 - \ [Tax payable (refundabie) ployee of a private office has submitted the following incopy . ! Sena ployee, i Ms. Ankaji, an employee of governs eS and expenditures for the previous Year. Rs.16,000 pm i particulars of his incomes and expenditures of the previous year. Saay ia Salary scale Rs.12,000-350-14,100 EB 400 15.700 Provident funds as per government regu! = [RS.2.500 p.m. Sitesi aiowanes so Rea topr Deamess afowance = [Rs.15,000 - [Entertainment allowance’ Rs.1,500 p.m. Income tax paid by employer 2] Rs:8,000 House facility provided by employer Life insurance paid by employer 7 | RS.1,500 pm, : ered allowance RS.7.000 pm. allowance =| Rs.18,000 He claimed the following expenses for deduction. pa from employer Rs.30,000 E aaa to provident fund @ 10% of salary and employer also contributed equal lowan ; lowance provided by the employer as per government rules [Advance income tax for the current year Rs.30,000 fed by employer | [Hiffe insurance premium of Rs.15,000 for the insured sum of Rs.150,000. Donation was paid to approved institution of Rs.12,000 of oe pear eee his son. : = = ‘Children education expenses paid by him of Rs.8,000) es Required: | a. Net assessable income from employment a. Net (assessable) income : [bi Statement of taxable income {512} puuTion - ee Se [5+2#1] | Calculation of assessable income from employment of Ms. Ankaji for the previous c t sour Teanieutars — Computation of assessable income from employment of Mr. Arjun for the [Salary (Rs. 15,700 = 12) z -; ae = " a | Dashain kharcha (Rs. 15,700 x 1) pd = 18,000 : | previous year. = Salary (Rs. 18,000 « 12) ‘ vt Sad Total assessable income on ‘376,708 '|Dashain allowance ; : | “Toe contribution to PE (20% of Rs. 188,400 Le. 37,840 Car facilities (0.5% of Rs, 216,000) i 2 i ‘a. Contribution to PF (20% o __ [Assessable Income from employment ‘Statement of taxable income : esetarot simaleeeey Calculation of annual sal Nov of sonics onc EY 207679 FY 208860 = 20 No. of annual grades = 107 J AsmiTA’s TU SOLUTION TO TAXATION IN NEPAI J ‘ ~————__= 'NCOME FROM EMPLOYMENT 47. Under secretary of Nepal Government furnished the for the previous year: 388,000 75,000 's interest income from bank deposit i a final withholding income applicable for pension income and no exemption for pension is provided. 10% of salary towards an unrecognized provident fund and the firm has ual amount. ._ Statement of Total Taxable income. Computation of assessable income from employment profession and investment of Mr. A for the previous year. Se Particulars I Rs. plo} iy = b Salary {12.000 + 1200» 10) = 12) 288,000, ‘Bonus (Rs. 12,000 x 2) Medical allowance (5% of Rs. 288,000)50 ASMITA'S 10 SOLUTION easabio income from employment of Mr. Tamang, 4 le | [ard of Rs, 411,200 or actual 20% of Rs, 240,000 ie, 48,000 or | 48,000 ‘maximum Rs. 300,000) 3 | Less: Life insurance premium Pe ctual Ra. 10,000 or maximum Rs. 25,000)Rs. 8,000, ized provident fund 10% of annual salary. ‘Of RS. 10,000. ‘other paid by him were Rs. 5,000. was also paid by him on the life policy amount of Rs. cognized provident fund (10% of Rs. 180,000 ir. Sherpa is working in a goverment office as. civil servant since last six Pay scale of Rs. 14,000-300-16,700. The other details of his incomes and tures of the previous year are lisied below: 52] ofhis annual salary > = Provided by the office wit free of cost, but rent paid by the office ized provident fund. He and his employer contributed 10% each. Putation of assessable income from employment and. ll Servant, for the p ous income |INCOME FROM EMPLOYMENT 55 tation of assessable income from employment jee of a government owned organ and investment of Mr. Rai, an particulars zation, fr the previous year, :ome from employment: Rs. | 17,000 x 4 20,400 g Bonus Hoi allowance (RS. 1,500 « 12) woe ‘ar (0.5% of Rs. 204,000) 3,000 tent of interest fo employer (Rs. 250,000 » (10 — 5)%) 0 os Director (Rs. 21,250/0.85) #2500 ‘recognized provident fund (1/3rd of sa net 2 from investment: = 20% of Rs. 186,000 or maximum = terest received from private loan 20,000 sessable income from investment = . io a local [5% of Rs. (460,520 - 37,200) or actual 2 20,000 Se OH DO 5; 4 peatet total taxable income - i ‘nce premium (Actual Rs. 3,000 or maximum [Assessable income from employment “331,820 ssessable income from investment 20,000 fotal assessable income 351,920 : Allowable reductions: 4 Contribution to recognized provident fund [1/3rd of Rs. 351,920 or ‘actual Rs. (20,400 + 22.100) oc maxamum Rs. 300,000} 42,500 p. Donation to a government school (5% of Rs. (351,920 — 42,500) or actual Rs. 10,000 of maximum Rs. 100,000) 10,000 Life insurance premium (Actual Rs. 5,000 or maximum _Rs. 25,000) 5.000| 57.500 fotal taxable income 234,420 notes: ee: 13 ~ 3 ‘ OF’ fee has been assumed to be half of Rs. 42.500 (net) due to lack of adequate information, d from a resident company and meeting allowance are final withholding incomes. 's contribution to retirement fund @ 10% has been included as employer is government ‘Organization, 0:84; 3] Mr. Karki is an ‘employee of a company: He had furnished the: following is of his incomes and expenditures for the previous year. Salary © Rs, 12,500 p.m. ~ Deamess allowance 25% of his salary income “Transportation allowance Rs. 500 p.m, House rent allowance me RS. 1,000 p.m. _ Dashain allowance equal to one month's salary née sf t He is a member of recognized provident fund and has contributed 10% of his salary: He had claimed for periodicals expenses of RS. 500 p.m. - Education expense of his son paid by him was Rs. 1,500 p.m. * Dividend collection charges of Rs. 1,000, d: Net (Assessable) income from employment. (1 * Donation to 3 government * Transportation expenses * Legal expenses incurred ~~ Required: fs Net (Assessable) Income from Employment Statement of Total Taxable Income, an fromh the employer of Rs, 500.sé _ASMITA’S TU SOLUTION TO TAXATION IN NEPAL Working note: thas been ignored, yn ‘employer's contribution to PIF Sra cane evra Ge wa Oke (000- $00-17000. The other particulars of his ing 2088 with @ pay xpendi low: tures of p Fe given bel Rs, $00 p.m. Rs. 800 p.m . Rs. 1500 p.m. . ided by the office . ided by office _Rs. 3,000 p.m. ed provident fund, His office is located at Zone B ‘+ He had donated Rs. 10,000 to an approved tax exempt organization during the inco Required: ‘2. Net (Assessable) Income from Employment b._ Statement of Total taxable income ics a Calculation of assessable Income from employment of Mr. Gautam, an em ar Residential facility provided by the office (2% of Rs. 204,000) Housekeeper's salary provided by office (Rs. 3,000 12) LIP paid by employer ‘Telephone and electricity bil paid by office [Rs. (1,000 + 1,500) x 12} Overtime payment Remote area allowance (RS. 2,500 x 12) 3 ‘Contribution to Provident Fund by office (10% of Rs. 204,000) Assessable income from employment Statement of total taxable income Assessable income from business/investment (if any) Total assessable income. Less; Allowable reductions: a aerate to approved retirement fund 13 rd of Rs. 30,060 or actual Rs, 40,800 or maximum Rs. 3 40 300, b Donation to exempt organization [6% of Rs, (RS, 390,080 - Re, 40/900) oF ‘actual Rs, 10,000 or maximum Rs, 100,000} ste il 'c, Remote area exemption ‘Zone B! dLife insurance premium (actual Rs, 5,000 or i err 000 oF maximum Rs, 26,000) ‘Assessable income from employment Snel INCOME FROM EMPLOYMENT — 57 Mr. Adhikari an employee of a private com incomes for the previous year. received Rs. 204,000 Pany had submitted the folowing Contribution to provident fund 10% of salary and an equal amount was contributed by the e emp deducted at source was Rs. 22,800 lowance Rs. 2500 p.m. Premium paid by employer of Rs. 7000 (on a policy amount of Rs. 180,000) Brovided by the office and used for private and offical purpose equal 1s Business promotion allowance Rs. 50,000 ‘+ During the year he has not received Dashain allowance ‘+ Meeting allowance Rs. 60,000 (Net) + Remote area allowance Rs. 2,000 p.m. E + Company provided him the accommodation facility free of cost but company paid rent of Rs, 4,000 p.m. «He received interest from private investment Rs. 150,000 Payment received from natural resources Rs. 110,500 after TDS. He claimed the following expenses for deduction: ~ f+ Education expenses of his son of Rs. 1,500 p.m. ‘+ Transportation expenses of Rs. 300 p.m. House rent paid for his residence of Rs. 3,000 p.m. Donation to a public school of Rs. 5,000. Interest collection charges of Rs. 4,000 He is working at 'C Zone. © Required: a. Net (assessable) income from employment (5 b. Statement of Total taxableincome. = feb Calculation of assessable income from employment and investment of Mr. Adhikar for the previous year = Remote area allowance (Rs. 2,000 * 12) ‘Accommodation facility (2% of Rs. 252,000) _ Assessable income from252,000 or maximum one C=. 7,000 or maximum Rs. 25,000) ‘own contribution was 40% icy amount of Rs. 200,000. The montht i the employer and employee. mee rovident Fund and contributes 10% of his salary. Employer Jary - employee's contribution to P/F ~ Income tax deducted = Net salary Development Trust Rs: 25,000, ‘and Nepal Cricket Association Hence, annual salary is Rs. 252,000. 38. EA GITINGIG) wr. 8s an employee of a privat firm. He submitted the following : of his incomes and expenditures for the previous year: te 50 j, Computation of assessable income from employment and investment of Mr. R for the lous year eal . 100 + 18,450) / 13 x 12)} 192,000 Asie | Dashain expenses (Rs.192,000/12) - ble) income from employment. otal taxable income. x12) iployer (2% of Rs. 120,000) J | @. Contribution to retirement fund (approved) oe f (1/3rd of Rs. 519,360 or actual Rs. 38,400 or maximum Rs, 300,000) ee b, Donation to PADT and NCA F (6% of Rs. (519,360- 38,400) or actual Rs, 35,000,0r maximum RS. 100,000} : 3sou also 10%, | 'NCOME FROMEMPLOYMENT 61 on of assessable income from employment of Mr. Thapa for the previous revious fund by employer (10% of R it nd by employer (10% of Rs 240,000) following particulars of her income. ing the previous year. s20Fomputation of assessable income from employment, profession and * ae S for the previous year ties RS: 68,000 (after TDs). ‘Salary (RS. 12,000 * 12) F equal to one month's salary. ‘Recountant allowance (Rs. 1,000 « 12) [¢+2+3) » souTION z ‘a, Computation of assessable income from employment, profession and investment of > _Mrs. Karki for the previous year: Particulars Rs. Income from employment: = Salary Rs. (108,000 + 5,400 + 12,600) “28 426,000. Income from investment Interest from private money lending (Rs. 8,500/0.85)INCOME FROM EMPLOYMENT 63 ] Rs. 4,000 ‘0.000 7 fa eee [ae 'o employment. business and investment i tax exempt ‘orking as an employee of a business firm. He submitted the i the previous year. Rs. 8,500 p.m. Rs. 300 p.m. Rs. 1,000 p.m. rovided by employer equal to one month salary to recognised provident fund 10% of his salary. aid by employer by Rs. 400 p.m. ransportation expenses. income from employment 5} computation of assessable income from ‘employment of Mr. Sharma for the previous income year: Particulars Rs. Salary (Rs. 8500 = 12) 102,000 Entertainment allowance (Rs. 300 x 12) 3,600 Transportation allowance (Rs. 1,000 12) 12,000 Dashain allowance (Rs 8,500 x 1) 8.500 contributed by employer (10% of Rs. 102,000) 10,200 aid by employer (Rs. 400 x 12) 4.800 45. 3 Shrawan 2055 with pay scale of Rs. 10,000 - 400 - 13,200. The other particulars of his. ~ incomes and expenditures of previous year are listed below: Dearness allowance Rs. 2,600 p.m. Entertainment allowance Rs. 700 p.m. Rs.1,200 pm. 'g his resident by the employer with a salary of Rs. 3,500 p.m_ (20% of Rs. 360,000) - f Accommodation facility provided by the office 2 { Life Insurance Premium of Rs. 10,000 paid by employer (on a policy of Rs. 200,000) Electricity and telephone bill each of Rs. 500 p.m. were also paid by the office on his behalf, Medical allowance Rs. 50,000. Overtime payment Rs. 25,000 Remote area allowance Rs. 2,000 p.m. He claimed the following expenses for deduction: * Contribution to recognised provident fund. : ¢ Half of electricity and telephone bill was used for his office. His office is situated at Zone C. i * He had donated Rs. 10,000 to an approved organization during the income year. Required: < * 2. Net (assessable) income from employment b. Statement of Total Taxable Income _ weiss (543)Tie ot ae ew EPO) ON IN NEPAL YMENT — 65, [xgwiTA’S TU SOLUTION TO TAXAT! se cimed flowing expenses for deduction: to recognised provident fund 10% by the campus. ot his salary and equal amount was a Honation to Pashupati Area Development Trust Rs. 50,000 - ;ce premium of Rs. 7,000 on a policy amount of Rs. 170,000. 6 sown’ of Mr, Rajan for tho previous i ent Computation of assessable income from ‘omploym aa aT 8} (62) souynion i es ses jf Rs. 158400) S2Zimpuimton of ssesaie income tem enploment of: Gopal a incor oa rovlous So | panteclars e er z : + 12.50%) From school: | Execrcty and telephone bil paid by employer (Rs. 1000 ron a area Salary for extra classes (30% of Rs. 18,000) : Be verte payment Rs. 1,000 3 mae eerie ywance (Rs. 2,000 x 12) Ge oa 15400) Cee aie ee 3.008 a som 1 10% of Rs. a = 5 | eels era PF contributed by employer (unrecognized) 10% of Rs. 18,000) eat Sa income fr one ecumulated home and sick leave (Rs. 170,000 /0.85) ae From Campus: b Sane of bi neon se am [ Particua a0 [Assessable income from employment = | Assessable income from business / invesiment (if any) | Total assessable income sss: Allowable reductions: Retirement contributions (Actual Rs. 31,680 ie. 20% of Rs. 458,400 or 1/3cd of Rs. 389,608 or maximum Rs. 300,000] b. Donation {5% of Rs. (389,606 ~31,680) or actual Rs, 10,000 ‘or maximum Rs. 100,000} : by campus (10% of Rs. 81.500) 8,160 ‘Assessable income from employment ane a 7] . Statement of total taxable income Particulars: a ‘Assessable income from employment c. Remote area exemption ‘Zone C’ i | & Ue insurance (ect Rs 1 maximum Rs: : Assessable income from business! investment (f any) [Fetal taxable income Total assessable income Working notes: Less: Allowable reductions: 4, No.of service year = Income year ~ Appointment year = 2077/78 ~ 2055/56 = 22 y ‘a. Retirement contributions (actual RS. 16,320 or. V3" of RS. | 347,742 or maximum Rs. 300,000) b. Donation to PADT (5% of Rs. (347,742 — 16,320) or actual Rs. 50,000 or maximum Rs. 100,000] ©. Life insurance premium (Actual Rs. 7,000 or maximum Rs. 25,000), Total taxable income : 31 Rs. 10,000 = B8.13,200 Rs. 10.000 5 rages ‘Annual increment Rs, 400 ‘Since his service year is more than no, of grades, he is receiving last salary from FY 2063/64, 46, EBGSIEIROL) Mr. Gopal, a math teacher, was working in a private school. He had terminated his job on 30” Ashwin of previous year. He was receiving the following from the school. Salary Rs, 6,000 p.m. Salary for extra classes 30% of monthly salary Rs, 1,000 p.m. = 2. No.ofgrades Rs, 3,000 p.m. Schoo'’s contribution to unrecognised provident fund was 10% of his salary. ‘+ Amount received for accumulated home and sick leave Rs, 170,000 (Net). * On 1" Marga of year he joined Butwal Multiple Campus at a pay scale of Rs. salary income for the previous year are given below: 5 Clouse uae cy Keo cos, 3 pus has provided a guard in his quarter with monthly salar where ‘Gopal contribution was Rs, 3,000 p.m. Duane Examinership and questions. Setting remuneration of Rs. 10,000. © Newspaper and academic allowance Rs, 350 p.m,PROVISION Foy ROEPRECIATION gp te Of depreciation, b. Furniture 4. Goodwit ofice 1-2. Office and building : Block A and 6% b. Fumiture used in office: Block B and 25% c._ Computer kept for resale: Not depreciable a 4. Goodwill: Block E, and the rate is calculated andy ond SOCK. ing Cost by life 7 BGMecrb| BOTS CAN EEO) once rovsanrgnde aslaid down under Income Tax Act, 2058, is ve Depreciation is allowed for deduction on used 3) For depreciation purpose, the depreciable mace ets ome by he person. ————— —_ Details of assets Cassiid into fv blocks 1. Ust out five blocks of depreciable assets and rate of depreciation. Building, Structures, and similar works of permanent alae Depreciation w Five blocks Depreciation method and rate Seer cana Processing equipments, funiture, fates and| 20% a. BlockA DBM, 5% Automobiles, bus and mini bus 20%, Construction and earth moving lipments, absorbed eee DEM 2o% poltion control cost and RAD cost and any lang menses} 15% Block C DBM, 20% included in above blocks (e.g. plant and machinery) d. Block D DBM, 15% Intangible assets (patent. copy rights, trade marks, ‘software etc.| Cost + Life es BiockE SLM, CostlLife which are not included in Block 'D' assets) Founded down to Ge L = the nearest haf 2 ‘The block-wise depreciation basis and depreciation are calculated as under. DBM : Diminishing balance method = 1Opening depreciation basis = SLM: Straight line method 3 ‘ | Add:- Addition during the year (time-wise from 1/3 to 3/3) i 2. What types of assets are subjected to depreciation under Income Tax Act, 20587 ‘tess Disposal dling (eelyeed ms = Income Tax Act, 2058 has stated that a taxpayer can deduct deprecation in respect of |__Depreciation basis 7x, depreciable asset owned and used by the tax payer during the year in the production the tax payer's income from business or investment. For example, computer business is subject to depreciation Depreciation of a block = Depreciation basis of a block x Depreciation rate applicable to that block —— j In addition. to normal depreciation, some entities (e.9. special industry, troley bus, et.) -ate allowed one-third additional depreciation of the.rate prescribed on the assets falling 3, List out any two examples of each block of depreciable assets. == Block A : Building, Bridge Block 6 : Computer, Furniture : Bee coe oat US Block D : Plant and machinery, Equipment 1. A trading company had opening WDV of an asset group was RS. nat es Bee Be Block E : Patent right, Copy right, etc made on 1st Chaitra for Rs. 900,000. No disposal was made during the year. Al depreciz block fs State briefly on how the depreciable assets purchased under different dates are to be precision ont Bock wise ne ac feeaoted Required: identify the block of asset. oe Depreciation basis = Opening WOV + Absorbed addition — Disposal ‘Absorbed Portion > apnea ij 3 oF 100% = 1,000,000: (2000), = 1,600, 1" Magh-end of Chaitra } 2 1% Baisakh-end of Ashadh Allowable depreciation = Rs.320,000 7 Ree a (320,000. = 20% of depreciation (0.000 4.100 *= Two entities with allowed additional depreciation allowance are given below. 1 Block ot aussie eG a. Aneentity wholly engaged in operating a s 'b. An entity involved in operation of a tram or