TDS (Tax Deducted at Source)स्रोतमा कर कट्टी
TDS is income tax withheld by the employer from an employee's salary each month and deposited with the Inland Revenue Department on the employee's behalf. It is calculated on annual projected income and spread across the year, not charged month by month in isolation.
Also called: TDS, withholding tax Nepal, salary tax deduction Nepal
Key facts
- Deposited
- Within 25 daysOf the month ending.
- Calculated on
- Annual projectionThen divided across the remaining months.
- Reduced by
- Retirement contributionsUp to NPR 500,000 or one third of assessable income.
- Reported against
- The employee's PANWhich is how they get credit for it.
Why TDS is an annual calculation
Nepal's income tax slabs are annual and marginal. To withhold the right amount monthly, payroll projects the employee's income for the full fiscal year, applies the slabs to that projection, subtracts what has already been withheld, and spreads the balance across the months remaining.
This is why a mid-year salary revision changes the monthly TDS by more than the raise alone would suggest. The projection moves, so the tax already withheld at the old rate has to be trued up over fewer remaining months.
What reduces taxable income before the slabs apply
- Retirement contributions: PF or SSF plus any CIT election, up to the lower of NPR 500,000 and one third of assessable income.
- Approved insurance premium deductions, within the published limits.
- Other deductions and rebates the Income Tax Act allows for that employee's circumstances.
The employer's obligations
- Withhold the correct amount each month rather than settling the whole year at the end.
- Deposit it within 25 days of the month ending.
- Report it against each employee's personal PAN so they receive credit.
- Reconcile the twelve monthly returns with the annual position at year end.
TDS (Tax Deducted at Source), answered
Payroll projects the employee's annual income, subtracts allowable deductions such as the retirement contribution, applies the annual slab table to what remains, then spreads the resulting tax across the year and adjusts for what has already been withheld.
Within 25 days of the end of the month it was withheld in, together with the corresponding withholding return.
Because TDS is based on a projection of annual income. A raise lifts the projection, and the additional tax for the months already past is recovered over the months remaining, so the monthly figure moves by more than the raise alone.
- Income Tax Act 2058, withholding provisions and the 25-day deposit deadline.
This page explains general practice in Nepal. It is not legal or tax advice, and statutory figures are revised from time to time. Check the current Act, rule or notice before acting on it.
Related terms
- Income Tax Slabsआयकर दरNepal's personal income tax is charged at marginal rates across annual income bands. For FY 2083/84 the first NPR 1,000,000 is taxed at 1%, rising through the bands to a top marginal rate of 29%.
- eTDSइ-टीडीएसeTDS is the Inland Revenue Department's electronic format for withholding returns. It reports, employee by employee and against each personal PAN, how much tax the employer withheld and deposited for the period.
- PAN (Permanent Account Number)स्थायी लेखा नम्बरA PAN is the taxpayer identification number issued by Nepal's Inland Revenue Department. Every employee needs a personal PAN for the tax withheld from their salary to be credited to them, and every employer needs a business PAN to deposit it.
- Citizen Investment Trust (CIT)नागरिक लगानी कोषThe Citizen Investment Trust is a voluntary retirement savings scheme employees can join on top of PF or SSF. An employee elects to contribute up to 33% of basic salary, and the contribution reduces taxable income within the shared retirement ceiling.
- Net Payखुद तलबNet pay is the amount that actually reaches an employee's bank account: gross salary minus the retirement contribution, any voluntary CIT election, monthly TDS, and any other authorised deduction such as a salary advance.
- Annual BonusबोनसThe annual bonus is a share of an enterprise's net profit distributed to its employees under the Bonus Act 2030. Ten percent of net profit is set aside for the purpose, and what remains after distribution goes to welfare funds.
- Festival Expenseचाडपर्व खर्चFestival expense is a statutory payment of one month's basic remuneration, made once a year at the festival the employee celebrates. It is the Nepali equivalent of a thirteenth-month salary, and it is an entitlement under the Labour Act 2074 rather than a discretionary bonus.
- Full and Final Settlementअन्तिम हिसाबFull and final settlement is the closing calculation when an employee leaves: salary for days worked, leave encashment, any dues owed to them, less any recoveries, paid once every clearance is complete.
- Gross Salaryकुल तलबGross salary is an employee's total earnings for a period before any deduction: basic salary plus every allowance, overtime and taxable benefit. It is the figure most offer letters quote and the one employees compare against.
- Inland Revenue Department (IRD)आन्तरिक राजस्व विभागThe Inland Revenue Department is Nepal's tax administration, responsible for income tax, VAT and excise. For payroll it is the body that publishes the tax slabs, issues PANs, receives monthly withholding deposits and defines the eTDS format.
- Payroll Cycleतलब चक्रThe payroll cycle is the repeating sequence a company runs each pay period: collect attendance and leave, calculate earnings and deductions, approve, pay, and file. In Nepal it runs on Bikram Sambat months and carries a statutory deadline at the end.
- Provident Fund (PF)कर्मचारी सञ्चय कोषThe Provident Fund is a retirement savings deposit held at the Employees Provident Fund (Karmachari Sanchaya Kosh). The employee contributes 10% of basic salary, the employer matches it with another 10%, and the combined 20% is deposited monthly against the employee's PF number.
- Social Security Tax (SST)सामाजिक सुरक्षा करThe social security tax is the 1% charged on the first NPR 1,000,000 of a resident individual's annual income. It is collected through payroll like ordinary income tax, and it is waived for employees who contribute to the Social Security Fund.
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