General Flashcards
Tax rates for cooperatives
Rural (not adjacent to metro/sub-metro): Exempt
Municipality: 10% (savings & credit), 5% (other)
Sub-metro: 15% (savings & credit), 7.5% (other)
Metro: 20% (savings & credit), 10% (other)
Tax rate for trust
-For estate acquired of decesed individual
Or
Takes care on estate of deceased/incapacitated resident individual
Same as resident individual
-Other cases: 25% tax rate
Who can claim a medical tax credit, and how is it calculated?
Resident individuals can claim.
Expenses must be paid against an invoice (hospital, doctor, nursing home)
Exceptions: Cosmetic surgery & reimbursed expenses
Credit limit:
Lesser of: 15% of medical costs + previous year’s carry forward
Max limit: Rs. 1500
Remote Area Allowance
Granted to both resident & non-resident individuals
Available for working in remote areas, regardless of employment income
Allowance rates:
A: Rs. 50,000
B: Rs. 40,000
C: Rs. 30,000
D: Rs. 20,000
E: Rs. 10,000
Proportional deduction if worked part of the year
Foreign Allowances
For residents working in diplomatic missions abroad
Deduction of 75% of foreign allowance
Pension Income Allowance
Available to residents receiving pension
Lower of
i) 25% of basic exemption limit
ii) Pension income
Differently Abled Allowance
Individual (R)
50% of basic exemption limit
Investment Insurance Allowance
Individual (R)
Insurance from R/NR Insurance Co.
Lower of
i) Actual
ii) Rs. 40000
Health Insurance Premium
Individual (R)
Insurance from Resident Insurance Co.
Lower of
i) Actual
ii) Rs. 20000
House Insurance Premium
Individual (R)
Insurance from Resident Insurance Co.
Lower of
i) Actual
ii) Rs. 5000
Who are associated parties?
Holding and subsidiary
Fellow subsidiary
Foreign PE of NR
Relative and Partner
Reduction under 12A
Lower of
i) 10% of assessable income
ii) Actual
iii) Limit: 10lakhs
Vehicle quantification applicable when vehicle provided for
- Official purpose only
- Official as well as personal purpose.
What costs are excluded from overhead expenses?
- Repair & Improvement cost u/s 16. (However, if the business is repairing old grounds for resale, those repairs are included in Sec. 15.)
- Depreciation u/s 19.
Are repair expenses on assets taken on operating lease deductible?
- Yes, expenses for repairs on assets taken on operating lease are allowed as a deduction under Section 13.
When can a person claim a deduction for repair and improvement costs under Section 16?
- If the assets are owned by the person.
→ Legal ownership or finance lease. - If the assets are put to use during the year.
- Note: Repair expenses on assets taken on operating lease are deductible under Section 13.
When can a person claim depreciation under Section 19 (read with Schedule 2)?
- If the depreciable assets are owned by the person.
→ Legal ownership or finance lease. - If the depreciable assets are put to use for earning business/investment income.
What amounts should not be included while computing income from business under Section 8(3)?
- Any amount exempt from tax, including:
→ u/s 10 (e.g., NRB, mutual fund income as per objective)
→ u/s 54 (re-distribution of dividend income)
→ u/s 69 (dividend from a controlled foreign entity)
How can business and investment losses be set off under Section 20?
-
Business Loss: Set off with business or investment income of:
→ The income year.
→ Subsequent 7 years. -
Special cases (set off within 12 years):
i) Public infrastructure projects (BOOT/BOT/BOLT model) with GON.
ii) Power generation/transmission projects.
iii) Petroleum businesses under the Nepal Petroleum Act. -
Investment Loss: Set off only with investment income of:
→ The income year.
→ Subsequent 7 years.
Notes:
- Business income can only set off with business losses; investment income can be set off with both business and investment losses.
- Only losses of the same person can be set off.
- If multiple transactions qualify for different tax treatments u/s 11, they are treated as separate businesses.
What depreciation rate is allowed on cash machines, fiscal printers, and electronic billing devices?
- 100% depreciation.
What happens if the value of any asset block falls below Rs. 2,000?
- It is considered terminal depreciation and is fully allowed.
Who can claim Additional Accelerated Depreciation, and at what rate?
- Eligible entities can claim 1/3 of the normal depreciation rate additionally.
- Eligible entities include:
i) Public infrastructure projects (BOOT/BOT/BOLT model).
ii) Power generation/transmission projects.
iii) Special industries, such as:- Agricultural, forest-based, and mineral industries.
- Manufacturing (excluding tobacco, alcohol, etc.).
iv) Infrastructure (roads, bridges, tunnels, railway, etc.).
v) Tram/trolley bus operations.
vi) Fruit-based brandy, cider, or wine production in undeveloped areas.
vii) Co-operatives.
What is the provisions for income splitting or transferring amounts through interposed entities?
If any person attempts to split income with another person
OR
one or more interposed entity is formed to transfer the amount of inclusion or deduction (including that from use of asset)
↓
IRD by notice in writing, adjust the amount of inclusion or deduction
↓
IRD shall take market value of the payment as basis for this purpose.
What is an Advance Pricing Arrangement (APA)?
When one or more taxpayers need clarification on the method to be used for allocation, appropriation or distribution of amounts to be included,
↓
s/he may apply to IRD in writing.
↓
IRD may, by notice in writing, give such clarification.
↓
It may be valid for 5 years, which may be renewed/cancelled thereafter.
↓
It provides greater certainty on transfer pricing method adopted & mitigates the possibility of disputes & double taxation.
What does Section 33 state regarding Transfer Pricing in general?
In any transaction between associated persons (within country or in cross-border transaction)
↓
IRD may, by issuing notice in writing, allocate the amount to be appropriate or distribute the amount to be included or deducted by re-characterizing any income, loss, amount or sources or type of payment.
↓
so that the income reflects as if the transaction was made at arm’s length price.
What does Section 30 state regarding investments under joint ownership?
The amount to be included or deducted while computing income earned from investment under joint ownership:
* Shall be allocated to joint owners
* On the basis of their proportionate interest.
What does Section 29 state regarding indirect payments?
Section 29 states that if any person:
* Gets an indirect benefit from a payment made to a third person,
OR
- Specifies another person to receive the payment,
IRD may, by written notice, treat the beneficiary or specified person as the payee.
What are the carry-forward and carry-backward loss provisions for long-term contracts under international competitive bidding procedures (global contracts)?
- The losses may be carried forward and set off with income of subsequent years.
- Remaining loss, if any, may be carried backward and set off with income of previous years.
What is a ‘Deferred Return Contract’ mentioned in the context of long-term contracts?
A contract where contracting parties don’t inform the IRD (Internal Revenue Department) regarding estimated profit or loss in the period of every 6 months, from the commencement of the contract.
If this information is provided, the contract is not considered a Deferred Return Contract and therefore may not be treated as a long-term contract for tax purposes (specifically, the project-based tax payment might apply instead of completion-based tax).
Excluded contracts: contracts executed solely because the contracting parties are:
1. Entity & beneficiary
2. Retirement fund is beneficiary 3. Investment insurance co. & insured person.
How is the amount to be included in income calculated for a long-term contract?
Amount to be included in income = Total Contract Revenue * Percentage of Completion.
How is the percentage of completion calculated?
Percentage of completion can be calculated using either:
* Engineering Valuation Method OR
* (Cost Incurred Till Date / Total Estimated Cost) * 100
What does Section 24(4) state?
On computing Income from Business or Investment under accrual basis by a Person,
if there is any change in the amount received or expense incurred due to any reason inter alia
foreign exchange fluctuation
in the already accounted inclusions or deduction of expense,
the difference has to be adjusted in receiving or making payment.
As per Section 23, when can a payment made in lieu of a third-party payment be recorded as an expense?
When a person is required to make payments in lieu of payment received from third party. It can be recorded as expenses only when all of the following conditions are satisfied.
* a) When liability to make the payment is created.
* and *
b) Value of liability is determined realistically
* and *
c) Payment is received from third party.
As per accounting standards for banks and FIs, how should they recognize their accounts and interest income?
IRD may recognize the accounts maintained by bank or FI as per the standards prescribed by NRB or other prevailing accounting standards.
Thus, Bank or F.I. may/shall account their interest income as per cash basis.
Further, co-operatives may also account their interest income under cash basis.
What does Section 14(2) state regarding interest expense deductions for controlling persons of resident entities?
Section 14(2)
Exempt controlling Person
✓ controls ≥ 25% in Resident Entity.
→ Ownership or
→ Voting right or
→ Income (Directly or through one or more interposed entities)
↓
Lower of:
→ 50% of Adjusted Taxable Income (ATI) + P.Y’s c/f exp.
OR
→ Actual Interest Exp. u/s 14(2) + P.Y’s c/f exp.
Exempt Person:
i) Non-resident.
ii) Person availing concession u/s J
iii) Tax exempt org
iv) Any combination of above.
OR
Their Associated Person.
Allowable repairs provision
Allowable Repair
If Block/Pool of Asset exists → Lower of:
ⅰ) 7% of depreciation base or
ⅱ) Actual Repair
Unallowed repair shall be added to opening depreciation base of the block in next year.
If Block/Pool of assets doesn’t exist → Total repair shall be allowed as deduction.
* The ceiling of 7% isn’t applicable for aircraft overhauling cost incurred as per CAAN standards.
What happens to the remaining value of a block when assets are transferred to GON (Government of Nepal)?
It is allowed as terminal depreciation.
How is the cost of land used in a project treated for depreciation?
It is allowed as depreciation under Block E over the useful life of the project.
What special provision exists for capital expenditure incurred on the generation of energy for captive consumption or self-use?
50% of such cost is allowed as depreciation in the first year itself.
What happens to the remaining 50% of the capital expenditure on energy generation for captive consumption or self-use after the first year?
It is added to the opening depreciation base of Block D in the next year.
How are interest expense deductions calculated for controlling persons under Section 14(2)?
Deduction allowed is lower of:
→ 50% of Adjusted Taxable Income (ATI) + prior year’s carried-forward expenses.
→ Actual interest expense + prior year’s carried-forward expenses.
Exempt persons (No deduction allowed for loans from them):
i) Non-residents.
ii) Tax-exempt entities.
iii) Entities availing concessions under Section J.
iv) Associated persons of the above.
What are the interest expense deduction rules for proprietorships and partnerships?
Proprietorships:
→ Treated as proprietor = business (No separate deduction).
Partnerships:
→ Deduction allowed for interest paid to partners/shareholders/directors, provided:
The recipient includes it in their income.
TDS @15% has been deducted.
When is interest expense deduction not allowed?
If the fund is kept idle.
If the fund isn’t used for business or investment purposes.
If a question does not specify an interest rate, what assumption should be made?
Assume 15% per annum as the interest rate.
How is interest expense treated when a loan is taken to acquire an asset under Section 14(1)?
If the asset is put to use during the year → Deduction allowed for the full year.
If the asset is NOT put to use → Deduction not allowed, and the interest is capitalized (added to asset cost).
If the loan is taken for other business/investment purposes → Deduction allowed.
When should a payment schedule for leases or sales be prepared, and what happens if it isn’t?
Schedule must be prepared at the beginning of the lease period or at the time of sale.
If a schedule isn’t prepared, the transaction is treated as a blended loan, and interest is compounded semi-annually.
Formula to separate interest and principal:
A = P (1 + R/200)²ⁿ.
How is compensation income treated under Section 31?
Compensation is included as income under Section 7(2), 8(2), or 9(3) at the time of receipt (cash basis).
If compensation relates to asset disposal, it is treated as disposal proceeds.
Exemptions:
→ Compensation for physical injury/damage is exempt for residents.
→ Compensation for death is exempt for both residents and non-residents.
How are annuities, installment sales, and finance leases treated under Section 32?
Principal portion = Market value.
Interest portion = Total payment - principal.
Present Value (PV) of all payments is treated as:
→ Sale value (for seller/lessor).
→ Acquisition cost (for lessee/buyer, who can claim depreciation).
What can the IRD do if a transaction’s substance doesn’t reflect its form under Section 35?
If a transaction is not covered by other provisions but its substance doesn’t match its form, the IRD may:
→ Re-characterize the arrangement.
→ Disregard part or all of the arrangement.
Written notice must be given to the taxpayer.
