Six legal ways to pay less salary tax in Nepal

What actually reduces salary tax in Nepal?

Six levers exist for a salaried employee in Nepal, and all six are named in the Act: life insurance relief, health insurance relief, retirement contributions through PF, SSF or CIT, the SSF waiver of the 1% Social Security Tax band, the 10% rebate for a resident woman, and counting only the months you were actually paid for. Everything else is either an employer decision or not a relief at all.

Two things to read carefully. The CIT line is not spending: the NPR 1,00,000 moves from a bank account into a retirement account with your name on it, and the tax that would have been charged on it stays with you too. And “all three together” saves less than the three lines added up — at this salary they wipe out the whole tax bill, and no relief can save more tax than you owed in the first place.

1 & 2 — How much do the insurance reliefs save?

Life insurance premiums are deductible up to NPR 40,000 a year and health insurance premiums up to NPR 20,000. They are separate ceilings, so a person with both policies can deduct NPR 60,000 of premium. The relief is on the premium paid, not on the sum assured, and it needs the policy in your own name.

Premiums above the ceiling are simply not deductible — a NPR 90,000 life policy still relieves NPR 40,000. The calculator shows the capped amount and names the rule that capped it, which is the fastest way to see whether a bigger policy is buying you anything at tax time.

3 — How much retirement room do you have left?

Contributions to PF, SSF and the Citizen Investment Trust share one relief ceiling: NPR 5,00,000 a year, or one-third of assessable income, whichever is lower. Whatever your mandatory fund does not use, a voluntary contribution to the Citizen Investment Trust (Nagarik Lagani Kosh) can — up to NPR 3,00,000 of CIT in its own right.

At NPR 1,00,000 a month with basic at 60%, SSF uses NPR 2,23,200 of the ceiling, leaving room underneath it. Putting NPR 1,00,000 into CIT there saves NPR 10,000of tax — and the NPR 1,00,000 is still yours, earning a return, withdrawable under the scheme's rules.

4 — Is SSF enrolment worth asking for?

An SSF member does not pay the 1% Social Security Tax on the first NPR 10,00,000 of taxable income, and the employer contributes 20% of basic salary instead of PF's 10%. At this salary the tax difference alone is NPR 10,720 a year, before counting the larger employer contribution.

Enrolment is the employer's registration, not your election, so this is a lever you argue for rather than pull. The full comparison — contributions, tax, take-home and what you own at the end — is in SSF vs Provident Fund.

5 — Who gets the 10% rebate for women?

A resident woman whose only income is employment income receives a 10% rebate on the tax computed. It is applied to the tax, after the bands and after every relief, and it is worth NPR 1,208 a year at a salary of NPR 1,00,000 a month.

It is automatic in law but not always automatic in payroll. If you are a woman with only salary income and your TDS matches a male colleague's on the same package to the rupee, the rebate is probably not being applied. Run both cases in the calculator and take the difference to HR.

6 — Are you counting only the months you were paid?

Tax is assessed on the income of the fiscal year, not on twelve times your monthly salary. If you joined in Mangsir, your assessable income is the months you were actually paid — and a payroll system assuming a full year will withhold too much every month until it corrects itself.

• Joined mid-year: tell payroll your joining date and check the annual income figure on the tax computation sheet.
• Left mid-year: the same in reverse — income from the previous employer in the same fiscal year has to be declared, or you will underpay and settle later.
• Unpaid leave:a month with no pay is not income. It should reduce the year's assessable total, not just that month's cash.

The calculator has a “months worked this year” field for exactly this. Setting it correctly is the difference between an accurate monthly TDS and a refund you have to chase at the end of the year.

What does not reduce your tax?

There is no exemption for a festival bonus, no general exemption for allowances paid in cash, and no deduction for rent, school fees or a home loan on employment income in Nepal. Restructuring salary into “allowances” changes nothing — every cash allowance from the employment is assessable income.

Short versions of these questions are answered on the FAQ page. The honest summary: the reliefs are modest and the ceilings are firm. Using every one of them at this salary removes the entire tax bill — NPR 12,080a year, at which point the women's rebate has nothing left to reduce. Real money, but it comes from paperwork submitted on time, not from clever structuring.