Nepal TDS & Withholding Tax Guide: Sections 88, 88Ka, 89 & Reverse Gross-Up
Tax Deducted at Source (TDS) under Chapter 17 of the Income Tax Act 2058 requires payers to withhold tax before remitting payment to vendors, consultants, and landlords. Understanding statutory withholding rates ensures commercial enterprises remain compliant with Inland Revenue Department deposit timelines.
- Section 88 mandates 15% TDS on un-registered consultancy services, reduced to 1.5% for VAT-registered firms.
- House rent paid to individuals attracts 10% local municipality tax, while corporate leases require IRD withholding.
- Transport freight services incur 2.5% TDS, whereas carriage without vehicles incurs 1.5% under VAT invoicing.
- Reverse gross-up calculation divides net desired compensation by (1 minus the applicable tax rate).
Standard TDS Rates Under Nepal Income Tax Act
The Inland Revenue Department establishes uniform withholding percentages across standard commercial transactions:
| Payment Category | Applicable Law | TDS Rate (%) |
|---|---|---|
| House Rent (Institutional) | Section 88 | 10% |
| Consultancy (PAN only) | Section 88 | 15% |
| Consultancy (VAT Invoice) | Section 88 | 1.5% |
| Transport & Freight Services | Section 88Ka | 2.5% |
| Public Procurement Contracts | Section 89 | 1.5% |
| Bank Deposit Interest (Natural Person) | Section 88 | 5% |
Calculating Reverse TDS Gross-Up
When contracts specify a net payment amount, payers must gross up the base invoice figure. The formula is: Gross Amount = Net Amount / (1 - TDS Rate). For a net payment of NPR 85,000 with a 15% TDS rate, the gross invoice amount equals NPR 1,00,000, with NPR 15,000 deposited directly to the tax office.
Final Thoughts
Accurate TDS deductions eliminate reconciliation discrepancies during annual tax audits. Use our TDS and Reverse Gross-Up Calculator to verify withholding sums instantly.
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