Nepal Withholding Tax (TDS) Handbook: Practical Guide under Income Tax Act 2058

1. Statutory Framework of Withholding Tax\n\nUnder Chapter 17 of the **Income Tax Act, 2058**, the person making specified payments has a mandatory statutory obligation to withhold tax at source at the time of payment or credit, whichever occurs earlier.\n\nFailure to deduct or deposit TDS attracts statutory interest under Section 117 and statutory penalty under Section 119.\n\n---\n\n## 2. Distinction: Final vs. Non-Final Withholding\n\n| Classification | Meaning & Legal Effect | Primary Examples |\n| :--- | :--- | :--- |\n| **Final Withholding Tax** | The tax deducted at source is treated as the final settlement of tax liability on that income. The recipient is not required to include this income in their annual income tax return. | - Bank interest paid to natural persons (5%)\n- Dividends distributed to resident shareholders (5%)\n- House rent paid to natural persons (10%) |\n| **Non-Final (Adjustable)** | The tax deducted is treated as an advance tax credit. The recipient must declare the gross income and claim the TDS amount as a tax credit. | - Consultancy and technical fees (15%)\n- Service supply contracts under Section 89 (1.5%)\n- Commission payments (15%) |\n\n---\n\n## 3. Monthly Deposit & ETDS Reconciliation Protocol\n1. **Deadline**: All tax deducted during a Nepali month must be deposited at designated commercial banks by the **25th day of the following Nepali month**.\n2. **PAN Attribution**: Ensure the exact Permanent Account Number (PAN) of the payee is recorded on the deposit voucher.\n3. **ETDS Verification**: Upload withholding schedules through the IRD Taxpayer Portal to ensure the withholding certificate reflects in the payee's tax ledger.