Natural Person

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1 year ago

1. Who is called natural person?

Human being male, female and person of any gender are natural person. The term natural person also includes the sole proprietorship.

The Income Tax Act, 2058 in section 2 subjection (ac) describes natural person as an individual and for the purpose of the Act, the term also includes a sole proprietorship owned by an individual, whether registered or not, and a spouse so selected as per law is to be considered as an individual.

2. Is it necessary for every natural person to be registered as taxpayer?

The natural person who earns the taxable income and those having tax deducted at source during the payment is received must obtain Permanent Account Number (PAN).

3. What is the tax liability of the natural person?

The tax liability of the natural person will be as given in the Annex 1 of the Income Tax Act, 2058(amended by Finance Act, 2076). If anybody does not pay liable tax, it can also be recovered from his/her house, property through sale.

4. Where shall be natural person registered?

The natural person shall get registered in the Inland Revenue Office located in the place where he/ she resides or where he/she is employed and in case of the sole proprietorship, the Inland Revenue Office located in the place of main address of the firm and obtain PAN.

5. What are the required documents for the natural person to be registered?

To obtain PAN, following documents needed to be presented along with the application to be submitted in Inland Revenue Office:

  • A certified copy of citizenship
  • A certified copy of Passport in case of a foreign national
  • A copy of certificate of profession
  • One passport sized photograph
  • Firm registration certificate in case of sole proprietorship.

6. Are all the incomes of the natural person taxable?

All the incomes of the natural person are taxable except the income from agriculture. However, in case of the income earned from special industry, special tax exemption is provided. Tax shall be levied as following on the income earned by the person from a special industry in an income year:

a. If the person give direct employment to Six Hundred or more Nepalese citizens through out the year, Ninety percent of the rate of tax leviable on the income of that year,

b. If a special industry has been operated in remote, undeveloped and underdeveloped areas, respectively Seventy, Seventy-Five and Eighty percent of the tax leviable on income of the years for ten income years including the income year in which such an industry started operating.

7. What is the tax rate in the income of the natural person?

Tax on income from employment

For an invividual

Income in Rs. Tax rate
Up to 4,00,000/- 1%
Rs. 4,00,000/- to Rs. 5,00,000/- Rs. 4000/- for up to Rs. 4,00,000/- and 10% on remaining
Rs. 5,00,000/- to Rs. 7,00,000/- Rs. 14000/- for up to Rs. 5,00,000/- and 20% on remaining
Rs. 7,00,000/- to Rs. 20,00,000/- Rs 54,000/- for up to Rs. 7,00,000/- and 30% on remaining
More than Rs. 20,00,000/- 30% plus 20% of 30%

For the couple

Income Tax rate
Up to Rs. 4,50,000/- 1%
Rs.450000/- to Rs. 5,50,000/- Rs 4,500/- for up to Rs. 4,50000/- and 10% on the remaining
Rs. 5,50,000/- to Rs. 750000/- Rs. 14,500/- up to for Rs. 5,50,000/- and 20% on remaining
Rs. 7,50,000/- to Rs. 20,00,000/- Rs. 54,500/- up to for Rs. 7,50,000/- and 30% on remaining
More than Rs. 20,00,000/- 30% plus 20% of 30%

In case of sole proprietorship,

For an individual

Income in Rs. Tax rate
Up to 4,00,000/- No tax
Rs. 4,00,000/- to Rs. 5,00,000/- Rs. 4000/- for up to Rs. 4,00,000/- and 10% on remaining
Rs. 5,00,000/- to Rs. 7,00,000/- Rs. 14000/- for up to Rs. 5,00,000/- and 20% on remaining
Rs. 7,00,000/- to Rs. 20,00,000/- Rs 54,000/- for up to Rs. 7,00,000/- and 30% on remaining
More than Rs. 20,00,000/- 30% plus 20% of 30%

For the couple

Income Tax rate
Up to Rs. 4,50,000/- No tax
Rs.450000/- to Rs. 5,50,000/- Rs 4,500/- for up to Rs. 4,50000/- and 10% on the remaining
Rs. 5,50,000/- to Rs. 750000/- Rs. 14,500/- up to for Rs. 5,50,000/- and 20% on remaining
Rs. 7,50,000/- to Rs. 20,00,000/- Rs. 54,500/- up to for Rs. 7,50,000/- and 30% on remaining
More than Rs. 20,00,000/- 30% plus 20% of 30%

7. Is there any special facility regarding tax to the natural person?

In the calculation of taxable income of natural person, following can be deducted from the taxable income:

a. Remote allowance

The natural person who is employed in the remote location as specified by Government of Nepal and get remote allowance can deduct such allowance from taxable income. Such remote allowance to be deducted shall not be more than Rs. 50,000 and tax shall be calculated in the remaining amount only.

b. Foreign allowance

For the employee working in the abroad based diplomatic missions of the State of Nepal, seventy five percent amount of their abroad allowance shall be deducted from the taxable income, and the tax shall then be calculated on the remaining amount only.

c. Pension income

The resident person if has any pension income, tax shall be computed only on the amount remaining balance after subtracting an additional twenty-five percent of the taxable income for the natural person and for the spouse from their taxable income and the tax shall then be calculated on the remaining amount only.

d. Disabled Allowance:

In case of a disabled resident individual, additional fifty percent of the taxable income for the natural person and for the spouse from their taxable income and the tax shall then be calculated on the remaining amount only.

e. Investment Insurance Premium

The person who has investment insurance can deduct annual investment insurance premium or Rs. 20,000 whichever is less from the taxable income.

f. Medical Insurance Premium

The person who has investment insurance can deduct annual medical insurance premium or Rs. 20,000 whichever is less from the taxable income.

g. Adjustment of medical treatment

Any resident natural person may make a claim for adjustment of tax for medical treatment in any income year for the approved medical expenditure incurred by him/herself or through any other person for him/herself.

h. Donation, gifts given to organizations entitled to tax exemption, the retirement contribution made to the retirement fund can also be claimed for deductions.

8. Does a natural person need to take permission to submit their income return as a spouse? If both husband and wife does not have source of income but only one of them has source of income, can they choose to submit income return as spouse?

The husband and wife can choose to be treated as one natural person in any specific income year for tax purpose. The spouse can change this in coming income year. The spouse does not need to take permission of IRD for such. Even though both husband and wife do not have source of income they can make such selection and get facilities provided to spouses. a resident widow or widower who has to maintain and Subsist dependents shall be treated as spouse.

9. The wife has income from employment, but husband has no income source. Can the wife can claim adjustment of expense medical treatment of the husband?

Yes, the wife can claim the adjustment of expense medical treatment of the husband even when husband has no income source and vice versa. However, such claim cannot be more than Rs. 750 and it cannot be more than 15% of the total expense of medical treatment.

The excess amount of claim of medical treatment can be carried forward for forthcoming income years.

Similarly, the wife can claim to deduct annual husband’s medical insurance premium or Rs. 20,000 whichever is less from the taxable income.

10. The person whose income source is only employment need to submit income return or not?

In case of the person who earns more than forty lakhs annually, he/she shall file income returns as provided in section 96 of the Income Tax Act.

In case of the person earning less than forty lakhs annually and has only one employer and does not claim any donation claims he/she does not need to file income return. However, the person who is employed at more than place at the same time or the person who runs business along with employment should present the income returns.

11. Is pension taxable?

Yes. However, 1% Social Security tax is not levied.

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