How to Calculate the Four Advance Tax Installments in Nepal

Rather than paying one large lump sum at year-end, taxpayers with business or professional income in Nepal are required to pay their estimated tax liability across the year through advance tax installments. Getting the advance tax installment calculation in Nepal right — and hitting each due date — avoids interest charges and keeps year-end filing simple. This guide walks through the percentage schedule, a worked numeric example, and what happens if an installment is underpaid.

The Installment Percentage Schedule and Due Dates

Advance tax in Nepal is paid in a cumulative structure — each installment is not a flat 25% or 33% split, but a running percentage of your total estimated annual tax liability for the year. Under Section 94 of the Income Tax Act, 2058, a taxpayer whose estimated tax liability (after adjusting for tax already withheld) is Rs. 7,500 or more must pay advance tax as follows: 40 percent of the total estimated tax liability by the end of Poush (mid-January), 70 percent of the total estimated tax liability by the end of Chaitra (mid-April), and 100 percent of the total estimated tax liability by the end of Ashad (mid-July). A fourth and final reconciliation happens when the annual tax return itself is filed — any shortfall between the advance tax paid and the actual final tax liability must be settled at that point, while any overpayment can be claimed as a refund or carried forward.

Worked Example With Numbers

Suppose a business estimates its total annual tax liability for the year at Rs. 500,000. Applying the cumulative schedule works out as follows: by Poush end, the taxpayer must have paid 40 percent of Rs. 500,000, which is Rs. 200,000. By Chaitra end, the cumulative amount due rises to 70 percent of Rs. 500,000, or Rs. 350,000 — meaning an additional Rs. 150,000 is payable at that point, on top of the Rs. 200,000 already paid. By Ashad end, the cumulative figure reaches 100 percent, or the full Rs. 500,000 — requiring one more payment of Rs. 150,000. If the actual final tax liability, once computed at year-end, turns out higher than the Rs. 500,000 estimate, the balance is paid with the annual return; if it is lower, the excess can be adjusted or refunded.

Penalty for Underpaying an Installment

The law allows some flexibility — a taxpayer is generally considered compliant as long as at least 90 percent of each cumulative installment threshold is met by the respective due date. Falling short of this triggers consequences under the Income Tax Act. A fee is chargeable under Section 118 for underpayment of an installment, and interest accrues under Section 119 at the prescribed annual rate (commonly cited as 15 percent per annum) on the shortfall amount, calculated for the period the payment remained outstanding. These charges apply per installment, so a shortfall in an earlier installment that isn't corrected can compound the interest exposure by the time the final settlement is due.

FAQ

Can you revise your estimated liability mid-year?

Yes. Since advance tax is based on an estimate, taxpayers can and should revise their projected annual tax liability as more accurate information becomes available during the year — for instance, once actual revenue and expense figures for the first half of the year are known. Revising the estimate before the Chaitra or Ashad installment helps avoid both underpayment penalties and unnecessary overpayment of tax.

What if my actual tax liability turns out to be much lower than estimated?

If your final computed tax liability at year-end is lower than the cumulative advance tax paid, the excess amount is generally adjusted against future tax liability or can be claimed as a refund through the annual return process, subject to standard verification by IRD.