How to Claim Double Taxation Relief Step-by-Step in Nepal

Earning income across two countries can mean facing tax twice on the same money — once in the country where the income is earned, and again in Nepal if you are a resident taxed on worldwide income. Nepal's Income Tax Act and its network of Double Taxation Avoidance Agreements (DTAAs) provide a clear path to claim double taxation relief in Nepal, and this guide walks through the DTA claim process step by step.

Choosing Between the Exemption Method and the Credit Method

Double taxation relief generally works through one of two mechanisms. Under the exemption method, foreign-source income that has already been taxed abroad is simply excluded from taxable income in Nepal — this provides complete relief but appears less frequently across Nepal's treaties. Under the credit method, which is the more commonly applied approach both under Nepal's DTAAs and under Section 71 of the Income Tax Act (for cases without an applicable treaty), Nepal taxes worldwide income but allows a credit for foreign tax already paid on that foreign-source income. This credit is limited to the lower of the actual foreign tax paid or the Nepal tax attributable to that same income — meaning if the foreign tax rate was higher than Nepal's rate on that income, the excess is generally not refunded, though it may in some cases be carried forward.

Documents Needed From the Foreign Tax Authority

Claiming relief requires solid documentary proof, since IRD needs to verify both your foreign residency status (where a treaty is invoked) and the actual foreign tax paid. Key documents typically include a Tax Residency Certificate (TRC) issued by the tax authority of the foreign country, in the format generally recognized under Schedule 11 of the Income Tax Act where applicable; official proof of foreign tax assessed and paid, such as a tax assessment order, payment receipt, or withholding tax certificate from the foreign payer; and, where a specific DTAA article is being invoked (for example, for reduced withholding on dividends, interest, or royalties), a clear reference to the applicable treaty and article. Without a valid TRC and proof of tax paid, a credit or exemption claim is very difficult to substantiate.

Filing Steps With IRD

Once documentation is in hand, the claim is incorporated into the annual income tax return process rather than filed as a separate, standalone application in most cases:

1. Confirm whether a DTAA exists between Nepal and the country where the foreign income was earned, and identify the relevant article covering that type of income.
2. Compute the foreign-source income and the corresponding Nepal tax liability on that portion of income, as if no foreign tax had been paid.
3. Calculate the credit (or exemption) amount, applying the lower-of rule where the credit method applies.
4. Attach the TRC and proof of foreign tax paid to the annual tax return, clearly referencing the relevant treaty article or Section 71 claim.
5. Submit the return to the concerned IRD office by the applicable filing deadline, retaining copies of all supporting documents for future verification.

FAQ

What if the foreign country's tax year doesn't match Nepal's fiscal year?

This is a common practical issue, since many countries follow a calendar-year tax period while Nepal follows a mid-July to mid-July fiscal year. In such cases, foreign tax paid is generally matched to the Nepal income year in which the corresponding foreign-source income was earned and reported, based on when the income accrued rather than strictly aligning tax-year labels. Where timing differences make this matching difficult, keeping detailed records of exactly which income and tax relate to which period helps support the claim, and professional guidance is recommended for correctly allocating amounts across mismatched tax years.

Can double taxation relief be claimed if there is no treaty with the other country?

Yes. Even without a DTAA in place, Section 71 of the Income Tax Act provides a general foreign tax adjustment mechanism, allowing a credit for foreign tax paid on foreign-source income, subject to the same lower-of-actual-or-Nepal-tax limitation described above.