Tax Rules for Electricians, Plumbers & Skilled Tradespeople in Nepal
Most electricians, plumbers, welders, and other skilled tradespeople in Nepal operate informally — cash payments, verbal contracts, no invoices. That's understandable given how the trade has traditionally worked, but it leaves many tradespeople unsure whether they even need to think about tax at all. The short answer: yes, once you're earning a regular income from your trade, you have a tax position — but Nepal's presumptive tax system is specifically designed to make compliance simple for exactly this kind of small, informal service business.
Presumptive Tax Eligibility for Informal Tradespeople
Nepal's presumptive tax scheme (sometimes labelled D-01 in IRD forms) exists precisely for small, natural-person businesses like a one-person or small-crew electrical or plumbing operation. To qualify, two conditions generally need to be met together:
- Annual turnover of NPR 30 lakh (NPR 30,00,000) or below — this is your total billings for the year, not your profit.
- Annual net profit of NPR 3 lakh (NPR 3,00,000) or below — the actual amount you keep after material costs and expenses.
If both conditions are met, instead of computing profit and applying income tax slabs, you pay one fixed annual amount that depends on where your business is located: broadly NPR 7,500 in a metropolitan city, NPR 4,000 in a sub-metropolitan city, NPR 2,500 in a municipality, and NPR 1,500 in a rural municipality. If your business had genuinely zero transactions in a given fiscal year, the presumptive tax for that year drops to zero as well — a helpful provision for tradespeople who had a slow or inactive year.
The PAN Requirement Threshold
Here's the point that surprises many tradespeople: PAN (Permanent Account Number) registration is not optional once you're running a business, regardless of which tax bracket you ultimately fall into. Presumptive tax status simplifies how much you pay and how simply you file — it does not remove the requirement to be registered with the Inland Revenue Department in the first place. In practice:
- If you're taking on jobs consistently and being paid for your trade skill, you should register for a PAN, not wait until you "become big enough."
- Clients — particularly companies, contractors, or government bodies — will often require your PAN before they can legally pay you or before they can deduct TDS correctly on payments made to you.
- Operating without a PAN doesn't exempt income from tax; it just means the income isn't properly documented, which creates risk if income patterns are ever reviewed.
Contract Work vs Daily Wage Income Treatment
How your income is structured changes how it's taxed and by whom:
Contract-based work
When you take on a defined job — rewiring a house, fitting a bathroom's plumbing — for an agreed price, this is business income. It's your own turnover and profit that get assessed under the presumptive, turnover-based, or standard business tax rules depending on your scale, as covered above.
Daily wage / labour contractor arrangements
If you're working under a labour contractor or a construction company as effectively a day-wage worker — showing up, working a shift, getting paid per day — this can start to resemble employment income rather than independent business income, particularly if the arrangement is exclusive, ongoing, and controlled by the contractor (fixed hours, provided tools, no independent client relationships of your own). In genuine employment-like arrangements, TDS may be deducted by the paying party under employment income rules rather than you separately filing as a small business. The distinction matters and is sometimes genuinely blurry in real construction-site arrangements — worth clarifying with whoever is paying you, and with a tax professional if your situation is mixed (some direct clients, some contractor-arranged day work).
Frequently Asked Questions
Does a tradesperson working through a labor contractor need separate registration?
It depends on the nature of the arrangement. If you're effectively an employee of the labour contractor (fixed schedule, provided tools, contractor controls client relationships), the contractor may handle tax withholding on your wages, and you may not need separate business registration for that specific arrangement. If you're taking on your own independent jobs alongside or instead of contractor-arranged work, that independent income is your own business turnover and does require your own PAN and presumptive/business filing. Many tradespeople have a mix of both — worth reviewing your specific pattern of work with a professional.
What if my turnover crosses NPR 30 lakh partway through the year?
Once turnover for the year exceeds the presumptive tax ceiling, you'd move to the turnover-based tax bracket (for turnover between NPR 30 lakh and 1 crore) or standard filing depending on your final figures — this is assessed annually based on that year's actual turnover, so check your running total periodically rather than only at year-end.
Do I need to charge VAT as an electrician or plumber?
VAT registration is triggered by a separate turnover threshold (commonly NPR 30 lakh for services) — distinct from the presumptive tax ceiling. It's possible to be within presumptive tax eligibility for income tax purposes while still needing to monitor the VAT threshold separately as your business grows.
Can I deduct the cost of tools and materials?
Under presumptive tax, you pay the fixed amount regardless of actual expenses — there's no separate expense deduction because the scheme is designed around a fixed, simplified payment. If you move to turnover-based or standard filing, material and tool costs generally become deductible business expenses under the normal computation rules.
Discussion