Missing a tax deadline in Nepal doesn't just mean a stern letter from the Inland Revenue Department (IRD). It triggers a specific, compounding set of fees and interest charges laid out in the Income Tax Act, 2058, and if the non-filing continues long enough, it can also trigger a formal reassessment of your tax liability, based on IRD's own estimate rather than your own figures. Here's exactly what happens, section by section, and what you can do before it gets to that point.
The Rs 100/Day Penalty: Section 117
Section 117 of the Income Tax Act imposes a daily fee where a person fails to maintain required documents, or fails to submit a return or income return on time. The rate is NPR 100 per day for individuals and NPR 200 per day for entities (companies, firms, and similar), calculated from the day immediately following the missed deadline until the return is actually filed.
This is a straightforward daily accrual, with no cap mentioned that reduces it over time, meaning the longer you delay, the larger this component grows. For an individual who files three months (roughly 90 days) late, this alone comes to NPR 9,000; for a business filing the same 90 days late, it comes to NPR 18,000, before any interest or other penalty is added.
15% Annual Interest: Section 119, Calculation Example
Separately from the daily filing fee, Section 119 imposes interest at 15% per annum on any tax amount that remains unpaid past its due date. This interest is calculated on the outstanding tax amount itself, not on the daily fee, and accrues for as long as the tax remains unpaid.
Here's a simplified worked example: suppose an individual owes NPR 100,000 in tax that remains unpaid for exactly 6 months (roughly half a year) past the due date. At 15% per annum, the interest works out to approximately NPR 100,000 × 15% × (6/12) = NPR 7,500 for that 6-month period. If the unpaid amount and duration are larger, this interest component can quickly become the single largest part of your total liability, since it compounds with time rather than being a flat, one-time charge.
Section 118: The Advance Tax Installment Shortfall Fee
A separate and often overlooked provision, Section 118, applies specifically to taxpayers who pay advance tax in installments under Section 94, and who end up paying less than the required amount at any given installment stage (40% by Poush end, 70% by Chaitra end, 100% by Ashadh end). Where a person underpays a required installment relative to their actual tax liability, this section imposes a fee on the shortfall amount, functioning similarly to an interest charge on that specific underpayment.
This is distinct from Section 119's general interest on unpaid final tax; Section 118 is triggered specifically by underestimating or underpaying your advance tax installments during the year, even if you ultimately intend to settle the balance with your annual return. Businesses and self-employed professionals paying advance tax should track their installment payments against a realistic estimate of annual liability throughout the year, rather than only reconciling everything at year-end.
The Non-Filer Assessment Process: Sections 100 and 101
If you simply don't file a return at all, the Income Tax Act doesn't leave your tax liability undetermined indefinitely. Under Section 100, where a person fails to file the required income return, a deemed self-assessment is triggered on the standard due date, generally based on the amount of tax already withheld by withholding agents (TDS) and any advance tax already paid during the year, treated as the deemed assessed liability for that person.
This deemed assessment is not necessarily the end of the story. Under Section 101, the Department has the power to amend a tax assessment, including a deemed assessment made under Section 100, where it has reasonable grounds to believe the assessed amount does not reflect the person's actual tax liability, for instance where IRD's own information (bank records, property transactions, or third-party data) suggests significantly more income than the TDS and advance tax figures indicate. In practice, this means prolonged non-filing doesn't quietly disappear; it can eventually surface as a formal amended assessment based on IRD's own reconstruction of your income, which is generally a far less favorable position than filing your own accurate return in the first place.
How to Request a Waiver or Extension Before Penalties Apply
There are two distinct paths worth knowing about, and both are best pursued proactively rather than after penalties have already accumulated:
- Filing extension: A written request for a filing extension, submitted to your jurisdictional Inland Revenue Office before the original deadline passes, can secure additional time (commonly up to three months) to file, provided IRD approves the request.
- Amnesty schemes: Nepal's government has periodically introduced time-bound tax amnesty provisions through the annual Finance Act, allowing taxpayers with historical unpaid dues to settle the principal tax owed in exchange for a full or partial waiver of accumulated fees, interest, and penalties, provided they act within the specific window set out in that year's Finance Act. These schemes are not a standing, year-round option; they depend on whichever provisions the current Finance Act includes, so their availability and terms should be confirmed for the current fiscal year specifically.
Outside of a specific amnesty window, requesting a general waiver of an already-accrued fee or interest charge is discretionary and not guaranteed; the safest approach is always to file and pay on time, or to request an extension before the deadline passes, rather than relying on a future waiver.
Frequently Asked Question
Can penalties be waived in Nepal?
Sometimes, but not automatically or as a standing right. Waivers most commonly become available through specific, time-bound tax amnesty provisions announced in a given fiscal year's Finance Act, which typically require the taxpayer to pay the underlying principal tax (and sometimes a partial interest amount) within a defined window in exchange for a waiver of the remaining fees, interest, or penalties. Outside of such a scheme, taxpayers can still submit a written request to IRD explaining the circumstances behind a delay, but approval of a discretionary waiver is not guaranteed and depends on IRD's assessment of the specific case. The most reliable protection remains filing and paying on time, or requesting a formal extension before your deadline passes.
Disclaimer: This article is for general informational purposes only and does not constitute legal or tax advice. Penalty rates, amnesty scheme availability, and assessment procedures can change with each year's Finance Act; please consult an ICAN-registered Chartered Accountant or the Inland Revenue Department directly for advice specific to your situation.
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