Tax Deducted at Source is the single most common tax compliance touchpoint for Nepali businesses — every payroll run, every rent payment, every consultant invoice involves a TDS decision. Get the rate wrong and you either under-withhold (creating a liability for the payer) or over-withhold (creating friction with vendors and employees). This guide lays out the complete FY 2083/84 TDS rate table, the filing calendar, and the mistakes that trigger IRD penalties most often.
What TDS Is Under the Income Tax Act 2058
Tax Deducted at Source (TDS), sometimes called withholding tax, is a mechanism under Nepal's Income Tax Act 2058 that requires the payer of certain types of income — salary, rent, contract payments, interest, dividends, commissions, and more — to deduct tax at a prescribed rate before making the payment, and to deposit that amount directly with the Inland Revenue Department (IRD) on behalf of the recipient. The recipient then claims the deducted amount as a tax credit when filing their own annual return.
The system exists for two reasons: it spreads tax collection across the year instead of concentrating it at annual filing, and it creates a paper trail that makes it much harder for income to go unreported. For employers and businesses, TDS is a legal obligation with its own filing deadlines and its own penalty regime, entirely separate from the recipient's personal or corporate tax filing.
Full TDS Rate Table by Payment Type — FY 2083/84
The table below summarizes the most commonly used TDS rates for FY 2083/84. Always confirm the rate against the current Finance Act and IRD notices before applying it, since specific sub-categories (e.g. rent to individuals vs companies, or interest on different instrument types) can carry exceptions to the general rate shown here.
| Payment Type | TDS Rate | Notes |
|---|---|---|
| Salary (employment income) | As per slab rates | Progressive slabs; NPR 10 lakh exemption threshold applies to certain remuneration components |
| House/Building Rent | 10% | Deducted by the tenant when paying rent to the landlord |
| Contract/Consultancy Payments | 1.5% | Applies to payments for construction, contract, and consultancy services above the threshold |
| Interest (bank/financial institutions to individuals) | 5-6% | Rate varies by deposit/instrument type |
| Dividend | 5% | Final withholding tax on dividend distributions |
| Commission/Discount | 15% | Applies to commission and discount payments to residents |
| Rent on Vehicle/Machinery | 10% | Equipment and vehicle rental payments |
| Retirement Payment | 5% | On retirement payments from unapproved retirement funds |
Compared to prior years, the headline structural change for FY 2083/84 is not a wholesale rewrite of these rates but the revised salary exemption threshold discussed below — most non-salary TDS rates carry forward largely unchanged, which is why the table above remains a reliable year-round reference for most payment types.
TDS on Payments to Non-Residents
Payments made to non-resident individuals or entities generally attract a higher, often final, withholding rate — commonly in the 15% to 25% range depending on the nature of the payment (management fees, royalties, technical service fees, interest, or dividends), unless a Double Taxation Avoidance Agreement (DTAA) between Nepal and the recipient's home country provides for a reduced rate. Businesses making cross-border payments should confirm both the domestic TDS rate and any applicable treaty rate before deducting tax, and should retain the necessary residency documentation to support a reduced treaty rate if one is claimed.
TDS filing calendar for Nepali withholding agents
Monthly TDS Deposit Deadlines and the e-TDS Filing Process
TDS deducted during a given month must generally be deposited with the IRD within 25 days of the end of that month. Alongside the deposit, the withholding agent (the employer or payer) must file a monthly e-TDS return through the IRD's online portal, detailing each deduction by recipient PAN, payment type, and amount withheld. This return forms the basis for the TDS credit that recipients later claim on their own annual filings, so accuracy at this stage directly affects downstream reconciliation for every employee and vendor involved.
Late deposit triggers both a late fee and interest calculated from the original due date, and repeated late filing can flag a withholding agent for closer IRD scrutiny in subsequent periods — making the monthly deadline one of the highest-value dates on any Nepali finance team's compliance calendar.
Common Employer Mistakes
The most frequent TDS errors seen in practice fall into a small number of recurring patterns: applying the wrong rate because a payment was mis-classified (treating a consultancy fee as a simple purchase, for instance, or applying the rent rate to an equipment lease incorrectly); missing the 25-day deposit deadline and only discovering the resulting late fee months later during an audit; misusing exemption thresholds on payments that don't actually qualify; and failing to deduct TDS at all on payments to non-resident vendors because the payer assumed foreign invoices fall outside Nepal's withholding rules. Each of these is straightforward to prevent with a documented payment-type-to-rate mapping reviewed at least once a year.
Common TDS mistakes Nepali employers should avoid
How the New NPR 10 Lakh Exemption Threshold Changes Payroll TDS
A revised exemption threshold of NPR 10 lakh now applies to certain remuneration components, changing how payroll teams calculate monthly TDS for employees whose total annual remuneration sits near this line. In practice, this means payroll software and manual TDS worksheets built around the previous threshold need to be updated before the first payroll cycle of FY 2083/84, since applying the old threshold either over-withholds tax from employee paychecks (creating unnecessary refund claims at annual filing) or under-withholds it (creating a shortfall the employer may be liable for). HR and payroll teams should specifically re-check mid-level employees whose gross annual remuneration falls close to the NPR 10 lakh mark, as this is where miscalculation is most likely to occur.
TDS Credit and Annual Reconciliation at Return Filing
At the end of the fiscal year, every taxpayer who had TDS deducted from their income is entitled to claim that amount as a credit against their final tax liability when filing their annual return. This reconciliation depends entirely on the accuracy of the withholding agent's monthly e-TDS filings — if an employer under-reports a deduction or files it against the wrong PAN, the affected employee's credit claim will not match IRD's records, triggering a mismatch notice and delaying any refund due. Both employers and individual taxpayers benefit from cross-checking the annual TDS certificate against the employer's cumulative e-TDS filings before submitting the final return, rather than assuming the two automatically agree.
For a deeper look at how withholding interacts with corporate income tax obligations more broadly, see our related guide on bank and financial institution tax rules in Nepal.
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