Turnover Tax vs Regular Tax in Nepal — Which One Are You On?

Not every business in Nepal is taxed the same way. Depending on your annual turnover, your profit, and even your profession, you could fall under a simple fixed-fee system, a light percentage-of-turnover system, or the full book-based regular tax system. Understanding turnover tax in Nepal — and where the line falls between it and regular income tax — can significantly change how much bookkeeping your business needs and, in some cases, how much tax you actually owe. This guide breaks down the thresholds, the fixed slabs, when you must switch systems, and how to formally change your regime with IRD.

Turnover Thresholds for Presumptive / Turnover-Based Tax

Nepal's Income Tax Act provides two simplified regimes for smaller resident individual businesses, sitting below the full regular tax system:

Presumptive (fixed) tax: Available to resident natural persons whose annual business turnover does not exceed NPR 30 lakh (NPR 3,000,000) and whose taxable business income stays below NPR 3 lakh (NPR 300,000).

Turnover-based (transaction-based) tax: Available to resident natural persons whose annual business turnover falls between NPR 30 lakh and NPR 1 crore (NPR 10,000,000), with taxable business income up to NPR 10 lakh (NPR 1,000,000).

Both regimes are available only to natural persons (individual proprietors), not to companies, and both exclude certain professions entirely regardless of how low their turnover is — more on that below.

Fixed Tax Slabs Under the Turnover System

Presumptive tax (up to NPR 30 lakh turnover): Instead of calculating tax on profit, eligible small businesses pay a flat annual amount that depends on where the business is located — generally a higher fixed amount in metropolitan cities, stepping down through sub-metropolitan cities, municipalities, and rural municipalities. A notable recent change allows businesses with genuinely zero transactions in a fiscal year to pay zero presumptive tax for that year, rather than the flat minimum.

Turnover-based tax (NPR 30 lakh to NPR 1 crore): Instead of a flat fee, the business pays a small percentage directly on gross turnover, with the applicable percentage varying depending on whether the business deals in general goods, trading, or services — trading and general goods are taxed at a lower percentage than services, reflecting typically thinner margins on goods resale.

Because both the exact fixed amounts and the exact turnover-based percentages are set through the annual Finance Act and can be revised, always confirm the current year's specific figures on IRD's published notice before filing, rather than relying on a prior year's numbers.

When a Business Must Switch to Regular (Book-Based) Taxation

A business must move to the regular, full book-based tax system in any of the following situations:

Annual turnover exceeds NPR 1 crore, taking it above the turnover-based band entirely. The business is structured as a company, partnership, or other entity rather than an individual proprietorship, since presumptive and turnover-based tax are only available to natural persons. The taxpayer earns income from consultancy or specialized professional services — this includes doctors, engineers, auditors, lawyers, professional athletes, and actors, who are excluded from both simplified regimes regardless of how small their turnover is. Or the taxpayer's taxable income exceeds the profit ceiling attached to their turnover band, even if turnover itself stays within range.

Once regular taxation applies, the business needs to maintain proper books of account, compute actual profit after allowable deductions, and pay tax under the standard progressive slab rates for individuals or the flat corporate rate for companies.

Pros and Cons of Each System for Small Traders

Presumptive tax — pros: Minimal bookkeeping, predictable fixed cost, fast and simple annual filing.
Presumptive tax — cons: You pay the fixed amount even in a comparatively weak year (unless transactions were genuinely zero), and it is not available once turnover or profit crosses the threshold.

Turnover-based tax — pros: Still simpler than full bookkeeping, scales somewhat with actual sales volume, and avoids the complexity of profit computation.
Turnover-based tax — cons: You pay tax on gross turnover regardless of your actual margin, which can be a disadvantage in a low-margin year compared to regular tax on true profit.

Regular tax — pros: Tax is based on actual profit, so a low-margin or loss-making year genuinely results in lower or no tax, and full expense deductions are available.
Regular tax — cons: Requires proper bookkeeping, audited or reviewed accounts in many cases, and a more involved annual filing process.

How to Change Tax Regime With IRD

Movement between regimes generally works as follows: qualifying for a simplified regime (presumptive or turnover-based) is typically automatic based on your declared turnover and income at the time of filing, using the corresponding return form for that regime. Moving up to a higher regime — for example, from presumptive to turnover-based, or from either simplified regime to regular tax — is generally required once your turnover or income crosses the relevant threshold during a fiscal year, and needs to be reflected from the point of filing for that year onward. If your circumstances change — such as taking on consultancy work that falls into an excluded profession category — it is worth proactively confirming your correct regime with your local tax office or a Chartered Accountant, rather than waiting for an assessment to flag the mismatch.

Frequently Asked Questions

What is the turnover tax rate in Nepal for small shops?

A small shop with turnover up to NPR 30 lakh and low taxable income generally qualifies for the fixed presumptive tax rather than a percentage-based turnover tax, paying a flat annual amount that depends on its municipality type. If turnover moves into the NPR 30 lakh to NPR 1 crore range, the shop shifts to the turnover-based system and pays a small percentage of gross turnover instead of a flat fee — the exact percentage depends on whether it is classified under general goods, trading, or services, and should be confirmed against the current Finance Act figures.

Can I choose regular tax even if I qualify for presumptive tax?

Generally, taxpayers who meet the criteria for presumptive or turnover-based tax are required to use those regimes rather than opting into regular tax voluntarily, since the simplified systems are treated as mandatory once the eligibility conditions are met, not optional alternatives.

Does turnover tax apply to companies as well as individuals?

No. Both the presumptive and turnover-based systems are designed specifically for resident natural persons operating as individual proprietors. Companies, partnerships, and other registered entities are taxed under the regular corporate or entity tax structure regardless of how small their turnover is.

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Disclaimer: This article is intended for general information only and does not constitute legal or tax advice. Turnover thresholds, fixed tax amounts, and percentage rates are set through the annual Finance Act and are subject to change. Please consult an ICAN-registered Chartered Accountant before making any decisions based on this content.