Capital Gains Tax on Land and Buildings in Nepal — FY 2083/84

Before applying these rates, determine:

Is the asset a non-business chargeable asset?

A property used as part of a taxpayer's business may require different business-asset treatment.

Therefore: individual owns investment/private land

and property developer sells trading property are not necessarily taxed under the same capital-gain mechanism.

Acquisition/tax cost: NPR 5,000,000

Qualifying disposal value: NPR 8,000,000

Capital gain: NPR 3,000,000

Ownership: 8 years

Rate: 7.5%

Tax: NPR 225,000 subject to statutory valuation and allowable cost rules.

Capital gain: NPR 3,000,000

Ownership: 3 years

Rate: 10%

Tax: NPR 300,000

Section 95क(5) refers to tax on the capital gain earned from disposal.

That is different from Section 95क(6), which applies to other persons and is calculated on the disposal value.

This distinction is extremely important.

Except where Section 95क(5) applies, Section 95क(6) provides advance tax at: 1.5% of disposal value for land/buildings owned by another person/entity within the scope of that provision.

Example

Company sells land: Disposal value:

NPR 20,000,000

Advance tax: 1.5%

= NPR 300,000

This does not necessarily mean the company's final income-tax liability is 1.5%.

It is a collection/advance-tax mechanism and the underlying business/entity tax computation must be reviewed separately.

Finance Act 2083 adds a special: 2.5% capital-gain collection rate where qualifying non-business land/building of a natural person is involuntarily disposed of because of compulsory acquisition under a Government of Nepal decision.

This should be treated separately from an ordinary voluntary property sale.

Finance Act 2083 adds Section 95क(5क), under which no capital-gains tax is collected where a natural person voluntarily transfers their own land/private building without consideration to:

• Government of Nepal;

• Provincial Government; or

• Local Government.

This also interacts with the new Section 10 exemption identified in the Finance Act 2083 amendments.

The tax calculation should determine the statutory cost basis.

Potential components can require review of:

• original acquisition cost;

• registration costs;

• qualifying improvements;

• other statutory amounts;

• prior transfers;

• inheritance/gift rules;

• deemed market-value rules.

Do not assume that:

current market valuation − original deed price

is always the correct capital gain.

The Land Revenue/registration authority applies statutory valuation and registration procedures.

Where the declared consideration differs from values recognised under tax/registration law, the taxable/disposal amount may require adjustment under the applicable statutory valuation rules.

Therefore retain:

• purchase deed;

• sale deed;

• government valuation evidence;

• improvement invoices;

• ownership history.

Property received through:

• inheritance;

• succession;

• family transfer;

• gift;

can have special tax cost and disposal rules.

Do not simply assign: cost = zero

without analysing the Act.

For an inherited property, retain the succession documents and review the tax-cost rules before calculating the gain:

Inherited Property — Capital Gains Tax in Nepal

Suppose an individual operates a hotel and sells the hotel building.

Do not automatically apply the private/non-business 7.5%/10% rule.

First determine:

• whether it is a business asset;

• depreciation history;

• Section 36 disposal rules;

• business-income effect;

• Section 95क collection requirement.

Land/building held as trading stock by a real-estate/property business can be fundamentally different from an individual's non-business investment property.

The transaction may be ordinary: business income

rather than merely a non-business capital gain.

• Identify owner

• Natural person/entity?

• Resident/non-resident?

• Determine business/non-business character

• Determine acquisition date

• Determine ownership period

• Establish tax cost

• Check improvements

• Establish disposal value

• Check statutory valuation

• Calculate gain

• Apply correct rate

• Check compulsory-acquisition rule

• Check government-gift exemption

• retain purchase/sale deeds

• retain registration/tax evidence

Applying 7.5%/10% to a company's disposal value

Applying 1.5% to the profit instead of disposal value under Section 95क(6)

Treating business property as private investment property

Using the old 5%/7.5% rates

Ignoring ownership period

Assuming inherited property has zero cost

Property taxation depends heavily on ownership history, asset character and statutory valuation. Review the transaction before executing the deed where the tax amount is material.