Hotels, Resorts and Restaurants — Fixed Assets, Repairs and Tax Depreciation

Hotels, resorts and restaurants invest in buildings, room furniture, kitchens, refrigeration, lifts, generators, vehicles and software. These purchases create different accounting and tax questions. A project budget describes the business purpose; it does not determine whether expenditure is immediately deductible, which tax pool applies or when depreciation begins.

The main tax references for this guide are Income Tax Act sections 16 and 19 and Schedule 2, read with the relevant annual amendments. The cited consolidated Act incorporates Finance Act 2082 and is read with the relevant Finance Act 2083 amendments. The examples state their assumptions, and the treatment for a particular business still depends on its facts and eligibility.

Maintain a physical asset register, an accounting fixed-asset schedule and a tax-pool schedule. The physical register identifies the asset and custodian. The accounting schedule applies the selected reporting framework, useful lives, depreciation and impairment. The tax schedule applies the Act's classification, pool movement, addition timing and deductions. Reconcile the three records, but do not force their closing balances to be identical.

Land should be identified separately from depreciable buildings and improvements. Construction in progress should be distinguishable from assets already brought into the business-use conditions required for tax treatment. Keep the contractor's bills, engineer certificates, acceptance and commissioning evidence behind each transfer into the asset records.

The examples are classification prompts. A lift integrated into the building, a removable kitchen installation and a separately purchased machine may require different analysis. Do not use the supplier's description “hotel equipment” as the sole basis for choosing Class D. Review ownership, nature, installation and the applicable statutory language. Class E assets are kept in separate pools under the cited framework rather than automatically combining all software into one pool.

Build a cost file from the invoice and directly attributable acquisition or installation expenditure under the applicable rules. Separate recoverable VAT from the cost where credit is legally available. Where input VAT is restricted, assess the proper accounting and tax treatment; do not capitalise or deduct it twice. Retain customs and foreign-payment evidence for imported machinery and distinguish supplier deposits from completed acquisition costs.

A NPR 5 million renovation contract may include a new kitchen machine, replacement room furniture, painting and building extension. Obtain an allocation supported by the work actually performed. One invoice does not make the entire contract a single asset or a routine repair. Document any shared-cost allocation and preserve a total-to-contract reconciliation.

Schedule 2's cited addition rule uses the later of the statutory inclusion event and expenditure event. It gives a first-year fraction of 3/3 for the first period through Poush, 2/3 for Magh through Chaitra and 1/3 for Baisakh through the end of the year. The balance of the cost is added in the following year under the stated rule, subject to pool dissolution conditions. This is not an accounting monthly-proration shortcut.

Record invoice, payment, ownership, installation and business-use dates separately so the relevant event can be established. A purchase order date or an engineer's estimate is not automatically the inclusion date. Preserve deferred additions as a separate column in the tax schedule; they must not disappear between years.

Assume an ordinary Class B pool opens with NPR 1,000,000 of written-down tax basis after the previous year's deduction. An eligible addition costing NPR 600,000 has its relevant event in Magh–Chaitra, and there are no disposals or other adjustments. The first-year addition is NPR 400,000, with NPR 200,000 deferred. The assumed depreciation basis is NPR 1,400,000. Ordinary depreciation at 25% is NPR 350,000 and the remaining basis after deduction is NPR 1,050,000. The deferred NPR 200,000 is tracked for the next year's treatment.

The example assumes that cost, business use, ownership and the addition rule are satisfied. It does not include disposal adjustments, special deductions, impairment or an accelerated-rate claim. Keep those circumstances visible when applying the schedule to an actual property.

Schedule 2 paragraph 3(2) in the cited consolidated Act refers to the listed projects and entities under sections 11(2ख), 11(3च) and 11(3थ), and increases the ordinary Class A–D rate by one-third. The resulting mathematical rates are 6⅔%, 33⅓%, 26⅔% and 20%. An additional one-third of the rate is different from adding 33 percentage points or deducting one-third of the asset cost immediately.

Eligibility must be established from the provision, the qualifying entity and applicable year. A restaurant should not claim the hotel/resort eligibility merely because it serves tourists. Keep the eligibility memo with the concession analysis from Chapters 4–7 and check the FY 2083/84 amendments before applying the deduction in a filing.

For the assumed NPR 1,400,000 Class B basis above, a legally eligible one-third rate increase would mathematically produce NPR 466,666.67 rather than NPR 350,000 before applying the required rounding. The NPR 116,666.67 difference affects taxable income through depreciation. It is not itself an income-tax rebate. At an assumed 25% income-tax rate, the corresponding gross tax difference would be NPR 29,166.67, ignoring all other effects.

Section 16 in the captured Act addresses repairs and improvements to owned and used depreciable property and limits the annual deduction to 7% of the relevant year-end pool basis, with excess carried into the pool at the start of the following year. Analyse whether expenditure belongs within that provision or is the cost of a new depreciable asset. Accounting materiality or the hotel's maintenance budget does not override the statutory treatment.

Assume qualifying repairs of NPR 900,000 for a pool whose relevant statutory year-end basis is NPR 10,000,000. A 7% ceiling is NPR 700,000; the illustrative excess is NPR 200,000 for the prescribed subsequent-year pool treatment. Do not use accounting net book value in place of the statutory basis. Do not both deduct the full NPR 900,000 and capitalise the NPR 200,000 for another deduction.

Classify painting, roof work, boiler maintenance, replacement furniture and expansion components separately. Establish the facts and legal treatment before applying a ceiling. A new wing producing additional room capacity calls for asset analysis even when the contractor calls its invoice “repair.”

Record sales, scrap, insurance recoveries and other disposal events in a disposal register with the applicable proceeds and dates. Tax consequences depend on the Schedule 2 pool rules, including proceeds exceeding the basis and the case where all assets in a pool are disposed of. The accounting gain on an individual machine is not automatically the tax gain on the pool.

Before disposing of an old generator or guest vehicle, establish ownership, original tax classification, proceeds, transaction costs and any VAT implications. Keep disposal authorisation and supporting evidence. If a renovation contractor removes old assets as part of a net contract price, document that arrangement rather than omitting the disposal from the register.

Distinguish an acquired qualifying software asset or right from a recurring cloud subscription, support contract or service. Review the contract's rights, duration and payment structure. The accounting label “PMS software” does not decide the tax class. Track acquired intangible items individually where the Act requires separate pools.

For leasehold improvements, identify the lease term, ownership of improvements, termination provisions and the applicable tax rule. Do not assume that every expense at a rented hotel is immediately deductible. Keep the landlord agreement and project allocation with the cost file. Reporting-framework lease treatment and tax ownership analysis can differ and require reconciliation.

Each major project should have an approved budget, project code, contract, bill register, variations, acceptance evidence, component allocation, VAT treatment and tax classification. Reconcile project expenditure to creditor balances, advances and the general ledger. Transfer completed components from construction in progress using documented dates rather than clearing the whole project at year-end because the hotel has opened.

Finance should review the tax consequences before procurement and payment. Cross-border machinery or service purchases can also involve customs, withholding and foreign-exchange requirements. An asset being deductible through depreciation does not eliminate those separate obligations.

Start with accounting profit, add back accounting depreciation and other book charges requiring adjustment, and claim permitted tax depreciation separately. Assess repair-limit adjustments without duplication. Keep impairment and disposal differences visible. Reconcile the tax-pool opening balances to the prior return and maintain deferred additions and excess repair expenditure as distinct movements.

For example, accounting depreciation of NPR 4 million and permitted tax depreciation of NPR 5 million create an illustrative net reduction of NPR 1 million in the profit-to-taxable-income reconciliation. This calculation does not mean that every other accounting charge is deductible or that deferred tax can be ignored under the selected reporting framework.

Confirm physical existence and business use; match cost to supporting bills; separate land, construction in progress and completed components; review VAT recoverability; verify class and event dates; reconcile additions and disposals; support accelerated-rate eligibility; calculate any repair ceiling; carry deferred items correctly; and match the final deduction to the return. Have a second reviewer recompute the examples and material pools.

The chapter's central control is a documented chain from the asset and project facts to the statutory treatment, tax-pool movement and return. Keep that chain throughout the year so that management can budget accurately and claim lawful deductions without reconstructing the property history after closing.