Dividend and Interest Income Tax in Nepal — FY 2083/84

Dividend Income

Dividend is generally investment income.

Where a resident person makes a Nepal-source dividend payment, Section 88 provides withholding at: 5%

The published Income Tax Act text confirms the 5% dividend-payment rate.

Example

Cash dividend: NPR 100,000

TDS: 5%

= NPR 5,000

Net cash received: NPR 95,000

Where the payment qualifies as final withholding, the 5% generally settles the Income Tax Act liability on that dividend.

Dividend to a Natural Person

For an ordinary resident natural-person investor receiving qualifying dividend: 5% final withholding is the typical treatment.

Therefore the dividend should not generally be added again to ordinary progressive salary/business tax merely because the person also has other income.

But the investor should still retain:

• dividend statement;

• TDS evidence;

• company details;

• investment records.

Dividend to an Entity

An entity receiving dividend requires separate analysis.

The treatment may depend on:

• recipient type;

• domestic group relationship;

• statutory distribution provisions;

• exempt/concession status.

Do not simply copy the resident-individual final-tax result to a company.

Bonus Shares

A bonus share is not identical to a cash dividend for every tax/accounting purpose.

It affects:

• shareholding quantity;

• cost history;

• future disposal calculation;

• corporate-action records.

Record bonus issues separately when maintaining the cost and holding history for a future disposal.

Interest Income

Interest normally falls under investment income unless directly connected with the taxpayer's business.

Examples:

Natural person with fixed deposit

Starting character: investment income

Bank/financing company earning interest

Starting character: business income

This classification affects the annual income-tax treatment even where withholding has occurred.

Qualifying Natural-person Deposit Interest

Current FY 2083/84 rate references show: 6% withholding on qualifying deposit/bond interest paid to a resident natural person under the relevant Section 88 framework, with final-withholding treatment where the statutory conditions are satisfied.

Example

Annual fixed-deposit interest: NPR 200,000

TDS: 6%

= NPR 12,000

Net interest: NPR 188,000

Where qualifying final-withholding treatment applies, the interest is not ordinarily re-taxed under the natural person's progressive slab.

General Interest Rate

The general Section 88 withholding rate for interest is: 15% unless a specific statutory proviso provides another rate.

Therefore:

All interest = 6%

is incorrect.

The 6% rate is a specific natural-person investment/deposit category.

Examples potentially requiring the general or another rate include:

• business/entity interest;

• related-party interest;

• private lending;

• foreign borrowing;

• non-resident interest;

• other statutory interest categories.

Interest to a Company

Where interest is paid to an ordinary resident company/entity, the withholding may generally be: 15% advance/non-final withholding

rather than the 6% final natural-person rate.

The company then includes the interest in its applicable business/investment tax computation and claims eligible TDS credit.

Interest From Business

Example: A trading company has excess cash and earns bank interest.

Whether that income is:

• business; or

• investment

requires analysis of its connection with the business.

A bank or lending institution's interest income is obviously much more closely connected to its operating business than an ordinary individual's fixed deposit.

The Income Tax Act's Section 7/9 classification should therefore be applied before finalising the annual return.

Non-resident Interest

Interest paid to a non-resident requires:

• source analysis;

• domestic withholding;

• DTAA;

• beneficial recipient considerations;

• PE;

• foreign-loan approval/NRB considerations where relevant.

The domestic 15% rate should not automatically be used without checking an applicable treaty.

Dividend vs Interest

Final Withholding

The most important question after finding the TDS rate is:

Is this final withholding?

If yes: the tax generally settles the tax liability on that specific payment.

If no: the TDS is normally a credit against annual tax.

Identify final or non-final treatment in the investment-income working as well as the rate.

Example — Individual With Salary + FD

Salary taxable income: NPR 1,500,000

FD interest: NPR 100,000

Qualifying FD TDS: 6%

= NPR 6,000

Where the interest qualifies as a final withholding payment:

the NPR 100,000 is not simply added to salary taxable income and subjected again to the ordinary progressive rate.

The salary-tax computation and final-interest withholding are treated separately.

Example — Company With Interest Income

Company operating profit: NPR 5,000,000

Interest income: NPR 500,000

TDS withheld: NPR 75,000 at 15%

Where the interest is assessable to the company: Tax computation includes the relevant interest income.

TDS: NPR 75,000 is then claimed as an eligible advance tax credit, subject to reconciliation.

Investment Income Checklist

• Identify income type

• Dividend or interest?

• Natural person/entity?

• Resident/non-resident?

• Business-connected?

• Identify TDS rate

• Determine final/non-final treatment

• Check DTAA for non-resident

• Reconcile TDS certificate

• Reconcile bank/company statement

• retain investment records

• Ensure final-tax income is not double taxed

• Ensure non-final TDS is claimed in return

Common Errors

Using 5% for interest because dividend is 5%

Using 6% interest rate for companies

Adding final-tax FD interest into salary slabs again

Treating all interest as investment income

Ignoring TDS credits where withholding is non-final

Applying domestic rates to foreign recipients without treaty review

Related CMA Resources

• Investment Income Overview

• Capital Gains on Listed Shares

• Capital Gains on Land/Buildings

• TDS Rates

• Foreign Tax Credit

• Non-resident Taxation

• Income Tax Return Filing

Further guidance and practical checks

Investment-income taxation cannot be determined from the percentage alone. The recipient, residency, business connection and final/non-final nature of withholding must be identified first.