Donations and CSR Expenses — Income Tax Deduction in Nepal FY 2083/84

The ordinary Section 12 deduction applies to qualifying donations or gifts made to an organisation entitled to tax exemption and approved by IRD for this purpose.

The current statutory framework allows the donor to deduct the qualifying amount from taxable income, but the amount is capped.

FY 2083/84 Limit

The claim is the lowest of: Actual qualifying donation

NPR 300,000

5% of adjusted taxable income

Example

Adjusted taxable income: NPR 4,000,000

5% of adjusted taxable income: NPR 200,000

Actual qualifying donation: NPR 250,000

Statutory monetary ceiling: NPR 300,000

Therefore deductible amount: NPR 200,000

The remaining NPR 50,000 should not simply be claimed as an ordinary Section 12 donation deduction.

For the Section 12 ceiling, the Act uses adjusted taxable income, not simply the accounting profit or final taxable income after all special deductions.

Therefore the donation ceiling should ideally be calculated through the tax computation rather than estimated from financial-statement profit.

A payment is not deductible under Section 12 merely because it is charitable.

Check:

• Is the recipient an organisation entitled to tax exemption?

• Has IRD approved the organisation for the relevant exemption framework?

• Is the donation properly documented?

• Was consideration received in return?

If the payer receives goods, advertising, services or another commercial benefit in return, the payment may not be a pure donation and should be classified separately.

The Income Tax Act contains a separate provision allowing contributions to the Prime Minister Natural Calamity Relief Fund and a reconstruction fund established by the Government of Nepal to be deducted under the specific statutory framework.

This should not automatically be forced through the ordinary NPR 300,000 / 5% Section 12 limit without checking the specific Section 12ख treatment.

Keep a separate tax working for:

Contributions to Government Relief / Reconstruction Funds

because disaster-relief deductions can operate differently from ordinary donations.

Section 12ग contains a separate deduction for qualifying seed-capital grants to start-up businesses, subject to statutory limits and associated-person restrictions.

Current reference guidance describes this as up to NPR 100,000 per start-up, for up to five start-ups, where the recipient is not an associated person.

Again, this should not be mixed with ordinary Section 12 donation limits.

Finance Act 2083 introduces a specific tax deduction for CSR expenditure.

The key wording is important:

The expenditure must be incurred for the purpose of fulfilling a Corporate Social Responsibility obligation required under prevailing law.

Therefore:

Mandatory CSR

Potentially qualifies, subject to Section 12घ.

Voluntary charity labelled “CSR”

Does not automatically qualify under Section 12घ.

Advertising/sponsorship

May need ordinary business-expense analysis instead.

Donation to charitable institution

May fall under Section 12 rather than Section 12घ.

The legal character matters more than the accounting ledger name.

Maximum qualifying deduction: 1% of total taxable income

Example

Total taxable income before applying eligible CSR deduction: NPR 20,000,000

1% ceiling: NPR 200,000

Actual qualifying mandatory CSR expenditure: NPR 300,000

Maximum Section 12घ deduction: NPR 200,000

The remaining NPR 100,000 requires separate tax analysis and should not automatically be treated as deductible CSR.

The same expenditure should not be claimed simultaneously as:

• ordinary business expense;

• Section 12 donation; and

• Section 12घ CSR.

The tax file should identify one legally supportable treatment and document it.

For donations:

• payment evidence;

• recipient PAN;

• tax-exemption certificate;

• IRD approval/status where applicable;

• receipt;

• purpose of donation;

• board/management approval where material.

For CSR:

• applicable law creating CSR obligation;

• CSR policy;

• board approval;

• statutory CSR computation;

• recipient/vendor details;

• invoices;

• payment proof;

• evidence of actual activity;

• annual CSR report where required.

• Identify exact expenditure

• Donation or CSR?

• Check recipient status

• Check tax-exemption certificate

• Check legal CSR obligation

• Calculate adjusted taxable income

• Calculate 5% donation ceiling

• Apply NPR 300,000 cap

• Calculate 1% CSR ceiling

• Prevent double claim

• Retain payment evidence

• Reconcile financial statements and tax return

Claiming every charitable payment as a Section 12 deduction

Using NPR 300,000 without applying the 5% adjusted taxable income test

Treating voluntary charity as qualifying statutory CSR

Claiming CSR twice—once as business expense and again under Section 12घ

Using accounting profit instead of the statutory tax base

Donation and CSR deductions are separate statutory mechanisms. Determine the legal nature of the payment first, then apply the relevant deduction ceiling and documentation requirements.