Income Tax Assessment and Reassessment in Nepal — FY 2083/84

Nepal operates substantially on a self-assessment system.

The taxpayer:

1. determines assessable income;

2. calculates taxable income;

3. calculates tax;

4. claims eligible credits;

5. files the income-tax return.

The return then forms the basis of the taxpayer's assessment under Section 99.

This does not mean that IRD is permanently bound by the return.

IRD may subsequently examine the return and make an amended assessment where the statutory conditions are met.

The Income Tax Act also contains deemed-assessment consequences where a person required to file a return does not do so.

Failure to file therefore does not mean:

“No return = no assessment.”

IRD can still exercise its statutory assessment powers.

A jeopardy assessment may be made in specified circumstances where IRD considers it necessary to protect revenue rather than waiting for the ordinary return cycle.

Situations can involve circumstances such as:

• taxpayer leaving Nepal;

• business closure;

• risk that tax may not be recovered;

• failure to comply with a return requirement;

• other statutory jeopardy conditions.

The Department must follow the statutory process and provide the required assessment notice.

IRD may amend a previous Section 99 or Section 100 assessment where there are reasonable grounds to adjust the taxpayer's tax liability.

Examples may include:

• omitted taxable income;

• excessive deduction;

• non-deductible expenditure claimed;

• incorrect tax rate;

• incorrect tax credit;

• incorrect depreciation;

• understated capital gain;

• TDS mismatch;

• transfer-pricing adjustment.

An amended assessment should be evidence-based rather than arbitrary.

Finance Act 2083 changes Section 101(3).

Previous normal period

4 years

Current normal period

3 years

The current-year updated Section 101 comparison confirms the reduction from four years to three years.

For an ordinary Section 99 assessment, the three-year period is generally measured from the statutory due date for filing the income-tax return.

An extension obtained for filing does not ordinarily restart the limitation period.

Income year: FY 2083/84

Ordinary return deadline: Ashoj end 2084

Subject to the statutory rule and exceptions, the ordinary reassessment limitation would generally run for three years from that return due date.

The exact limitation date should be calculated transaction-by-transaction rather than relying on this simplified illustration.

Section 101 permits IRD to re-amend an earlier amended assessment where reasonable grounds exist.

However:

Making an amended assessment does not ordinarily restart the original statutory limitation period.

The time limit remains linked to the original assessment/reference date specified by Section 101.

This prevents indefinite rolling reassessments merely by issuing repeated amendment orders.

The normal three-year limitation does not protect a fraudulent assessment.

Where tax was incorrectly assessed through fraud, Section 101 contains a separate rule permitting amendment outside the normal period, subject to the statutory time limit after IRD obtains information regarding the fraud.

Therefore:

Three years is not an absolute limitation in cases involving fraud.

Before making an amended assessment under Section 101, IRD must give the taxpayer written notice explaining the proposed basis and provide an opportunity to submit evidence.

The current Section 101 framework provides: 15 days for submission of proof and evidence in defence against the proposed amended assessment.

This stage is critical.

The taxpayer should not wait until the final assessment order to begin preparing the defence.

Immediately:

• record the actual notice-received date;

• identify the response deadline;

• obtain the assessment working;

• reconcile the relevant return;

• identify each proposed adjustment;

• obtain ledger evidence;

• obtain invoices/contracts;

• reconcile bank/TDS/VAT data;

• identify legal provisions;

• prepare factual response;

• prepare legal response;

• quantify the tax effect.

The formal assessment notice should communicate matters such as:

• tax assessed;

• basis/method;

• tax payable;

• relevant fee/interest;

• payment deadline;

• review rights.

The assessment order and notice should be retained permanently in the tax-dispute file.

If a taxpayer disagrees with the final reviewable assessment:

Administrative Review is normally required within 30 days of receipt of the decision notice.

Waiting for IRD to send another reminder may cause the taxpayer to lose the normal appeal period.

• Record notice received date

• Calculate response deadline

• Obtain full assessment working

• Identify each disputed issue

• Reconcile filed return

• Reconcile financial statements

• Obtain ledger detail

• Obtain invoices/contracts

• Check TDS/VAT reconciliations

• Review depreciation

• Review tax losses

• Review legal basis

• Check limitation period

• Prepare factual defence

• Prepare legal defence

• Submit within deadline

• retain acknowledgement

• Calendar administrative-review deadline

Assuming three years always applies even where fraud is alleged

Counting limitation from the date of an earlier amended assessment

Ignoring the 15-day response notice

Responding only with accounting explanations and no tax-law basis

Waiting until the 30-day appeal period is nearly over before reviewing the assessment

A tax assessment dispute should be managed from the first proposed-adjustment notice. The factual evidence, statutory limitation period and legal classification of each adjustment should be reviewed before the final amended assessment is issued.