Income Tax Refund in Nepal — 5-Year Claim Period & Procedure

What Is an Income Tax Refund?

A refund can arise where tax paid exceeds the final tax liability.

Examples include:

• excess advance instalment tax;

• excess TDS;

• excessive self-assessment payment;

• amended assessment in taxpayer's favour;

• successful administrative review;

• successful Revenue Tribunal/court decision;

• duplicated tax payment.

Example

Final income-tax liability: NPR 1,000,000

Advance tax paid: NPR 800,000

Eligible TDS: NPR 350,000

Total tax paid/credited: NPR 1,150,000

Excess: NPR 150,000 subject to reconciliation and any other outstanding tax liabilities.

IRD May First Adjust the Excess

Section 113 allows IRD to apply the excess against other tax payable by the taxpayer.

Example

Excess FY 2083/84 tax: NPR 150,000

Outstanding prior-year assessment: NPR 100,000

IRD may apply: NPR 100,000 against arrears leaving possible cash refund: NPR 50,000

Therefore:

Excess tax shown in one year does not automatically mean the whole amount will be paid in cash.

Refund Application

Where the taxpayer seeks refund of the excess amount, Section 113(3) requires an application in the prescribed manner.

Rule 36 requires supporting documentation establishing that the amount claimed was paid in excess, together with other documents required by IRD.

Typical documents may include:

• refund application;

• income-tax return;

• tax computation;

• TDS certificates;

• advance-tax vouchers;

• payment evidence;

• financial statements;

• assessment/review decision;

• bank details;

• reconciliation schedule.

New FY 2083/84 — Five-Year Claim Period

Before Finance Act 2083, Section 113(4) generally required the refund claim within: 2 years from the latest of the specified statutory dates.

Finance Act 2083 changes this to: 5 years.

This is a major taxpayer-favourable amendment.

However:

Five years should not be counted blindly from the tax-payment date.

Section 113 specifies the relevant statutory reference dates, and the period runs from the latest applicable date.

The refund file should therefore document the limitation calculation.

Common Reference Dates

Depending on why the refund arose, relevant statutory dates can include matters such as:

• end of the income year;

• date the excess tax was paid;

• the court-decision date, where relevant under section 113(4);

The precise Section 113(4) clause applicable to the taxpayer should be identified.

Refund Processing Period

Where a proper Section 113(3) application is filed, the Department generally must refund the amount determined refundable within: 60 days from the application date.

Maintain evidence of the exact application date.

Interest on Delayed Refund

The Income Tax Act provides for interest consequences where a refund required under the statutory framework is not made within the prescribed period.

The applicable rate and precise commencement should be confirmed for the relevant case/year before calculating a refund-interest claim.

Keep a separate calculation of:

Tax Refund Interest Calculator

rather than hard-code an old annual rate into the permanent article.

Excess TDS

A common refund case arises where customers deduct substantial TDS from a business but the final annual tax liability is lower.

Example: Tax liability:

NPR 500,000

TDS credits: NPR 800,000

Potential excess: NPR 300,000

Before seeking refund:

• reconcile every TDS entry;

• ensure customers filed correct PAN;

• ensure TDS appears in IRD records;

• remove duplicate/unverified credits;

• reconcile outstanding tax.

Wrong PAN / Unmatched TDS

A taxpayer may have a valid withholding certificate but the amount may not appear correctly in the IRD system because:

• payer used wrong PAN;

• e-TDS was not verified;

• wrong income year;

• wrong revenue heading;

• payer failed to file;

• data-entry error.

The problem should ideally be corrected at the withholding-source level before claiming refund.

Refund After Successful Appeal

Where Administrative Review, Revenue Tribunal or court proceedings reduce the tax assessment, the taxpayer may have paid/deposited more than the finally determined liability.

The resulting excess should be reconciled under Section 113.

Maintain:

• assessment order;

• review decision;

• Tribunal/court judgment;

• deposit vouchers;

• final liability reconciliation.

Refund vs Adjustment

The taxpayer should distinguish:

Refund

Cash/transfer returned to taxpayer.

Adjustment

Excess tax set off against another tax liability.

Sometimes adjustment can be faster and commercially preferable if another liability is already due.

Refund Calculation Example

Self-assessment tax: NPR 600,000

Advance tax: NPR 500,000

TDS: NPR 250,000

Total tax paid/credited: NPR 750,000

Final tax liability: NPR 600,000

Excess: NPR 150,000

Prior tax arrears: NPR 40,000

Potential refundable balance after adjustment: NPR 110,000 subject to IRD verification.

Refund Application Checklist

• Identify origin of excess tax

• Reconcile filed return

• Reconcile advance tax

• Reconcile TDS

• Check IRD taxpayer ledger

• Check prior-year arrears

• Check assessment balances

• Calculate refund amount

• Determine five-year limitation date

• Prepare Rule 36 documents

• File application

• retain filing evidence

• Calendar 60-day processing period

• Follow up with IRD

• Calculate delayed-refund interest if applicable

• Reconcile refund/adjustment in books

Common Errors

Assuming five years always starts from the tax-payment date

Claiming TDS that does not appear against the taxpayer's PAN

Ignoring prior-year liabilities that IRD can adjust

Failing to retain proof of refund application date

Using the old two-year refund period for FY 2083/84

Confusing VAT refund procedures with Income Tax Section 113 refund

Further guidance and practical checks

Tax refund claims should be reconciled from the taxpayer's complete IRD ledger before filing. The five-year Finance Act 2083 amendment materially improves the claim window, but the statutory starting date still needs to be identified correctly for each case.

The five-year refund claim period

Finance Act 2083 extends section 113’s claim period to five years. Under section 113(4), count from the latest of the specified income-year end, the excess-payment date and the court-decision date. A generic assessment or reassessment date is not a listed starting point. Establish the actual statutory date before testing timeliness.