TDS on Rent in Nepal — FY 2083/84

Where a resident person makes a Nepal-source rent payment to which the general section 88 rent provision applies: TDS = 10%

Example

Monthly qualifying rent: NPR 100,000

TDS: NPR 100,000 × 10%

= NPR 10,000

Net payment: NPR 90,000 subject to any VAT or other applicable statutory treatment.

Where the specific statutory exception for house rent received by a natural person applies: Income Tax Act TDS = Nil

That does not necessarily mean the rental activity has no tax consequence at all. Local-government taxation and other applicable laws should be examined separately.

Avoid the overstatement:

“All rent is subject to 10% TDS.”

Another overstatement is:

“All rent to individuals is tax-free.”

Both are too broad.

Where rent is paid to a company or other entity and the general Nepal-source rent rule applies: 10% TDS is the normal starting point.

The withholding is generally an advance credit for the entity rather than necessarily final tax.

Vehicle hire has separate treatment.

VAT-registered vehicle-rental business

Current working rate: 1.5%

Other applicable freight/vehicle-hire cases

Current working rate:

2.5%, with the specific VAT-registered category receiving the lower rate where the statutory conditions are met.

Vehicle hire should therefore not automatically be treated as ordinary 10% property rent.

Another common classification issue involves payments such as:

• equipment hire;

• machinery hire;

• managed office;

• serviced office;

• accommodation with substantial services;

• vehicle with operator.

The underlying contract should be reviewed because the payment may contain: rent

service or may fall under a separate statutory category.

Monthly rent: NPR 200,000

General rent TDS: 10%

TDS: NPR 20,000

Net payment before other applicable taxes: NPR 180,000

The recipient entity normally records the gross rental income and claims eligible withholding credit according to the applicable tax treatment.

A company rents a house from an individual.

Monthly house rent: NPR 80,000

If the statutory natural-person house-rent exception applies: Income Tax Act TDS: Nil

The payer should nevertheless review:

• local rent tax;

• lease agreement;

• local-government requirements;

• accounting evidence;

• PAN and documentation;

• whether the property/use actually falls within the house-rent carve-out.

• Written rent/lease agreement

• Owner/lessor identification

• PAN details where applicable

• Determine natural person/entity

• Identify nature of property

• Determine whether house-rent exception applies

• Check local rent tax

• Check VAT implications where applicable

• Calculate Income Tax Act TDS

• Deposit/file e-TDS where applicable

• Retain payment evidence

• Retain withholding certificate/reconciliation

Automatically deducting 10% from every natural-person house landlord

Assuming zero TDS means zero tax under every law

Treating vehicle rental as ordinary property rent

Ignoring local-government taxation

Calculating TDS without first identifying the recipient type

Rental taxation can involve both federal income-tax withholding and local tax rules. The contractual nature of the property and the legal status of the recipient should be established before determining withholding.