The Government’s budget for the Fiscal Year 2083/84 introduces significant structural reforms and tax reliefs under the Income Tax Act. The primary objective of these changes is to expand the middle class, encourage emerging sectors like Information Technology (IT), and stimulate overall economic dynamism by reducing the tax burden.

Below is a detailed breakdown of the latest changed provisions contrasted with the previous provisions.

1. Personal Income Tax Relief

The personal income tax slabs have been completely redesigned. To provide relief to middle-income earners and professionals, the government has reduced active income tax rates by elevating lower thresholds and lowering the top marginal bracket.

Previous Provision (FY 2082/83): The basic tax-free exemption limit (taxed at the minimum rate of 1%) was Rs. 500,000 for a single filer and Rs. 600,000 for a married couple. The progressive tax slabs maxed out at a top marginal rate of 39% for individual taxable income exceeding Rs. 5 million.

Latest Changed Provision (FY 2083/84): The budget has doubled the basic 1% threshold limit to Rs. 1,000,000 (10 Lakhs) for taxpayers. Additionally, the maximum personal income tax rate has been reduced by 10 percentage points, dropping from 39% down to a top rate of 29%.

New Progressive Income Tax Slabs (FY 2083/84)

Annual Taxable Income (Rs.)	New Tax Rate
Up to 1,00,000 (10 Lakhs)	1% (Social Security Tax)
10,00,001 to 15,00,000	10%
15,00,001 to 25,00,000	20%
25,00,001 to 40,00,000	27%
Above 40,00,000 (40 Lakhs)	29% (Maximum Rate)

2. Capital Gains Tax on Securities

As part of a strategy to shift the tax focus from active labour income to passive investment income, the government has adjusted capital gains tax (CGT) rules while resolving an ongoing administrative debate for stock market investors.

Previous Provision: CGT levied on the sale of listed company securities (5% for holdings over 365 days and 7.5% for holdings under 365 days for resident natural persons) was an advance tax but was frequently not treated as a final tax. This created legal friction regarding whether traders had to declare these gains under regular business income, scaling up to higher slab rates.

Latest Changed Provision: The capital gains tax applied to the sale of securities of listed companies has now explicitly been made a final tax, eliminating future income-declaration friction. However, to compensate for lower active income tax collection, the CGT rates themselves have been increased:

• Holding period more than 365 days: Increased from 5% to 7.5% (Final Tax).
• Holding period less than or equal to 365 days: Increased from 7.5% to 10% (Final Tax).

3. Section 57 (Change in Control of Entities)

Section 57 has traditionally been triggered automatically whenever ownership structures shifted, leading to complex tax liabilities even in non-commercial or tragic circumstances.

Previous Provision: Section 57 of the Income Tax Act, 2058 was attracted during a 50% or greater ownership change in a controlled entity within a three-year period. This rule made no clear exception for involuntary disposals, meaning the death of a natural person who owned a major share portion could automatically trigger a deemed disposal of assets and liabilities, creating artificial corporate tax burdens for the grieving heirs.

Latest Changed Provision: The provisions of Section 57 will no longer be attracted in cases of involuntary disposal following the death of a natural person. Additionally, it will not apply to automated chain ownership transformations in a controlled entity resulting directly from such an involuntary natural person ownership change.

4. Information Technology (IT) Sector Incentives

To position the IT industry as Nepal’s primary new economic engine, the budget introduces aggressive tax concessions tailored for software development, digital services, and tech talent.

Previous Provision: Standard income tax rules or general export rebates applied to tech companies. Sweat equity (shares given to founders or employees for their intellectual contribution or labour rather than cash) was fully calculated as taxable employment or business income upon issuance based on market valuations.

Latest Changed Provision:

IT Service Exports: A 50% income tax exemption is now granted on income earned from exporting Information Technology services.

Sweat Equity: To retain local tech talent, 100% of the sweat equity received by personnel and professionals working in the IT sector is completely exempt from taxable income calculations at the time of issuance.

Tech Startups: Startups with a turnover up to Rs. 10 Crore receive a 100% income tax exemption for 5 years.

5. Industry-Specific Tax Holidays

Targeted reliefs have been directed to capital-intensive domestic industries to boost agricultural industrialisation and promote regional entertainment infrastructure.

Previous Provision: Standard corporate income tax rates (typically 20% or 25%) applied to new agricultural processing entities and newly established cinema halls after the general initial startup periods.

Latest Changed Provision:

Agricultural Processing: Newly established agricultural processing industries will receive a full 100% income tax exemption for their first 10 years of operation.

Cinema Halls: To stimulate local economies outside the crowded capital valleys, a full 10-year income tax exemption has been granted to new cinema halls established outside of metropolitan and sub-metropolitan areas.

6. Deductions for Residential Insurance

The budget introduces a micro-deduction clause intended to minimise financial vulnerability from natural disasters by promoting domestic property insurance.

Previous Provision: Deduction existed for residential insurance up to the extent of the lower of the actual insurance premium or Rs. 5000.

Latest Changed Provision: Individual taxpayers are now permitted to claim a deduction of up to Rs. 10,000 paid towards residential building insurance premiums from their total taxable income calculations.

7. Foreign Development Finance Exemptions

To lower the cost of foreign capital and encourage direct bilateral lending into infrastructure and development projects, specific foreign institutional income is shielded from tax.

Previous Provision: Interest income earned by foreign development finance institutions on loans extended to corporate or state projects in Nepal was subject to standard Non-Resident Withholding Tax (TDS) at source.

Latest Changed Provision: A full 100% income tax exemption has been introduced on the interest earned by non-profit development finance institutions that are fully owned by friendly foreign nations and have invested in development or commercial loans within Nepal.

8. One-Time Tax Dispute Resolution Window

The Change: For taxpayers stuck in long legal battles with the tax administration, the budget opens a one-time relief window. Taxpayers with pending income tax or VAT disputes currently under appeal in courts or judicial bodies can choose to withdraw their cases. If they agree to pay the core principal tax amount plus a nominal 1% fee, all accumulated interest, fines, and additional penalties will be fully waived, and the case will be permanently settled.

9. Capital Gains Tax on Immovable Property (Real Estate)

The Change: Similar to the stock market, passive real estate transactions see an increased tax rate:

• Property held for 5 years or more: Capital gains tax increased from 5% to 7.5%.
• Property held for less than 5 years: Capital gains tax increased from 7.5% to 10%.

Exemption: Capital gains tax will not be levied on property values up to the government-assessed rate when land is acquired by the state for public development projects.

10. The 10% Instant VAT Refund for Digital Payments

The Change: To fight the informal cash economy and improve income tax tracking at retail levels, consumers who make purchases via digital payment methods (such as QR codes, digital wallets, or debit cards) will receive an instant 10% refund of the paid Value Added Tax (VAT) deposited back into their accounts automatically.