Chapter 4- Basis of Taxation

Question 1 (page 38)

Fact of the case:
In this case, Mr. Pradip Sharma has turnover from business not exceeding Rs. 20 Lakhs from where he
derives profit not exceeding Rs. 2 Lakhs.
Provision of the Act:
As per Sec. 4 (4), in case all the following conditions are satisfied; a person is not required to calculate
tax liability in detail and is required to pay tax as follows (u/s 1 (7) of Schedule 1 of the Act):
a.
b.
c.
d.

The person shall be a resident natural person,

The person shall derive income exclusively from business having source in Nepal,
The person shall not claim Medical Tax credit and advance tax arising out of withholding taxes,
The income (turnover) from business shall not exceed Rs. 20 Lakhs and the profit shall not
exceed Rs. 2 Lakhs during the Income Year,
e. The person shall elect this provision to be applied in writing, and
f. The person shall not be registered for VAT purpose.
The tax applicable is as follows:
a. In case of conduct of business in Metropolitan City/Submetro city- Rs. 5000
b. In case of conduct of business in Municipality- Rs. 2,500
c. In case of conduct of business in VDC- Rs. 1,500
Conclusion:
In this case Mr. Pradip is a natural person and is resident of Nepal as his habitual place of abode is
Birgunj, i.e. Nepal. Assuming he has no other income than business having source in Nepal and in case
he renounces medical tax credit and advance tax arising out of withholding taxes, and he wishes to pay
presumptive taxation; he shall pay tax of Rs. 5,000 merely declaring the revenue and profit for the year. In
forming the conclusion, it is assumed that Mr. Pradip is not registered for VAT purpose.
In case any of the above conditions would not be satisfied, he should have calculated tax as per
Schedule 1 of the Act, i.e. under progressive taxation system
In both the case, Mr. Pradip is required to file an income return.