The Federal Budget for Fiscal Year 2083/84 (2026/27), presented by Finance Minister Dr. Swarnim Wagle on Jestha 15, 2083 (May 29, 2026), introduced one of the largest overhauls to Nepal’s personal income tax system in recent years. Two changes define this revision: the income band taxed at just 1% has been expanded from Rs 5 lakh to Rs 10 lakh per year, and the peak personal income tax rate has been cut by 10 full percentage points — from 39% down to 29%.
This article covers the complete revised slab structure, a direct comparison with the old system, capital gains tax changes, and a plain-language breakdown of what the numbers mean for your actual take-home pay.
The Revised Income Tax Slabs for FY 2083/84
Nepal uses a progressive tax system, meaning each rate applies only to the slice of income that falls within that particular band. Crossing into a higher slab does not increase the tax on income already earned in a lower band.
| Annual Taxable Income (NPR) | Tax Rate | Maximum Tax in This Band |
|---|---|---|
| Up to 10,00,000 | 1% | Rs 10,000 |
| 10,00,001 to 15,00,000 | 10% | Rs 50,000 |
| 15,00,001 to 25,00,000 | 20% | Rs 2,00,000 |
| 25,00,001 to 40,00,000 | 27% | Rs 4,05,000 |
| Above 40,00,000 | 29% | No upper limit |
One point worth clarifying: income up to Rs 10 lakh is not fully tax-free. A 1% rate applies to that entire band, meaning someone earning exactly Rs 10 lakh annually pays Rs 10,000 in income tax for the year — roughly Rs 833 per month.
Old System vs. New System
| FY 2082/83 (Old) | FY 2083/84 (New) | |
|---|---|---|
| Low-rate (1%) threshold | Rs 5,00,000 | Rs 10,00,000 |
| Top marginal rate | 39% | 29% |
| Number of slabs | 6 | 5 |
The threshold has doubled. The top rate has dropped by 10 percentage points. The number of slabs has been reduced from 6 to 5, simplifying the calculation for most taxpayers.
For anyone earning between Rs 5 lakh and Rs 10 lakh annually, this is the most impactful revision in recent memory. That entire income range, which previously fell into progressively higher bands, now sits entirely within the 1% bracket.
The revised system also removes the separate slab structure for married couples that existed in previous years, applying uniform slabs to all resident individuals. This simplification makes year-end tax planning considerably more straightforward.
Worked Example: Tax Calculation Under New Slabs
Scenario: Individual with annual income of NPR 18,00,000
| Slab | Income in Slab | Rate | Tax |
|---|---|---|---|
| First 10,00,000 | 10,00,000 | 1% | 10,000 |
| Next 5,00,000 | 5,00,000 | 10% | 50,000 |
| Remaining 3,00,000 | 3,00,000 | 20% | 60,000 |
| Total Tax Payable | 1,20,000 |
This gives an average effective tax rate of approximately 6.7% on total income, even though the marginal rate for the top portion is 20%.
Capital Gains Tax Changes
The budget also revised capital gains taxation on listed securities:
| Holding Period | Capital Gains Tax Rate |
|---|---|
| 1 year or less | 10% |
| More than 1 year | 7.5% |
Capital gains tax on listed securities continues to operate as a final withholding tax. For comparison, the previous rates under FY 2082/83 were 7.5% (held up to 365 days) and 5% (held over 365 days) for resident individuals trading listed shares.
Capital gains tax provisions for immovable property transactions have also been revised under the Finance Bill 2083. Taxpayers disposing of land or buildings should review the updated rules before completing transactions.
What This Means for Salaried Employees
For salaried employees, the practical implication is a lower TDS deduction from your monthly payslip starting Shrawan 1, 2083 (mid-July 2026). Confirm with your HR or payroll team that the updated slabs have been applied, and check your payslip in the first month of the new fiscal year to verify the change has been reflected.
Employers must adjust payroll systems to reflect the revised personal income tax rates and updated withholding obligations before the start of the new fiscal year.
IT Sector and Dispute Settlement Provisions
The budget further proposes specific incentives for information technology exports and special treatment of sweat equity in the IT sector. Some previous exemptions have been modified, so IT businesses and professionals should review the enacted Finance Act for precise details.
Taxpayers with outstanding tax disputes or unpaid historical liabilities may benefit from temporary settlement provisions announced through the budget framework. Under reported provisions, taxpayers may obtain relief from certain penalties and interest upon satisfying prescribed conditions. The precise implementation depends on administrative procedures issued by the Inland Revenue Department.
Key Compliance Points for FY 2083/84
Documents to maintain:
- PAN certificate
- Salary statements and employment contracts
- Tax deduction certificates
- Bank statements and investment records
- Share transaction statements with capital gains calculations
- Property transaction documents
- Social Security Fund contribution records
- Insurance payment records and tax payment receipts
Filing obligations remain unchanged:
| Obligation | Deadline |
|---|---|
| Employer TDS return | Monthly — by the 25th of the following month |
| Individual income tax return | By end of Poush (approximately mid-January) |
| Corporate annual return | Within 3 months of fiscal year end |
| Advance tax – 1st instalment | By end of Poush |
| Advance tax – 2nd instalment | By end of Chaitra |
| Advance tax – 3rd instalment | By end of Ashadh |
Penalties for late filing, late payment, and underpayment remain in force: 15% annual interest on unpaid tax under Section 119 of the Income Tax Act, plus administrative penalties.
What the Revision Signals
A tax structure that keeps 1% rates active up to Rs 10 lakh sends a clear signal: the government is prioritising disposable income for middle-income earners. Pairing that with a top rate cut to 29% brings Nepal’s personal income tax ceiling closer to regional norms and reduces the friction that higher marginal rates create for compliance among top earners.
The reforms aim to encourage voluntary compliance and expand the formal economy while maintaining government revenue collection. Taxpayers should review their income sources, deductions, investments, and reporting obligations to understand how the revised rules apply to their specific circumstances.
For the most up-to-date guidance, refer to the enacted Finance Act 2083 and implementing notifications published by the Inland Revenue Department.
Frequently Asked Questions
1. What is the new income tax threshold for FY 2083/84?
The low-rate (1%) threshold has increased from Rs 5,00,000 to Rs 10,00,000 per year. Income up to Rs 10 lakh is taxed at 1%, not exempted entirely.
2. What is the new top income tax rate in Nepal?
The highest personal income tax rate has been reduced from 39% to 29%, applying to annual income above Rs 40,00,000.
3. When do the new tax rates take effect?
The new slabs apply from the start of Fiscal Year 2083/84 — Shrawan 1, 2083 (approximately mid-July 2026).
4. Has capital gains tax on shares changed?
Yes. Listed securities are now taxed at 10% for holdings of one year or less and 7.5% for holdings exceeding one year, compared to the previous 7.5% and 5% rates respectively.
5. Do the new slabs apply to married couples separately?
The budget removes the separate higher threshold that previously applied to married couples. Uniform slabs now apply to all resident individuals.
6. Who administers income tax in Nepal?
The Inland Revenue Department (IRD), operating under the Ministry of Finance, administers income tax, assessments, audits, collections, and taxpayer services in Nepal.
7. Are there penalties for non-compliance?
Yes. Late filing or underpayment attracts 15% annual interest on unpaid tax plus administrative penalties. The IRD may also initiate reassessment proceedings.