Advance Tax Payment Guide FY 2082/83

A Complete Practical Guide for Individuals, Proprietorships, Partnerships, Companies, NGOs, Professionals, and Tax Practitioners in Nepal

SECTION 1: INTRODUCTION

What is Advance Tax?

Advance tax is a system where you pay your estimated income tax in installments during the financial year, rather than paying a lump sum at the very end of the year. In Nepal, the principle is simple: "Pay as you earn."

Why the Government Collects Advance Tax

The government needs a continuous flow of funds throughout the year to run the country, build infrastructure, and pay salaries. If they waited until the end of the year to collect all taxes, they would face a severe cash shortage.

Difference Between Tax Types

• Advance Tax: Tax paid by you voluntarily in installments based on your own estimated profit for the year.

• TDS (Tax Deducted at Source): Tax cut by someone else (like your client or bank) before they pay you.

• Final Tax: A tax that completely settles your tax liability for that specific income (like dividend tax or interest on personal bank deposits). You do not include this income in your annual return.

• Annual Income Tax: The final actual tax calculated at the year-end. You deduct the Advance Tax and TDS already paid from this final amount to find what you still owe.

Why Advance Tax Exists

It prevents a massive financial burden on taxpayers at the end of the year and ensures the government gets money steadily.

Who Has to Pay

Any person or business expecting an assessable income (taxable profit) from a business or investment in the fiscal year must pay advance tax.

Who Does Not Have to Pay

People whose only income is a salary, or small businesses falling under special presumptive tax schemes, are generally exempt from this installment process.

CA'S TIP: Treat advance tax as a forced savings plan. If you do not pay it now, you will have to pay the same amount later, plus a heavy 15% interest penalty!

SECTION 2: WHO MUST PAY ADVANCE TAX

If your business or investment is making a taxable profit, you must pay advance tax. This applies to:

• Individuals: Anyone earning income from investments (like regular share trading or rental businesses not subject to final withholding).

• Sole Proprietors: Single-owner businesses, trading shops, and local distributors.

• Companies: Private Limited and Public Limited companies.

• Partnership Firms: Businesses owned by two or more partners.

• Professionals: Doctors running private clinics, lawyers, chartered accountants, and architects.

• Consultants & Freelancers: Anyone providing independent services and earning professional fees.

• NGOs & INGOs: If they have any taxable business activities or investments outside their tax-exempt objectives.

• Schools & Hospitals: Private, profit-making educational and healthcare institutions.

• Hydropower Companies: Once they start generating taxable revenue (and are not in a 100% tax holiday period).

• Manufacturing Industries: Factories producing goods.

• Trading Businesses: Importers, wholesalers, and retailers.

• Service Businesses: IT companies, marketing agencies, and travel agencies.

• Foreign Permanent Establishments: Branches of foreign companies operating in Nepal.

• Investment Entities: Companies whose main business is investing in shares or assets.

PRACTICAL NOTE: It does not matter what type of legal entity you are. If you make a taxable profit, Section 94 of the Income Tax Act requires you to pay advance tax.

SECTION 3: WHO DOES NOT HAVE TO PAY

Not everyone needs to estimate and pay advance tax. The law provides clear exemptions:

• Salary Earners: If your only income is from employment, your employer already deducts tax every month (TDS). You do not pay advance tax.

• Small Taxpayers (Presumptive Tax): Natural persons with a business turnover up to Rs. 3 million and net income up to Rs. 300,000 who pay fixed taxes (e.g., Rs. 7,500 for Metropolitan areas).

• Final Withholding Incomes: If your only income is subjected to final withholding tax (like dividends or personal bank interest), you do not pay advance tax on it.

• Tax Exempt Entities: Registered non-profit organizations with a tax exemption certificate, provided they have no taxable business income.

• Zero Estimated Tax: If you expect a net loss for the year, your estimated tax is zero. Hence, no advance tax is payable.

WARNING: If your business turnover crosses Rs. 3 million, you must immediately switch to the regular tax system and start paying advance tax.

SECTION 4: ADVANCE TAX PAYMENT DATES

The Income Tax Act, 2058 (Section 94) mandates paying advance tax in three specific installments.

The Cumulative Concept Explained

The percentages (40%, 70%, 100%) are cumulative. This means:

1. By Poush, you must have paid a total of 40% of your total yearly tax.

2. By Chaitra, your total payments (First + Second installment) must equal 70%. You do not pay 70% extra; you pay the difference (70% minus the 40% already paid = 30%).

3. By Ashad, your total payments must reach 100%. You pay the remaining 30%.

IRD PRACTICE: The IRD portal automatically calculates the cumulative amounts for you when you enter your estimated tax.

SECTION 5: HOW TO ESTIMATE TAXABLE INCOME

Estimating your income in Poush (when only 6 months of the year have passed) is challenging but necessary.

1. Sales Estimation

Look at your sales from Shrawan to Poush. Multiply by 2 as a basic estimate, but adjust for seasonal trends. If you sell winter clothes, your sales will be lower in the second half of the year.

2. Gross Profit Estimation

Apply your average Gross Profit (GP) margin to the estimated sales. Example: Estimated Sales Rs. 10,000,000. GP Margin 20%. Gross Profit = Rs. 2,000,000.

3. Expenses Estimation

Estimate fixed expenses (rent, salaries) and variable expenses (electricity, marketing) for the full 12 months.

4. Depreciation and Interest

Calculate tax depreciation as per Schedule 2 of the Income Tax Act, not your accounting depreciation. Include estimated bank interest.

5. Tax Adjustments

• Non-deductible expenses: Add back estimated fines, personal expenses, and donations exceeding the legal limit.

• Carry forward loss: Deduct previous years' assessed business losses.

Accounting Profit vs. Taxable Profit

Advance tax is based on Taxable Profit, not Accounting Profit.

IMPORTANT: Be realistic. Underestimating sales to delay tax payments will attract a 15% interest penalty later.

SECTION 6: STEP-BY-STEP CALCULATION

The Basic Formula

1. Estimated Taxable Income = Estimated Gross Income - Estimated Allowable Deductions.

2. Estimated Tax = Estimated Taxable Income x Applicable Tax Rate.

3. Installment Due = (Cumulative % of Estimated Tax) - (TDS already deducted + Previous Installments paid).

Complete Example: Retail Shop (Sole Proprietorship)

• Estimated Annual Net Profit: Rs. 1,000,000

• Tax Rate for Individual (Assuming unmarried, normal business): Let's assume standard slab rates resulting in a total tax of Rs. 100,000 for the year.

• TDS deducted by clients so far: Rs. 5,000

First Installment (Poush End):

• Target: 40% of Rs. 100,000 = Rs. 40,000.

• Less: TDS deducted = Rs. 5,000.

• Amount to Pay in Poush = Rs. 35,000.

Complete Example: Company

• Estimated Annual Net Profit: Rs. 5,000,000

• Corporate Tax Rate: 25% (Standard rate)

• Total Estimated Tax: Rs. 1,250,000

• TDS deducted by Poush: Rs. 100,000

First Installment (Poush End):

• Target: 40% of Rs. 1,250,000 = Rs. 500,000.

• Less TDS = Rs. 100,000.

• Amount to Pay = Rs. 400,000.

Second Installment (Chaitra End):

• Total Target: 70% of Rs. 1,250,000 = Rs. 875,000.

• Less TDS by Chaitra: Rs. 150,000.

• Less Advance Tax Paid in Poush: Rs. 400,000.

• Amount to Pay = Rs. 325,000.

SECTION 7: REVISED ESTIMATES

When Can You Revise?

You can revise your estimated tax if your business situation changes. For instance, if your factory catches fire in Falgun, your initial Poush estimate will be completely wrong.

How to Revise

You can simply log into the IRD portal and submit a revised Estimated Tax Return before the due date of the next installment.

Why Revise?

Revising downwards saves your cash flow. Revising upwards saves you from Section 118 Interest penalties. Multiple revisions are allowed.

CA'S TIP: Always review your actual financial statements in Chaitra and Ashad. If your profits are higher than expected, revise your estimate immediately.

SECTION 8: SECTION 118 INTEREST

Section 118 is the most misunderstood section. It deals with the penalty for underestimating your tax or paying your installments late.

When Does Interest Apply?

If your actual final tax at the end of the year is Rs. 100,000, you were supposed to pay Rs. 40,000 by Poush and Rs. 70,000 by Chaitra. However, the law gives a 10% tolerance margin. You must have paid at least 90% of the correct installment.

• Poush target: 90% of 40% = 36%

• Chaitra target: 90% of 70% = 63%

• Ashad target: 90% of 100% = 90%

If your payments fall below these thresholds, interest is charged.

Rate of Interest

15% per annum (calculated practically at 1.25% per month or proportionally for days).

Worked Scenario: Paid Less in First Installment

• Actual Tax for the year: Rs. 1,000,000

• Required to be paid by Poush (40%): Rs. 400,000

• 90% Tolerance threshold: Rs. 360,000

• Actual amount paid by Poush: Rs. 200,000

• Shortfall: Rs. 360,000 - Rs. 200,000 = Rs. 160,000

• Interest: 15% p.a. on Rs. 160,000 from Poush end to Chaitra end (3 months).

COMMON MISTAKE: People think revising the estimate in Chaitra cancels the interest for Poush. It does not. Interest is calculated historically based on the final actual tax.

SECTION 9: PENALTIES

Failing to comply with advance tax rules attracts several penalties:

1. Late Payment of Installment (Sec 118): 15% interest per annum on the shortfall amount.

2. Failure to File Estimated Return (Sec 117): Rs. 5,000 per return, or 0.01% of the assessable income, whichever is higher.

3. Late Filing of Annual Return (Sec 117): 0.1% of annual turnover, or Rs. 100 per month, whichever is higher.

4. Failure to Pay Final Tax (Sec 119): 15% interest per annum on the unpaid tax amount.

CLIENT ADVICE: It is always cheaper to take a short-term bank loan at 10-12% to pay your advance tax than to default and pay the IRD 15% interest plus fines.

SECTION 10: ESTIMATED RETURN

What is an Estimated Return?

An Estimated Return is a formal declaration to the IRD stating your projected income and tax for the year. It is filed online.

The Difference

• Estimated Return: A prediction of the future (filed in Poush).

• Annual Return: The factual history of the past year (filed after Ashad).

How to File

1. Login to the IRD portal.

2. Go to Income Tax -> Estimated Return.

3. Fill in your projected turnover and estimated tax.

4. Submit. Ensure you do this before generating your payment voucher.

SECTION 11: HOW TO PAY ADVANCE TAX

Method 1: Online Payment (Highly Recommended)

The IRD portal is fully integrated with national payment gateways.

1. Login: Go to www.ird.gov.np and log in to your Taxpayer Portal using your PAN and password.

2. Generate Voucher: Go to General -> Taxpayer Login -> Payment Voucher.

3. Select Details: * Tax Type: Income Tax

   • Payment Type: Advance Tax (Code: 31111)

   • Fiscal Year: 2082/83

   • Amount: Enter your installment amount.

4. Generate Transaction Code: Click generate.

5. Pay: Click on "Online Payment". Choose ConnectIPS, Mobile Banking, or a Digital Wallet (eSewa/Khalti).

6. Confirm: Approve the transaction on your banking app.

7. Receipt: Download the confirmed tax receipt instantly.

[Insert Screenshot: IRD Payment Voucher Generation Screen] [Insert Screenshot: ConnectIPS Selection Menu]

Method 2: Physical Bank Payment

1. Generate the payment voucher online as shown above, but do NOT click "Online Payment".

2. Print the generated voucher (it has a unique Transaction Code).

3. Visit any commercial bank that collects government revenue.

4. Submit the printed voucher with cash or a cheque.

5. The bank will give you a stamped receipt.

WARNING: Never fill out a physical paper voucher by hand if you can avoid it. Always generate it from the portal to ensure the money goes directly into your specific PAN ledger.

SECTION 12: HOW TO VERIFY PAYMENT

After payment, always verify that the IRD has credited your account.

1. Log into the IRD portal.

2. Go to Taxpayer Login -> Tax Ledger.

3. Select Fiscal Year 2082/83.

4. Check if your payment appears there.

Mismatch Correction

If the money left your bank but does not show in the tax ledger:

1. Contact the bank immediately with the transaction reference.

2. Wait 24 hours, as server synchronizations sometimes take overnight.

3. If it remains unresolved, write a formal letter to your respective Inland Revenue Office (IRO) attaching the bank statement and transaction slip.

SECTION 13: PRACTICAL EXAMPLES

Here are 15 distinct practical scenarios to clarify the concepts:

1. The Small Grocery Shop: Ram expects a net profit of Rs. 200,000. He is a sole proprietor. His income is below the taxable limit (Rs. 500,000 for singles). He pays Rs. 0 advance tax.

2. The IT Consultant: Sita is a freelancer making Rs. 2,000,000 a year. Clients deduct 15% TDS. Her total tax is Rs. 370,000. Her TDS for the year will be Rs. 300,000. She must pay the difference of Rs. 70,000 as advance tax in three installments.

3. The Loss-Making Factory: A garment factory expects a loss of Rs. 5 million this year due to equipment failure. They file a zero estimated tax return. They pay Rs. 0 advance tax.

4. The High-Growth Startup: An app company estimates Rs. 1 million tax in Poush and pays Rs. 400,000. In Chaitra, sales boom, and revised tax is Rs. 3 million. They must revise their estimate online and pay the new 70% target (Rs. 2.1 million) minus the Rs. 400,000 already paid.

5. The Late Payer: A contractor was supposed to pay Rs. 100,000 in Poush but forgot. He pays it in Falgun. He will face a 15% p.a. interest charge on Rs. 100,000 for the two months of delay.

6. Hydropower Company: A 10MW hydro project is in its 7th year of operation (50% tax holiday). Standard tax is 25%. They apply the 50% exemption (effective rate 12.5%) while calculating their estimated advance tax.

7. The Medical Doctor: Dr. Hari works at a hospital (salary, TDS deducted) and runs a private evening clinic. He must file an estimated return and pay advance tax ONLY for his private clinic income.

8. The New Company: A trading company registered in Magh 2082. Since they missed Poush, they will file their first estimate and pay the 70% installment in Chaitra.

9. The Real Estate Investor: A person buying and selling land regularly as a business. The 5% or 7% Capital Gains Tax paid at the Land Revenue Office acts as Advance Tax. They adjust this against their total installment due.

10. The Exporter: An export business gets special tax rebates. They must calculate their estimated tax AFTER applying the legal export rebates, reducing their advance tax burden.

11. The NGO: An NGO runs a commercial printing press. The NGO's main income is exempt, but the printing press profits are taxable. They pay advance tax on the printing press profit.

12. The Importer: An importer pays 2.5% Advance Income Tax at customs. This is deducted from their Poush/Chaitra/Ashad installment requirements.

13. The Software Company: Enjoys a 50% tax exemption under the IT policy. They estimate profit, calculate normal tax, divide by half, and pay installments on the remaining 50%.

14. The Seasonal Business: A business selling umbrellas makes 80% of its profit in Ashad (monsoon). Their Poush estimate might be low, but they must revise it in Chaitra or Ashad to avoid Section 118 interest.

15. The Over-Payer: A company estimated high profits and paid Rs. 500,000 in advance tax. At year-end, actual tax is Rs. 300,000. The IRD owes them Rs. 200,000, which can be carried forward to next year or claimed as a refund.

SECTION 14: COMMON MISTAKES

Avoid these frequent errors:

1. Ignoring TDS: Forgetting to subtract TDS already deducted by clients before paying the installment. You end up double-paying.

2. Using Accounting Profit: Basing tax on net profit from the P&L account without adjusting for non-allowable expenses or tax depreciation.

3. Paying Without Filing Estimate: Depositing the money in the bank but forgetting to click "Submit Estimated Return" on the portal. The system will auto-generate a fine.

4. Selecting Wrong Fiscal Year: Paying for FY 2081/82 instead of FY 2082/83 on the voucher.

5. Selecting Wrong Revenue Code: Using the code for TDS or VAT instead of Advance Income Tax (31111).

6. Missing the Deadline by One Day: Paying on the 1st of Magh instead of the last day of Poush triggers interest.

7. Assuming Revisions Erase History: Thinking that a high Chaitra revision completely fixes a heavily underpaid Poush installment.

8. Forgetting Customs AIT: Importers failing to claim the 2.5% advance tax paid at the border.

9. Not Checking the Ledger: Assuming the bank did their job without verifying the tax ledger online.

10. Zero Revisions on Boom Years: Making triple the expected profit but forgetting to revise the estimate, resulting in massive Section 118 penalties at year-end.

SECTION 15: FAQs

1. Can I pay my advance tax early? Yes, you can pay it anytime before the deadline.

2. Can I pay late? You can, but you will automatically incur a 15% per annum interest penalty under Section 118.

3. What happens if I make a loss after estimating a profit? You can revise your estimate down to zero. If you have already paid tax, it becomes an excess payment that you can carry forward to next year.

4. Can the IRD refund excess advance tax? Yes, legally you can claim a cash refund. Practically, it is a lengthy audit process, so most taxpayers prefer to carry it forward to offset next year's taxes.

5. What if my company starts in Falgun? You do not pay the Poush installment. You will estimate for the remaining year and pay the 70% installment in Chaitra.

6. Does advance tax apply to VAT? No. Advance tax is strictly for Income Tax. VAT has its own monthly filing system.

7. I am a freelancer and clients cut 15% TDS. Do I need to pay advance tax? If your total tax liability for the year is higher than the TDS deducted, you must pay the difference as advance tax.

8. What if I selected the wrong IRO (Tax Office) while paying? You must visit your correct IRO and apply for a voucher transfer. It is a manual and tedious process. Always check your office code.

9. Can I pay advance tax in cash at the tax office? No. Tax offices do not accept cash. You must pay via banks or online gateways.

10. What if the IRD portal is down on the last day of Poush? The IRD usually extends the deadline via a public notice if their servers crash. If not, try to pay via physical bank voucher before 3 PM.

SECTION 16: PRACTICAL CHECKLIST

Before Paying (Poush / Chaitra / Ashad)

• [ ] Finalize accounts for the period ending.

• [ ] Calculate accurate tax depreciation.

• [ ] Estimate sales for the remaining months realistically.

• [ ] Collect all TDS certificates from clients.

• [ ] Deduct total TDS and previous payments from the calculated target.

When Paying

• [ ] Ensure Fiscal Year is set to 2082/83.

• [ ] Ensure Revenue Code is 31111 (Advance Income Tax).

• [ ] File the Estimated Return online BEFORE making the payment.

• [ ] Save the PDF of the payment receipt.

After Paying

• [ ] Check the IRD Tax Ledger within 48 hours to confirm the deposit.

• [ ] Record the advance tax payment in your accounting software as a Current Asset.

SECTION 17: FLOWCHARTS

The Advance Tax Lifecycle

Plaintext

Start of Fiscal Year (Shrawan)
       ↓
Run Business (Shrawan to Mangsir)
       ↓
Estimate Full Year Income (Poush)
       ↓
Calculate Estimated Tax
       ↓
Pay 1st Installment: 40% (End of Poush)
       ↓
Run Business (Magh to Falgun)
       ↓
Review Actuals vs Estimates (Chaitra)
       ↓
Revise Estimate if Needed
       ↓
Pay 2nd Installment: 70% cumulative (End of Chaitra)
       ↓
Run Business (Baisakh to Jestha)
       ↓
Final Review of Year (Ashad)
       ↓
Pay 3rd Installment: 100% cumulative (End of Ashad)
       ↓
Close Books & Audit (Next Fiscal Year)
       ↓
File Final Annual Return & Clear any remaining dues

SECTION 18: QUICK REFERENCE TABLES

Key Compliance Summary

SECTION 19: SPECIAL CASES

• Loss Companies: If you have carry-forward losses from the last 7 years, deduct them from your estimated profit first. If the result is zero, no advance tax is due.

• Foreign Companies: Branches of foreign companies must calculate advance tax just like domestic companies, including the branch profit repatriation tax estimates.

• Mergers & Acquisitions: If two companies merge mid-year, the surviving entity takes over the advance tax liabilities and credits of the merged entity.

• Liquidation: A company in liquidation must clear all advance tax obligations up to the date of its official closure.

• Tax Holidays: If your business is in a special economic zone (SEZ) with a 100% tax holiday, you file a zero estimated tax return.

SECTION 20: FINAL SUMMARY

CA's 5-Point Cheat Sheet

1. Never guess blindly: Base your estimates on actual half-yearly management accounts.

2. Overestimate slightly: It is better to overpay and get a credit for next year than to underpay and be hit with a 15% non-deductible interest penalty.

3. Keep track of TDS: Your clients are paying part of your tax for you. Track it meticulously so you don't overpay from your own pocket.

4. Always file the return online: Paying the cash at the bank without filing the estimated return on the IRD portal is an incomplete job.

5. Mark your calendar: Set alarms for Poush 25, Chaitra 25, and Ashad 25. Do not wait until the last day when banking servers are jammed.

Mini Quiz

Q1: What is the deadline for the second installment? Answer: End of Chaitra.

Q2: What percentage of estimated tax must be paid by Ashad? Answer: 100%.

Q3: Does a salaried employee pay advance tax on their salary? Answer: No, it is covered by TDS.

Q4: What is the interest rate for underpayment under Section 118? Answer: 15% per annum.

Q5: Can I revise my estimate if my business takes a sudden loss? Answer: Yes, you can revise your estimated return online.