What is Income Tax Slab?

In Nepal an "income tax slab" (Nepali: आयकर दर) is one of the income bands into which a resident individual's annual taxable income is divided, each band carrying its own marginal tax rate. The system is progressive: a higher rate applies only to the portion of income that falls within a given band, not to the whole income. The bands and thresholds are set out in Schedule 1 of the Income Tax Act 2058 (2002) and are revised every fiscal year through the annual Finance Act, so the figures below are those in force for fiscal year 2082/83 (2025/26), which runs from mid-July 2025 to mid-July 2026.

For a resident individual assessed singly, the first band of taxable income is taxed at 1%, the next at 10%, then 20%, then 30%, then 36% and finally 39% on the highest incomes. The 1% on the first band is technically a social security tax rather than ordinary income tax, and is collected into a separate revenue account. The top two rates, 36% and 39%, are not separate statutory rates but are produced by an "additional tax" (surcharge) levied on the 30% band: an extra 20% of the 30% rate makes 36%, and an extra 30% of the 30% rate makes 39%. Because the rate steps upward only on income inside each band, the effective (average) rate a person pays is always lower than the top marginal rate that applies to their last rupee of income.

For a resident individual assessed as a single person, the bands are: the first Rs 500,000 of taxable income at 1% (social security tax); the next Rs 200,000 (Rs 500,001–700,000) at 10%; the next Rs 300,000 (Rs 700,001–1,000,000) at 20%; the next Rs 1,000,000 (Rs 1,000,001–2,000,000) at 30%; income from Rs 2,000,000 to Rs 5,000,000 at 36%; and income above Rs 5,000,000 at 39%.

A married couple who elect to be assessed jointly get a wider first band: the first Rs 600,000 at 1%; the next Rs 200,000 (Rs 600,001–800,000) at 10%; the next Rs 300,000 (Rs 800,001–1,100,000) at 20%; the next band (Rs 1,100,001–2,000,000) at 30%; Rs 2,000,000–5,000,000 at 36%; and above Rs 5,000,000 at 39%. The upper bands (36% and 39%) and the cut-off points for them are identical for singles and couples; only the lower thresholds differ, giving couples a modest relief. These slabs were left unchanged from the previous fiscal year by the FY 2082/83 Finance Act.

Several adjustments sit alongside the raw slabs. A resident woman who has only employment (remuneration) income and files on her own PAN is entitled to a 10% rebate on her computed tax. People working in officially designated remote areas may deduct a remote-area allowance of up to Rs 50,000 (the amount depends on the area's category) before tax is computed. The 1% first-band social security tax is waived for people who contribute to the Social Security Fund (SSF), for those whose income is pension, and for sole proprietors, because the 1% is meant to fund the same social-security purpose that SSF contributions already serve.

Take a single resident with annual taxable income of Rs 1,800,000 who does not contribute to the SSF. The tax is built up band by band. The first Rs 500,000 is taxed at 1% = Rs 5,000 (social security tax). The next Rs 200,000 (up to Rs 700,000) at 10% = Rs 20,000. The next Rs 300,000 (up to Rs 1,000,000) at 20% = Rs 60,000. The remaining Rs 800,000 (from Rs 1,000,000 up to Rs 1,800,000) falls in the 30% band = Rs 240,000. The total tax is Rs 5,000 + Rs 20,000 + Rs 60,000 + Rs 240,000 = Rs 325,000.

If the same person is an SSF contributor, the Rs 5,000 first-band social security tax is waived, leaving Rs 320,000. If the taxpayer were a resident woman with only employment income, a further 10% rebate would be applied to the computed tax. This band-by-band method shows why the headline 30% rate does not mean 30% of the whole salary: on Rs 1,800,000 the effective rate here is about 18%, well below the 30% marginal rate that applies only to the top slice. The top 36% and 39% rates only begin once taxable income exceeds Rs 2,000,000 and Rs 5,000,000 respectively, so they affect only high earners.

Nepal's personal income tax is governed by the Income Tax Act 2058 (enacted in 2002 AD), a comprehensive statute that replaced earlier income-tax legislation and consolidated the taxation of individuals, firms and companies under one law administered by the Inland Revenue Department (IRD) under the Ministry of Finance. The Act fixes the framework, while the actual slab thresholds and rates are listed in its Schedule 1 and are amended each year by the Finance Act that accompanies the national budget, normally presented at the end of the month of Jestha (late May).

The slab structure has been broadened over the years. For much of the 2010s the system had fewer rates, but reforms from around FY 2078/79 (2021/22) onward introduced more bands and the present higher top tiers, adding the 36% surcharge level and then the 39% level on very high incomes to make the schedule more steeply progressive. The 1% first-band social security tax was introduced as a dedicated levy paid into a separate account earmarked for social-security purposes, which is why it is waived for those already inside the SSF. Because the thresholds are revised annually, taxpayers should always confirm the current year's Finance Act figures with the IRD rather than relying on an older schedule.

The income tax slab is frequently confused with the flat corporate tax rate. Companies are not taxed on a slab basis; resident companies generally pay a flat 25% (with a concessional 20% for some sectors such as certain manufacturing, and a higher 30% for banks, insurance, telecom, tobacco, alcohol and similar businesses). The slab system described here applies only to natural persons (individuals and couples), not to entities.

Another common confusion is between the slab and TDS (Tax Deducted at Source). TDS is the mechanism by which an employer or payer withholds tax at the point of payment and deposits it with the IRD; for salaries the amount withheld is based on the employee's projected annual liability under these very slabs, so TDS is the collection method, not a separate tax. People also confuse the 1% first-band rate (a social security tax inside the income-tax schedule) with contributions to the Social Security Fund (SSF) under the Contribution Based Social Security Act 2074 — the two are linked (SSF members are exempt from the 1%) but are different obligations. Finally, the slab applies to taxable income after allowable deductions (such as approved retirement-fund contributions, insurance premium relief and the remote-area allowance), not to gross salary; the gross figure is always higher than the income the slabs are actually applied to.