Tax Deducted at Source (TDS) is one of the most frequently queried topics in Nepali tax law — and one of the most error-prone. The rates change with almost every Finance Act, and the Income Tax Act 2058 alone has over a dozen sections governing different payment types.
This guide consolidates every current TDS rate as of Finance Act 2081, with the exact section reference for each.
Why TDS Rates Keep Changing
Nepal's TDS framework isn't static. The Finance Act can — and regularly does — override rates specified in the Income Tax Act. This creates a layered system where you need to check:
- The Income Tax Act 2058 (base rates in Sections 87–89)
- The latest Finance Act (which may amend specific rates)
- IRD circulars (which may clarify application)
Missing any layer means applying the wrong rate.
Current TDS Rates (Post Finance Act 2081)
Payments to Residents
| Payment Type | TDS Rate | Section | Notes |
|---|---|---|---|
| Employment income | As per slab | 87(1) | Employer deducts based on annual tax slab |
| Interest (banks/FIs) | 5% | 88(1) | Final withholding for individuals |
| Dividends | 5% | 88(1) | Final withholding |
| Rent (land/building) | 10% | 88(2) | On gross rent |
| Rent (other assets) | 15% | 88(2) | Vehicles, equipment, etc. |
| Service fees (with VAT invoice) | 1.5% | 88(1) | Reduced from 2.5% by FA 2081 |
| Service fees (without VAT) | 15% | 88(1) | Significant difference — VAT registration matters |
| Contract payments | 1.5% | 89 | Construction, supply contracts |
| Commission/agency fees | 15% | 88(1) | Unless lower treaty rate |
| Mining royalties | 15% | 88(1) | Natural resource payments |
For salaried employees — employment-income TDS isn't a flat percentage; it's computed from the FY 2081/82 slab table (1% / 10% / 20% / 30% / 36%) after retirement deductions. Use our Nepal Salary Tax Calculator to compute your exact monthly TDS, with SSF, PF / EPF, CIT, life and health insurance deductions handled.
Payments to Non-Residents
| Payment Type | TDS Rate | Section | Notes |
|---|---|---|---|
| Service fees | 15% | 88(1) | Unless DTAA provides lower rate |
| Interest | 15% | 88(1) | Standard withholding |
| Royalties | 15% | 88(1) | IP, technology fees |
| Capital gains (shares) | 10% | 88(1) | On gains from disposal — see NEPSE CGT Calculator for the resident-investor rates (7.5% / 5%) |
| Dividends | 5% | 88(1) | — |
| Natural resource payments | 15% | 88(1) | — |
The 2081 Amendment That Everyone Missed
The Finance Act 2081 quietly reduced the TDS rate on consulting and professional service fees from 2.5% to 1.5% — but only for payments backed by a VAT invoice. Without the invoice, the rate remains 15%.
This single change affects thousands of service contracts across Nepal. Yet because it was buried in the Finance Act (not highlighted in the Income Tax Act itself), many firms continued deducting at 2.5% for months after it took effect.
The gap between the VAT-registered rate (1.5%) and the non-registered rate (15%) is now 10x. This makes VAT registration a critical business decision for service providers, not just a compliance checkbox.
Common TDS Mistakes
1. Applying old rates from the base Act
The Income Tax Act 2058 originally specified different rates. The Finance Act amendments override them. Always check the latest Finance Act first.
2. Ignoring the VAT invoice distinction
The difference between 1.5% and 15% on the same service payment is massive. Verify whether the payee has a valid VAT invoice before deducting.
3. Missing threshold amounts
TDS on certain payments only applies above specified thresholds. Below the threshold, no deduction is required — but you still need to document the payment.
4. Not cross-referencing DTAAs
For non-resident payments, Nepal's Double Taxation Avoidance Agreements with India, China, and other countries may specify lower rates than the domestic 15%.
How to Verify Any Rate Instantly
Instead of cross-referencing 3 documents manually, you can ask MeroDafa:
"What is the current TDS rate on consulting fees paid to a VAT-registered resident?"
The answer comes back in seconds with the exact section, page number, and which Finance Act amendment applies — so you can cite it in your work.
Related calculators
Hands-on tools for the rates discussed in this guide:
- Salary Tax Calculator (FY 2081/82) — monthly TDS for salaried employees, single & couple slabs, with SSF / PF / CIT and insurance deductions
- NEPSE Share Profit & CGT Calculator — bankable profit on NEPSE trades after broker commission, SEBON fee, DP charge, and Capital Gains Tax (7.5% / 5% / 10%)
- VAT Calculator (13%) — add or extract 13% Nepal VAT on invoices, multi-line mode for line-item billing
This guide reflects rates as of Finance Act 2081. TDS rates may change with subsequent Finance Acts. Always verify against the latest official gazette. Check any rate instantly on MeroDafa.
