Rental Tax in Nepal: A Simple Guide
One of the sources of income for the residents in major cities of Nepal is rent payments. In Kathmandu alone, 55% of the total population lives in rented units (Census Nepal), supporting the importance of rental income in the towns. Just like any other income, rent income is also subject to tax. But who pays the tax? Who collects the tax? We have covered these topics in this blog.
Let’s get started.
What is Rent Income Tax?
In general, the property owner (landlord) is responsible for paying the rent income tax in Nepal. However, the rental agreement signed between landlord and tenant can specify who will pay the tax instead.
As per section 392 of the National Civil Code, 2074, if the landlord is to pay the tax but fails to pay in time, the tenant has to pay it. The tenant can then reduce that tax amount from the rent they pay to the landlord.
Where Should the Rental Tax be Paid in Nepal?
Before 2074, homeowners used to pay rent tax to the Inland Revenue Department(IRD). At present, the rent taxpayer should pay tax to their immediate local body, i.e. ward office.
While disputes remain over where firms should pay rental tax, Kathmandu Metropolitan City (KMC) issued a public notice. The notice clarifies that corporate rental tax collection falls fully under the local authority, as per the Constitution.
Citing the Constitution of Nepal 2015, Local Government Operation Act 2017, KMC’s Revenue Act 2018, and Rent Management Directive 2022, KMC mandated that concerned parties(companies) must pay this tax to the local government.
How is the Rent Tax Calculated in Nepal?
Before 2074, landlords in Nepal used to pay 10% rental tax to the central government. Now, as per Nepal’s constitution, the local government can collect the rental tax. Each local body can set its tax rate; local governments collect rent tax between 10% to 17%.
In Nepal, you do not have to pay the rental tax in advance, but the tax must be paid by the end of the running fiscal year. If the tax isn’t paid in time, the taxpayer can be fined 10%.
Why Is a Rental Contract Important for Rent Tax Payment?
A rental agreement or contract clearly mentions the rent amount, payment dates, and responsibilities of both the tenant and landlord. This contract ensures accurate rent tax calculation.
Without a proper rent contract, it can lead to confusion about how much rent was actually paid, leading to wrong tax payments, fines, or disputes with tenants. Having a proper contract ensures transparent, legal, and stress-free tax filing for landlords.
Final Thoughts
In Nepal, landlords pay rent income tax to the local body, i.e. ward office. Taxpayers must pay 10% as a rental tax on their rental income. The rent tax percentage can be different in different local bodies.
One of the safest ways to ensure timely rent tax is to have a detailed rental contract between tenants and landlords. Homeowners can make a rental contract by themselves, stating everything in clear terms.
Looking for an easy solution, download eJyalo rent contract template, which is available in the Nepali language. It includes all the aspects such as:
The monthly rent amount
The duration of tenancy
The notice period for ending the contract
Penalty or late fee conditions
Tax payment responsibility
Just download the template, get it signed by both parties, and keep it safe. With this clarity, landlords can stay safe from any problems that tenants can create or claim.