Is agricultural income taxed in Nepal?

For an individual farming their own land within the legal ceiling, no federal income tax applies. The exemption sits in Section 11 of the Income Tax Act 2058. Two things break it: income from land held above the ceiling (under Section 12(d) and 12(e) of the Land Act 2021), and agriculture run as a registered firm or company, which is taxable but gets a 50% rebate on the rate. So a farmer with a few ropani pays nothing federally; an incorporated agri-business pays, at half rate.

Why is farm income exempt from federal income tax in Nepal?

Because of how the Constitution splits taxing powers. Under Schedule 6 of the Constitution of Nepal 2015, agricultural income tax is an exclusive power of the provinces, not the federation. The federal Inland Revenue Department administers income tax on everything except agricultural income. For years no province actually levied it, so farm income was effectively untaxed nationwide. Karnali Province became the first to impose it, from FY 2025/26.

Does a company doing agribusiness pay tax in Nepal?

Yes, but at a concession. A registered firm, partnership, or company earning agricultural income gets a 50% rebate on the applicable tax rate, and the same 50% rebate covers vegetable-dehydration and cold-store businesses, plus domestic tea production and processing and dairy. Note this was a 100% exemption in earlier years and was cut to 50% around FY 2081/82, so older articles citing full exemption are out of date.

Are agricultural cooperatives tax-free in Nepal?

Agriculture and forest-based cooperatives registered under the Cooperatives Act 2074 and operating in a rural municipality get a 100% income tax exemption, with no tax on dividend distribution either. Other cooperatives in rural areas are taxed at 5%, 7%, or 10% by location tier, and savings-and-credit cooperatives at 10%, 15%, or 20%. So the full exemption is specific to agriculture and forest coops in rural municipalities, not all cooperatives.

Is there VAT on agricultural produce in Nepal?

No, on basic local produce and core inputs. Under Schedule 1 of the VAT Act 2052, paddy, wheat, maize, pulses, flour, fresh vegetables, fresh fruit, fresh fish, meat, eggs, and live animals are VAT-exempt, as are seeds, fertiliser, pesticides, and agricultural machinery. The IRD publicly confirmed there is no VAT on locally produced potatoes, onions, and apples after a market dispute. Processed and packaged agri-goods can still attract VAT.

I'm salaried with a little farm income. Do I report it?

Farm income from your own land within the ceiling is exempt agricultural income, so it is not added to your salary for federal tax and there is no federal line to declare it on, because the IRD does not administer agricultural income tax. Local land tax (malpot) still applies on the land itself, and VAT still applies on any non-exempt inputs you buy. If you live in a province that has begun levying agricultural income tax, like Karnali, check the provincial rule.

Agricultural Income Tax in Nepal: What's Exempt

A reader who works a salaried job in Kathmandu and keeps a few ropani back in the village, where his family grows vegetables and sells the surplus, asked a question that worries a lot of people quietly: will the IRD come after that income? He had read something online about farm income being taxed, panicked, and assumed the worst. The something online, it turned out, was about India.

Nepal taxes agricultural income very differently from the way most people assume, and very differently from the Indian rules that dominate search results. The short answer for that reader is reassuring. The full answer has two genuine catches, a constitutional twist that explains the whole thing, and one province that just changed the game.

The headline rule: farm income is federally exempt, with two catches

Section 11 of the Income Tax Act 2058 exempts income from agricultural business from income tax. For the overwhelming majority of Nepali farmers, an individual or family growing crops or raising livestock on their own land, that is the end of the story at the federal level. No income tax, no filing on that income.

Two things break the exemption. Both are worth understanding even if neither applies to you, because they explain who does pay.

Catch one: land above the ceiling

The exemption does not cover agricultural income from land held under Section 12(d) and 12(e) of the Land Act 2021, broadly, land held above the normal ownership ceiling. Nepal's land ceiling runs roughly to 10 bigha in the Tarai, 25 ropani in the Kathmandu Valley, and 70 ropani in the hills, per person or family. A natural person cannot ordinarily hold land above the ceiling; the clauses that allow holdings above it apply to specified entities and businesses. So this catch is really aimed at large, entity-held agricultural land, not the household plot. If your land sits within the ceiling, this does not touch you.

Catch two: agriculture as a registered business

This is the catch that matters for the growing number of commercial agri-ventures. Where a registered firm, partnership, or company earns agricultural income, it is not fully exempt. It is taxable, with a 50% rebate on the applicable tax rate. The same 50% rebate extends to vegetable-dehydration and cold-store businesses, and to domestic tea production and processing and the dairy industry.

One number to get right: this was a 100% exemption in earlier years and was cut to 50% around FY 2081/82. A lot of older blog content still says agri-business income is fully tax-free. That is stale. As of FY 2082/83 the figure is a 50% rebate, not a full pass. The line that decides which side you are on is simple in principle: a person farming their own land is exempt; the same activity run through a registered company is taxable at half rate. The boundary between "farming" and "trading or processing agri-products as a business" is where disputes arise, and it is worth a tax adviser's read if your venture straddles it.

Why it's exempt at all: the Constitution put it with the provinces

The cleanest explanation for the whole exemption is structural. Under Schedule 6 of the Constitution of Nepal 2015, agricultural income tax is an exclusive power of the provinces, not the federation. The federal IRD administers income tax on natural and legal persons across the country, with agricultural income carved out, because that base belongs to provincial governments.

For years this produced a quiet outcome: the federation could not tax farm income, and no province bothered to, so agricultural income went effectively untaxed nationwide. That is the real reason your village vegetable income has never shown up on a federal return. There was no one collecting.

Karnali just started taxing it

That changed recently. Karnali Province became the first to actually levy agricultural income tax, from FY 2025/26, under Section 8 and Schedule 4 of its provincial Finance Act. Income from the sale of agricultural produce within the province is now taxed, on this scale:

Annual agricultural income	Provincial tax rate
Up to Rs 500,000	Exempt
Rs 500,000 to Rs 2,500,000	1%
Rs 2,500,000 to Rs 5,000,000	1.5%
Rs 5,000,000 to Rs 10,000,000	1.75%
Above Rs 10,000,000	2%

Two things to read from this. First, the threshold is high, Rs 5 lakh of annual farm income exempt, so it lands on commercial producers, not subsistence farmers. Second, it is a precedent. If Karnali makes it work, other provinces may follow, and "agricultural income is untaxed" could quietly stop being true where you farm. For now it is province-specific; check your own provincial Finance Act if you sell produce commercially.

Cooperatives

Cooperatives are where farm income most often gets organised, and their treatment is specific:

Agriculture and forest-based cooperatives registered under the Cooperatives Act 2074, operating in a rural municipality: 100% income tax exemption, and no tax on dividend distribution.
Other cooperatives in rural areas: 5%, 7%, or 10% by location tier (municipality, sub-metropolis, metropolis).
Savings-and-credit cooperatives: 10%, 15%, or 20% by the same tiers.

So the full exemption is narrow, agriculture and forest coops in rural municipalities. A savings-and-credit coop in a metro pays 20%. Do not assume "cooperative" means "tax-free."

VAT and the other taxes that still apply

Income tax is not the only tax, and "income-tax exempt" does not mean "tax-free." Under Schedule 1 of the VAT Act 2052, basic agricultural products and core inputs are VAT-exempt: paddy, wheat, maize, pulses, flour, fresh vegetables, fresh fruit, fresh fish, meat, eggs, and live animals, plus seeds, fertiliser, pesticides, and agricultural machinery. The IRD publicly confirmed there is no VAT on locally produced potatoes, onions, and apples after a Kalimati-market dispute. Processed and packaged agri-goods can still attract VAT, though.

Two other taxes survive the income-tax exemption:

Local land tax (malpot, or bhumi kar): an annual levy set by your local government on the land itself. Owning farmland does not escape it. The difference between this and the one-time registration tax is laid out in the land and house tax post.
VAT on non-exempt inputs: anything outside Schedule 1.

Because produce income is exempt, payments to farmers for their produce generally do not attract TDS either, which is why a vegetable trader buying from a farmer is not withholding tax on the purchase.

This is not the Indian rule

Worth stating plainly, because it is the single most common confusion. India exempts agricultural income under its own Section 10(1) and then uses a "partial integration" method, folding agricultural income into the slab calculation to push other income into higher brackets. None of that applies in Nepal. Nepal has no partial-integration mechanism; exempt agricultural income does not get added back to raise the rate on your salary. If you are salaried with exempt farm income on the side, your farm income simply sits outside your federal salary tax. Any article describing slab-stacking or partial integration is Indian, and following it would have you over-report and over-pay. The gift tax post covers another case where an Indian figure gets wrongly copied onto Nepali pages.

Agro-industry concessions

For those building agri-processing businesses, a few concessions stack on top of the income rules. The Industrial Enterprises Act 2076 gives a manufacturing industry producing local tea, dairy products, or textiles a 50% exemption on the income-tax rate on income from selling its products. And the FY 2083/84 budget announced a full income-tax exemption for the first 10 years for agro-processing industries, plus VAT exemption on imported machinery for cold storage, packaging units, and testing labs. Confirm the 10-year holiday against the final Finance Act before relying on it, as the budget announcement and the enacted law sometimes differ.

What you actually need to know

Own land, within the ceiling: federally exempt. A household growing and selling produce pays no federal income tax on it. That is the rule for most farmers.
Incorporate it, and you pay, at half rate. A registered agri-company is taxable with a 50% rebate, down from the full exemption of earlier years. Land above the ceiling is taxable too.
Exempt from income tax is not tax-free. Malpot on the land and VAT on non-exempt inputs still apply, and your province may start levying agricultural income tax the way Karnali now does.

Running a commercial farm or agri-cooperative and unsure which side of the exemption you sit on? Email parjanya57@gmail.com and I will map your specific case against the current rules.

This post is part of the Nepal Money Basics guide — the earn-and-reconcile-the-tax section.