House rent tax in Nepal: the 10% on rental income, and who you pay it to

A cousin who owns a two-room flat in Baluwatar rented it out for Rs 28,000 a month and then spent the better part of a year worrying about the wrong tax. He kept asking which IRD office to register at, whether he had to file a return in Ashoj, how much of the rent the income tax would swallow. When his ward office finally sent a notice, the answer turned out to be simpler and came from a different government entirely. The Kathmandu metropolis wanted 10% of the rent, paid at the ward. The IRD wanted nothing from him at all.

That mix-up is the whole story of house rent tax in Nepal. Two separate taxes share the name, and which one actually touches you depends entirely on who your tenant is.

Two taxes, one confusing name

Both of these get called "house rent tax" in everyday Nepali, which is why landlords end up filing nothing, double-paying, or chasing the wrong office. They are different taxes, levied by different governments, under different laws. The split is by tenant type.

If your tenant is	Tax that applies	Rate	Who collects	Who deposits it
An individual (a family renting your flat)	Municipal house-and-land rent tax (घरबहाल कर)	Flat % of rent: 10% in KMC, up to ~17% in some municipalities	Your local government, at the ward	The landlord
A company, NGO, or government office	Federal TDS on rent, Income Tax Act 2058	10% of rent	IRD	The tenant (withholds, then deposits)

This was not always clean. Before 2025, some municipalities tried to charge their rent tax on company-leased property too, while the IRD was already withholding from the same rent. Landlords got squeezed from both sides. A 2025 Supreme Court ruling drew the line: local governments collect from natural-person (individual) landlords, the federal government collects from legal-person (company) landlords. One rent, one tax, one collector.

The municipal rent tax: most individual landlords

If you are a regular person renting your flat to another regular person, this is the only rent tax that touches you. Its legal home is the Local Government Operation Act 2074, which hands local governments the power to levy a house-and-land rent tax under Schedule 8 of the Constitution.

A few things to know about how it actually works:

• It is a flat percentage of the rent, not a slab. Kathmandu Metropolitan City charges 10%. Nationally the rate ranges from about 10% to 17% depending on the municipality, so check your own ward's figure rather than assuming Kathmandu's.
• It is on the gross rent. There is no standard repair-and-maintenance deduction and no tax-free slice. The rate applies to the whole rent stated in your agreement.
• You declare it yourself. Municipalities collect by self-declaration (स्वघोषणा) at the ward, based on the rental agreement, and most let you pay monthly, quarterly, or annually.
• The landlord owes it by default. If the agreement does not say who pays, the property owner is responsible.

Note that this is a different bill from the annual land and house tax (malpot and municipal property tax), which is charged on the value of the property whether or not you rent it out. Rent tax is on the income; property tax is on the asset. A landlord who lets out a flat pays both, for different reasons.

A worked example: a Rs 28,000 flat in Kathmandu

Take that Baluwatar flat. Rent is Rs 28,000 a month, Rs 336,000 a year. The tenant is a family.

Item	Amount
Annual rent	Rs 3,36,000
KMC house rent tax at 10%	Rs 33,600
Federal income tax on top	Rs 0
Added to the landlord's salary slab	No

That is the entire tax. Rs 33,600 to the ward, nothing to the IRD, and the rent never touches the landlord's income-tax slabs. Because the tax is final at the municipal level, there is no annual rental-income return to file with the IRD for an ordinary individual landlord.

Now flip one detail. Say the tenant is a software company that leases the flat for a staff member. The company is a withholding agent, so it deducts 10% TDS, Rs 33,600 for the year, and deposits it with the IRD. The landlord receives Rs 302,400 and a TDS certificate, and owes no municipal rent tax on it. Same 10% headline, different collector, and the obligation to deposit has moved from the landlord to the tenant.

The federal 10% TDS: when your tenant is a company

The federal side lives in Section 88 of the Income Tax Act 2058, which sets a 10% withholding on rent paid by a resident person, and the rate is unchanged for FY 2082/83. The same section carries the exemption that drives the whole split: it does not apply to house rent paid to a natural person. So a company tenant withholds, an individual tenant does not.

For the landlord, this TDS is the end of the matter, not an advance. Section 92 lists rent on land and buildings paid to ordinary individuals (other than someone carrying on a letting business) as a final withholding, so the 10% the company deducted is the full tax. You do not add the rent to your other income or settle anything further at year-end. This is the same final-withholding logic behind the 6% TDS on your FD interest: once it is deducted, it is done.

VAT only shows up on commercial rent

Residential rent is VAT-exempt. A tenant renting a home never pays the 13% on top, and a landlord letting flats does not register for VAT on residential rent.

Commercial leasing is different. Renting out shop space, an office floor, or a warehouse is a taxable service, so a landlord whose commercial-rent turnover crosses the Rs 30 lakh services threshold has to register for VAT and add 13% to the rent. For a typical homeowner renting out one residential flat, VAT simply does not arise.

The "50% deduction" you may have read about

Some tax-advisory pages claim a landlord can knock 50% off rental income, or that rental income runs through the 1% to 36% progressive slabs. That describes a different situation: rental income taxed as business income, where someone is formally in the letting trade and files under the regular regime with books and expenses. It is not how the ordinary individual landlord is taxed.

For the homeowner renting out a flat, the flat municipal rate applies to gross rent, full stop. No 50% allowance, no slab. If a source quotes you a deduction, check whether it is talking about business rental income before you assume it applies to you.

Paperwork, deadlines, and penalties

A few practical points, with the honest caveat that municipalities differ:

• PAN. Your PAN is typically among the documents a ward asks for when you declare rent, alongside the ownership certificate, citizenship, and the rental agreement. If you do not have one, the PAN process is free and quick.
• Deadline. Municipalities generally want the tax cleared by the end of the fiscal year (Ashad end), but the exact due date is set locally.
• Penalty. A penalty of around 10% for paying late after the fiscal year ends is commonly cited, though the figure varies by each local government's finance act. Confirm both the deadline and the penalty at your own ward, because there is no single national number.

Typical Kathmandu residential rents, for context, run from roughly Rs 15,000 a month for a one-bedroom outside the centre to around Rs 60,000 for a larger flat in a central area (indicative market figures, not an official survey). At a 10% rate, that is Rs 18,000 to Rs 72,000 of rent tax a year, which is worth budgeting for rather than discovering through a notice.

What you actually need to know

• Which rent tax applies is decided by your tenant, not by you. Individual tenant means the flat municipal rent tax (10% in Kathmandu) at the ward. Company tenant means a 10% federal TDS the company deducts. You never pay both on the same rent, and a 2025 Supreme Court ruling locked that in.
• For an ordinary individual landlord, rental income is final and separate. It is not added to your salary slab, and there is no IRD return to file on it. The municipal tax is on gross rent with no deduction, so do not count on a "50%" allowance unless your rent is genuinely taxed as business income.
• Confirm your local rate, deadline, and penalty at the ward. The 10% and the roughly 10% late penalty are Kathmandu and common-case figures; rates run up to about 17% elsewhere, and each municipality sets its own due date.

This is the rent-income side of owning property. The one-time tax when you eventually sell is a separate calculation, covered in capital gains tax on property. If you are weighing whether to rent your place out at all, the rent vs buy math frames the other half of the decision.

If you are unsure whether your tenant counts as a withholding agent, or your ward is asking for a rate that does not match what you expected, email parjanya57@gmail.com with the rent figure and who the tenant is, and I will help you work out which tax actually applies.

This post is part of the Nepal Money Basics guide — the big-ticket property section.