How much tax is deducted on NEPSE cash dividends in Nepal?

5%, withheld at source by the company before the dividend reaches your account, under Section 88 of the Income Tax Act 2058. It is a final withholding tax, so you receive 95% of the declared cash dividend and owe nothing more. A 20% cash dividend on a Rs 100 par-value share is Rs 20 gross, and you receive Rs 19 after the 5% cut. The rate is unchanged for FY 2082/83.

Are bonus shares taxed too, even though I get no cash?

Yes. Bonus shares are treated as a dividend and taxed at 5% on their value when issued, not deferred to when you sell. Because no cash reaches you, the company funds the tax, usually by declaring a small accompanying cash dividend sized to cover the 5%. That is why you often see announcements like 20% bonus plus about 1.05% cash, or 14.25% bonus plus 0.75% cash: the odd-fraction cash is the bonus tax being paid for you.

Is dividend tax the same as capital gains tax on shares?

No, they are entirely separate. Dividend tax (5%) applies when a company distributes a dividend. Capital gains tax applies when you sell shares at a profit, deducted by your broker or CDSC at the sale. For a resident individual in FY 2082/83, the CGT rate is 5% if you held the shares more than 365 days and 7.5% if 365 days or less. You can owe both over a share's life: 5% on dividends along the way, CGT on the gain at exit.

Do I need to declare NEPSE dividends in my annual tax return?

No. Because the 5% is a final withholding tax under the Income Tax Act, the dividend is not added to your total taxable income and is not taxed again at your slab rate. The company has already settled the tax on your behalf and remitted it to the IRD. This is the same final-tax logic that applies to bank interest, except interest is taxed at 6% and dividends at 5%.

How are mutual fund dividends taxed in Nepal?

Distributions from a SEBON-approved mutual fund to an individual unit-holder are taxed at 5% final withholding, the same as company dividends. The income earned inside the fund itself is tax-exempt, so there is no double layer. For institutional (non-natural-person) unit-holders the rate is 15% and is not final. Capital gains when you sell the units are a separate matter.

How NEPSE Dividends Are Taxed in Nepal: The 5% Rule

A new investor got their first dividend and did the arithmetic the company had announced: a 13% dividend on 100 shares held at Rs 100 par should be Rs 1,300. The deposit that landed was Rs 1,235. Sixty-five rupees short. No fee notice, no SMS explaining the gap. Just a slightly smaller number than the headline promised.

That missing 5% is the most predictable tax in the Nepali market, and almost nobody sees it leave. It is deducted before the money is ever yours.

The cash dividend: you get 95%, always

When a resident company declares a cash dividend, it does not hand you the full amount and trust you to pay tax later. It deducts 5% and sends the rest. The statutory wording in Section 88 is blunt: on a dividend payment, withhold "five percent of the paid amount." The company, through its share registrar, remits that 5% to the IRD and credits your bank account or your CDSC-linked account with the balance.

The math on a single Rs 100 par-value share:

Declared cash dividend	Gross per share	5% withheld	Net to you
10%	Rs 10.00	Rs 0.50	Rs 9.50
13%	Rs 13.00	Rs 0.65	Rs 12.35
20%	Rs 20.00	Rs 1.00	Rs 19.00

That Rs 1,235 from the opening story was a 13% dividend on Rs 10,000 of par value (100 shares at Rs 100), so Rs 1,300 gross less the Rs 65 cut. Working as designed.

Two things make this painless to the point of invisibility. The tax is withheld at source, so you never write a cheque to the IRD. And it is final, which the next section explains is the most underrated feature of the whole arrangement.

"Final withholding" is why you can forget about it

A final withholding tax is settled the moment it is deducted. The dividend does not get added to your total taxable income, it is not reassessed at your marginal slab, and there is no annual reconciliation. The company paid it, the IRD received it, done.

This matters because Nepal's income tax slabs run up to high marginal rates. If dividends were ordinary income, a high earner would owe tax at their top marginal slab rate, far above 5%. Instead, everyone, the Rs 30,000-a-month earner and the Rs 5-lakh-a-month earner alike, pays a flat 5% on dividends. Final withholding flattens it.

It is the same machinery that handles your bank interest, with one number changed: bank interest is taxed at a 6% final tax (covered in tax on FD interest), while dividends sit at 5%. Both vanish at source, both are final, neither shows up on your return.

Bonus shares are taxed too, and the company pays it for you

This is the part that trips people up. You receive no cash with a bonus issue, just more shares, so it feels untaxed. It is not. A bonus share is a dividend in kind, and the 5% applies to the value of the shares issued, at the time of issue, not deferred until you eventually sell.

But if there is no cash, where does the 5% come from? The company funds it, almost always by declaring a small cash dividend alongside the bonus, sized precisely to cover the tax. Once you know to look for it, the pattern is everywhere in the announcement feed.

Two real declarations make it concrete:

Nepal Lube Oil: 20% bonus + 1.05264% cash (FY 2080/81). The cash is not a coincidental fraction. Tax on a 20% bonus is 5% of 20%, which is 1%. But that 1% of cash is itself taxable at 5%, so the company grosses it up: 1% ÷ 0.95 = 1.0526%. The entire cash dividend exists to pay the bonus tax and the tax on itself.
Gurans Laghubitta: 14.25% bonus + 0.75% cash (FY 2081/82). Same formula: 14.25% × 5% ÷ 0.95 = 0.75%. Exactly.

When you instead see a chunky cash component, like Everest Bank's 6% bonus plus 14% cash, the cash is doing two jobs: covering the small bonus tax and delivering a genuine cash payout on top.

So the headline "bonus + cash" structure is rarely arbitrary. The cash sliver is the tax engine. The deeper comparison of which payout builds wealth faster sits in bonus share vs cash dividend and the three-way right shares vs bonus vs dividend breakdown.

Dividend tax is not capital gains tax

These two get conflated constantly, so it is worth nailing the line between them.

	Dividend tax	Capital gains tax (shares)
Triggered by	Company distributing a dividend	You selling shares at a profit
Base	The dividend amount	The gain (sale price minus WACC cost)
Rate (resident individual)	5% flat	5% if held > 365 days; 7.5% if 365 days or less (FY 2082/83)
Who deducts	Company / share registrar	Broker / CDSC at the sale
Final?	Yes	Effectively settled at source for individuals

Over a single share's lifetime you can pay both: 5% on every dividend it throws off while you hold it, and capital gains tax on the profit when you sell. They are not alternatives, they are two different taxable events. The full sale-side mechanics, including the WACC cost basis and the rates for the coming fiscal year, are in capital gains tax on shares.

A few edges worth knowing

Mutual funds. A distribution from a SEBON-approved fund to an individual unit-holder is taxed at the same 5% final rate. The fund's own income is tax-exempt, so you are not taxed twice. If you invest through a fund, see starting a SIP in a Nepali mutual fund, where this 5% is baked into the return math. Institutional unit-holders face 15%, and for them it is not final.

Companies holding shares. A resident company receiving a dividend also has 5% withheld, and the law prevents that dividend being taxed again when the company passes it through to its own shareholders. So a holding-company chain does not stack 5% at every layer.

Non-resident and NRN investors. The 5% dividend rate generally applies to non-resident individuals as well, though capital gains for non-residents are treated differently and more steeply. If you invest as an NRN, confirm the current treaty position before relying on it.

Stability. The 5% dividend rate has held steady across recent Finance Acts and is marked unchanged for FY 2082/83. It is one of the few numbers in Nepali investing you can plan around without rechecking every Asar.

What you actually need to know

Three takeaways:

You always net 95% of a cash dividend. The 5% is withheld at source and final, so the deposit is smaller than the headline and there is nothing further to file. Build that 5% into your yield expectations rather than being surprised by the short deposit.
Bonus shares are taxed at issue, and the small cash dividend beside them is the tax being paid for you. That oddly specific cash percentage is not random; it is 5% of the bonus, grossed up. Now you can read any "bonus + cash" announcement and see the tax inside it.
Dividend tax and capital gains tax are separate events. One fires on distribution, the other on sale. Knowing which is which keeps your annual investment-tax picture honest.

If a dividend you received does not reconcile to the 5% rule, or you are untangling dividend versus capital gains on a position you are about to sell, email parjanya57@gmail.com with the numbers.

This post is part of the Nepal Money Basics guide — the investing section.