What does TDS stand for and where is it defined in Nepali law?

TDS stands for Tax Deducted at Source, the rule that whoever is paying you also withholds your tax and deposits it with the Inland Revenue Department on your behalf. The legal basis is Chapter 17 of the Income Tax Act 2058 (2002). Section 87 covers employer withholding on salary, Section 88 covers withholding on interest, rent, dividend, royalty and service fees, Section 88Ka covers windfall gains, and Section 89 covers contract payments over Rs 50,000.

How does my employer calculate the TDS on my salary?

Your employer estimates your full annual taxable income at the start of the fiscal year, applies the Schedule-1 slabs (1% / 10% / 20% / 30% / 36% / 39%) to compute the annual tax, then divides by 12. Each month they withhold one-twelfth and deposit it with IRD by the 25th of the next Nepali month. If your salary or deductions change mid-year, payroll recalculates and the remaining months absorb the difference, which is why one TDS line can suddenly look high.

What is Annexure 10 and how do I check my TDS has been deposited?

Annexure 10 is the auto-populated summary on the IRD taxpayer portal showing every rupee that has been deposited against your PAN by any withholding agent — employer, bank, broker, tenant — for a given income year. Log in at taxpayerportal.ird.gov.np with your PAN credentials, open Annex 10 for the fiscal year, and the figures will match if your employer filed e-TDS on time. If a quarter is missing, your employer skipped a filing.

Is salary TDS the final tax or do I still need to file a return?

For most single-employer salaried people earning under Rs 40 lakh per year of Nepal-sourced employment income, salary TDS is treated as final and no return is needed. You must still file if you switched employers mid-year, earn freelance or rental income alongside salary, want to claim deductions your employer did not apply (health insurance, donations, externally bought life cover), or your annual taxable income crosses Rs 40 lakh. Filing happens by Asoj end (mid-October) on the same IRD portal.

What rates of TDS apply outside salary?

Bank interest to a natural person — 6%. Dividend from a resident company — 5%. Rent paid to an entity — 10%. Service fee to a VAT-registered firm — 1.5%, to non-residents — 15%. Capital gain on listed shares — 5% if held over 365 days, 7.5% if held for less, 10% for institutions. Capital gain on land — 5% if owned over 5 years, 7.5% if under. Contract payments over Rs 50,000 — 1.5%. Most of these are final for a natural person, meaning the rate withheld is the rate you owe.

What happens if my employer fails to deposit the TDS they deducted?

The employer is liable, not you. Section 119 of the Income Tax Act charges 15% annual interest on unpaid tax for each month it sits with them. A separate 2.5% per annum charge applies for failing to file the TDS return on time, and Section 117 layers on per-month and per-return fees. Crucially, deemed-withholding rules mean that even if the employer forgot to deduct, they remain personally liable to deposit the amount. Practically, if Annex 10 is short, ask payroll to fix the filing; if they refuse, the IRD complaint window is open.

TDS in Nepal: Salary Tax Deducted at Source Explained

A friend forwarded me her Magh salary slip and pointed at one line. TDS — Rs 12,083. "What is this? Where does it go? Why is it different from the SST and PF lines above it?"

The TDS line is one of the most visible deductions on a Nepali salary slip and one of the least explained. This is what it actually is, how the number gets computed, and how you check that your employer actually deposited what they say they deducted.

What TDS actually is, briefly

TDS sits in Chapter 17 of the Income Tax Act 2058, titled simply "Withholding on Payment." The logic of the chapter is older than the tax code itself. People are bad at saving up and writing a single annual cheque to the government. The government is bad at chasing them. Withholding at the point of payment fixes both problems. The employer, the bank, the broker, the tenant — each becomes the collection agent.

Five sections do most of the work:

Section 87. Withholding by an employer. Every resident employer must deduct tax on salary at the Schedule-1 rates.
Section 88. Withholding on investment return and service charge. Covers interest, rent, royalty, service fees, dividend.
Section 88Ka. Windfall gains. 25% on lottery, gift, prize.
Section 89. Contract payments. 1.5% on contract payments over Rs 50,000 to residents.
Section 90. Statement and certificate. The withholding agent must file the return and issue a certificate to the recipient.

Section 87(1) reads: "In making payment which has source in Nepal and is to be included in computing the income derived by any employee or worker, each resident employer shall deduct (withhold) tax at the rate referred to in Schedule-1." That is the whole engine.

How salary TDS gets computed

Salary TDS is not a flat rate. It is the result of payroll running the slab math twelve months ahead, every single month.

Here is what happens inside payroll on Shrawan 1:

Project the next 12 months of annual gross salary.
Subtract employer's PF/SSF/CIT contributions (not your income).
Subtract your own retirement contributions, capped at the lower of Rs 5 lakh or one-third of assessable income.
Subtract life insurance premium up to Rs 40,000 and health insurance up to Rs 20,000.
Apply the Schedule-1 slabs to arrive at annual tax.
Apply the 10% female rebate if you are a sole-filing female with employment-only income.
Divide by 12. That is your monthly TDS.

Two worked examples at FY 2082/83 rates, for a single SSF-enrolled filer (the 1% SST is waived):

Monthly gross	Annual gross	Taxable after Rs 5L retirement cap	Annual tax	Monthly TDS
Rs 80,000	Rs 9,60,000	Rs 8,00,000	Rs 40,000	Rs 3,333
Rs 1,00,000	Rs 12,00,000	Rs 8,00,000	Rs 40,000	Rs 3,333
Rs 2,00,000	Rs 24,00,000	Rs 19,00,000	Rs 3,50,000	Rs 29,167
Rs 4,00,000	Rs 48,00,000	Rs 43,00,000	Rs 11,11,000	Rs 92,583

The Rs 80k and Rs 1L rows look identical because at both salaries the one-third retirement deduction binds. Both end up with Rs 8 lakh taxable. That coincidence will not hold once you start using the insurance and donation deductions on top.

For the slab table itself and the full deductions chain, see the income tax brackets cheat sheet.

The mid-year recalculation that spikes your TDS

If your salary changes mid-year (increment, bonus, EPF-to-SSF transition), payroll recomputes. The new annual tax is higher or lower, but the months already gone cannot be undone. So the new annual liability minus what has already been deducted gets spread across the remaining months.

A simple case. You were on Rs 80,000/month from Shrawan to Mangsir (5 months, Rs 16,667 of TDS deposited so far). In Poush you get an increment to Rs 1,20,000. The new projected annual tax is Rs 70,000. Already deducted: Rs 16,667. Remaining: Rs 53,333 across 7 months, or Rs 7,619/month for the rest of the year, more than double what you saw before.

The same arithmetic happens in Kartik when Dashain bonus lands. The bonus pushes you up the slabs for that year, and the next eight months of TDS absorb the bump. The Dashain bonus post covers this spike in detail.

The other TDS lines you'll see in life

Salary is one of about a dozen TDS-bearing payments. The ones a salaried person hits elsewhere:

Payment	Rate	Final for natural person?
Bank interest on savings or FD	6%	Final
Dividend from a resident company	5%	Final
Capital gain on listed shares, held over 365 days	5%	Final
Capital gain on listed shares, held 365 days or less	7.5%	Final
Capital gain on land, owned over 5 years	5%	Adjustable
Capital gain on land, owned 5 years or less	7.5%	Adjustable
Rent paid by you to an entity (not a person)	10%	Adjustable for landlord
Service fee to a VAT-registered consultant	1.5%	Adjustable
Service fee to a non-resident	15%	Final
Royalty (general)	15%	Adjustable
Royalty on literature writing	1.5%	Adjustable
Windfall (lottery, prize, gift)	25%	Final
Contract payment to resident, over Rs 50,000	1.5%	Adjustable

A few traps worth flagging. Rent paid to a natural person attracts no federal TDS; the local-level house-rent tax is a separate municipal charge. If you rent a flat from an individual landlord, you do not deduct 10% from your monthly transfer. If you rent the same flat from a company, you do. Bank interest paid to a financial institution or mutual fund attracts no TDS either, which is why mutual fund factsheets quote gross-of-tax returns.

When TDS actually gets deposited

Withholding agents have until the 25th of the next Nepali month to deposit both the tax and the e-TDS return. Asar's TDS is due by Shrawan 25. Magh's is due by Falgun 25. The deposit goes through the IRD taxpayer portal at taxpayerportal.ird.gov.np, tagged with the employer's PAN, the income year, and a revenue code.

The codes matter for salary:

11211 — Social Security Tax (the 1% on the bottom slab, where it still applies).
11111 — Remuneration Income Tax (the slabbed tax above the SST band).

If your slip lists both an SST line and a TDS line, the two go to different revenue codes even though both fall out of the same monthly slab calculation.

Annexure 10: verifying your employer actually deposited it

Section 90 requires the employer to issue you a TDS certificate. The modern version of that certificate lives on the IRD portal and updates automatically as the employer files.

The flow:

Log in at taxpayerportal.ird.gov.np with your PAN.
Open the e-TDS section for the relevant income year (e.g. 2082/83).
Annexure 10 will list every deposit made against your PAN by every withholding agent: employer, bank, broker, tenant. With date, amount, and the deductor's name.
Sum the salary entries and compare against the TDS column on your monthly slips. They should match to the rupee.

If a month is missing, the employer skipped that filing. If the cumulative is lower than what your slips claim, the employer deducted but did not deposit, which is a serious problem you can escalate.

This is the single most useful thing the IRD portal does for a salaried worker. Most Nepali employees have never logged in to look. The first registration takes about ten minutes; every annual check after that takes two.

Final vs adjustable — the distinction that matters at year-end

Not all TDS is the same. Some categories are final: the rate withheld is the rate you owe, and the income does not get added back into your annual return. Others are adjustable: they sit as advance tax against your final liability, and any difference is settled when you file.

Final TDS for a natural person:

Bank interest (6%)
Dividend (5%)
Capital gains on shares and land (the Section 95Ka rates)
Windfall gains (25%)
Lecture, meeting-allowance, and question-setting fees
Rent received from a private vehicle owner

Adjustable TDS:

Salary TDS — credited against your final annual tax liability.
Service fee TDS paid to entities.
Contract TDS.
Land capital-gains advance tax (settled against final CGT on the Section 95Ka return).

Why the distinction matters. If your only income is salary + dividend + bank interest + listed-share gains, all of it has been finally taxed at source, and you owe nothing further. Filing is optional. Add freelance fees, rental income from a building you own, or anything withheld at an adjustable rate that does not match your slab — and the reconciliation becomes mandatory. The freelance side income tax post walks through that case.

What happens if the employer doesn't deposit

Three penalties, none of them good for the company.

Section 119 interest. 15% per annum on unpaid tax, charged monthly. A Rs 10,000 TDS line sitting in the company's account for six months costs them Rs 750 in interest. Multiplied across every employee.

Section 90 e-TDS late filing. A separate 2.5% per annum charge for not filing the return on time, even if the cash was eventually deposited.

Section 117 fees. Whichever is higher of Rs 100/month, Rs 1,200 per missed return, or 0.1% per year of assessable income (less final-withholding income), stacking on top of both interest charges.

And under the deemed-withholding rule, failure to deduct is treated as if the tax was deducted anyway. The employer remains personally liable to deposit it. There is no clean way out for a company that quietly skips TDS for a few months.

For the employee, the practical recourse is simpler than it looks. If Annexure 10 is short, raise it with payroll first; most cases resolve as "we missed one e-TDS filing." If they cannot or will not reconcile, the IRD complaint route through the portal works, and the auditor relationship between IRD and large employers is close enough that a single escalation usually triggers a quiet internal fix.

The no-PAN question — where the misconception lives

A lot of Nepali tax blogs claim that if a withholdee has no PAN, TDS is deducted at a higher rate, often "1.5× the rate" or "25%." This is Indian tax law (Section 206AA of the Indian Income Tax Act). It is not Nepal's rule.

What Nepal actually does. TDS still gets deducted at the normal rate. But with no PAN to map it to, the withholdee cannot claim credit for the TDS on the IRD portal, and the deductor's auditor may disallow the expense as a deductible business cost. The pain falls on both sides without any rate change.

If you are paying a consultant or a part-time contractor, ask for their PAN before processing the invoice. If they do not have one, ask them to register. The IRD PAN registration takes a single visit, is free for a natural person, and unlocks the credit chain.

What you actually need to know

Three takeaways, in order of practical value.

TDS on salary is annual tax divided by 12, run by payroll every month. If the monthly line looks wrong, the fix is upstream: check whether your retirement contributions and any insurance premiums have been logged correctly with HR.
Annexure 10 is the single source of truth for what your employer actually deposited. Log into the IRD taxpayer portal once a year, after Asar 25, and reconcile against your slips. Ten minutes; free; the only audit you ever need to run on your own employer.
Final vs adjustable matters at filing time. Salary + dividend + bank interest + listed-share gains usually means you are done. Add freelance, rent received, or non-standard income and reconciliation becomes mandatory.

This post lives in the tax section of the Nepal Money Basics guide, next to the income tax brackets cheat sheet and the salary slip walkthrough.

If your TDS line and your Annex 10 figures don't match, send the two numbers (no PII) to parjanya57@gmail.com and I'll help find the gap.