Turnover tax vs regular tax: how small businesses are taxed in Nepal (D-01)

A friend who runs a small mobile-accessories shop in Kalanki got a message from his accountant last Ashoj that confused him: did he want to pay "the flat tax" or "file properly"? He had been paying Rs 7,500 a year and assumed that was simply what the shop owed. He had no idea there were three different ways his business could be taxed, or that crossing a turnover line would quietly move him from one to the next.

Most small businesses in Nepal sit in this blind spot. The owner knows they pay something, but not which regime they are in, what triggers a jump, or why their cousin with a similar shop pays a percentage of sales while they pay a flat amount.

This post lays out the three regimes for a small business or sole proprietor, the FY 2082/83 numbers for each, where VAT enters separately, and how to tell which one you should actually be in.

The three regimes, at a glance

The whole system is a staircase keyed to turnover. Know your annual sales and you know roughly which step you are on.

Regime	Who it is for	What you pay	Records needed
D-01 presumptive	Turnover up to Rs 30 lakh and income up to Rs 3 lakh	Flat Rs 2,500 to Rs 7,500/year by location	Minimal
D-02 turnover tax	Turnover Rs 30 lakh to Rs 1 crore, income under Rs 10 lakh	0.25% to 2% of turnover by business type	Sales records
D-03 regular	Turnover above Rs 1 crore, or anyone keeping books	Slab-rate tax on actual net profit	Full accounts, audit at scale

The form numbers (D-01, D-02, D-03) are the IRD return forms, which is why accountants and the income-tax filing portal talk in those terms.

D-01: the flat presumptive tax

This is the simplest tax in the system, designed so a tea stall or a small shop does not need an accountant. If your turnover is up to Rs 30 lakh and your taxable business income is up to Rs 3 lakh, you qualify, and you pay a fixed annual amount based on where you operate.

Location	Annual presumptive tax (FY 2082/83)
Metropolitan / sub-metropolitan city	Rs 7,500
Municipality	Rs 4,000
Rural municipality	Rs 2,500

These figures did not change in the FY 2082/83 budget. A 2025 rule also lets a person with no profit opt out of the flat scheme and file a regular return instead, which matters more than it sounds, as the closing section explains.

The conditions are specific. You must be a resident natural person, earning only Nepal-source business income, and you must not have claimed the medical tax credit or advance tax credit. The scheme is also closed to professionals: a doctor, engineer, auditor, lawyer, or consultant cannot use it, because their service income is taxed under the regular regime no matter how small. For a genuine micro-business, though, Rs 7,500 a year and almost no paperwork is the lightest treatment the law offers.

D-02: a percentage of your sales

Cross Rs 30 lakh in turnover (while income stays under Rs 10 lakh) and you move into transaction-based, or turnover, tax. The shift in logic matters: you are now taxed on sales, not profit. That cuts both ways. It is simple, but it bites in a bad year, because you owe the percentage even if your margin was thin.

The rate depends on what you sell and which turnover band you are in.

Business type	Turnover Rs 30 lakh to 50 lakh	Turnover Rs 50 lakh to 1 crore
Gas / cigarette dealers (thin margin)	0.25%	0.30%
Other goods and trading	1%	0.80%
Services (except specified professionals)	2%	2%

A worked sense of scale: a general retailer turning over Rs 70 lakh of "other goods" is in the upper band, so the turnover-tax rate on the relevant portion of sales is 0.80%, putting the bill in the range of a few tens of thousands of rupees a year rather than a slab calculation on profit. (The exact figure depends on how the bands stack, so confirm the precise computation with IRD or your accountant before you file.) The appeal is that, like D-01, it spares you a full set of audited accounts.

Note the carve-out again: specified professional services (doctor, engineer, auditor, lawyer, player, actor, consultant) are excluded from turnover tax and must use the regular regime, whatever their turnover.

D-03: the regular regime, on actual profit

Above Rs 1 crore turnover, or once you choose or are required to keep books, you are in the regular regime. Here you are taxed on actual net profit at the individual income-tax slab rates, the same staircase a salaried person faces.

Taxable income band (single, FY 2082/83)	Rate
First Rs 5,00,000	1%
Next Rs 2,00,000	10%
Next Rs 3,00,000	20%
Next Rs 10,00,000	30%
Above, up to Rs 50,00,000	36%

One detail that works in a business owner's favour: the 1% first-bracket charge is a social security tax that does not apply to sole proprietors, nor to those depositing in the SSF. So a sole proprietor's first Rs 5 lakh of profit is effectively untaxed on that 1% line, unlike an employee's salary. The trade-off for the regular regime is real bookkeeping, and at scale, a statutory audit. The deductions that bring the profit figure down are the same ones the lower-your-income-tax post covers.

VAT is a separate question

People conflate VAT with income tax, but they are different taxes with different triggers. Your income-tax regime is set by the staircase above; VAT registration is set by its own thresholds.

Registration becomes mandatory once turnover crosses Rs 50 lakh for goods or Rs 30 lakh for services, and the standard VAT rate is 13%. Some businesses must register from day one regardless of size: software, telecom, audit and accountancy, legal practice, and education consultancy among them. The PAN vs VAT post goes through this in detail, including why the old Rs 20 lakh services figure is no longer correct. Late VAT registration carries its own penalty, in the range of Rs 10,000 to Rs 20,000 per tax period plus half the unpaid VAT, so it is not a line to ignore once you are near the threshold.

Filing, deadlines, and the opt-out

Whichever regime you are in, the income-tax return is due within three months of the fiscal year-end, which lands at the end of Ashoj (mid-October). The law allows an extension to end of Poush, but in practice the IRD often grants it only to larger businesses; small sole proprietors under Rs 1 crore turnover, and zero-revenue filers, are frequently expected to file by Ashoj-end with no extension. Larger taxpayers in the regular regime also pay estimated tax in installments through the year, at the ends of Poush, Chaitra, and Ashad. A D-01 presumptive payer essentially pays the fixed flat amount rather than juggling installments, which is part of the scheme's simplicity.

The 2025 change worth knowing: a business that qualifies for D-01 or D-02 can now choose to file under the regular D-03 regime instead. That sounds like extra work for nothing, until you need a loan. A lender wants to see documented income and profit, and a flat-tax receipt for Rs 7,500 tells them nothing. Filing D-03 produces the audited income picture a bank can lend against. Owners who plan to borrow, especially against the business, sometimes opt into regular filing a year or two ahead for exactly this reason. It connects to the broader credit and CIB report picture lenders build on you.

Which regime you actually want

If you are a genuinely small operator with no borrowing plans, D-01 is a gift: a few thousand rupees a year, almost no records, done. Stay there as long as you legitimately qualify.

As turnover grows into the D-02 range, the turnover tax stays simple but starts to sting in low-margin years, because it ignores your profit. That is the point where keeping real accounts begins to pay off, since the regular regime taxes only actual profit and lets you deduct genuine costs. And if you are heading for a loan, the documented D-03 path is worth the extra bookkeeping regardless of where your turnover sits. The freelance and side-income tax post covers the parallel situation for service earners who never set up a shopfront at all.

What you actually need to know

1. Turnover sets your regime. Up to Rs 30 lakh, a flat tax; up to Rs 1 crore, a percentage of sales; above that, real tax on real profit with real books.
2. D-02 taxes sales, not profit. That makes it simple but unforgiving in a thin year, which is the moment proper accounting starts to earn its keep.
3. VAT is its own trigger, and you can opt into regular filing. Watch the Rs 50 lakh / Rs 30 lakh VAT lines separately, and file D-03 voluntarily if a lender needs to see your income.

These thresholds and rates are set by the annual Finance Act, so confirm the current figures with IRD or an accountant before you file. Got a business situation you want mapped to a regime? Email parjanya57@gmail.com.

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