Short answer
TDS (tax deducted at source, अग्रिम कर कट्टी) is tax the payer withholds when paying salary, rent, service fees, contracts, interest or dividends. Common rates are 1.5% on services from VAT-registered suppliers, 15% on PAN-only service bills and commissions, 10% on rent to individuals and 5% on dividends. Deposit and file e-TDS within 25 days after the month ends.
| Law | Income Tax Act 2058 (sections 87–90) |
|---|---|
| Who deducts | The payer (withholding agent), not the recipient |
| Deadline | Deposit and e-TDS within 25 days after the end of the month |
| Late deposit | 15% annual interest on the overdue amount |
| Filed on | IRD taxpayer portal (e-TDS) |
| Rates last checked | 29 October 2026; Budget 2083/84 did not announce TDS rate changes |
What is TDS and why it matters
Under the Income Tax Act 2058, when a business or other withholding agent pays certain kinds of income, it must deduct tax from the payment and deposit it with the Inland Revenue Department. The recipient gets credit for the deducted tax against their own tax liability — and for some payments the deduction is the final tax.
TDS is the payer's legal obligation. If you fail to deduct, you can be made liable for the tax you should have withheld plus interest, and the expense may be questioned at audit. That is why TDS should be built into your payment process, not worked out at year end.
TDS rates in Nepal (common payments)
| Payment | Rate | Notes |
|---|---|---|
| Salary | Progressive slab rates | Updated by the Finance Act each year; Budget 2083/84 raised the lower threshold to NPR 10 lakh and cut the top rate to 29% |
| Service fee to VAT-registered supplier | 1.5% | On the amount excluding VAT |
| Service fee / consultancy on PAN bill (not VAT-registered) | 15% | |
| Commission | 15% | |
| Contract payments above NPR 50,000 (cumulative) | 1.5% | Applies once the threshold is crossed |
| House or land rent paid to an individual | 10% | |
| Vehicle hire (road) with VAT bill / without | 1.5% / 10% | |
| Interest paid by bank to an individual (non-business) | 6% | Final withholding |
| Interest paid by a company | 15% | |
| Dividend from a resident company | 5% | Final withholding |
| Royalty | 15% | |
| Windfall gains (lottery, prizes) | 25% | Final withholding |
| Contract payments to non-residents | 5% | Other non-resident payments have their own rates |
Rates as applied for FY 2082/83 and carried into FY 2083/84, last checked 29 October 2026. Specific exemptions and special cases exist — confirm the rate for unusual payments before deducting.
TDS on salary
Salary TDS is calculated on each employee's projected annual taxable income, after deducting allowable contributions such as SSF, and spread across the months of the year. The rate structure changes with each budget: the Finance Act 2083 for FY 2083/84 raised the lower threshold to NPR 10 lakh and reduced the top marginal rate to 29%, according to the budget announcement. Payroll systems must use the slabs for the current year from Shrawan onwards.
Employers also deposit the 1% social security tax portion as required and issue employees an annual salary and tax statement. Our payroll and SSF service handles both, and our guide for employers under the Labour Act covers contracts and contributions.
How to deposit TDS and file e-TDS
- 1
Create the payment voucher
On the IRD taxpayer portal, create a deposit voucher with the correct revenue code for each type of TDS.
- 2
Pay
Pay through connectIPS, a mobile wallet or a listed bank. Keep the voucher number.
- 3
Start the e-TDS return
Log in to e-TDS, register the period and obtain a submission number.
- 4
Enter withholdee details
Add each payee's PAN, payment date, gross amount and TDS — individually or by Excel upload.
- 5
Link the voucher and submit
Enter the deposit voucher; once it shows as reconciled, submit and verify the return. Submitted returns cannot be edited online.
Penalties for late or missing TDS
- Late deposit: interest at 15% per year on the amount and period of delay.
- Deposit made but e-TDS not filed: additional interest, so the total can reach 17.5% per year.
- Failure to deduct: the payer can be held liable for the tax not withheld.
- Expenses without proper TDS may be challenged at audit or in an IRD assessment.
TDS sits alongside the monthly VAT return in your compliance calendar — see the monthly VAT checklist and the company income tax guide.
Key takeaways
- The payer is responsible for deducting and depositing TDS.
- Common rates: 1.5% (VAT supplier services, contracts), 15% (PAN bill services, commission), 10% (rent to individuals), 5% (dividends).
- Deposit and file e-TDS within 25 days after month end; late deposits attract 15% annual interest.
- Update salary TDS for the FY 2083/84 slabs from Shrawan.
Frequently asked questions
What is the full form of TDS and e-TDS?
TDS means tax deducted at source. e-TDS is the IRD's electronic system for filing TDS returns that link each deduction to the payee's PAN.
What does TDS mean in Nepali?
It is commonly called स्रोतमा कर कट्टी or अग्रिम कर कट्टी — tax deducted at the source of payment.
What is the TDS rate on rent in Nepal?
10% on house or land rent paid to an individual. Rent paid to a VAT-registered entity is treated differently, so check the supplier's status.
What is the TDS on service fees for a VAT-registered supplier?
1.5% of the amount excluding VAT. For a supplier with only a PAN bill, the rate is generally 15%.
When is TDS due in Nepal?
Within 25 days after the end of the Nepali month in which the payment was made — for example, TDS on Shrawan payments by Bhadra 25.
Does the payee get credit for TDS?
Yes, if the payer files e-TDS with the correct PAN. The payee can see it in their IRD account and claim it in their return, except where TDS is final.
Sources and official references
Government fees and rules change with each Finance Act and OCR/IRD notice. We re-check the figures on this page regularly; confirm the latest amount with the office concerned or ask our team before you pay.