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Published On: June 14, 2024 10:05 AM NPT By: Republica

Govt increases exemption limit of income tax for amounts deposited in pension funds

Govt increases exemption limit of income tax for amounts deposited in pension funds

KATHMANDU, June 14: The government has increased the slab of exemption limit of taxable income that is contributed to the pension fund.

Amending the income tax regulation that was unveiled on Wednesday, the government has increased the ceiling for exemption of income tax to Rs 500,000 from Rs 300,000 that is deposited in pension funds on an annual basis. The pension funds refer to the schemes being enforced by the Employee Provident Fund, Citizen Investment Trust and the Social Security Fund.

In the new provision, Rs 500,000 will be deducted from annual taxable income, if the amount is deposited in the pension funds. Earlier, such amount was only up to Rs 300,000 per annum. “While contributing to the pension funds, individual income taxpayers can deduct up to Rs 500,000 or one-third of the taxable income, whichever is less, to settle the income tax,” reads the amended income tax regulation.

It means that income earners will receive tax exemption for Rs 41,666 per month if deposited in pension funds. Previously, the threshold amount was only Rs 25,000 per month.

If a person earns Rs 1.5 million annually, then s/he can deposit Rs 500,000 in pension funds for which income tax will be waived. Only the remaining Rs 1 million will be subject to tax, according to the existing provision of income tax.

According to the existing income tax law, an individual has to pay one percent tax for up to Rs 500,000 annual income. The tax rate is 10 percent for an annual income between Rs 500,000-700,000; it is 20 percent for annual income of Rs 700,000-1 million, 30 percent for Rs 1 million-2 million, 36 percent for Rs 2 million-5 million and 39 percent for an annual income above Rs 5 million.

Likewise, the government has doubled the annual tax exemption amount of medical treatment to Rs 1,500 per annum. In the new rule, a trader will have to submit details of the corporate bank account to the Inland Revenue Department (IRD) in a specified format.

These provisions will come into effect from the beginning of the new fiscal year 2024/25, according to the IRD.

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