Taxation In NepalTU Board 2080
Given is the summarized statement of cash pertaining to an artist for the previous income year. Receipts Amount Payments Amount : : : : To Balance b/d Cash in hand 20,000 By Administrative expenses…
10Given is the summarized statement of cash pertaining to an artist for the previous income year.
| Receipts | Amount | Payments | Amount |
|---|---|---|---|
| To Balance b/d- Cash in hand | 20,000 | By Administrative expenses | 50,000 |
| Cash at bank | 230,000 | By office equipment Purchased (Chaitra) | 180,000 |
| To Receipt from script playing | 700,000 | By Communication expenses | 30,000 |
| To Receipt from dance training program | 300,000 | By Salary to assistants | 180,000 |
| To consultation fees after TDS | 85,000 | By Life insurance premium (Own) | 35,000 |
| To Dividend received | 40,000 | By Research and development | 50,000 |
| To interest on investment | 120,000 | By Office rent | 120,000 |
| To Causal income received | 30,000 | By Water Electricity expenses | 30,000 |
| To Other professional incomes | 75,000 | By Refreshment expenses | 20,000 |
| By Insurance premium of building | 15,000 | ||
| By Donation to tax exempt entity | 40,000 | ||
| By Balance C/d | 850,000 | ||
| Total | 1,600,000 | Total | 1,600,000 |
Further information: a. Water/electricity expenses are used equally for professional and personal purpose. b. Compensation of Rs. 200,000 for the breach of contract from a producer has not has not been received yet. c. Other professional incomes include Rs. 5,000 bad debts recovered which is not allowed for deduction previously. d. Outstanding office rent Rs 20,000 is yet to be paid. e. Receipt from script playing includes Rs. 2,000 relating to three years ago income and advance consultation fees Rs. 20,000 is not shown in above receipts account.
Required: a. Assessable (Net) income from profession b. Statement of taxable income c. Tax liability [6+2+2]
Answer
a. Assessable (Net) Income from Profession
To calculate the assessable income from profession, we first identify all professional income and deduct allowable expenses. Below is the step-by-step calculation:
1. Total Professional Income
From the cash book, the following receipts are considered professional income:
- Script playing: ₹700,000
- Adjustments:
- ₹2,000 relates to three years ago → Excluded (not current year income).
- ₹20,000 is advance consultation fees (not yet earned) → Excluded.
- Net script playing income: ₹700,000 – ₹2,000 = ₹698,000
- Adjustments:
- Dance training program: ₹300,000 (fully taxable)
- Consultation fees after TDS: ₹85,000 (already net of TDS, so fully taxable)
- Other professional incomes: ₹75,000
- Adjustments:
- ₹5,000 is bad debts recovered (not allowed as deduction previously) → Excluded (already included in ₹75,000).
- Net other professional income: ₹75,000 – ₹5,000 = ₹70,000
- Adjustments:
Total Professional Income:
₹698,000 (Script playing)
+ ₹300,000 (Dance training)
+ ₹85,000 (Consultation fees)
+ ₹70,000 (Other professional)
= **₹1,153,000**
2. Allowable Deductions from Profession
The following expenses are deductible under Section 13(1) of the Income Tax Act, 2058:
| Expense | Amount (₹) | Adjustments |
|---|---|---|
| Administrative expenses | 50,000 | Fully deductible |
| Office equipment (Chaitra) | 180,000 | Fully deductible (capital expenditure, but if depreciation is not claimed, full deduction may apply under Section 13(1)(a) for small businesses) |
| Communication expenses | 30,000 | Fully deductible |
| Salary to assistants | 180,000 | Fully deductible |
| Research and development | 50,000 | Fully deductible |
| Office rent | 120,000 | Adjustment: ₹20,000 outstanding → Deduct ₹100,000 |
| Water/Electricity expenses | 30,000 | 50% personal use → Deduct ₹15,000 |
| Refreshment expenses | 20,000 | Fully deductible (if for clients) |
| Insurance premium (building) | 15,000 | Fully deductible |
Total Deductible Expenses:
₹50,000 (Admin)
+ ₹180,000 (Equipment)
+ ₹30,000 (Communication)
+ ₹180,000 (Salaries)
+ ₹50,000 (R&D)
+ ₹100,000 (Office rent)
+ ₹15,000 (Water/Electricity)
+ ₹20,000 (Refreshment)
+ ₹15,000 (Building insurance)
= **₹640,000**
3. Net Assessable Income from Profession
Total Professional Income: ₹1,153,000
Less: Allowable Deductions: ₹640,000
= **₹513,000**
b. Statement of Taxable Income
The taxable income is calculated by adding other income to the net professional income and then applying deductions (if any).
1. Other Income
From the cash book, the following are other income:
- Dividend received: ₹40,000 (taxable under Section 13(1)(d))
- Interest on investment: ₹120,000 (taxable under Section 13(1)(e))
- Causal income received: ₹30,000 (taxable under Section 13(1)(f))
Total Other Income:
₹40,000 (Dividend)
+ ₹120,000 (Interest)
+ ₹30,000 (Causal income)
= **₹190,000**
2. Adjustments to Other Income
- Donation to tax-exempt entity: ₹40,000 (deductible under Section 13(1)(g))
- Life insurance premium (own): ₹35,000 (deductible under Section 13(1)(h))
3. Taxable Income Calculation
Net Professional Income: ₹513,000
Add: Other Income: ₹190,000
= **₹703,000 (Gross Total Income)**
Less: Deductions
- Donation: ₹40,000
- Life insurance premium: ₹35,000
= **₹75,000**
Taxable Income: ₹703,000 – ₹75,000 = **₹628,000**
4. Additional Adjustments (Unreceived Income)
- Compensation for breach of contract (₹200,000): Not yet received → Not included in taxable income (only when received).
Final Statement of Taxable Income
| Particulars | Amount (₹) |
|---|---|
| Net Income from Profession | 513,000 |
| Other Income | 190,000 |
| Total Income | 703,000 |
| Less: Deductions | |
| - Donation to tax-exempt entity | (40,000) |
| - Life insurance premium | (35,000) |
| Taxable Income | 628,000 |
c. Tax Liability
The tax liability is calculated based on the taxable income (₹628,000) under the Nepal Income Tax Act, 2058.
Tax Slab Rates (for Individuals, FY 2079/80)
| Income Slab (₹) | Tax Rate (%) |
|---|---|
| Up to 500,000 | 10% |
| 500,001 – 1,000,000 | 20% |
| Above 1,000,000 | 25% |
Step-by-Step Calculation
- First ₹500,000: 10% tax
₹500,000 × 10% = ₹50,000 - Next ₹128,000 (₹628,000 – ₹500,000): 20% tax
₹128,000 × 20% = ₹25,600 - Total Tax:
₹50,000 + ₹25,600 = **₹75,600**
Additional Taxes (if applicable)
- Education Tax (2%): ₹628,000 × 2% = ₹12,560
- Health Tax (1%): ₹628,000 × 1% = ₹6,280
Final Tax Liability
Basic Tax: ₹75,600
+ Education Tax: ₹12,560
+ Health Tax: ₹6,280
= **₹94,440**
Final Answers
a. Assessable (Net) Income from Profession: ₹513,000 b. Taxable Income: ₹628,000 c. Tax Liability: ₹94,440
Discussion
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