Rajan is presumptive taxpayer located in Kathmandu Metropolitan City and his total turnover is Rs. 19 lacs and total operating expenses Rs. 17 lacs during the previous income year. Required: Rajan…

Rajan’s turnover = Rs 19 lacs
Total expenses = Rs 17 lacs

1. Determine the expense ratio
   $$\frac{\text{Expenses}}{\text{Turnover}}=\frac{17}{19}=0.894(89.4\%)$$
   Since the ratio > 80 %, tax is calculated on profit (turnover − expenses).

2. Compute profit
   $$\text{Profit}=19\text{ lacs}-17\text{ lacs}=2\text{ lacs}$$

3. Presumptive tax rate – 2 % of profit (or turnover).
   $$\text{Tax}=2\%\times 2\text{ lacs}=0.02\times 200,000=\mathbf{Rs}4,000$$

4. Minimum tax rule – if the tax computed is less than Rs 5,000, the minimum tax of Rs 5,000 applies.

$$\text{Final tax liability}=\mathbf{Rs}5,000$$