CAP-II, Income Tax & VAT, June 2013

Suggested Answer
Roll No.

Maximum Marks - 100

Total No. of Questions - 6

Total No. of Printed Pages -3

Time Allowed - 3 Hours

Marks
Attempt all questions. Working note should form part of the answer.
1. Answer the following with reference to the Indian Income Tax Act, 1961:
a) What do you mean by "assessment" and "assessment year"? A Sri Lanka based ship
company carried the goods on first day of February, 2011 from Sri Lanka to a port in
India. The ship was departed for Sri Lanka on 15th February, 2011. As per
agreement, freight of the carriage shall be paid after 2 months of goods delivered at
the port. Determine the time of taxable on income of freight and assessment year
with reference to the provisions if:
i) The Ship was chartered by the Indian.
ii) The Ship was chartered by the transporter of Sri Lanka and amount
was also paid in Sri Lanka.
b) "Income which are not included while computing total income if it satisfies certain
conditions, in case of Political Party ". Comment.
Answer a) In general context, the word "assessment" means computation of tax and procedure for
imposing tax liability. As per section 2(8) of Indian Income Tax Act, 1961 the word
"assessment" is defined to include reassessment and "assessment year" means the period of
twelve months commencing on the 1st day of April every year as per section 2 (8) & (9) of
the act.
Indian Income Tax, section 172 is applicable for the purpose of the levy and recovery of tax
in the case of any ship, belonging to or chartered by a non-resident, which carries
passengers, livestock, mail or goods shipped at a port in India. When these conditions are
satisfied, 7.5 per cent of the amount paid or payable on account of such carriage to the
owner or the charterer or to any person on his behalf, whether that amount is paid or payable
in or out of India, shall be deemed to be income accruing in India to the owner or charterer
on account of such carriage. Before the departure from any port in India of any such ship,
the master of the ship shall prepare and furnish a return of the full amount paid or payable.
On receipt of the return, the Assessing Officer shall assess the income and determine the
sum payable as tax thereon before the expiry of nine months from the end of the financial
year in which the return is furnished. In this case, the income of previous year is not taxable
in the immediately following assessment year but it is taxable in the same year in which
freight is paid or payable.
The time of taxable and assessment year
i) The Ship was chartered by the Indian, the time of taxable before 15th February, 2011. The
ownership was with the non-resident. In this case, previous year and assessment year were
irrelevant but tax officer could assess before December end 2011.

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ii) The Ship was chartered by the transporter of Sri Lankan and amount was also paid in Sri
Lanka. Both parties were non-resident, so the time of taxable before 15th February, 2011.
Previous year and assessment year were irrelevant but tax officer could assess before
December end 2011.

b) As per section 13A of Indian Income Tax Act, 1961, the following incomes derived by a
political party are not included while computing its total income;
i. Income which is chargeable under the head Income from house property, 'Capital
gains' and 'Income from other sources' and
ii. Any income by way of voluntary contributions.
The exemption of the above income shall be available only when the following conditions
are satisfied:
i. the political party keeps and maintains such books of accounts and other documents as
will enable the Assessing Officer to properly deduce its income there from;
ii. where the voluntary contribution from a person exceeds Rs. 20,000, it keeps and
maintains a record of such contribution and the name and address of the person who has
made such contribution;
iii. the accounts of the political party are audited by a Chartered Accountant or other
qualified accountant; and
iv. the treasurer of such political party ( or any authorized person) shall in each financial
year prepare a report in respect of contribution received by the political party in excess
of Rs. 20,000 from any person/company in that year and submit it (before due date of
submission of return of income) to the Election Commission.
2.
a) Green Development Bank Ltd. has appointed Mr. Hira Paudel as CEO for the
effective operation of the bank. As per the TOR with the CEO, annual salary and
allowances Rs. 5,000,000 (net of tax) shall be paid to the CEO by the bank. All tax
related to the employment of the CEO shall be borne by the company and paid to
Inland Revenue Office. Mr. Hira is to be assessed as couple and he claimed Rs.
20,000 of insurance premium. Should the bank deduct the tax amount from his
salary? If yes, then mention the relevant provisions of the Act; compute the tax
liability of Mr. Hira and deductible salary and allowances for this payment on the tax
assessment of the bank.

b) DCM Pvt. Ltd. is registered as a special industry in 2063. It is a food production

industry and located in underdeveloped area. The company has not submitted its
estimated tax return and income tax return for the year 2067/68 and 2068/69. It has
also not paid any installments. Mention the relevant provision on the payment of tax
in installment and calculate the fees and interest under Section 117, 118 and 119 of
the Income Tax Act, 2058 till Chaitra end 2069 on the basis of following information
for the year 2067/68.

The management provides the following information:

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Total sales Rs. 50,000,000

Cost of sales Rs. 35,000,000
Total allowable administrative expenses pertaining to this year is Rs. 5,000,000

c) Explain the followings with reasons; on tax/withholding taxes and implication

thereon, with reference to the Income Tax Act, 2058.
(52=10)
i) X & Co., Chartered Accountants, has entered into a contract for tax consultancy
services to Z Ltd. for Rs. 200,000 per month. X & Co. raised VAT invoice for the
month of Shrawan, 2068 amounting to Rs. 226,000 (Rs. 200,000+13%VAT =
Rs. 226,000).
ii) Mr. Hari, an individual person, owned the furnished building situated at Kalanki,
Kathmandu. He has given on lease the furnished building to a development bank
for Rs. 40,000 per month from Shrawan 2068. Mr. Hari is not conducting any
business and has rent income only.
iii) Mr. Krishna is an economist. He published an article on "Current Status of
Economy" in Kantipur daily and received Rs. 6,000. He also teaches, occasionally,
"Economics" in an educational institution for which he received Rs. 10,000 for a
class in Income Year 2068/69.
iv) Mrs. Sila has opened the account in Paschimanchal Rural Development Bank,
Parbat and deposited Rs. 60,000. The interest rate is 8% per annum and Mrs. Sila
earned interest income of Rs. 4,800 during Income Year 2068/69.
v) A & Company Ltd. decided to declare and distribute the cash dividend at the rate
of 10% amounting to Rs. 50,000 and bonus shares at the rate of 20% amounting to
Rs. 100,000 out of the profit of Income Year 2067/68, from its annual general
meeting dated Mangsir 28, 2068.
Answer a) The bank is liable to pay withholding tax from his salary & allowance. As per section
87 of Income Tax Act, each resident employer shall deduct withholding tax at the rate
referred to in Schedule-1 while making payment having the source in Nepal. In this
case, since Mr. Hira is getting salary & allowance net of tax, the bank has to do
backward calculation of gross salary.
Computation of tax on income of Mr. Hira
Salary & allowance
Less Insurance premium
Remaining taxable amount

Rs. 5,000,000
Rs.
20,000
Rs. 4,980,000

1 % on 200,000
15 % on Rs. 100,000
25 % on Rs. 2,200,000
35% on Rs. 2,480,000
Total tax

Rs.
2,000
Rs. 15,000
Rs. 550,000
Rs. 868,000
Rs. 1,435,000

Total tax amount Rs.1, 435,000 is payable if the total salary is Rs. 5,000,000. But
in this case Rs. 5,000,000 is net of tax payment. Hence, the amount calculated by
performing backward calculation of gross salary becomes taxable amount. To
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calculate gross salary including this tax amount, this tax amount is grossed up
considering the maximum effective tax rate for the person. In this case, the
maximum effective tax rate (including additional tax of 40% on highest rate of
25%) 35 %. So, net of tax amount is Rs. 1,435,000 (65 %) and total tax liability on
this payment is Rs.2, 207,692 (1,435,000/65%).
Total salary and allowance paid to him Rs. 5,000,000
Tax liability
Rs. 2,207,692
Allowable salary & expenses
Rs. 7207,692
b) Income tax act, 2058 section 94 (1) states that a person who has or will have assessable
income in any income year from any business or investment has to pay tax in three
installments as follows:
Date on which payment has to be made
By the end of Poush

Amount to be paid
out of 40% of the estimated tax amount of
due and payable tax
out of 70% of the estimated tax amount of
due and payable tax
out of 100% of the estimated tax amount of
due and payable tax

By the end of Chaitra

By the end of Ashad

Calculation of Total Tax liability

Applicable tax rate is 20 % for special industry as per schedule 1 of income tax act and 30
% of 20 % for the special industry of underdeveloped area.
Taxable income (WN 1)
Tax rate applicable
Tax assessment under section 99 for the year
Fees under section 117 (1) (ka)
Fees under section 117 (1) (ga) (WN 2)
Interest under section 118 (1) (WN 2)
Interest under section 119 from Kartik 2068 to Chaitra 2069

Rs. 10,000,000
6%
Rs.
600,000
Rs.
2,000
Rs.
75,000
Rs.
42,525
Rs.
135,000

Total tax payable at the end of Chaitra, 2069 is Rs. 854,525.00

Working note 1:
Total sales
Less cost of sales Cost of sales
Less allowable administrative expenses
Taxable Income

Rs. 50,000,000
Rs. 35,000,000
Rs. 5,000,000
Rs. 10,000,000

Working Note 2: Calculation of Fees and interest

Under section 117 (1)(ga): Total assessable income as per the section is Rs. Rs.
50,000,000, fees 0.1 % annually of Rs. 50,000,000 for 18 months (from Kartik 2068 to
Chaitra 2069) is Rs. 75,000 or Rs. 100 per month whichever is higher.

Under section 118: total tax Rs. 600,000, interest shall be charged on Rs. 540,000 (90
% ) of the tax amount as follows:
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Installments
Poush end
Chaitra end
Ashad end
Total

To be paid
Rs.
216,000
162,000
162,000
540,000

Period for interest calculation

Interest
amount Rs.
Magh 2067 to Ashoj end 2068
24,300
Baishakha 2068 to Ashoj end 2068 12,150
Ashad 2068 to Ashoj end 2068
6,075
42,525

c)
i.

As per section 88(1)(4) of Income Tax Act, 2058, any payment made to the service
provider registered under VAT shall be subject to withholding tax at the rate of 1.5%.
Hence, X & Co. is service provider (tax consultancy service) registered under VAT, the
payment of invoice for the month of Shrawan 2068 is subject to withholding tax at the
rate of 1.5% and X & Co. is entitled to receive Rs. 223,000 {(Rs. 200,000 less 1.5%
withholding tax) + VAT Rs. 26,000}.

ii.

As per section 92(1)(kha) of Income Tax Act, 2058, any payment to an individual
person having source in Nepal against leasing of land or building and associated fittings
and fixtures for other than conducting business, is subjected to final withholding. Since
the rent income of Mr. Hari is subject to final withholding, it is not required to be
included in his income. The payment of Rs. 40,000 per month is subject to final
withholding taxes at the rate of 10% i.e. Rs. 4,000 and Mr. Hari will get Rs. 36,000 per
month.
iii. As per section 88(4)(Ka1) of Income Tax Act, 2058, any payment made for the
publication of articles in newspaper is not subject to withholding tax. Hence, Kantipur
daily will make the full payment and is not liable to deduct withholding tax on payment
of Rs. 6,000. But Mr. Krishna has to include the amount received as income in his
return of income.
As per section 92(1)(ja) payment made for occasional teaching is subject to deduction
of final withholding taxes. Hence, amount received by Mr. Krishana against occasional
teaching is subject to final withholding tax at the rate of 15% i. e. 1,500 and he will
receive Rs. 8,500. The amount received by Mr. Krishana is not included in his income.
iv. As per section 88(4)(cha) of Income Tax Act, 2058, payment of interest on deposit, by
a Rural Development Bank based on rural community, to the extent of Rs. 10,000 is not
subject to withholding tax. Hence, the bank is not liable to deduct withholding tax on
payment of interest of Rs. 4,800.
v. As per section 88(2)(ka) of Income Tax Act, 2058, payment of dividend from a source
in Nepal, by a resident person is subject to withholding tax at the rate of 5%. Further, as
per section 53, distribution from an entity includes capitalization of profit and dividend
tax is attracted on such distribution as per section 54.
Hence, amount of Rs. 1,50,000 is subjected to dividend tax at the rate of 5% i. e. Rs.
7,500.

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3.
a) State the decisions under which a revision petition can be filled before the Inland
Revenue Department under the Income Tax Act, 2058.

b) List out the payments not included in the income from employment under the
Income Tax Act, 2058.

c) Explain on the taxability and the implication thereon, of the following transactions
as per the Income Tax Act, 2058.
(6+4=10 )
i) A Den airline registered in Denmark, having contact office in Nepal and is
operating its airlines business. During Income Year 2068/69, it has sold the
tickets in Nepal as follows:
1. Sale of tickets from the passengers departing from Nepal - Rs. 50 crores.
2. Sale of tickets in Nepal, for the passengers departing from country other
than Nepal Rs. 10 crores.
ii) Singtel Ltd. is a company registered in Singapore. The company, with its
objective to transmit information and storing data, has a communication hub in
Nepal (without any office in Nepal). Through such system, the companies in
Europe and America are storing data and transmitting information. Singtel has
received USD 1 million for such services.
Answer a) In case a taxpayer is not satisfied with any decision of IRO, it has to file an
application, as its first step, to IRD for an administrative review. According toSec
114, an application against the following decisions should be moved to IRD for an
administrative review:
i.
ii.
iii.
iv.
v.
vi.

vii.
viii.
ix.
x.

Advance ruling issued under Sec. 76 by IRD;

Decision or order to withholding agent under Section 90(8)
Reassessment of estimation of advance payment by a taxpayer made by a Tax
Officer under Section 95(7);
Decision by a Tax Officer to require a taxpayer to file return of tax under Section
96(5) or 97;
Decision by a Tax Officer with regard to an extension of time for filling returns
under Sec.98;
Jeopardy assessment under Section 100, an amended assessment under Section
101, an assessment of expenses incurred on auction sales under Section 105(5),
or fees and interest imposed under Sections 122;
Notification by the IRO of an amount to be set aside by a receiver under Section
108(2);
Order by a tax office to a debtor of the taxpayer to pay the amount due to the tax
office instead of to the taxpayer under Section 109(1);
Order by a Tax Officer to a person to pay tax on behalf of a non-resident person
under Section110(1);
Decision of IRO on an application by a taxpayer for a refund of a tax under
Section 113(5); and

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(7)
xi.

b)
i.
ii.
iii.

iv.

Decision of IRD on an application by a taxpayer for extension of time within

which to file an objection under Section 115(3).

Following are the payments, which are not included while computing income from
employment:
Any amount received by an employee for which exemption is given under Section 10 of
the Act and any amount received which is subject to final withholding of tax.
Work-time meals or refreshments provided by the employer in equal terms for all the
employees at working place or uniform applicable to working place only.
Any reimbursement of expenses incurred by the employee:


That serves the purpose of the business of the employer; or


That would otherwise be deductible in calculating the individuals income from
the business or investment.


Reimbursement of outstation cost-travelling or daily allowance
Any prescribed small amounts, which are too small and thus unreasonable or
administratively impracticable to make accounting for them. The amount prescribed by
the rule is Rs. 500 at a time. The expenses prescribed by the rule include tea expenses,
stationery expenses, prizes, gifts, emergency medical facility, or other such payments as
specified by IRD.

c) i)
For the provision of section 70 of Income Tax Act, 2058, the 'non-resident' means a resident
entity that is a part of a group of associated entities the main office is situated outside Nepal
(explanation to section 70).
The gross receipts from the following activity of non-resident person are treated as the
taxable income of the person from the activities:
A person engaged in Nepal in any, air, water or chartered transport services, other than
transmission in Nepal, for the carriage or passengers who embark from within the
territory of Nepal [section 70(1)].
Hence, the gross receipts of Den Airline from the sale of tickets in Nepal departing the
passengers from Nepal amounting to Rs. 50 crores and for the passengers departing from
country other than Nepal Rs. 10 crores are taxable at the rates of 5% and 2% respectively
as per schedule 1 Section 2 subsection 7
No tax credits shall be allowed to the person to reduce the tax payable by the person under
this section. Further, expenditures incurred in conducting such activities are neither allowed
to be deducted from the taxable income from the above sources nor allowed to be deducted
from any other source of income of the person.
ii.
The gross receipts from the following activity of non-resident person are treated as the
taxable income of the person from the activity:
A person engaged in the transmission of messages by cable, radio, optical fiber, or
satellite through an apparatus or equipment established in Nepal, irrespective of the
place of origin of messages [section 70(2)].

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Hence, the gross receipts of Singtel from the communication hub (apparatus) established in
Nepal amounting to USD 1 million is taxable at the rates of 5 % as per schedule 1 Section 2
sub Section 7 irrespective of the place of origin of messages.
No tax credits shall be allowed to the person to reduce the tax payable by the person under
this section. Further, expenditures incurred in conducting such activities are neither allowed
to be deducted from the taxable income from the above sources nor allowed to be deducted
from any other source of income of the person.
4. Write short note of the followings with reference to Income Tax Act, 2058.
a) Tax
b) Debt Claim
c) Exempt Organization
d) Underlying Ownership
e) Payment

(52=10)

Answer a) As per sec 2 (Dha), "Tax" means income tax imposed under the Income Tax Act and
includes following payments:i. Expenses incurred in the process of creating charge and performing auction of the
property of tax Debtors by the department as mentioned in section 104 (8) (a);
ii. Amount payable by a withholding agent Withholding agent or withholdee under section
90, or amount payable by an installment payer under section 94, and on assessment
under sections 99, 100,and 101; and amount payable by person who required to deposit
tax under section 95 ka
iii. Amount payable to the Department in respect of a tax liability of a third party under
section 107(2), 108(3) or (4), 109(1), and 110(1);
iv. Amount payable by way of interest and fees under Chapter 22; and
v. Amount payable by way of fines in order of the department as per section 129.
b)

As per Sec 2(Tha) of Income Tax Act, Debt claim means a right of one person to receive
a payment from another person and includes a right to repayment of an amount paid by
one person to another person as well as deposits in banks and other financial institutions,
accounts receivable, notes, bills of exchange, bonds, and rights under annuities, finance
leases and installment sales.

c)

As per sec 2(Dhna), "Exempt organization" means the following entities:

i.
Following entities registered with the Inland Revenue Department as an exempt
organization:
a. a social, religious, educational, or a charitable organization of a public
character established without having a profit motive,
b. an amateur sporting association formed for the purpose of promoting
social or sporting facilities not involving the acquisition of gain,
ii.
iii.

a political party registered with the Election Commission,

a village development committee, municipality or district development
committee,

Provided that, in cases where any person has derived any benefit from the property of
that organization and the monies obtained from that organization except in making
payment for the property or the service provided by any person to that organization or in
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discharging functions in consonance with the objective of the organization entitled to
exemption, tax exemption shall not be granted.
d)

As per Sec 2 (Ra) of Income Tax Act, "Underlying ownership" means following
ownership:i.
in relation to an entity, an ownership created on basis of an interest held in the
entity directly or indirectly through one or more interposed entities by an
individual or by an entity in which no individual has an interest; or
ii.
in relation to an asset owned by an entity, an ownership of the asset that is
determined on basis of proportion to the ownership held by the persons having
underlying ownership of the entity.

e)

As per Sec 2(Ha), "Payment" means:

i.
the transfer by one person of money or an asset to another person or the transfer
by another person of a liability to the one person;
ii.
the creation by one person of an asset that on creation is owned by another
person or the decrease by one person of a liability owed by another person;
iii. the provision by one person of services to another person; and the use, or
availability for use, of an asset owned by one person to another person.

5.
a) The Z Pvt. Ltd. has booked following expenses of imported electronic goods in the
ledger.
Cost of material as per invoice
Rs. 200,000
Bank charges of L/C
Rs. 15,000
Insurance
Rs. 5,000
Calcutta port clearing expense
Rs. 20,000
Freight up to custom point
Rs. 14,000
Fright from custom point to Kathmandu
Rs. 7,000
Other tax paid at custom including local development tax
Rs. 2,500
Nepal custom expenses including 1 % custom duty
Rs. 30,000
Discount receivable
Rs. 12,000

Further information:
Discount amount has not been deducted in invoices. The above cost is the
gross purchase.
i) Explain the taxable value in case of imported goods with reference to the
provisions of the Value Added Tax Act, 2052.
ii) Compute the Value Added Tax payable at custom point as per above
information.
iii) Assume that the company has 20 % gross profit. What would be its sales price
and VAT amount?
b) Gramin Krishi Sewa Pvt. Ltd. sales vegetables and fruits. During the month of
Baishakh 2070 following sales and purchase made. Compute the net Value Added
Tax payable under the Value Added Tax Act, 2052.
Items
Green Tea
Barley
Garlic

Purchase (Rs.)
50,000
40,000
30,000
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Sales (Rs.)
57,500
48,000
37,500

(10)
Black Tea
80,000
100,000
Bhakti Fish
150,000
175,000
Millet
45,000
49,500
Paneer
70,000
78,400
Curd
60,000
64,375
Telephone Bill
5,000
Stationery Purchase
20,000
c) Merchantile Pvt. Ltd. is a company providing telecommunication services in Nepal. It
has purchased a consultancy service from a company in US for setting up and
expanding its operation in Karnali zone of Nepal. The company has paid USD 500,000
against such services in the month of Jestha 2069. Merchantile Pvt. Ltd. is of the view
that since payment is made to foreign company there is no implication of Value Added
Tax. State your view referring relevant provision of the Value Added Tax Act, 2052. 4
Answer a)
i) As per section 12(5) of VAT act, 2052, the taxable value for any imported goods
shall be its customs value including transportation, insurance, freight, commissions
of agents and other persons, plus customs duties, countervailing duties plus any other
taxes if levied on imports, except the value added tax. As per the provision, all
expenditures upto the custom point is related to determine the taxable value of
imported goods.
ii) Calculation of taxable value and VAT payable at custom point:
Cost of material as per invoice
Insurance
Calcutta port clearing expense
Freight up to custom point
Total cost upto custom point
Other tax paid at custom
1 % custom duty (1 % of Rs. 239,000.00)
Total taxable value at custom point
VAT payable at custom point

Rs. 200,000
Rs. 5,000
Rs. 20,000
Rs. 14000
Rs. 239,000
Rs. 2,500
Rs. 23,90
Rs. 243,890
Rs. 31,705.70

Note:
Bank charge is processing cost, so it is not included in the cost at custom point.
Fright from custom point to Kathmandu is not included at custom point.
Custom duty is included in the taxable value but not included other custom expenses.
Other expenses are incurred in Nepal
Discount receivable is not deducted because the company has not received at the
time of purchase.

iii)

Calculation of sales price and vat amount

Cost of material as per invoice
Bank charges
Insurance
Calcutta port clearing expense
Freight up to custom point
Fright from custom point to Kathmandu
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Rs. 200,000
Rs. 15,000
Rs. 5,000
Rs. 20,000
Rs. 14000
Rs. 7,000

(11)
Other tax paid at custom
Nepal custom expenses
Discount receivable
Cost of the goods
Gross profit (25 % of Rs.281,500)
Sales price
VAT receivable on sales price
b)

Rs. 2,500
Rs. 30,000
(Rs. 12,000)
Rs. 281,500
Rs. 70,375
Rs. 351,875
Rs. 45,744

Here, output is mixed, vat exempted and vat attractive both. First, we have to segregate
the items in two parts:
Items

Purchase (Rs.)

Sales (Rs.)

Vat attractive
i.
Garlic
ii.
Black tea
iii. Bhakti Fish
iv.
Paneer
Total

30,000
80,000
1,50,000
70,000
3,30,000

37,500
1,00,000
1,75,000
78,400
3,90,900

Vat exempted
i.
Green Tea
ii.
Barley
iii. Millet
iv.
Curd
Total
Grand Total

50,000
40,000
45,000
60,000
1,95,000
5,25,000

57,500
48,000
49,500
64,375
2,19,375
6,10,275

Vat attractive ratio= Vat attractive sales/Total Sales

= 3,90,900/6,10,275x100
= 64.05%
Input vat credit on Telephone bill = Rs. 5,000 X 13% X 64%
=Rs. 416
Input vat credit on Stationery Bill = Rs. 20,000 X 13% X 64%
=Rs.1,664

c)

Purchase of Garlic,Black tea, Bhakti fish and Paneer are Vat attracted items. Full
vat is allowed for input tax credit.
Output tax is Rs. 50,817 ( 3,90,900 X 13%)
Input tax credit is Rs.44,980 ( 3,30,000 X 13% + 416 + 1,664)
Net Vat payable = Rs. 5,837
According to section 8(2) of Value Added Tax Act, 2052, any person (registered or not) in
Nepal, receiving service from a person registered outside Nepal, has to assess and collect
tax as per Value Added Tax Act and rules made thereon. This is called Reverse Charging.

Further, the amount paid as value added tax (VAT) on procurement of such services is
allowed to take VAT credit under section 17(5kha).
Hence, the view of Merchantile Pvt Ltd is not acceptable. It has to assess and collect VAT
on the amount paid (i.e. USD 500,000) against the consultancy services in the month of
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(12)
Jestha, 2069. VAT is charged at the rate of 13% on the amount paid as consultancy
services.
The amount paid as VAT on such consultancy service is allowed to take VAT credit while
submitting the VAT return.
6.
a) What are the records to be maintained by a registered person dealing in used or second
hand materials? How the tax is assessed in such case? Answer with reference to the
Value Added Tax Rules, 2053.
5
b) Explain about the Tax Periods under the Value Added Tax Act/Rules.
5
c) Describe the circumstances beyond the control under the Value Added Tax Act, 2052. 10
Answer a) As per rule 33 of Value Added Tax Rules, 2053, following are the provisions regarding
records to be maintained, for a registered person dealing in used or second had
goods.
1) A registered person who is dealing in used or secondhand goods has to maintain
purchase register and sales register containing the following particulars:
Relating to purchases:
i. Date of purchase
ii. Particulars giving full information of the goods
iii. Buying price excluding tax
iv. Rate of tax
v. Amount of tax
vi. Total amount paid
Relating to Sales:
i. Date of sale
ii. Selling price excluding tax
iii. Difference between the buying price and selling price
iv. Rate of tax
v. Amount of tax
vi. Total amount received.

(2) In case the buying price of every item of used goods exceeds Rs. 10,000, separate records
of buying or selling shall be maintained.
(3) In case a registered person is found not to have satisfactorily maintained the records as
prescribed above, tax officer may impose VAT on the total selling price of the goods sold
by such taxpayer, and the tax officer may issue a written order requiring him to pay such tax
along with the next tax return.
(4) In case of used or second hand goods, tax shall be assessed on the amount which is
difference between the selling price and buying price. Buying price means price including
taxes.

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b)

Tax Period means a period prescribed by the Act or Rules for calculation of net VAT
payable or receivable.
Generally, a registered person has to adopt a month as per Nepali Calendar as tax period.
The tax starts from day 1st of a month and ends at end day of the same month.
As per Rule 26 of VAT Rule, 2053, the different tax periods could be adopted by certain
specific taxpayers.
i. Tax Period of 2 months:
Tax period of 2 months is allowed to a taxpayer having taxable transaction during
previous 12 months more than NPR 2 million but not more than NPR 10 million.
The tax period shall be, Shrawan and Bhadra, Ashwin and Kartik, Marg and Paush,
Magh and Falgun, Chaitra and Baisakh and Jestha and Ashad.
If hotel and tourism enterprises opt, the department may be allowed a tax period of 2
months.
ii. Tax period of 4 months:
Tax period of 4 months is allowed to a taxpayer who has taken the registration
voluntarily and having taxable transaction during previous 12 months less than NPR
2 million.
The tax period shall be Shrawan to Kartik, Marg to Falgun, and Chaitra to Ashad.
iii. Different tax period:
In case a registered person who maintains its accounts adopting computer systems, it
may apply to a tax officer for allowing it to adopt different tax period. In case the tax
officer finds it proper, it may allow the taxpayer to adopt different tax period.
iv. Tax period for first time of registration:
In case of a person has obtained registration at a middle of a month, the tax period
shall be started from the date on which the registration is obtained to the end of the
month.

c)

As per Rule 35 of Vat Rule 2053, the following circumstances shall be deemed to be
circumstances beyond control for the purpose of sub-section (4) of Section 19 of the
Act:
(i)

In case the person required to pay tax becomes disabled due to falling ill; up
to seven days of the date of his recovery.

(ii)

In case the person required to pay tax is to observe obsequies; up to seven

days of the end of the obsequies,
In case a woman required to pay tax delivers a child; up to thirty five days of
the date of delivery,
In case the person required to pay tax dies or becomes insane or disappears
and his heir or guardian submits an application within thirty five days of the
date of such incident; up to seven days of receipt of such application,
In circumstances when the person required to pay tax has not been able to
come to the IRO because of the closure of a road due to floods, landslides or
similar other reasons; up to seven days of opening of the road,
In circumstances when he cannot come to the IRO due to total haltage of
transport; up to the next day of the end of such haltage.

(iii)
(iv)

(v)

(vi)

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vii.

In case where the natural calamities like fire earthquake, arises; up to thirty days
from the date when such calamities occur.

In case an additional time limit shall be required to be requested due to circumstances

beyond control referred to point (ii), (iii), (iv), (v) & (vii) above ; the recommendation of
the concerned Village Development Committee or Municipality shall be submitted.
While requesting for an additional time-limit due to the circumstance referred to point
no. (vi) , the recommendation of the Village Development Committee or Municipality
concerned with the place where the haltage of means of transport has taken place, shall
be submitted.

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P.T.O.