Tax on freelance income in Nepal
Freelance income is business income, and it is taxed differently from a salary. Three differences decide your number: a registered sole proprietor does not pay the 1% social security tax, clients withhold TDS at 1.5% or 15% depending on your invoice, and foreign-currency IT export income carries 50% relief.
Estimate based on the Income Tax Act 2058 as amended by the Finance Act 2083, in force from Shrawan 1, 2083 BS (mid-July 2026). Verified against PKF T R Upadhya's rate card and ICAN's Federal Budget 2083/84 highlights on 14 September 2026. It does not model VAT payable on your invoices, the medical tax credit, or remote-area allowances. Confirm your own position with the IRD or a registered accountant before filing.
Why freelance tax is not salary tax
The 1% on the first band is not income tax
Nepal's first tax band carries 1%, and almost every calculator applies it to everyone. It is social security tax, collected into a separate revenue account, and three groups do not attract it: taxpayers registered as sole proprietors, pension income, and anyone depositing into the Social Security Fund.
For FY 2083/84 the first band runs to Rs 10,00,000. A registered freelancer pays nothing on that band; a salaried employee on identical income pays Rs 10,000.
TDS is 1.5% or 15%, and the difference is your invoice
When a resident company pays a consultancy or service fee it must withhold tax at source: 1.5% against a VAT invoice, 15% against a non-VAT invoice. On Rs 20,00,000 of billings that is Rs 30,000 versus Rs 3,00,000 held back until you file.
TDS is creditable against your final liability, so it is not an extra tax — but a ten-fold difference in what leaves your bank account during the year is a working-capital decision, and it is the part of VAT registration nobody mentions.
Foreign-currency IT export income is taxed at half
Income earned in foreign currency from exporting IT services — software programming, business process outsourcing, cloud computing — carries a 50% income tax exemption. The payment has to arrive in convertible foreign currency through formal banking channels, which is the condition most often missed when income is taken through informal transfer.
The small-taxpayer schemes probably do not apply to you
Nepal offers a presumptive scheme (a flat Rs 7,500 in a metropolis, Rs 4,000 in an urban municipality, Rs 2,500 in a rural one) and a turnover-based scheme at 2% for service businesses. Both look attractive and both are narrower than they appear:
- Both require business income sourced only in Nepal. One foreign client ends eligibility.
- The 2% service rate explicitly excludes a doctor, engineer, auditor, lawyer, player, actor or consultant — which describes most freelance software work.
The calculator says which of these is open to you rather than leaving you to discover it at the counter.
