Who should file D03 tax returns in Nepal
Are you filing the right tax return? In Nepal’s evolving fiscal landscape for 2081/82, filing the wrong form (D01 or D02) when you qualify for D03 isn’t just a mistake—it’s a compliance risk that triggers penalties.
The D03 Income Tax Return is the “Full Audit” return. Unlike the presumptive taxation schemes designed for small shopkeepers, D03 is for entities and individuals who need to declare actual profits, claim specific deductions, or have crossed the turnover threshold of the “SME” category.
1. The Mandatory List: Who Must File D03?
According to the Income Tax Act, 2058, the following categories are mandatorily required to submit the D03 return, regardless of whether they made a profit or a loss.
A. Corporate & Legal Entities
If you are registered as any of the following, you are automatically categorized for full audit returns. You cannot file presumptive taxes.
B. The “1 Crore” Revenue Threshold
This is the most common trigger for upgrading from D02 to D03. If your business turnover crosses the “Small Taxpayer” limit, you enter the D03 domain.
Turnover Benchmark (FY 2081/82 Context)
*Once you cross 1 Crore, you must maintain full books of accounts and file D03. You generally cannot revert to D01/D02 in future years without specific deregistration or approval.
C. The “Consultant” Rule
Nepal’s tax law treats “Consultancy Services” differently. Even if a doctor or engineer earns less than 20 Lakhs, they cannot file D01 or D02. The logic is that consultancy has a high profit margin compared to trading goods, so presumptive rates (like 0.5% of turnover) are not applicable.
Professionals required to file D03 include:
- Doctors & Medical Professionals (Private practice)
- Engineers & Architects
- Lawyers & Legal Consultants
- Chartered Accountants & Auditors
- Digital Consultants (IT, SEO, Software)
D. Natural Persons with High Income
An individual (Natural Person) running a proprietorship usually files D01 or D02. However, they must switch to D03 if:
- Their Net Income (Profit) from business exceeds NPR 10 Lakhs.
- (Note: Even if turnover is below 1 Crore, if the taxable profit is high, D02 is not valid).
2. Strategic Filing: Why Choose D03 Voluntarily?
Sometimes, you should file D03 even if you aren’t forced to. Why? Because D01 and D02 are “Final Withholding” types of returns where you pay a flat tax on turnover and close the chapter. You cannot claim refunds or credits.
If a person earns from various sources—such as a mix of Employment Income (Salary), Business Income, and Investment Income (Rent/Dividends)—a simple D01/D02 cannot capture this complexity. You must file a detailed return (typically D03 or D04 depending on the mix) to consolidate these incomes and apply the correct tax slab rates.
Claiming Key Credits (Section 51 & 93)
This is the biggest financial advantage of D03. If you file D01/D02, you waive your right to these claims. If you want to reduce your tax liability using these tools, D03 is mandatory:
- Medical Tax Credit (Section 51): You can claim a credit of up to NPR 750 (or 15% of approved medical bills) against your tax liability. This is not available to presumptive tax filers.
- Advance Tax Credit (Section 93): If you have paid advance tax installments (Poush, Chaitra, Ashad) or if agents have deducted TDS from your payments, you need D03 to claim these as “Tax Paid.” If you file D01, your TDS deductions often go to waste as they cannot be refunded against the presumptive liability.
Frequently Asked Questions
