TDS on Salaries

Udyot ERP automatically calculates and deducts salary TDS (Tax Deducted at Source) every time you run payroll — no manual slab lookups needed. The system follows Schedule 1 of Nepal’s Income Tax Act 2058, applies different rates for single and married employees, separates the Social Security Tax (SST) correctly, and generates the Section 90 Salary TDS Certificate your employees need for their annual filing. This article explains how it all works and how to use it.

Why salary TDS matters in Nepal

Under the Income Tax Act 2058, every employer is responsible for deducting income tax from employee salaries each month and depositing it with the Inland Revenue Department (IRD) by the 25th of the following Nepali month. Failing to deduct, under-deducting, or missing the remittance deadline can result in penalties under IRD rules. Udyot ERP handles the computation and tracks TDS Payable so your finance team knows exactly what to remit each month.

How Udyot computes TDS on salary

Udyot uses an annualisation method — the same approach IRD expects — so that progressive slabs are applied accurately across the full year regardless of when salaries change.

1. Annualise taxable income. Start with the employee’s monthly gross earnings (Basic + all taxable allowances such as House Rent Allowance and Dearness Allowance). Multiply by 12 to get the projected annual income.
2. Subtract exempt deductions. Deduct the employee’s annual Provident Fund (PF) contribution (10% of Basic) and, if SSF is enabled for your company, the Social Security Fund (SSF) employee contribution (11% of Basic). CIT (Citizen Investment Trust) contributions are also deductible up to NPR 3,00,000 per year if enabled per employee.
3. Apply Income Tax Act 2058 slabs. The resulting annual taxable income is run through the progressive slab table. The applicable slabs differ by marital status (see table below).
4. Divide by 12. The annual tax liability is divided equally across 12 months to give the monthly TDS amount.
5. Deduct and post to GL. The monthly TDS is deducted from the employee’s net salary. When the pay run is posted, the amount flows into the TDS on Salary Payable ledger on your Balance Sheet — ready for remittance to IRD.

Udyot tracks year-to-date (YTD) taxable income and TDS already deducted within each fiscal year. If you give an employee a mid-year raise or process a salary revision, the remaining months automatically recalculate so the total tax for the year is always correct — no over- or under-deduction.

Tax slabs by marital status (Income Tax Act 2058, Schedule 1)

Nepal’s Income Tax Act gives married taxpayers a wider first tax band. The slabs below are the standard individual schedule; verify the exact figures from the current Finance Act at ird.gov.np before each new fiscal year, as these are updated annually.

In practice: two employees on the same salary — one single, one married — will have different monthly TDS amounts. A single employee crosses into the 10% band sooner (at NPR 5 lakh annual income) than a married one (NPR 6 lakh), so the single employee pays more tax at similar income levels.

Udyot automatically reads each employee’s marital status from their employee record and applies the correct slab set. Employees whose status is set to unmarried, divorced, or widowed all use the single slab; only married uses the married slab.

Disability rebate

Under the Income Tax Act, an employee certified as having a disability is entitled to a 50% rebate on their annual income tax. When you mark an employee’s profile with the disability flag, Udyot halves the computed annual TDS before spreading it across monthly payslips. No manual adjustment is needed — the rebate is applied automatically on the next pay run.

Social Security Tax (SST) — 1%, shown separately

SST is a 1% levy on the first NPR 5,00,000 (single) or NPR 6,00,000 (married) of annual taxable income — the same income on which the 1% income tax slab applies. Udyot keeps SST as a separate line on every payslip and on the TDS Annex-10 report so it is clearly visible. However, for remittance purposes, SST is deposited together with income-tax TDS and the GL posting credits the combined amount to TDS on Salary Payable.

Setting up employees for correct TDS

To make sure TDS is calculated correctly, each employee record should have the following fields filled in before you run payroll:

• Marital status — single or married (determines which slab table is used).
• PAN — exactly 9 digits. The PAN prints on payslips, the TDS Annex-10 fixed-width return, and the Section 90 certificate. Employees without a PAN appear with 000000000 on IRD returns.
• Disability status — set this flag if the employee is entitled to the 50% rebate.
• CIT ID — if the employee contributes to Citizen Investment Trust and wants those contributions deducted from taxable income.

You can review and update employee details at any time by going to HR → Employees, opening the employee’s record, and clicking Edit.

Running payroll and reviewing TDS

1. Go to HR → Payroll and click + Process Payroll.
2. Enter the payroll month in BS format (for example, 2082-04 for Shrawan 2082) and click Process.
3. Open the pay run and click Review. Each employee row shows their Basic, Gross, PF deduction, SST (separate column), TDS, and Net Pay.
4. Spot-check a married and a single employee at similar salaries — the single employee’s TDS should be higher.
5. If a TDS figure looks wrong, you can use the Override action on any row to set a manual monthly TDS and add a note. The pay run will be flagged as manual and will require re-approval before posting.
6. Once reviewed, have a different user approve the pay run (Udyot enforces a 4-eyes rule: the approver must differ from the person who processed the payroll). After approval, click Post to push the Journal voucher to your General Ledger.

Section 90 Salary TDS Certificate

At the end of each fiscal year, or on request, you can generate a Section 90 Salary TDS Certificate for any employee. This document is required by IRD and by employees when they file their annual income tax return.

1. Go to HR → Reports → Salary TDS Certificate.
2. Select the employee and the active fiscal year (for example, 2082/83).
3. The certificate displays your company’s name, PAN, and address; the employee’s name, PAN, and designation; and a month-by-month table of gross salary, taxable income, and TDS deducted for the full year.
4. Print it from the browser or save as PDF and hand it to the employee.

The certificate includes the statutory declaration (the Section 90 statement) certifying that the employer deducted and deposited the tax shown. Make sure all pay runs for the fiscal year are posted before generating the certificate so the figures are final.

TDS Annex-10 for IRD filing

Each month you need to file TDS Annex-10 with IRD. Udyot generates the fixed-width text file in the exact format IRD’s portal expects:

1. Go to HR → Reports → TDS Annex-10.
2. Select the BS month and review the on-screen grid (gross / exempt / taxable / SST / TDS per employee).
3. Click Download to get the .txt file. Each row is exactly 110 characters and ends with the IRD form code A10.
4. Upload the file to the IRD e-TDS portal before the 25th of the month.

SST and TDS appear as separate columns in both the on-screen Annex-10 report and the downloaded file, matching what IRD expects.

Nepal-specific note on fiscal year

Nepal’s fiscal year runs from Shrawan 1 to Ashadh End (approximately mid-July to mid-July in AD). TDS slabs and exemption limits can change each year through the Finance Act, which is typically passed in Ashadh. Udyot uses the slabs seeded for the active fiscal year. If IRD announces updated slabs mid-year, contact your administrator to update the TDS configuration in HR → Settings before processing the first payroll of the new fiscal year.

Related articles

• Salary Structures and Payroll Processing
• Statutory Returns: EPF, SSF and Annex-10
• Setting Up Employees
• TDS — Tax Deducted at Source (non-salary)
• Nepal Fiscal Year and BS Calendar
• Financial Reports