Section 71 : Foreign tax adjustment

1) Any resident person may claim for adjustment of tax for the foreign income tax paid by that person in any income year to the extent of the tax paid for assessable foreign income of that person in that year.

2) When computing the foreign tax adjustment claimed pursuant to sub-section (1), it shall be done as follows:-

a) Separate computation has to be done for assessable foreign income having source in each country and

b) Foreign tax adjustment claim shall not be made, in respect of the assessable foreign income, at the rate of tax higher than the average rate of tax of Nepal payable by that person in that year in respect of each computation.

3) Any foreign income tax paid in respect of the assessable foreign income of any year who is not entitled to foreign tax adjustment facility pursuant to sub-section (1) by virtue of the limit provided for in clause (b) of sub-section (2) may be dealt with as follows:-

a) It may be carried forward in the coming year, and

b) It shall be deemed to be paid in respect of the assessable foreign income in the future income year of the person having a source in the country where such foreign income has been earned.

4) Notwithstanding anything contained in sub-section (1), any person may give up a claim for foreign tax adjustment to which he is entitled in any income year and also claim for credit for foreign income tax for which such adjustment facility is available in that year.

Explanation: For purposes of this Section,-

(a) “Assessable foreign income” means the following income to be included in the assessable income earned by any resident person in any income year from any employment, business or investment:-

(1) Income earned from a foreign source, or

(2) Income of a non-resident person deemed as distributed to that resident person under Section 69, irrespective of the source.

(b) “Average rate of tax of Nepal” means the rate resulting from the division of tax amount to be paid by the person referred to in clause (a) of Section 3 in any income year, prior to adjustment of any foreign tax of that person in that year, by his or her taxable income of that year and multiplication by one hundred.