Section 20 : Loss from business or investment

1) For purposes of computing the income earned by any person from any business or investment in any income year, such person may deduct the loss as mentioned below:-

a) Loss suffered by that person from any other business and not deducted in that year and

b) Loss suffered by that person from any business and not deducted in the last seven income years.

Provided that in the case of the projects of building and operation of any public infrastructure, which is then transferred to the Government of Nepal, a project on construction of a powerhouse and generation and transmission of electricity, and an entity conducting petroleum work pursuant to the Nepal Petroleum Act, 2040, loss not deducted in the twelve income years.

2) For purposes of computing the income earned by any person from any investment in any income year, such person shall be allowed to deduct the loss suffered by that person from any other investment and not deducted in that year and deducted in that year and the loss incurred by that person from such investment or any other investment which could not be deducted in the past seven years.

3) Subject to sub-sections (1) and (2) and for purposes of these sub-sections, any loss suffered by any person in respect of the foreign source and not deducted may be deducted only in computing the income earned by that person from his foreign source, and the loss suffered in earning any non-taxable income and not deducted may be deducted only in computing non-taxable income of that person.

4) Subject to sub-sections (1) and (2), if any person suffers a loss in an income year when a long-term contract obtained by any person by making competition of the business at the international level was completed or when disposal was made in any other manner or a loss which was not deducted and the liability whereof is allowed to be carried forward in the coming year pursuant to clause (b) of sub-section (1) is related with a long-term contract, the Department may, by a notice in writing, give permission to deal with that loss as follows:-

a) The loss may be carried backwards in the last income year or years and

b) The loss may be treated as not deducted only to the extent of the excess where, in computing the income of the business related to that long-term contract, the amounts to be included in the incomings exceed the amounts to be included in the outgoings.

5) The following loss suffered by any person in any income year has to be allocated as if it were related to a long-term contract or contracts of that person:-

(a) The loss resulted from a long-term contract or contracts related to the business, and

(b) The loss in excess of the expenses to be deductible in computing the income earned from that business in the year related to the contract for each such contract.

6) If, when computing the income earned by any person in any income from more than one business or investment, that person is allowed to deduct the loss not deducted from more than one business or investment, that person may on his own determine the priority of the business or investment from which the portion of the loss is deducted.

7) If, when computing the loss suffered by any person from any business or investment in any income year, this section is not used and the deductible amounts exceed the amounts includable in computing the income from the business or investment of that person, such excess amounts have to be computed.

8) If any person has received full tax exemption in respect of income of business or investment in any income year, the loss incurred in that income year shall not be carried forward to the upcoming income year.

Explanation: For purposes of this Section, “the loss not deducted” means the loss to the extent not deducted in computing the income of any person pursuant to sub-sections (1), (2) or (4).