Section 21 : Expenses not allowed for deduction

1) Notwithstanding anything contained elsewhere in this Act, for the purpose of computing the income earned by any person from any business, employment or investment in any income year, the following expenses or amounts shall not be deducted:-

a) Expenses of a domestic or personal nature,

b) Tax payable under this Act and a fine or similar other fee paid to the government of any country or any local body thereof for a violation of any law or regulation, bylaw framed thereunder,

Provided that tax paid to the Provincial Government and Local Level shall be deducted as expenses.

c) Expenses to the extent of those spent by any person to obtain the amounts enjoying exemption pursuant to section 10 or expenses made to obtain the amounts from which tax has been deducted finally,

d) Expenses for the payments referred to in sub-section (2),

¹d1) Remuneration and wages expenses distributed to employees and workers having no permanent accounts number, except for wages paid up to three thousand rupees of frequent nature,

¹d2) Expenses against invoices of more than two thousand rupees wherein the permanent accounts number is not mentioned,

 Provided that the purchase expenses shall be valid if the seller of agricultural, forest, animal or other household goods has no permanent accounts number as he or she is a natural person doing direct business transactions.

e) Distribution of profits by any entity or

f) Similar other amounts notwithstanding that they are not so mentioned in clauses (a), (b), (c), (d) and (e) as not to be deductible, except those allowable under this Chapter or Chapters-6, 7, 10, 12 or 13.

2) If a person whose annual turnover is more than twenty lakh rupees in any income year makes a cash payment of more than fifty thousand rupees at a time in that income year except in the following circumstances, he shall not be allowed to make that deduction:-

a) Payment made to the Government of Nepal, a constitutional body, corporation or bank or financial institution owned by the Government of Nepal,

b) Payment made to a farmer or producer producing a primary agro-product and payment to a farmer who has processed such product on his own, notwithstanding that primary processing of such product has already been carried out,

c) Payment for retirement contribution or retirement payment,

d) Payment made in a place where banking services are not available,

e) Payment made on the day when banking services are closed or payment involving a mandatory provision of payment in cash or

f) Amount deposited in a bank account of the recipient of payment.

3) Subject to the provisions of Sections 14, 15, 16, 17, 18, 19, 20 and 71, no amount shall be deductible for capital expenses or foreign income tax.

Explanation: For purposes of this section,-

(a) “Expenses of domestic or personal nature” means the following expenses:-

(1) Private expenses of any individual and expenses made inclusive of the following expenses made for the interest of a loan to the extent that the loan has been used for personal purposes:

(a) Expenses made for a natural person for the provision of lodging, food, snacks, and other activities of entertainment or amusement,

(b) Expenses for the movement by a natural person from his house to the place where the business or investment is operated except for the movement in the course of business or investment,

(c) Expenses made to purchase clothes for a natural person except those clothes which are not proper to put on at other times than working times, and

(d) Expenses made for education or training.

Provided that the expenses made only for the education directly related to the business or investment, where no degree or diploma is achieved.

(2) Except in the following conditions and to that extent, expenses incurred in respect of a payment made by any person to any natural person and expenses made for a third person:-

(a) If that payment has been included in computing the income of a natural person,

(b) If the natural person has made, as a consideration, a return payment to that person in a sum equal to the market value of the payment received by him,

(c) If payment is made for such prescribed petty amounts of which accounts are difficult or administratively impracticable to be maintained.

(b) ” Place where banking service is available” means any place within a ten-kilometre area where banking service is available.

(c) ” Cash payment” means a payment except for a payment by a letter of credit,  account payee cheque, draft, money order, telegraphic transfer, or money transfer (hundi) through a bank or financial institution to be deposited in a bank account and a transfer made by any other means between banks or financial institutions.

(d) “Capital expenses” means the following expenses:-

(1) Expenses incurred in feasibility study, exploration and development of natural resources,

(2) Expenses incurred in acquiring any property with useful life for more than twelve months or

(3) Expenses in disposing of a liability.

^{1 Amended by the Financial Act, 2076.}