In Nepal, obtaining a Tax Clearance Certificate (Kar Chukta) is a rigorous process where the Inland Revenue Department (IRD) verifies that you have fulfilled all legal and financial obligations for a specific fiscal year.
Whether you are applying as an individual or a business, the tax officer primarily focuses on “reconciling” your declared data with the government’s records. Here is a checklist of the key points they check:
1. Verification of Tax Returns (Income Tax & VAT)
The officer ensures that all mandatory returns have been filed correctly and on time.
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Income Tax Returns: For businesses, they check if D-01, D-02, or D-03 forms are submitted. For individuals with income over NPR 40 Lakhs, they check for the D-04 form.
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VAT Returns: If you are VAT-registered, they verify that all 12 monthly VAT returns (or trimesterly, if applicable) are filed. They look for “Nil” returns and ensure they match your sales/purchase books.
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Late Filing: They check if any “Late Fees” (Bilamba Shulka) for missed deadlines have been paid.
2. E-TDS Reconciliation (The “Matching” Test)
This is often the most common point of delay. The officer will cross-verify your Electronic TDS (E-TDS) records.
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Deposited vs. Claimed: They check if the TDS you claimed as a credit matches what your service providers or employers have uploaded to the IRD portal.
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Payment Status: They ensure that any TDS you were supposed to deduct from others (e.g., rent, salaries, consultancy) has been deposited into the government account.
3. Financial Statement Consistency
For companies and self-employed professionals, the officer scrutinizes the Audited Financial Statements.
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Audit Report: The report must be signed by a licensed Auditor (CA/RA) and must include the UDIN (Unique Document Identification Number) as per current ICAN regulations.
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Profit & Loss vs. Tax Return: The net profit in your audit report must match the taxable income declared in your tax return. Any discrepancies usually lead to a request for a “Revised Return” or an explanation.
4. Arrears and Outstanding Dues
The system will not allow a clearance letter if there is a single rupee of outstanding debt.
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Past Liabilities: They check for “Tax Arrears” (Baqauta) from previous years.
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Interest and Penalties: Even if the principal tax is paid, they check if the system has calculated any interest (under Section 117, 118, or 119 of the Income Tax Act) that remains unpaid.
5. Regulatory & Compliance Checks
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Rent Tax: The officer often asks for proof of rent tax payment. If the office space is rented, they check if the tax has been paid to the local Ward Office or the IRD (depending on the landlord’s status).
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KYC/KYT Updates: They check if your “Know Your Taxpayer” (KYT) details—like phone number, email, and address—are updated in the IRD portal.
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Business Renewal: For certain sectors (like liquor or tobacco), they check if the specific excise licenses have been renewed.