CAP-II SYLLABUS

Syllabus for Income Tax & VAT

Income Tax & VAT is the sixth paper of CAP-II. It is divided in two parts and covers 100 marks in total. It is the Group 2 paper. The syllabus you need to cover in CAP-II under “Income Tax & VAT” is as follows: 

Level of Knowledge : Working

 

Course objectives :

— The objective of this syllabus is to give candidates an understanding of the basic concepts of Nepalese Income Tax regulations as an important part of direct taxes and of Nepalese Value Added Tax regulation as an important part of indirect tax in Nepal.

— Recognize the principles governing taxation of income, gain from disposal of assets and liabilities and conditions of disposals and deemed disposals.

— Recognize the basic concepts of charging income tax on various incomes.

— Recognize the basic concepts of tax planning.

— Apply code of ethics principles in taxation assignments.

 

Part A : Income Tax

Course contents

 

1: Basic concept

—  Income year

—  Assets (depreciable assets, investment, stock, business assets etc.)

—  Persons (natural and legal person and their types, associated persons.)

—  Income (Eg. service fee, royalty, dividend etc.)

—  Definitions of basic concept as per Sec. 2

 

  1. Residential concept

—  Concept of resident and non-resident

—  Worldwide taxation and source of taxation

—  Concept of Nepal sourced income and provisions

—  Double tax relief mechanism- foreign tax credit and double tax avoidance treaties

—  Basic concept of foreign permanent establishment

 

  • Basis of taxation

—  Persons liable to pay tax

—  Tax exempt organizations

—  Exempt incomes

—  Taxable income and assessable income

—  Rates of tax and business concessions

—  Heads of income

 

  • Tax accounting

—  Nepal accounting standard vs tax accounting

—  Cash vs. accrual basis of accounting in taxation

—  Basis of accounting for natural person and entities

—  Change in accounting methods

—  Reverse of amounts including bad debts

—  Approved Retirement Funds

—  Permanent Account Number (PAN)

 

  1. Computation of taxable income

 

  • Calculation of income from business:

—  Components of income from business

—  Incomes which do not form part of income from business.

—  Deductions allowed from income from business

—  Limitations and conditions for a particular deduction

—  Schedule 2 of the Act.

 

  • Calculation of income from employment

—  Components of income from employment

—  Incomes which are excluded from income from employment

 

  • Calculation of income from investment

—  Components of income from investment

—  Incomes which do not form part of income from investment

—  Deductions allowed from income from business

—  Limitations and conditions for a particular deduction

 

  • Deductions allowed from taxable income:

—  Deduction for donation and gifts

—  Deductions for contributions to retirement funds

—  Deduction for life insurance premium paid

—  Deduction for losses from income from business or investment

—  Carry forward and carry back of losses for set off

—  Deductions not allowed

 

  • Calculation of net gains from disposal of assets and liabilities

—  Net gain and tax calculation from gain from disposal of non business chargeable assets

—  Net gain and tax calculation from disposal of business assets

 

  • Tax credits

—  Medical tax credits

—  Foreign Tax credits

 

  • Quantification, allocation and characterization of amounts

—  Quantification & characterization of payments under annuities, installments and leases

 

  1. Withholding taxes

—  Concept of withholding taxes

—  Payments attracting withholding taxes

—  Final withholding taxes

—  Withholding tax returns

 

  1. Tax returns, tax assessment and appeals

—  Estimated tax returns

—  Final tax returns

—  Revised tax assessment process

—  Jeopardy tax assessment

—  Tax collection, waiver and refund

—  Tax administration – duties and power of DG, Tax officer, tax office

  1. Other fundamental concepts of Income Tax Act

 

— Provisions of Income Tax Act not specifically mentioned but interlinked/relevant to the concepts covered above.

Income Tax Act 2058 and Income Tax Rules, 2059

Excluded:

 

  1. Sections 41 to 49, relating to Disposal of business with special conditions
  2. Sections 59 to 62, relating to Bank & Insurance Business
  3. Section 114 and above – relating to tax review and fine/penalties

 

Section B: Value Added Tax of Nepal

  • Basic concepts

  • Definitions of:
  1. Terms defined in Section 2 of the Act.
  2. Terms defined in Rule 2 of the Rules

iii. Terms defined in various other Sections and Rules of the Act and Rules.

  1. Meaning and use of various terms used in Act and Rules.

 

  • Appointment of tax officer and his/her jurisdiction


  • Imposition of VAT

I. Transactions covered by VAT

  1. Goods and services exempted from tax

iii. Place and time of supply

  1. Rate of tax
  2. Conditions for zero rate of tax
  3. Assessment and collection of tax

 

  1. Registration and cancellation

  • Registration: 
  1. Conditions for compulsory registration
  2. Threshold for small vendors

iii. Proxy conditions for compulsory registration

  1. Voluntary registration
  2. Registration not available
  • Cancellation of registration

Conditions and procedures for cancellation of registration

  1. Taxable value, tax collections and offsets, refund of tax

  • Factors determining taxable value

  1. General conditions
  2. Extra-ordinary conditions

iii. Taxable value for used goods

  1. Taxable value for dealers in used goods
  • Market value concept and its applicability


  • Tax collection

  1. Registered person has to collect tax
  2. Tax collection by custom authorities

iii. Bank guarantees facility available for payment of tax.

 

  1. Restriction on unregistered person to collect tax.

  • Offset of tax

  1. Partial tax offset
  2. Proportionate tax offset

iii. Tax offset not available

 

  1. Conditions of tax offset

  • Refund of tax:

i. Under regular conditions

  1. Under export conditions

iii. Refund by some specific institutions as per Section 25.

  1. Limitations on refund

 

  1. Accounts and records

  • Invoices

  1. Conditions for unregistered person to issue invoices and its contents.
  2. Conditions for issue of different kinds of tax invoices and their contents.

iii. Conditions for issue of tax invoices for dealers in used goods.

  • Accounts and records

  1. ‘Taxpayer’ duty to keep up-to-date accounts of its transactions
  2. Types of accounts and records to be kept by a taxpayer and their contents.

iii. Certification of the accounts and records

  1. Preservation of the accounts and records.

 

Reference Books & Acts:

  1. Income Tax; Theory and Practice, Jagdish Agrawal
  2. Income Tax Act, 2058 & Rules, 2059
  3. Value Added Tax, 2052 & Rules, 2053
  4. Relevant Finance Act

Value Added Regulations of Nepal (Marks allocation reduced from 40 marks to 30 marks)

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