1. Statutory Provision under Section 12
Under Section 12 of the Income Tax Act 2058 (आयकर ऐन २०५८), an individual resident taxpayer in Nepal is entitled to deduct annual life insurance premiums paid for themselves, their spouse, or dependent children from their gross assessable income, subject to a statutory cap of Rs 40,000 per fiscal year (increased from the previous Rs 25,000 limit).
| Tax Slab Rate in Nepal | Annual Premium Paid | Taxable Income Deduction | Actual Cash Tax Saved |
|---|---|---|---|
| 10% Slab (Rs 5L – 7L Single / Rs 6L – 8L Married) | Rs 40,000 | Rs 40,000 | Rs 4,000 / year |
| 20% Slab (Rs 7L – 10L Single / Rs 8L – 11L Married) | Rs 40,000 | Rs 40,000 | Rs 8,000 / year |
| 30% Slab (Rs 10L – 20L Single / Rs 11L – 20L Married) | Rs 40,000 | Rs 40,000 | Rs 12,000 / year |
| 36% Slab (Rs 20L – 50L Income Bracket) | Rs 40,000 | Rs 40,000 | Rs 14,400 / year |
| 39% Highest Slab (Above Rs 50 Lakhs Income) | Rs 40,000 | Rs 40,000 | Rs 15,600 / year |
Required Proof for Claiming Exemption
- Official life insurance premium receipt stamped by a licensed Nepal insurer.
- Insured individual must be the taxpayer, spouse, or unmarried minor children.
- Must be submitted to your employer HR/Accounts prior to the Jestha payroll cutoff.