Nepal's income tax return system for small and medium businesses is tiered by turnover, and the two most commonly confused categories are D01 and D02. Filing under the wrong one isn't just a paperwork error — it can trigger a real compliance flag.
D01: the presumptive return for small taxpayers
D01 is a simplified, self-assessed return designed for small taxpayers below a turnover threshold. Rather than calculating tax as a percentage of income, D01 typically applies a flat fee based on your business's registered location — the same amount whether you're near the lower or upper end of the qualifying turnover range. Filers under D01 pay this flat amount in full at filing and don't make advance installment payments during the year.
D02: turnover-based filing above the D01 threshold
Once annual turnover exceeds the D01 threshold, the business moves to D02, where tax is calculated as a percentage of turnover rather than a flat fee. D02 filers, unlike D01 filers, are generally expected to make advance tax installment payments during the fiscal year rather than settling everything at once at filing time.
Why the distinction matters
Trying to stay on D01 by under-reporting turnover to fit under the threshold is a real compliance risk, not a gray area — the IRD's system cross-references turnover against bank records and VAT filings, and a mismatch reads as under-reporting rather than an honest small-business filing.
Professionals are treated differently
Certain professions — consultants, and other specified professional categories — are generally not eligible for the presumptive D01 scheme regardless of how small their turnover is, and are expected to file under actual-based return categories instead.
Confirming which one applies to you
The right filing category depends on your actual turnover, your business type, and whether you fall into an excluded professional category — not just a preference for the simpler option. If you're not certain which applies, confirm before filing rather than defaulting to whichever seems easier.
