Published June 25, 2026 · Updated August 14, 2026 with a full comparison table, a step-by-step guide to confirming your filing category, common mistakes, and a FAQ section.
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. In short: D01 is a simplified, self-assessed return for small taxpayers below a turnover threshold, using a flat fee based on registered location rather than a percentage of income; D02 applies once turnover exceeds that threshold, calculating tax as a percentage of turnover and generally requiring advance installment payments during the year. Filing under the wrong one isn't just a paperwork error — it can trigger a real compliance flag, since the IRD cross-references reported turnover against bank records and VAT filings. Here's how the two categories actually differ, and how to confirm which one applies to you.
What's in this guide
- D01: the presumptive return for small taxpayers
- D02: turnover-based filing above the D01 threshold
- D01 vs D02 at a glance
- Where D01 and D02 fit in the bigger picture
- Why the distinction matters
- Professionals are treated differently
- Confirming which one applies to you, step by step
- Record-keeping under D01 vs D02
- Moving from D01 to D02
- Common mistakes to avoid
- Frequently asked questions
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.
The appeal of D01 is straightforward: it's the least administratively demanding filing category available, designed specifically so the smallest taxpayers aren't carrying a compliance burden disproportionate to their scale. There's no need to track a running percentage-of-income calculation throughout the year, no advance installments to plan cash flow around, and the flat-fee structure makes the eventual tax bill predictable well in advance. That predictability is exactly what makes D01 attractive to genuinely small operations — and exactly why some businesses are tempted to stay on it longer than they should.
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.
This shift changes how a business needs to plan financially, not just how it files. Advance installments mean tax becomes a recurring cash-flow item throughout the year rather than a single year-end obligation, and because the calculation is turnover-based rather than a flat fee, the amount owed scales directly with how the business actually performs. A business moving from D01 to D02 for the first time often underestimates this shift — treating D02 filing like a slightly bigger version of D01 rather than recognizing it as a genuinely different compliance rhythm.
D01 vs D02 at a glance
| Aspect | D01 | D02 |
|---|---|---|
| Who it's for | Small taxpayers below the qualifying turnover threshold | Businesses whose turnover exceeds the D01 threshold |
| How tax is calculated | Flat fee based on registered location | Percentage of turnover |
| Payment pattern | Paid in full at filing | Advance installments during the fiscal year |
| Complexity | Lowest — simplified, self-assessed | Higher — turnover-based calculation and installment planning |
| Eligible professionals | Excludes certain specified professional categories regardless of turnover | Applies to excluded professionals and higher-turnover businesses alike |
Where D01 and D02 fit in the bigger picture
D01 and D02 aren't the only income tax return categories — Nepal's income tax return filings span categories from D01 through D04, tiered by turnover and income type, running from the simplified presumptive return for the smallest taxpayers up to full actual-based returns for larger businesses and professionals. D01 and D02 sit at the smaller end of that range, which is exactly why they're the two categories most small and medium businesses need to understand well, but they're not the ceiling — a growing business can eventually move beyond D02 into fuller actual-based filing as its turnover and complexity increase further.
It's also worth being clear that D01/D02 is an income tax filing tier, entirely separate from VAT registration. VAT registration in Nepal becomes mandatory at its own turnover thresholds — NPR 50 lakh for goods-only businesses, NPR 30 lakh for service or mixed businesses — measured on a rolling 12-month basis. A business can be well within D01 territory for income tax purposes while separately crossing the VAT threshold, or vice versa; the two systems are assessed independently, and confusing one threshold for the other is a common source of filing errors.
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. This cross-referencing is worth taking seriously: it means the actual turnover a business is generating is visible to the tax authority through channels beyond the return itself, so a return that understates turnover to preserve D01 eligibility is a discrepancy waiting to be flagged, not a strategy that quietly works.
Filing under the wrong category in the other direction — staying on D02's turnover-based calculation when a business has actually dropped below the D01 threshold — isn't a compliance risk in the same way, but it does mean potentially paying more, or managing installments unnecessarily, when the simpler flat-fee category would apply. Either direction of mismatch is worth correcting, which is why confirming your category each filing period, rather than assuming last year's category still applies, is worth the small amount of time it takes.
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. This carve-out exists because presumptive taxation is designed around businesses where turnover is a reasonable proxy for taxable activity — a small retail shop, for instance — whereas certain professional service categories don't fit that model as cleanly, and are treated as needing actual-based assessment from the start regardless of scale.
If you're a consultant or fall into a similar specified professional category, it's worth confirming your filing category explicitly rather than assuming your turnover alone determines it. Two businesses with identical turnover can land in genuinely different filing categories purely because of what kind of business one of them is.
Confirming which one applies to you, step by step
Rather than guessing based on what seems simpler, work through the actual determination in order.
- Check whether you fall into an excluded professional category. If you do, D01 isn't available to you regardless of turnover, and you can skip straight to actual-based filing considerations.
- If not excluded, calculate your actual annual turnover for the period in question — not an estimate, but the real figure, since this is what determines whether D01 or D02 applies.
- Compare that turnover against the D01 qualifying threshold to determine which category you fall into for this filing period specifically, rather than assuming last year's category still applies.
- Cross-check against your VAT filings and bank records for consistency, since these are exactly the records the IRD's system cross-references against your reported turnover.
- File under the correct category — D01's flat fee at filing, or D02's turnover-based calculation with advance installments during the year.
- Re-confirm each filing period rather than assuming your category is fixed permanently, since turnover that crosses the threshold moves you from D01 to D02 going forward.
If you're not confident in this determination, our tax services team can confirm the correct category and handle the filing directly, which is generally faster and safer than filing under an assumption and correcting it later if it turns out to be wrong.
Record-keeping under D01 vs D02
Even though D01 is a simplified, self-assessed return, "simplified filing" doesn't mean "no records needed." You still need enough documentation to demonstrate that your actual turnover genuinely falls within the D01 qualifying range — invoices, sales records, and bank statements that support the turnover figure you're filing under. This matters precisely because the IRD cross-references your reported turnover against bank records and VAT filings; if you can't independently substantiate that your turnover was actually within the D01 range, a review can turn a simple filing into a much more complicated conversation.
D02 filers face a heavier record-keeping load by nature, since the tax owed is calculated as a percentage of actual turnover rather than a flat amount — meaning the accuracy of your turnover records directly determines the accuracy of your tax bill, not just your eligibility for a category. This also feeds into planning advance installments accurately: underestimating turnover for installment purposes can leave a larger-than-expected balance due at year-end, while overestimating ties up cash unnecessarily during the year. Clean, current bookkeeping throughout the year is what makes both of these — category confirmation and installment planning — straightforward rather than a source of last-minute uncertainty.
Moving from D01 to D02
Crossing the D01 threshold isn't a one-time event you handle once and forget — it changes your filing category, your payment pattern, and your planning going forward, so it's worth treating deliberately rather than discovering after the fact. The moment your turnover for a filing period exceeds the D01 threshold, that period's filing needs to move to D02, with tax calculated as a percentage of turnover and advance installments planned for during the year rather than a single flat payment settled at filing.
Businesses growing steadily are often the ones most likely to be caught off guard by this shift, since the transition can happen mid-way through a strong year rather than at a clean fiscal-year boundary. Reviewing your turnover against the D01 threshold periodically throughout the year — not just once at filing time — gives you the lead time to plan for D02's installment structure rather than being surprised by a materially different payment pattern at the point you're already filing.
Common mistakes to avoid
- Under-reporting turnover to preserve D01 eligibility. This is a real compliance risk, not a gray area, since the IRD cross-references turnover against bank records and VAT filings.
- Assuming your filing category from last year still applies automatically. Turnover changes year to year, and crossing the D01 threshold moves you to D02 for that period.
- Filing under D01 as a specified professional. Certain professional categories are excluded from D01 regardless of turnover — check this before assuming turnover alone decides your category.
- Confusing the D01/D02 income tax threshold with the VAT registration threshold. These are two entirely separate systems, assessed independently, with their own separate thresholds.
- Treating D02's installment requirement as optional. D02 filers are generally expected to make advance tax installments during the fiscal year, not just settle everything at filing time the way D01 filers do.
- Not keeping supporting records under D01. "Simplified filing" doesn't mean no documentation is needed — keep invoices, sales records, and bank statements that genuinely support your reported turnover figure.
Once you know which return applies to you, our free Salary Tax Calculator can help estimate the income tax side of your filing.
Frequently asked questions
What's the main difference between D01 and D02?
D01 is a simplified, self-assessed return for small taxpayers below a turnover threshold, using a flat fee based on registered location. D02 applies once turnover exceeds that threshold, calculating tax as a percentage of turnover with advance installment payments during the year.
Can I choose to file under D01 even if I qualify for D02, since it's simpler?
No. The right filing category depends on your actual turnover, business type, and whether you fall into an excluded professional category — not a preference for the simpler option. Filing under D01 when your turnover actually exceeds the threshold is a compliance risk.
Do D01 filers need to make advance tax payments during the year?
No. Filers under D01 pay the flat amount in full at filing and don't make advance installment payments during the year, unlike D02 filers, who generally are expected to.
Are consultants eligible for the D01 presumptive scheme?
Generally no. Consultants and other specified professional categories are generally not eligible for D01 regardless of how small their turnover is, and are expected to file under actual-based return categories instead.
Is the D01/D02 threshold the same as the VAT registration threshold?
No — they're separate systems assessed independently. VAT registration becomes mandatory at its own turnover thresholds (NPR 50 lakh for goods-only businesses, NPR 30 lakh for service or mixed businesses), which is a different figure from the D01/D02 income tax determination.
What happens if I file under the wrong category?
Under-reporting turnover to stay on D01 is treated as a genuine compliance risk, since the IRD's system cross-references turnover against bank records and VAT filings — a mismatch reads as under-reporting. It's worth confirming your correct category before filing rather than defaulting to whichever seems easier.
Do D01 and D02 cover every business, or are there other categories?
No — Nepal's income tax return filings span categories from D01 through D04, tiered by turnover and income type, from the simplified presumptive return up to full actual-based returns for larger businesses and professionals. D01 and D02 are the two most relevant to small and medium businesses, but they aren't the only categories, and a business that keeps growing may eventually move beyond D02 into fuller actual-based filing as its turnover and operational complexity increase further.
Can I get help confirming which category applies to my business?
Yes — our tax services team can confirm the correct filing category based on your actual turnover and business type, and handle the filing itself.
What records do I need to keep if I file under D01?
Even under D01's simplified, self-assessed structure, you should keep invoices, sales records, and bank statements that support your reported turnover figure — enough to demonstrate that your actual turnover genuinely falls within the D01 qualifying range if it's ever reviewed.
What happens the moment my turnover crosses the D01 threshold mid-year?
That filing period moves to D02, with tax calculated as a percentage of turnover and advance installments planned for during the year rather than a single flat payment at filing. Reviewing your turnover periodically through the year, rather than only at filing time, gives you lead time to plan for that shift instead of being caught off guard by it.
Bottom line
D01 and D02 exist to match your filing burden to your actual scale — a simplified flat fee for genuinely small taxpayers, and turnover-based calculation with installments once a business grows past that threshold. The right category depends on your actual turnover, your business type, and whether you fall into an excluded professional category, not on which one feels easier to file. Confirm your category each filing period rather than assuming, keep records that genuinely support whatever turnover figure you're filing under, and treat any mismatch between reported turnover and your bank or VAT records as something to resolve before it's flagged, not after.
