TDS repeats on a monthly cycle, not an annual one — which means small calculation errors compound quickly. We handle withholding, the 25-day deposit window, and ETDS filing so nothing gets missed.
Last updated: September 2, 2026
Under the Income Tax Act 2058, the party making a payment — the withholding agent — deducts TDS before paying the recipient. This applies to employers paying salaries, companies paying consultants or contractors, tenants paying landlords, and banks paying interest, among others. The obligation sits with the payer, not the recipient: if you're the one writing the check, invoice, or bank transfer, it's your responsibility to know whether TDS applies before the money moves.
This matters because the consequences of getting it wrong land on the withholding agent first. If TDS isn't deducted when it should have been, the IRD's default position treats the shortfall as your liability to make good, not a problem for the recipient to sort out later.
| Payment category | Who withholds | How it's calculated |
|---|---|---|
| Salary | Employer | Progressive income tax slabs, applied monthly against estimated annual salary |
| Rent | Tenant / business paying the landlord | Prescribed percentage of the rent amount, before VAT if the landlord is VAT-registered |
| Service & consultancy fees | Company or business paying the provider | Prescribed percentage of the taxable fee, before VAT |
| Contract payments | Party making the contract payment | Prescribed percentage of the contract value, before VAT |
| Interest | Bank or financial institution | Prescribed percentage of interest paid |
| Dividends | Company distributing the dividend | Prescribed percentage of the dividend amount |
Notice the recurring pattern: almost every non-salary category is a percentage of the amount before VAT is added. Exact percentages are periodically revised through the annual Finance Act — we confirm current rates against the latest IRD circular before applying them, rather than working from memory. See our full TDS rates reference for more detail on each category.
A frequent, expensive error: calculating TDS on the invoice total including VAT, when it should be calculated on the taxable amount before VAT. If a VAT-registered consultant invoices NPR 1,00,000 plus 13% VAT for a NPR 1,13,000 total, TDS is calculated on the NPR 1,00,000 base — not the full total. Applying the withholding percentage to the inflated figure over-withholds on every invoice from that vendor, which compounds into a real amount over a year of recurring invoices. Our free Debit/Credit Note generator keeps VAT and taxable-base lines separate automatically, so this specific error can't slip through.
Every applicable payment, across every category, deducted at source before the payment goes out.
Across all payment categories for the month.
Through the online taxpayer portal or a designated collecting bank.
Electronic TDS filing reflecting exactly what was deposited — this has effectively replaced manual filing.
After depositing TDS, the payer issues the recipient a TDS certificate, which the recipient uses to claim credit for that amount against their own annual tax liability. For a salaried employee, this typically comes from the employer covering the full fiscal year; for a consultant working with multiple clients, it means collecting a certificate from each one. Losing track of certificates on either side is a common source of year-end reconciliation headaches — a consultant who can't produce matching certificates may end up unable to claim the full credit they're entitled to.
The single most common and most expensive error — detailed above.
Professional fees and rent are the two categories most often paid in full by mistake, sometimes not noticed until an IRD review flags the gap.
Without matching certificates, a taxpayer can't substantiate the credit they're claiming at annual filing.
The withholding agent -- the party making the payment. A shortfall is treated as the payer's liability to make good.
Before -- on the taxable base amount, not the VAT-inclusive total. This is the most common and costly TDS mistake.
Typically within 25 days of month-end, followed by an ETDS return reflecting exactly what was deposited.
It lets the recipient claim credit for the withheld amount against their own annual tax liability.
Salary, rent, service and consultancy fees, contract payments, interest, and dividends -- exact percentages should always be confirmed against the current IRD circular.
Yes -- withholding, correct calculation, monthly deposit, ETDS filing, and certificate tracking. Get in touch to get started.
Tell us what you're paying out and to whom — we'll tell you exactly what needs to be withheld and when.
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