---
slug: advance-tax-tds-instalments-nepal
title: "Advance tax, TDS and instalments: why your tax gets paid three times before you ever file a return"
h1: "Advance tax, TDS and instalments — the three payments before the return"
meta_description: "TDS, advance tax and instalment payments confuse most business owners in Nepal. Here is what each one is, when it is due, and why paying all three is not paying tax three times."
focus_keyword: "advance tax Nepal"
secondary_keywords: "TDS vs advance tax, instalment tax Nepal, Section 94, estimated tax return D-01"
category: income-tax
status: draft
schema_type: Article
review_due_on: "each Shrawan, when the Finance Act changes"
---

Almost every business owner who walks into an accountant's office in the first year asks the same question in some form: *I already had tax deducted, I already paid something in Poush, and now you are telling me I owe more?*

It is a fair question, and the confusion is structural rather than anyone's fault. Nepal's income tax system collects your tax across the year through three separate mechanisms, and only settles the account at the end. If you do not know which mechanism you are looking at, it genuinely looks like you are being taxed repeatedly.

Here is the whole picture in one place.

## The three mechanisms are collections, not separate taxes

Think of your annual tax liability as a single bill that gets paid down in pieces:

**TDS** is tax someone else deducts from money they pay you. Your client pays your bill, withholds a slice, and deposits that slice with the Inland Revenue Department under your PAN. You never touch that money, but it is your tax, paid on your behalf.

**Instalment tax** is tax you pay yourself, in advance, based on what you *estimate* you will earn this year. It falls due in three tranches through the year rather than in one lump at the end.

**The final settlement** happens when you file your annual return. Your actual liability is computed on actual results, everything already collected is credited against it, and you either pay the shortfall or claim the excess.

So all three are the same bill. You are not paying tax three times; you are paying one tax in three ways, and the return is the reconciliation.

## Where the confusion actually starts

The trouble is that TDS and instalment tax do not know about each other in real time.

Your client deducts TDS whether or not you have paid instalments. The instalment calculation is based on *your estimate*, which was made before you knew what the year would look like. So it is entirely normal to reach the end of the year having overpaid through one route and underpaid through another, and the return sorts it out.

What is not normal — and what costs real money — is estimating badly and then discovering it at the end.

## The estimate is the part people skip, and it is the expensive part

Before your instalments are due, you are expected to file an estimate of your income for the year. This estimate is what your instalments are calculated from.

Two things go wrong here:

**People don't file it at all.** There is a fee for that, and it is charged even if you eventually paid the right amount of tax. The fee is for the missing filing, not the missing money.

**People estimate too low.** If your estimate comes in materially below what you actually earned, interest is charged on the shortfall in each instalment, running from the date the instalment was due until you actually paid. A business that has a very good year and estimated on last year's numbers can find itself paying several months of interest on a large gap.

The practical lesson is that a lazy estimate is not free. If your business is growing, estimate on where you are heading, not where you were.

## What credit you can actually claim, and why it sometimes goes missing

At the return stage, you claim credit for TDS deducted from you. This is where the second common shock arrives: the credit the system shows is not always the credit you expected.

TDS credit only exists if the deductor actually **deposited** it and **filed the return correctly under your PAN**. A client who deducted from your payment but never deposited it has created a problem that lands on your side of the table. So has a client who deposited it under the wrong PAN, or a slightly wrong name.

This is why the reconciliation is worth doing during the year rather than in the final week. Ask for the deposit evidence when a client tells you they have deducted. It is far easier to get a deductor to correct a filing in Kartik than in the middle of the return season.

## A working order of operations

For a business that wants to stop being surprised:

1. Early in the year, build a realistic estimate of income, and revise it if the business changes direction.
2. File the estimated return on time, even if the numbers are uncertain. The fee is for not filing.
3. Pay each instalment by its due date, based on that estimate.
4. Through the year, collect TDS evidence as it happens, and reconcile it against what you expect.
5. At the year end, compute the actual liability, apply all credits, and settle the difference.

Steps 1 and 4 are the ones that get skipped, and they are the two that cause almost all of the pain.

## Frequently asked

**Is TDS a final tax?** For some categories of payment it can be, and for others it is only a credit against your annual liability. Which applies depends on the nature of the payment and the recipient, so it needs checking case by case rather than assuming.

**If I paid instalments, do I still need to file a return?** Yes. Instalments are payments on account. The return is what determines the actual liability and closes the year.

**My client deducted TDS but I cannot see the credit. What now?** Contact the deductor for the deposit reference and the return in which you were reported. If it was filed under the wrong PAN, they will need to correct it. Do not wait for the filing deadline to start this conversation.

**Can I get a refund if I overpaid?** If credits exceed the liability, a refund position arises and is claimed through the return. Refunds take time, which is another argument for estimating well rather than dramatically overpaying as a safety measure.

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*Rates, thresholds and due dates change with each Finance Act. This article explains how the mechanisms fit together; before you act on the numbers for a particular year, confirm the current figures or ask us.*
