Compliance

Payroll and tax compliance in Nepal: the monthly checklist

This is an operational checklist, not a complete statement of current tax or employment law. Confirm applicable rules, rates and deadlines with official sources and your payroll adviser.

Payroll in Nepal is not one calculation. It is a sequence of deductions, contributions, deposits and filings, each with its own timing. Here is the order that keeps a month clean.

RigoHR team · Published 08 Jul 2026 · Edited 7 Sep 2026 · 10 min read

Payroll errors are rarely arithmetic. They come from timing — an attendance register that arrives late, a mid-year salary revision applied without recalculating tax, a declaration submitted after the run was approved. A repeatable monthly sequence prevents most of them. Confirm the current rates and thresholds with your finance team or auditor before each cycle, since statutory figures are revised periodically.

Quick answer A clean monthly payroll starts by closing employee, leave and attendance changes; recalculating annual tax; verifying statutory contributions; reviewing variances with maker-checker control; and only then publishing payslips, bank files, journals and filings.

Before the cycle opens

Confirm joiners, leavers, promotions and salary revisions are recorded, with effective dates
Close attendance and leave for the period, including unpaid days and approved overtime
Collect and approve employee tax declarations and investment proofs
Lock advances, loan instalments and expense recoveries due in this run

Income tax deducted at source (TDS)

Employment tax in Nepal is computed on projected annual income rather than month by month in isolation. That means every mid-year change — an increment, a bonus, a new allowance, a revised declaration — should trigger recalculation across the remaining months, not a flat adjustment in one. Employees should be able to see their own projected liability, because the questions come to HR otherwise.

The most common error we see A backdated increment paid as arrears, with tax deducted only on the current month's gross. The projection has to be redone for the whole year, or the employee under-pays now and is surprised in Ashadh.

Social Security Fund

For employers enrolled with the SSF, both employer and employee contributions must be calculated on the correct base, deducted, deposited and reported for each contributing employee. Keep the enrolment status of every employee current — new joiners, contract staff and employees who move between group companies are where reconciliation breaks.

Provident fund, CIT and retirement benefits

Provident fund deductions and matching employer contributions
Citizen Investment Trust contributions, including voluntary amounts declared for tax purposes
Gratuity accrual carried in the books, and paid correctly on separation
Insurance premiums deducted at source where applicable

Bonus, festival expense and allowances

Festival expense and bonus are periodic rather than monthly, but they change the annual projection when they are paid, which changes tax for the months that follow. Treat them as part of the annual plan rather than a one-off cash item.

Verification before approval

Maker-checker approval and variance analysis are two useful controls for identifying payroll exceptions. First, maker-checker: the person who prepared the run is not the person who approves it. Second, variance analysis: compare this month against last month by employee and by component, and explain every difference above your threshold. If a variance cannot be explained by a joiner, a leaver, an increment or approved overtime, do not approve the run.

After approval

Generate and issue the bank transfer file
Publish payslips to employees rather than emailing them individually
Post the payroll journal to finance, reconciled to the same approved run
Deposit statutory amounts and file the applicable returns within the due dates
Archive the run, the approvals and the supporting reports for audit

Year end and separation

At year end, reconcile deducted tax against the annual computation for every employee and issue the statements they need. On separation, full-and-final settlement must bring together notice pay, leave encashment, gratuity, outstanding advances and final tax — with the document trail an auditor can follow.

Official sources to verify before every run

This checklist describes process, not current legal rates or deadlines. Verify the rules that apply to your organisation with the Inland Revenue Department, Social Security Fund and Citizen Investment Trust, and confirm interpretation with a qualified adviser.

Where software changes the work

When leave, attendance, advances and record changes are already approved in the same system that runs payroll, your team can review the inputs together before closing payroll. RigoHR keeps payroll rules centrally managed and gives each payslip figure a traceable path back to the rule, source data and approval that produced it.