Most Nepali landlords assume that renting out a flat means handing a slice of the rent to the Inland Revenue Department as income tax. For an individual letting a house, that assumption is wrong, and the mistake runs in both directions: some overpay, and some skip a tax they actually owe. The law that governs renting out property in Nepal is split between a federal tax act, a local tax, and a 2017 civil code that quietly rewrote the landlord-tenant relationship. Here is what a residential landlord is actually signed up for.
Key takeaways
- House rent received by an individual is exempt from the federal 10 percent withholding tax (TDS). The Income Tax Act 2058, Section 88, states plainly that no tax is withheld on an amount received by an individual for house rent.
- Instead, individual landlords pay a municipal house-and-land rent tax (ghar-jagga bahal kar). Kathmandu Metropolitan City charges 10 percent of the rent, and each local government sets its own rate, so the figure changes when you cross a municipal boundary.
- When the tenant is a company, NGO, or government body, the 10 percent federal TDS applies: the tenant withholds it and deposits it with the IRD, and the municipal rent tax does not stack on top of the same rent.
- A written rent agreement is mandatory under the National Civil Code 2074 whenever monthly rent exceeds Rs 20,000 (Section 386), and a residential tenancy runs for a maximum of five years at a time (Section 385).
- Commercial leasing is a taxable service. A commercial landlord whose rental turnover crosses the VAT threshold (Rs 30 lakh for services) must register and charge 13 percent VAT, something residential rent never triggers.
Who actually taxes your rent
Start with the rule that trips up most first-time landlords. The Income Tax Act 2058, Section 88, sets a general 15 percent withholding rate and a 10 percent rate for rent with a source in Nepal. But a provison5 carves out house rent: no tax is withheld on an amount received by an individual for house rent. So if you are a private person renting your house or flat to another private person, the federal TDS machinery does not touch that rent.
That does not make the rent tax-free. It moves the tax to the local level. Under Schedule 8 of the Constitution and the Local Government Operation Act 2074, house-and-land rent tax is a local-government levy. Kathmandu Metropolitan City charges 10 percent of the rent; other municipalities set their own rates, and they are not all the same. On a flat let for Rs 28,000 a month (Rs 3,36,000 a year), a KMC landlord owes Rs 33,600 in municipal rent tax for the year. There is no standard repair deduction and no tax-free slice for an ordinary individual landlord, unlike the deductions available when rental income is taxed as a registered business.
The picture flips when your tenant is an institution. If a company, bank, NGO, or government office rents your property, the tenant is a withholding agent: it deducts 10 percent TDS from the rent and deposits it with the Inland Revenue Department. The point worth remembering is that one rent is taxed by one collector. The federal TDS and the municipal rent tax are not meant to both land on the same payment, so clarify in the agreement who withholds and who remits before the first month closes.
Commercial rent and the VAT line
Residential rent is outside the value-added tax net. Commercial leasing is not. Letting shop space, an office floor, or a warehouse is treated as a taxable service, and once a landlord’s rental turnover crosses the VAT registration threshold (Rs 30 lakh a year for services and mixed businesses, against Rs 50 lakh for goods), the landlord has to register for VAT and add 13 percent to the rent. For a landlord sitting on several commercial units, that threshold arrives faster than expected, and charging VAT late means paying it out of pocket. If your property mixes a ground-floor shop with flats above, treat the two streams separately rather than assuming the residential rule covers everything.
This is also where renting out property connects to the rest of your property-tax life. The municipal rent tax is separate from annual malpot and property tax, and separate again from the capital gains tax you pay when you eventually sell. Renting is the holding phase, and it carries its own recurring bill.
The written agreement the law now requires
Before 2017, a handshake and a diary entry passed for a tenancy. The National Civil Code 2074 changed that. Chapter 9 on house rental (Sections 383 to 395) is now the baseline, and two provisions matter most to a landlord drafting terms.
Section 386 makes a written agreement mandatory when monthly rent exceeds Rs 20,000. The deed has to carry the identity details of both sides, a description of the property, the purpose of the tenancy, the rent and payment terms, how utilities, tax, and insurance are split, the vacating and eviction terms, and the rules on subletting. The tenant’s photo is attached, and two witnesses from each side sign. An oral deal below the Rs 20,000 line is still enforceable, but good luck proving its terms in a dispute. Section 385 caps a residential tenancy at five years at a time; renewal is a fresh deed by mutual consent, not an automatic roll-over.
Section 384 bars renting out a structurally unsafe house and makes health and safety a shared responsibility, and Section 387 requires the landlord to disclose known structural defects. Section 388 says furnished items must be listed and acknowledged by the tenant, which is the clause that settles the familiar move-out argument over what was in the flat to begin with.
Deposits, repairs, and when rent is due
The Civil Code does not fix a maximum security deposit, so the deed is where you set the amount and, more importantly, the conditions and timeline for its return. Typical practice runs from one to three months’ rent, but a number written into the deed is worth more than a custom everyone assumes. Put the deduction rules in writing: what counts as damage beyond ordinary wear, and how fast the balance comes back.
Section 391 handles rent timing. Pay as agreed, and where the deed is silent, rent falls due within seven days after each month ends. Cash payments need a receipt, which protects both sides. On repairs, Section 394 puts ordinary upkeep on the tenant unless the deed says otherwise, but a tenant who faces a needed repair gives written notice and can deduct documented costs, with a detailed estimate due at least 15 days before tenant-paid work starts. Section 395 allows subletting only when the deed permits it and the tenant gives written notice. If you do not want your flat re-let to a stranger, the silence of a cheap template will not save you; spell it out.
Ending the tenancy, and what tenants can hold you to
The Civil Code cuts both ways, and the duties it places on a landlord are real. Section 389 obliges the landlord to allow the agreed use, provide basic utilities and sanitation unless the contract shifts that, and protect the tenant’s quiet enjoyment. Section 390 obliges the tenant to pay on time, care for the property, and not disturb others. On tax, Section 392 puts primary liability on the landlord; if the landlord fails to pay a property-related tax, the tenant can pay it and set the amount off against future rent, which is a quiet incentive to keep your own municipal rent tax current.
Eviction is the part landlords most often get wrong. Self-help, meaning changing the locks or cutting the water, is not lawful. The house-rental chapter contemplates written notice ahead of termination or eviction, and the recognized grounds for a landlord are non-payment, illegal use of the premises, and the owner’s genuine need to occupy. A contested eviction runs through the District Court, not through the landlord’s own hand. If you plan to recover the flat for your own use, build the notice period into the deed and keep the paperwork, because the burden of showing a clean process sits with you.
Rent disputes in Nepal have historically been lopsided in practice, and the long debate over rent control and tenant security is the backdrop to these rules. A tight, specific deed is the single best protection a landlord has, precisely because the code fills every gap you leave with a default you may not like.
Rent versus a registered lease
Not every letting is a house rental. The Civil Code treats a longer-term lease as a separate animal under Chapter 18 (Sections 610 to 621). There, immovable-property leases must be in writing, a lease running more than 10 years has to be registered, and durations stretch from 10 to 40 years depending on the property. Termination grounds are stricter too, with rent default beyond 90 days as a trigger. If you are letting land or a building to a business for a decade or more, you are in lease territory, with registration and stamp implications that a simple month-to-month rent deed does not carry. Know which chapter your arrangement falls under before you sign.
A landlord’s pre-let checklist
- Confirm who pays what tax: individual tenant means you file the municipal rent tax; institutional tenant means they withhold 10 percent TDS.
- Check your municipality’s rent-tax rate, since it is not 10 percent everywhere.
- Put the tenancy in writing if rent tops Rs 20,000 a month, with the Section 386 contents in full.
- Fix the deposit amount, the deduction rules, and the refund timeline in the deed.
- Decide the subletting rule explicitly, and keep receipts for every rent payment.
- If the unit is commercial and your rental turnover nears Rs 30 lakh a year, plan for VAT registration before you cross the line.
Once the terms are set, listing the unit on a property marketplace such as Basobaas gives you a read on asking rents in your area before you fix a number, which is useful when the deed locks the rent for the term. For wider context on the market you are letting into, the BiznesVue Real Estate section tracks prices, lending, and policy, and our look at the higher home-loan ceiling and lower rates explains why more owners are weighing whether to let or to sell.
Frequently asked questions
Do I pay income tax when I rent out my house in Nepal?
An individual renting a house to another individual does not have the federal 10 percent withholding tax applied to that rent, because Section 88 of the Income Tax Act 2058 exempts house rent received by an individual. You pay the municipal house-and-land rent tax instead, which in Kathmandu Metropolitan City is 10 percent of the rent.
How much is house rent tax in Kathmandu?
Kathmandu Metropolitan City charges a flat 10 percent of the rent as house-and-land rent tax. On a flat let for Rs 28,000 a month, Rs 3,36,000 a year, that is Rs 33,600 for the year. Rates are set by each local government, so the percentage can differ outside Kathmandu.
Is a written rent agreement mandatory in Nepal?
Yes, when monthly rent exceeds Rs 20,000. Section 386 of the National Civil Code 2074 requires a written deed with identity details, property description, rent and payment terms, tax and utility splits, eviction terms, and subletting rules, signed before two witnesses from each side. Below Rs 20,000 an oral agreement is still valid but far harder to prove.
Can a landlord evict a tenant in Nepal without going to court?
No. Self-help eviction, such as changing locks or cutting utilities, is not lawful. A landlord must give written notice and, if the tenant contests it, obtain an eviction order from the District Court. Recognized grounds include non-payment of rent, illegal use of the premises, and the owner’s genuine need to occupy the property.
When does commercial rent attract VAT in Nepal?
Commercial leasing is a taxable service. Once a commercial landlord’s rental turnover crosses the VAT registration threshold, Rs 30 lakh a year for services and mixed businesses, the landlord must register for VAT and charge 13 percent on the rent. Residential house rent is VAT-exempt and never triggers this.
How long can a residential tenancy last under Nepali law?
A residential tenancy under Chapter 9 of the Civil Code runs for a maximum of five years at a time (Section 385), and renewal requires a fresh deed by mutual consent. Longer arrangements of 10 years or more fall under the separate lease chapter (Sections 610 to 621), which requires registration for leases over 10 years.
