Every time you sell shares on NEPSE at a profit, a portion of that profit goes to the government as capital gains tax. This is one of the most commonly misunderstood aspects of stock investing in Nepal — many new investors are surprised when they see deductions on their sell transactions that they were not expecting.
This guide explains exactly how capital gains tax works in Nepal, how it is calculated, who deducts it, and what you need to know for proper record-keeping.

What Is Capital Gains Tax?

Capital gains tax is a tax levied on the profit you earn when you sell an asset (in this case, shares) for more than what you paid for it. The "gain" is the difference between your selling price and your buying price.
If you bought shares of a company at NPR 400 and sold them at NPR 550, your capital gain is NPR 150 per share. The government taxes a percentage of this gain.
If you sell at a loss (selling price lower than buying price), there is no capital gains tax on that transaction. However, Nepal currently does not allow you to offset losses against gains from other transactions within the same fiscal year.

Current Tax Rates

Nepal's capital gains tax rates on listed securities (as applicable for individual investors) are:

For Individuals:

  • 5% on gains if shares are sold within 365 days of purchase (short-term holding)
  • 5% on gains if shares are held for more than 365 days (long-term holding)

The NPR 2,50,000 Threshold

There is an important threshold: if your total capital gains from share trading in a fiscal year exceed NPR 2,50,000, the tax rate on the amount exceeding that threshold increases to 7.5%.
So if your total gains in a fiscal year are NPR 4,00,000:
  • First NPR 2,50,000: taxed at 5% = NPR 12,500
  • Remaining NPR 1,50,000: taxed at 7.5% = NPR 11,250
  • Total tax liability: NPR 23,750
Note: Tax rates and thresholds are subject to change with each fiscal year's budget. Always verify current rates from the latest Finance Act or consult the Inland Revenue Department's circulars.

How Capital Gains Tax Is Calculated

The basic formula is:
Capital Gain = Selling Price - Buying Price - Transaction Costs
Transaction costs include:
  • Broker commission on both buy and sell sides
  • SEBON fee
  • NEPSE fee
  • DP (depository) charge
Tax = Capital Gain x Applicable Tax Rate

Detailed Calculation Example

Let us say you bought 100 shares of ABC Company:
Purchase:
  • Price per share: NPR 500
  • Total purchase: NPR 50,000
  • Broker commission (0.36%): NPR 180
  • SEBON fee (0.015%): NPR 7.50
  • DP charge: NPR 25
  • Total cost: NPR 50,212.50
Sale (after 8 months — within 365 days):
  • Price per share: NPR 650
  • Total sale: NPR 65,000
  • Broker commission (0.36%): NPR 234
  • SEBON fee (0.015%): NPR 9.75
  • DP charge: NPR 25
  • Total proceeds: NPR 64,731.25
Capital Gain: NPR 64,731.25 - NPR 50,212.50 = NPR 14,518.75
Tax at 5%: NPR 14,518.75 x 0.05 = NPR 725.94
Your net profit after tax: NPR 14,518.75 - NPR 725.94 = NPR 13,792.81

TDS Mechanism: How Tax Is Deducted

In Nepal, capital gains tax on share sales is collected through TDS (Tax Deducted at Source). Your stockbroker deducts the tax at the time of sale.
Here is what happens when you sell shares:
  1. You place a sell order through TMS
  2. The order is executed at the agreed price
  3. Your broker calculates the gain (sell price minus your cost basis)
  4. Broker deducts 5% (or 7.5% if applicable) of the gain
  5. The remaining amount is credited to your broker settlement account
  6. On T+2, funds are available for withdrawal
The broker maintains records of your purchase prices (since all your shares are held in DMAT and transactions are tracked) and uses these to calculate gains.

What If You Bought at Multiple Prices?

This is where WACC (Weighted Average Cost of Capital — in this context, weighted average cost per share) becomes important.

WACC: Cost Basis for Multiple Purchases

If you bought the same stock multiple times at different prices, your cost basis for selling is the weighted average cost of all shares you hold.
Example:
  • First purchase: 100 shares at NPR 400 = NPR 40,000
  • Second purchase: 50 shares at NPR 500 = NPR 25,000
  • Total: 150 shares, total cost NPR 65,000
Weighted Average Cost = NPR 65,000 / 150 = NPR 433.33 per share
When you sell any shares, your cost basis is NPR 433.33 per share, regardless of whether you "intended" to sell the cheaper lot or the expensive lot. Nepal uses the weighted average method, not FIFO (First In, First Out) or specific identification.
If you now sell 80 shares at NPR 550:
  • Gain per share: 550 - 433.33 = NPR 116.67
  • Total gain: 116.67 x 80 = NPR 9,333.60
  • Tax at 5%: NPR 466.68
After the sale, your remaining 70 shares still have a cost basis of NPR 433.33 per share.

Effect of Bonus Shares on Cost Basis

This is where many investors get confused. When you receive bonus shares, your total cost does not change — but it gets spread across more shares, reducing the per-share cost basis.
Example:
  • You bought 100 shares at NPR 500 each = total cost NPR 50,000
  • Company issues 20% bonus = you receive 20 additional shares
  • Your total holding: 120 shares
  • Your total cost is still NPR 50,000 (you did not pay anything for bonus shares)
  • New cost basis per share: NPR 50,000 / 120 = NPR 416.67
When you sell these shares, your gain is calculated against the reduced cost basis of NPR 416.67 — not the original NPR 500.
This means bonus shares are not truly "free" from a tax perspective. When you eventually sell them, your gain is calculated from a lower base, resulting in a larger taxable gain per share. The tax was deferred, not eliminated.

Selling Only Bonus Shares

What if you want to sell just the 20 bonus shares from the example above?
Since Nepal uses weighted average costing, you cannot separate "original" shares from "bonus" shares for cost calculation. All 120 shares have the same cost basis of NPR 416.67. When you sell 20 shares at, say, NPR 550:
  • Gain per share: 550 - 416.67 = NPR 133.33
  • Total gain: 133.33 x 20 = NPR 2,666.60
  • Tax at 5%: NPR 133.33

Right Shares and Cost Basis

Right shares are shares offered to existing shareholders at par value (NPR 100) on a pro-rata basis. When you apply for and receive right shares, the cost basis calculation adjusts:
Example:
  • You hold 100 shares, cost basis NPR 500 each = NPR 50,000
  • Company offers 1:4 right shares (25 shares for every 100 held)
  • You receive 25 right shares at NPR 100 each = NPR 2,500 paid
New calculation:
  • Total shares: 125
  • Total cost: NPR 50,000 + NPR 2,500 = NPR 52,500
  • New cost basis per share: NPR 52,500 / 125 = NPR 420
Right share application fees (if any) are typically not included in the cost basis calculation, though this is a minor amount.

Tax on Dividends (Separate from Capital Gains)

While not technically "capital gains," dividend taxation is part of your overall tax picture from stock investments:
  • Cash dividends: 5% TDS deducted by the company before payment
  • Bonus shares: Not taxed on receipt (but affect future capital gains calculations as explained above)
Dividend TDS is separate from capital gains tax. Both apply independently. You pay 5% on dividends when received AND 5% on capital gains when you sell.

Primary Market (IPO) Sales Treatment

Shares acquired through the primary market (IPOs) have a clearly defined cost basis:
  • Cost basis = IPO issue price (typically NPR 100 per share for par value issues, or the premium price for book-built IPOs)
When you sell IPO shares in the secondary market:
  • Gain = Selling price - Issue price (NPR 100 for most IPOs)
  • Tax = 5% of the gain (or 7.5% above threshold)
Since most IPO shares are sold at significantly higher than issue price (especially banking and hydropower IPOs that list at 2-3x par value), the capital gains on IPO sales tend to be substantial and the tax is correspondingly meaningful.
Example:
  • You received IPO allotment at NPR 100 per share (10 kitta)
  • Stock lists and you sell at NPR 350
  • Gain per share: NPR 250
  • Total gain: NPR 2,500
  • Tax at 5%: NPR 125

Record-Keeping Requirements

As a retail investor, you should maintain:
  1. Purchase records: Date, quantity, price per share, and total cost including commissions for every buy transaction
  2. Sale records: Date, quantity, sale price, total proceeds, and tax deducted
  3. Bonus/Right share records: Date of receipt, quantity received, and how it adjusted your cost basis
  4. Dividend records: Amount received, TDS deducted
  5. Annual summary: Total gains/losses for each fiscal year
Your broker maintains most of this digitally. TMS provides transaction history, and your broker should provide a capital gains summary at year-end or upon request. However, keeping your own records is prudent — especially for tracking the cumulative effect of multiple bonus and right share adjustments over years.

Filing Requirements

For most retail investors in Nepal, the TDS mechanism means you typically do not need to separately file a capital gains tax return — the tax is already collected at source by your broker.
However, you may need to file separately if:
  • Your total income from all sources (salary + dividends + capital gains + others) exceeds the tax-free threshold and you need to file an annual income tax return
  • The TDS deducted does not match your actual liability (e.g., if the 7.5% threshold applies and your broker applied only 5%)
  • You have other investment income that needs to be declared
Most salaried individuals who also invest in the stock market should include their capital gains information in their annual tax return filed through the Inland Revenue Department (IRD). In practice, many retail investors with only TDS-deducted income do not file separately, and this has not been aggressively enforced — but technically, if your total income requires filing, you should include capital gains.

Worked Example: Full Fiscal Year

Let us trace a complete fiscal year for an investor:
Investor: Ram holds shares in three companies
Transaction 1 (Bhadra): Buy 200 shares of Company A at NPR 300 = NPR 60,000
Transaction 2 (Kartik): Buy 100 shares of Company A at NPR 350 = NPR 35,000 (New WACC for Company A: 95,000/300 = NPR 316.67 per share)
Transaction 3 (Poush): Sell 150 shares of Company A at NPR 400
  • Cost basis: 150 x 316.67 = NPR 47,500
  • Proceeds: 150 x 400 = NPR 60,000
  • Gain: NPR 12,500
  • Tax (5%): NPR 625 (deducted by broker)
Transaction 4 (Magh): Receive 10% bonus from Company B (holds 500 shares, receives 50 bonus)
  • Original cost: 500 x NPR 250 = NPR 125,000
  • New holding: 550 shares
  • New WACC: 125,000/550 = NPR 227.27
Transaction 5 (Chaitra): Sell 200 shares of Company B at NPR 320
  • Cost basis: 200 x 227.27 = NPR 45,454
  • Proceeds: 200 x 320 = NPR 64,000
  • Gain: NPR 18,546
  • Tax (5%): NPR 927 (deducted by broker)
Transaction 6 (Jestha): Sell 100 shares of Company C at NPR 180 (bought at NPR 220)
  • Loss: NPR 4,000
  • Tax: NPR 0 (no tax on losses)
Fiscal Year Summary:
  • Total gains: NPR 12,500 + NPR 18,546 = NPR 31,046
  • Total losses: NPR 4,000
  • Net taxable gain: NPR 31,046 (losses cannot offset gains)
  • Total tax paid through TDS: NPR 625 + NPR 927 = NPR 1,552
  • Since total gains (NPR 31,046) are below the NPR 2,50,000 threshold, the 5% rate applies to everything — TDS was correctly calculated.
Note the important point: Ram's NPR 4,000 loss on Company C does not reduce his taxable gain. Nepal does not currently allow loss offsetting for capital gains on securities. Each profitable sale is taxed independently.

Tips for Tax-Efficient Investing

  1. Hold for fundamentals, not just to avoid tax: Since the rate difference between short-term and long-term holdings is minimal (both 5%), do not hold a declining stock purely for tax reasons.
  2. Be aware of the NPR 2,50,000 threshold: If you are approaching this threshold in a fiscal year, consider whether it makes sense to defer some sales to the next fiscal year to stay in the 5% bracket.
  3. Track your cost basis after bonus shares: Many investors forget that bonus shares reduce per-share cost basis. This matters when you sell years later and the calculation feels unfavorable.
  4. Keep records of old transactions: If you have held shares for 10+ years with multiple bonus and right issues, reconstructing your cost basis later can be difficult. Maintain records from the start.
  5. Understand that TDS is not always final: If your cumulative gains push you above the threshold and your broker applied only 5%, you may have a residual liability.

Conclusion

Capital gains tax in Nepal is relatively straightforward for most retail investors: your broker deducts 5% of your profit when you sell, and for the majority of small to medium investors, that is the end of it. The system is designed to be simple through the TDS mechanism — no complicated returns or quarterly estimated payments.
The key things to remember are: bonus shares reduce your cost basis and increase future taxable gains; the weighted average method applies when you have bought at multiple prices; and losses on one stock cannot be used to reduce tax on gains from another. Keep basic records, understand how your cost basis changes with corporate actions, and you will have no surprises when tax is deducted from your sell transactions.