Tax & TDS
Festival bonus in Nepal: how Dashain bonus is taxed
Festival bonus is fully taxable and lands in one month, but the tax it creates should be spread across the year — otherwise one payslip absorbs the entire liability.
Updated August 2026
Most Nepali employers pay a festival bonus once a year, typically ahead of Dashain, and typically set as a percentage of one month’s gross salary. Fifty to a hundred per cent of a month’s gross is the usual range.
For payroll the bonus raises two questions: how much tax it creates, and which month absorbs that tax. The answers are different, and confusing them produces an unpleasant surprise on one payslip.
The bonus is fully taxable
Festival bonus is assessable salary income in the fiscal year it is paid. There is no separate concessional rate and no exemption for it — it is added to annual salary income and taxed at whatever band the total reaches.
Because it is added to the annual total rather than taxed in isolation, its effective tax rate is the employee’s marginal rate, not an average rate. An employee already in the 20% band pays 20% on the bonus.
Festival bonus and its tax
- Festival bonus paid
- 60,000.00
- Extra annual tax it creates
- 6,000.00
- Spread across 12 months
- 500.00
- Bonus kept after tax
- 54,000.00
When the bonus pushes an employee into the next band
A bonus can move total annual income across a band boundary, so part of it is taxed at one rate and part at the next. Only the portion that crosses is taxed higher — the whole bonus is not repriced.
| Scenario | Taxable income | Annual TDS |
|---|---|---|
| No festival bonus | NPR 11,47,200 | NPR 14,720 |
| 60% bonus (NPR 60,000) | NPR 12,07,200 | NPR 20,720 |
| 100% bonus (NPR 1,00,000) | NPR 12,47,200 | NPR 24,720 |
Spread the tax, not the bonus
The bonus is paid in one month. The tax it creates should not be deducted in that same month.
Because TDS is computed on projected annual income and divided across the payroll months, a bonus that is known in advance should be included in the annual projection from the start of the year. The additional tax is then spread evenly across every month, and the month the bonus actually lands sees no unusual deduction at all.
Payroll that instead recomputes tax only when the bonus is paid will load the entire additional liability onto that single payslip — which is precisely the month an employee is least likely to welcome it.
Does the bonus attract SSF contribution?
SSF contributions are calculated on basic salary. A festival bonus paid as a percentage of gross is not part of basic salary, so it does not normally change the monthly contribution figure.
This is worth confirming against your own contribution schedules, because the treatment follows how the payment is classified in your salary structure rather than what it is called.
Frequently asked questions
Is festival bonus tax-free in Nepal?
No. Festival bonus is fully taxable as salary income in the year it is paid, and is taxed at the employee’s marginal rate rather than any special rate.
Should the whole bonus tax be deducted in the month it is paid?
No. Include the bonus in the annual income projection so the additional tax is spread across all payroll months. Deducting it in a single month is legal but produces a sharp and avoidable drop in one payslip.
How much festival bonus do Nepali employers usually pay?
A percentage of one month’s gross salary, commonly between 50% and 100%, paid once a year around Dashain. The exact entitlement follows the employment contract or the organisation’s policy.