Other service sector

Service charges added to bills are revenue to the establishment and subject to VAT and income tax in the usual course. The distribution of service charge to employees is treated as employment income subject to payroll tax obligations. Voluntary tips paid directly to employees are employment income and remain the establishment's responsibility for tax withholding when collected through the establishment's systems. Misclassification of service charges as employee gratuity is a common IRD audit issue.

NFRS 15 requires construction revenue recognition over time when the customer simultaneously receives and consumes the benefits, the customer controls the asset as it is created, or the asset has no alternative use and there is an enforceable right to payment for work performed. Most Nepali construction contracts meet these criteria and follow over-time recognition based on input or output measures of progress. Selection of measurement method and timely revision of cost estimates are the most common audit focal points.

Many healthcare services are VAT-exempt under the VAT Act 2052. However, pharmacy sales, certain diagnostic services, dental and cosmetic services, and ancillary services often fall outside the exemption. The treatment of bundled services — for example, an inpatient stay covering room, medical services, medicines, and consumables — requires careful unbundling for VAT purposes. Mixed activities also affect VAT input credit recovery on the exempt portion.

Real estate development revenue under NFRS 15 typically requires careful assessment of whether the customer controls the property as it is built (over-time recognition) or only on transfer of legal title (point-in-time recognition). Pre-sale agreements with bookings, escrow arrangements, and progressive payments do not automatically establish control. Customer-specific design, restrictions on the developer's substitution of the property, and enforceable rights to payment all influence the assessment.