SST, PF, CIT and TDS on Salary: Payroll Records Guide

Four abbreviations dominate a Nepali salary sheet: SST, PF, CIT and TDS. This article does not give rates, slabs or limits, because they are revised through the Finance Act, the Labour Act and related regulations. It explains what each deduction is, which records an employer should keep, and how to design a payroll that survives a rule change.

This is a guide to record keeping with software, not legal or tax advice. Confirm current rules with the Inland Revenue Department, the Social Security Fund, the Employees Provident Fund, the Citizen Investment Trust or your qualified accountant.

What each deduction is

• SST (Social Security Tax): a tax component that applied to salary income under the Finance Act in recent years. Whether and how it applies to a given employee depends on the current year's provisions.
• PF (Provident Fund): a retirement saving to which the employee and employer contribute, usually through the Employees Provident Fund or an approved company fund. The exact arrangement depends on the employment terms and law.
• CIT (Citizen Investment Trust): a retirement saving scheme with its own contribution rules and tax treatment, where an employee opts in or is enrolled.
• TDS on salary: tax withheld by the employer from salary and deposited with the tax office. Slabs, exemptions and couple or individual status are decided by the current Finance Act.

Social Security Fund contributions are another statutory item for covered employers. Eligibility, rates and process come from the fund itself.

The records an employer should keep

Whatever the law says this year, an auditor or officer will want to see how a number was reached. Keep these for every employee and month:

Record	Why it matters
Basic salary and each allowance	Many contributions are calculated on a specific base, not on gross
Employee tax status and PAN	Needed for withholding and annual statements
PF and CIT account numbers	Needed to match deposits to the right person
Employer and employee contribution amounts	Shown separately on the sheet and on deposit slips
Tax withheld per month	Used for the annual total and the return
Date and voucher of each deposit	Proves you paid on time
Rule version used	Shows which year's provisions applied

Why the base for each deduction matters

Provident fund may be based on basic salary alone while tax is based on total taxable income, including some allowances and excluding others. A single "gross" column in Excel hides this. Payroll software should let you tick which pay components count towards each deduction, so a new transport allowance is added once and automatically included or excluded as intended.

Fiscal year effects

The Nepali fiscal year starts on 1 Shrawan. When the Finance Act changes provisions, they usually take effect from that date. A payroll that stores each rule with an effective date can run Ashadh with the old rule and Shrawan with the new one without anyone editing formulas. Equally important, you can re-print an old month and get the same result as when it was first paid.

Joiners, leavers and mid-year changes

Tax on salary is generally worked out on an annual basis, so a mid-year joiner, a salary increase or an arrears payment affects the remaining months. Decide with your accountant how the system should spread or true-up tax and record that choice. Record leavers' final settlement separately, including leave encashment or gratuity if your policy and the law provide for them.

Monthly and yearly summaries

Your accountant will usually ask for four reports. A monthly deduction summary per head, a bank or voucher list of deposits, a year-to-date tax withheld report and a list of employees with their PAN and account numbers. If these are one click each, year-end becomes an ordinary week.

What software can and cannot do

Software calculates using the rules you enter and produces the totals. It does not decide which rules apply to your company and it does not submit returns on your behalf. Our payroll software is designed so that each rule is a dated setting, and exports are laid out for your accountant to use in the official process. If your business also issues VAT invoices, the accounting side is covered in accounting software.

Practical tips for a rule-proof payroll

First, name every pay component clearly: basic, dearness allowance, transport, phone, overtime, festival allowance. Vague columns like "other" cause arguments when a deduction base is reviewed. Second, keep a short rules sheet in your payroll folder listing each deduction, the base it applies to, the effective date and the source document your accountant used. Third, never overwrite a rule; add a new one with a new date. These three habits cost little and make audits calmer.

Also remember that employer-side items are separate from what the employee sees. A payslip should show the employee deductions, while an internal cost report shows employer contributions on top of gross pay. Mixing the two confuses staff and understates the true cost of an employee to the company.

Questions to put to your accountant

• Which components form the base for each deduction this fiscal year?
• Which employees have opted into CIT, and from what date?
• How should tax be adjusted for mid-year joiners and increments?
• What is the deposit deadline for each item, and to which office?
• Which documents must we keep, and for how long?

Next step

Ask your accountant for a one-page note of the rules your company follows this fiscal year, with the source of each. Send it to us with a sample salary sheet and we will show how it is configured and reported.

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