PF, CIT, SSF, and eTDS: What Nepal Payroll Compliance Means in Practice

Payroll in Nepal is not hard because the arithmetic is difficult. It is hard because four separate obligations have to be correct at the same time, every month, for every employee, and each one has its own rules, its own filing, and its own way of going wrong.

This is a plain-language guide to what PF, CIT, SSF, and eTDS are, what they mean operationally, and why the spreadsheet that has been holding it together eventually stops holding.

On numbers: this article deliberately contains no contribution percentages, tax slabs, or filing deadlines. Those change, and a stale number in a blog post is worse than no number. Confirm current rates and deadlines with the Inland Revenue Department and the Social Security Fund, or with your auditor, before you configure anything.

The four obligations

PF - Provident Fund

A retirement savings fund built from both an employee contribution and an employer contribution, deducted and remitted each pay cycle. Operationally it means two figures per employee per month that must be calculated on the right base salary, deducted, matched, and remitted to the right fund, with per-employee records that reconcile at year end.

CIT - Citizen Investment Trust

A retirement savings scheme that employees may participate in, with contributions handled through payroll and treated favourably for tax purposes. The complication is that participation is not uniform across your workforce, so payroll has to apply it per employee rather than as a blanket rule, and the tax treatment has to flow correctly into the employee's taxable income calculation.

SSF - Social Security Fund

Nepal's social security scheme, funded by employer and employee contributions, covering protection schemes for employees. Enrolment changes how the retirement contribution side of payroll is structured, and how PF and CIT sit alongside it depends on which arrangement your company is enrolled in. This is the single most common source of confusion in Nepali payroll, and it is worth confirming your specific position with the SSF or your auditor rather than copying another company's setup.

eTDS - electronic Tax Deducted at Source

Income tax withheld from salary and filed electronically with the Inland Revenue Department. Unlike the other three, this one is not just a deduction, it is a filing. The deduction has to be right, and then a return has to be submitted in the format IRD expects, on their schedule. Getting the deduction right and the filing wrong is still non-compliance.

Why this breaks in a spreadsheet

Almost every business in Nepal starts payroll in a spreadsheet, and for a small stable team it genuinely works. It stops working for reasons that are structural rather than a matter of care.

• Every rule change is a manual edit. When a rate or a threshold changes, someone has to find every formula that depends on it. Miss one and the error is silent, applies to a subset of staff, and surfaces at audit.
• Mid-month changes are where errors live. A joiner, a leaver, a promotion, or unpaid leave in the middle of a cycle means pro-rating the base that four separate calculations depend on.
• Attendance is a second source of truth. Overtime and leave deductions usually start life in a biometric device or a register, then get re-keyed into the payroll sheet. Every re-keying is a chance to be wrong, and the two records drift.
• The knowledge sits in one person. The file has grown conventions that are not documented anywhere. When that person is on leave in a filing week, the business is exposed.
• Reporting is reconstruction. Producing the per- employee breakdown a filing or an audit requires means assembling it by hand, because the sheet was built to produce a payslip, not a report.
• There is no audit trail. When a figure is queried six months later, nobody can show what it was before it was edited or who changed it.

The monthly cycle, in practice

Written out, the cycle is short. Executed under a deadline across dozens of employees, each step is a place where the month goes wrong.

Close attendance. Pull the period from the biometric device, resolve missed punches, reconcile approved leave against absence, and finalise overtime. Everything downstream depends on this being right, which is why re-keying it by hand is the most expensive shortcut in the process.

Apply changes. Joiners, leavers, promotions, unpaid leave. Anyone who moved mid-month needs pro-rating, and pro-rating affects the base that several separate calculations sit on top of.

Calculate. Gross, then the statutory components, then tax, then net. Each depends on the previous, so an error early does not stay contained.

Review before release. The step most often skipped under time pressure and the one that catches the most. Compare against last month per employee and investigate every unexplained movement. A variance report is worth more than a second person re-checking the arithmetic.

Disburse, then file. Payment and the statutory filings are separate obligations. Paying correctly and filing late or in the wrong format is still non-compliance.

What tends to surface at audit

Recurring findings, none of which are exotic:

• Records that do not reconcile. The attendance register, the payroll sheet, and the bank transfer disagree for a handful of employees, usually the ones who joined or left mid-month.
• Deductions on the wrong base. An allowance is included in one calculation and excluded from another because two formulas were edited at different times.
• No trail behind an adjustment. A correction was made and nobody can now say what the original figure was or who changed it.
• Stale rules. A rate changed, most formulas were updated, one was missed, and it has been quietly wrong for several cycles.
• Undocumented conventions. The person who built the sheet knows why a column exists. Nobody else does, and they have left.

Every one of these is a consequence of logic living in formulas rather than in a system, and of the process depending on one person's memory.

What good looks like

The goal is not to eliminate judgement, it is to stop re-deriving the same logic every month. A payroll setup that holds up has:

• Statutory rules configured once, centrally, so a rate change is one update rather than a search-and-replace.
• Attendance flowing in automatically from biometric devices, so overtime and leave hit payroll without re-entry.
• Per-employee handling of scheme participation, rather than assuming the whole workforce is treated identically.
• Reports produced in the format the filing actually needs, rather than assembled from a payslip export.
• A record of what changed, when, and by whom.
• Employee self-service, so payslip and leave-balance questions stop arriving as messages to the HR lead.

Before you migrate off the spreadsheet

Three things are worth doing first, and they apply whichever system you choose:

• Write down your current rules explicitly. Including the ones that only exist as habits. You cannot configure a system around undocumented conventions.
• Confirm your SSF position. How your retirement contributions are structured depends on it, and it determines the shape of everything else.
• Run parallel for at least one cycle. Process a month in both the old sheet and the new system and reconcile the difference line by line. Every discrepancy is either a bug in the configuration or a rule nobody had written down. Both are worth finding before you rely on it.

Yoddha Lab builds NepalHRM, a cloud HRMS whose payroll is structured around Nepal statutory requirements, so PF, CIT, SSF, and eTDS are handled inside the platform rather than in spreadsheets. It covers employee records and self-service, biometric attendance with shifts and overtime, leave management, recruitment and onboarding, and IRD-ready reporting across 25+ connected modules. See NepalHRM or talk to our team.

This article is general information, not tax or legal advice. Confirm current rates, thresholds, and deadlines with the Inland Revenue Department, the Social Security Fund, or your auditor.