Annual Tax Clearance Certificate No Longer Required for Home Loans and Certain Personal Loans

16th December 2025, Kathmandu

Nepal Rastra Bank (NRB), the central regulatory authority for the banking and financial sector in Nepal, has officially introduced a significant policy shift that aims to simplify the borrowing process for individual customers. Under a newly revised provision within the Unified Directive for Banks and Financial Institutions, which was issued on Monday, December 15, 2025, banks and financial institutions (BFIs) will no longer be required to obtain an annual tax clearance certificate from borrowers specifically for home purchase and construction loans.

Annual Tax Clearance Certificate

This move is part of a broader effort by the central bank to reduce the administrative burden on individual borrowers and encourage the flow of credit into the residential housing market. By removing the yearly requirement for tax documentation for these specific loan types, the central bank is making long-term financing more accessible and user-friendly for the general public.

Simplification of Personal and Unspecified Loans

The simplification of documentation requirements extends beyond just residential housing. The revised directive also brings relief to those utilizing various forms of personal credit.

Personal Credit Facilities: For all types of personal loans, which include personal overdrafts and other purpose-unspecified personal credit facilities, borrowers will no longer be burdened with the need to submit a tax clearance certificate every single year.

Initial Submission Suffices: According to the new rule, once a borrower has submitted the necessary tax documentation at the time of the initial loan approval, they are not required to provide a fresh clearance certificate annually for the remainder of the loan tenure. This change significantly streamlines the ongoing relationship between the bank and the individual borrower, as the constant cycle of document collection and verification is reduced.

Increased Loan Ceilings: These documentation reforms coincide with an increase in the maximum limit for such personal loans. Through the current fiscal years monetary policy for 2082/83, the central bank has raised the ceiling on these personal credit facilities from the previous limit of 5 million Nepalese Rupees to a new maximum of 10 million Nepalese Rupees. This higher limit, combined with easier documentation, is intended to provide greater financial flexibility to individuals.

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Calculating Income and Debt Service Ratios

While the requirement for an annual tax clearance certificate has been removed, the central bank has not compromised on the necessity of thorough credit risk assessment and income verification. The revised Unified Directive provides clear guidelines on how banks must manage and verify a borrower’s financial standing throughout the life of the loan.

When calculating a borrower’s annual gross income for the purpose of assessing their repayment capacity, banks are still mandated to consider verified proof that tax has been paid or filed for the reported taxable income. This verification must be based on the tax clearance or updated tax payment certificate that was submitted by the borrower at the start of the loan process. This ensures that the income used to justify the loan is legitimate and officially recorded with the tax authorities.

Furthermore, during the entire tenure of the loan, banks are required to maintain an active oversight of the borrower’s financial health. They must periodically obtain income-related information from borrowers to update the debt service to income ratio. This ratio is a critical metric used by banks to determine whether a borrower’s current income is sufficient to cover their existing debt obligations without undue financial strain. By keeping this ratio updated, banks can manage their portfolio risk even without the annual tax clearance document.

Comparison with Previous Requirements and Strategic Impact

Previously, the regulatory framework was significantly more stringent and required a higher level of recurring documentation. Borrowers were formerly required to submit their latest income-related documents along with a fresh tax clearance certificate every single year to their respective banks. This annual ritual was often cited as a major point of friction, leading to delays in loan reviews and an increased paperwork load for both the bank staff and the clients.

The removal of this requirement under the revised directive is a strategic move by Nepal Rastra Bank to foster a more customer-centric banking environment. It acknowledges that while initial verification is crucial, the yearly demand for the same official tax document for long-term residential loans can be redundant and inefficient.

This reform is expected to have a positive impact on the real estate and construction sectors, which are major drivers of the national economy. By making home loans easier to maintain, the central bank is helping more Nepali families achieve the goal of homeownership. Additionally, for first-time homebuyers, the central bank maintains a favorable loan-to-value (LTV) ratio of 80 percent for properties worth up to 30 million Nepalese Rupees, further underscoring its supportive stance toward the housing sector.

For More: Annual Tax Clearance Certificate