Social Security Tax (SST) is a 1% contribution deducted from an employee’s basic salary under Nepal’s Social Security Fund (SSF) system. It forms part of the employee’s mandatory 11% SSF contribution and is used to finance social security benefits such as medical treatment, maternity protection, accident coverage, disability benefits, and dependent family protection.
What is Social Security Tax?
Social Security Tax is not the same as income tax. It is a statutory contribution made by employees who are enrolled in the Social Security Fund (SSF).
The 1% Social Security Tax is deposited into the SSF and helps fund various social protection schemes administered by the Social Security Fund.
SSF Contribution Structure
Both the employer and employee contribute to the Social Security Fund based on the employee’s basic salary.
| Contributor | Rate | Purpose |
| Employee | 10% | Provident Fund (Old Age Protection) |
| Employee | 1% | Social Security Tax |
| Employer | 10% | Provident Fund |
| Employer | 8.33% | Gratuity |
| Employer | 1.67% | Medical, Accident & Dependent Family Schemes |
| Total Contribution | 31% | Social Security Fund |
Only the basic salary is subject to SSF contributions. Allowances, bonuses, overtime, and similar payments are generally excluded unless treated as part of the basic salary under the employment arrangement.
How is Social Security Tax Calculated?
Example 1
Basic Salary: NPR 40,000
| Particular | Amount (NPR) |
| Employee Provident Fund (10%) | 4,000 |
| Social Security Tax (1%) | 400 |
| Total Employee Contribution (11%) | 4,400 |
| Employer Contribution (20%) | 8,000 |
| Total Monthly SSF Deposit | 12,400 |
Example 2
Basic Salary: NPR 75,000
| Particular | Amount (NPR) |
| Employee Contribution (11%) | 8,250 |
| Employer Contribution (20%) | 15,000 |
| Total SSF Contribution | 23,250 |
Is Social Security Tax the Same as Income Tax?
No.
| Social Security Tax | Income Tax |
| Contribution to SSF | Tax collected by IRD |
| Fixed at 1% of basic salary | Calculated using income tax slabs |
| Funds employee welfare schemes | Government revenue |
| Applies only to SSF members | Applies to taxable income |
Where Does the 1% Social Security Tax Go?
The 1% employee contribution supports social protection benefits under the Social Security Fund, including:
- Medical treatment and health protection
- Maternity benefits
- Accident protection
- Disability benefits
- Dependent family protection
These benefits are available subject to the eligibility conditions of the Social Security Fund. (Baker Tilly)
Is Social Security Tax Deductible for Income Tax?
Yes. Since the Social Security Tax is part of the mandatory SSF contribution, it is generally treated in accordance with Nepal’s income tax provisions governing approved retirement and social security contributions. Employees should review their annual payroll records and applicable tax rules when preparing their income tax calculations.
Employer Responsibilities
Employers enrolled in the Social Security Fund must:
- Register eligible employees with the SSF.
- Deduct the employee’s 11% contribution (including the 1% Social Security Tax).
- Add the employer’s 20% contribution.
- Deposit the total 31% contribution to the Social Security Fund within the prescribed time.
- Maintain proper payroll and contribution records.
Frequently Asked Questions (FAQs)
What is the Social Security Tax rate in Nepal?
The Social Security Tax is 1% of the employee’s basic salary and forms part of the employee’s 11% SSF contribution.
Is Social Security Tax different from Provident Fund?
Yes. The employee contributes 10% toward the Provident Fund (Old Age Protection) and 1% as Social Security Tax, making the total employee contribution 11%.
Is Social Security Tax calculated on gross salary?
No. It is generally calculated on the employee’s basic salary, not on gross salary.
Who pays Social Security Tax?
The employee pays 1%, while the employer separately contributes 20% of the employee’s basic salary to the Social Security Fund.
