This study uses a nationwide household survey to analyze the impact of domestic and international remittances on household income and welfare in Nepal. The impact of remittances on income distribution and social welfare are analyzed by source decomposition of income inequality and by comparing the observed level of measures with the level of the complete termination of remittances. The empirical findings demonstrate that the aggregate impact of all remittances on overall income inequality is stable; however, the impacts of remittances by their sources remain diverse. Since most of the migrants to India originate from the lower end of the income distribution, the remittances from India retain an income equalizing effect on income distribution. In contrast, the impact of remittances from countries other than India is opposite. Meanwhile, the domestic remittances exhibit an almost constant effect on overall income inequality. Although, an unambiguous welfare gain is associated with all types of remittances, the magnitude of the welfare gain is depended on the degree of income inequality induced by the remittances. Nevertheless, the remittances from India are found to be the main contributors to net welfare gains in Nepal by increasing income and decreasing inequality