TAXATION

Lecture – 2:
Income Tax
 Income Tax

Reference

Definition Role of IT

Tax Rates Income Year

Assessment Year Income

Classification of Income

Sixth Schedule: Part B

Assessee and Residential Status

 Chapter – 2:
Bangladesh Income Tax
BANGLADESH INCOME TAX
Theory and Practice
Chapter – 3:
Basics of Income Tax
Nikhil Chandra Shil
Mohammad Zakaria Masud
Mohammad Faridul Alam
Chapter – 5:
Income and Its Classification
 Income Tax

Income Tax “Income tax is a tax on income”

Characteristics

 It is a direct tax.
 The levy of Income tax is regulated by ITO XXXVI of 1984.
 It is charged on the total income of an income year of a person in an
assessment year.
 The rate of income tax is determined by the government in the National
Assembly through Finance Bill. Besides rules/orders are issued by the
National Board of Revenue from time to time.
 Income tax is levied by the government on an annual basis.

Reference:
Bangladesh Income Tax: Theory and Practice
Chapter – 2; Page no. – 17
 Income Tax

Tax Holiday Scheme Role of IT

Investment Allowance

Accelerated Depreciation Tax incentives for Small and

Allowance Cottage Industries

Tax incentives for encouraging Tax incentives for remittance

Savings to Bangladesh

Reference:
Bangladesh Income Tax: Theory and Practice
Chapter – 2; Page no. – 18
 Income Tax

Tax rates applicable for every individual including Bangladeshi Non-

residents, HUF, Firm, AOP and every other artificial judicial persons:
Income slab Rate
On the first Tk. 1,65,000 of total income Nil
On the next Tk. 2,75,000 of total income 10%
On the next Tk. 3,25,000 of total income 15%
On the next Tk. 3,75,000 of total income 20%
On the balance of Total income 25%
Note:
a) The minimum non-assessable income limit will be Tk. 1,80,000 for
women, elderly citizens being more than 65 years of age and for disable
persons the limit will be Tk. 2,00,000.
b) However, the minimum tax would be Tk. 2,000.
c) The assessees who paid tax at the highest rate of 25% in the assessment
year 2008-09, will enjoy 10% tax rebate on the additional tax paid if they
disclose more than 10% higher income in the assessment year 2009-10.

Reference:
Bangladesh Income Tax: Theory and Practice
Chapter – 3; Page no. – 53
 Income Tax

Tax rates applicable for Companies:

Nature of Company Rates
In case of companies being a publicly traded company and other than banks, insurance and other 27.50%
financial institutions: Provided that,
a) tax rebate @ 10% of the income tax would be allowed if such company declares dividend at
more than 20%.
b) If the company declares dividend at the rate less than 10% or does not pay within the period
fixed by SEC (which is currently two months from the date of declaration), the rate of tax
would be 37.5%.
In case of the company not being publicly traded company and other than banks, insurance and 37.50%
other financial institutions:
In case of Mobile Phone Operator Companies, not being publicly traded company 45%
In case of Mobile Phone Operator Companies, being publicly traded company by issuing minimum 35%
10% of its total shares through IPO.
In case of Bank, Insurance company and financial institutions 42.50%
Note:
Minimum tax would be Tk. 5,000 irrespective of profit or loss.

Reference:
Bangladesh Income Tax: Theory and Practice
Chapter – 3; Page no. – 53
 Income Tax

Income year is the financial year immediately preceding the assessment year or any
other accounting period (not exceeding twelve months) as adopted by the assessee
and ending within the said financial year.

- Section 2(35) of ITO, 1984

General Rule

Based on accounting
period

In case of business or
profession newly setup

Reference:
Bangladesh Income Tax: Theory and Practice
Chapter – 3; Page no. – 38
 Income Tax

Income year is the financial year immediately preceding the assessment year or any
other accounting period (not exceeding twelve months) as adopted by the assessee
and ending within the said financial year.

- Section 2(35) of ITO, 1984

General Rule the financial year immediately preceding the

assessment year; such as if the assessment year is
Based on accounting 2007-08, financial year 2006-07 is the income year
period i.e. (period covering 1st July, 2006 to 30th June,
2007)
In case of business or
profession newly setup

Reference:
Bangladesh Income Tax: Theory and Practice
Chapter – 3; Page no. – 38
 Income Tax

Income year is the financial year immediately preceding the assessment year or any
other accounting period (not exceeding twelve months) as adopted by the assessee
and ending within the said financial year.

- Section 2(35) of ITO, 1984

where the accounts of the assesses have been

made up to a date within the said financial year
General Rule and the assesses so opts, the twelve months
Based on accounting ending on such date; Such as, If the assessment
period year is 2007- 08 and the assessee maintains his
accounting record for the year ending on 31st
In case of business or March, 2007; the income year will be for a period
profession newly setup of covering twelve months ending on 31st March,
2007 i.e. (period covering 1st April, 2006 to 31st
March, 2007)

Reference:
Bangladesh Income Tax: Theory and Practice
Chapter – 3; Page no. – 38
 Income Tax

Income year is the financial year immediately preceding the assessment year or any
other accounting period (not exceeding twelve months) as adopted by the assessee
and ending within the said financial year.

- Section 2(35) of ITO, 1984

in the case of a business or profession newly set

General Rule up in the said financial year, the period
beginning with the date of the setting up of
Based on accounting the business or profession and ending with
period the said financial year; Such as, If the
assessment year is 2007-08 and the business set
In case of business or up date is 1st September, 2006; the income
profession newly setup year will be a period covering 1st September,
2006 to 30th June, 2007.

Reference:
Bangladesh Income Tax: Theory and Practice
Chapter – 3; Page no. – 38
 Income Tax

“Assessment Year” means the period of twelve months commencing on the first day
of July every year.
- Section 2(9) of ITO, 1984

The assessment year always begins on 1st July and ends on 30th June every
year. This period is also known as the financial year. Accordingly, it is the
current financial year in which income of the immediately preceding financial
year (known as income year) is assessed.

Income year Assessment year

1. 01.01.05 to 31.12.05 2006 - 2007
2. 01.03.05 to 31.12.05 2006 -2007
3. 01.08.05 to 31.07.06 2007 - 2008

Reference:
Bangladesh Income Tax: Theory and Practice
Chapter – 3; Page no. – 40
 Income Tax

"income" includes –
a) any income, profits or gains, from whatever source derived, chargeable to tax
under any provision of this Ordinance under any head specified in section 20
(i.e. salaries, interest on securities, income from house property, agricultural
income, income from business or profession, capital gains and income from
other sources);
b) any loss of such income, profits or gains;
c) the profits and gains of any business of insurance carried on by a mutual
insurance association computed in accordance with paragraph 8 of the Fourth
Schedule;
d) any sum deemed to be income, or any income accruing or arising or received,
or deemed to accrue or arise or be received in Bangladesh under any provision
of this Ordinance.

- section 2(34) of the ITO

Reference:
Bangladesh Income Tax: Theory and Practice
Chapter – 5; Page no. – 84
 Income Tax

Income

Non assessable income Assessable income

Tax free Tax credit Tax payable

Income Income Income

Non-assessable income:
Those income which are not included in the computation of total income of an
assessee, are non-assessable income. A list of such income is given under section
44(1), Part A of Sixth Schedule. For example, income from interest on savings
certificate is exempted upto Tk. 25,000.

Reference:
Bangladesh Income Tax: Theory and Practice
Chapter – 5; Page no. – 96
 Income Tax

Income

Non assessable income Assessable income

Tax free Tax credit Tax payable

Income Income Income

Assessable income:
Assessable incomes are those incomes, which are included in the determination
of the total income of an assessee. For example, Receipt of Tk. 20,000 as bonus is
assessable and hence included under total income. The total of assessable
incomes from various sources is known as total income of an assessee.

Reference:
Bangladesh Income Tax: Theory and Practice
Chapter – 5; Page no. – 97
 Income Tax

Tax-free income:
Tax-free incomes are those incomes, which are included in the determination of
the total income of an assessee for computing total income and applicable tax
rates. However, tax rebate is allowed on average rate. For example, Income from
partnership firm, income from HUF etc.

Tax credit income:

Those incomes which are eligible for investment allowance for tax rebate. As per
section 44(2), tax rebate is allowed of an amount equal to 10% of the sums eligible
for tax rebate. However as per section 44(3), maximum amount eligible for tax
rebate would be restricted to the lower of 25% of the total income excluding
employer’s contribution to RPF and interest on the accumulated balance of RPF or
Tk. 5,00,000.

Tax payable income:

This is that part of total income for which the taxpayer actually pays tax.

Reference:
Bangladesh Income Tax: Theory and Practice
Chapter – 5; Page no. – 97
 Income Tax

Effects of classification of income on assessment

Classification of income Effect on Total Income Effect on tax liability / tax rate
Non Assessable Income Not included decreases
Assessable income Included Increase
Tax-free Income Included which Increase the tax liability & allows
increase total income rebate at an average rate
Tax credit income Increases total income Decrease tax burden through
rebate.
Tax payable income included Actual tax liability depends on it

Reference:
Bangladesh Income Tax: Theory and Practice
Chapter – 5; Page no. – 98
 Income Tax

Investment Allowance as per Part B, Sixth Schedule

As per section 44(2)(b), a Resident assessee will get tax rebate of an amount equal to
10% of the sums specified in Part B of the Sixth Schedule. However, as per section
44(3), maximum amount eligible for such rebate would be restricted to the lower of
the following:
 25% of the total income excluding employer’s contribution to RPF and interest
on the accumulated balance of RPF, or
 Tk. 10,00,000

Reference:
Bangladesh Income Tax: Theory and Practice
Chapter – 5; Page no. – 109
 Income Tax

Investment Allowance as per Part B, Sixth Schedule

1. Life Insurance Premium Paid [Maximum 10% of Policy Value].

2. Life Insurance Premium Paid by a Hindu Undivided Family [Maximum
10% of Policy Value].
3. Deduction from the salary of Government employee for deferred annuity
[Maximum one-fifth of the salary].
4. Contribution to Provident Funds [Any contribution by an assessee to any
provident fund to which the Provident Fund Act, 1925 applies].
5. Contribution to a Recognized Provident Fund [on the contribution made
both by the assessee and the employer].
6. Contribution to Superannuation Fund
7. Investment in stocks and shares [approved].
8. Investment in Debentures.
9. Investment in Savings Certificate.
10. Contribution to Deposit Pension Scheme (DPS).

Reference:
Bangladesh Income Tax: Theory and Practice
Chapter – 5; Page no. – 106
 Income Tax

Investment Allowance as per Part B, Sixth Schedule

11. Donation to a Charitable Hospital [Any sum paid as donation to a charitable

hospital established outside the city corporation, provided the donation is made
after one year of establishment of the hospital].
12. Donation to Organizations set up for the welfare of retarded people.
13. Donation to Zakat Fund.
14. Contribution to Benevolent Fund and Group Insurance Scheme.
15. Contribution to Aga Khan Development Network.
16. Contribution to Philanthropic or Educational Institution [approved].
17. Contribution to President’s Relief Fund.
18. Contribution to Prime Minister’s Relief Fund.
19. Contribution to Ahsania Mission Cancer Hospital.
20. Contribution to Sylhet Diabetic Society, Islamia Eye Hospital and M. A. Ispahani
Institute of Ophthalmology, Kidney Foundation; and National Heart Foundation
of Bangladesh [SRO 109/IT/2006 dated 07.05.2006]

Reference:
Bangladesh Income Tax: Theory and Practice
Chapter – 5; Page no. – 109
 Income Tax

Investment Allowance as per Part B, Sixth Schedule

21. Investment in Computer / Laptop [Para – 23]: Any sum invested in the purchase of
one computer (Upto Tk. 50,000) or one laptop (Upto Tk. 1,00,000) by an individual
assessee.
22. Contribution to Child Health Foundation Hospital; Child Hospital, Jessore;
Hospital for Sick Children, Sathkhira (Run by Child Health Foundation,
Bangladesh); Digonto Memorial Cancer Hospital, Dhaka; The ENT & Head-Neck
Cancer Foundation of Bangladesh, Dhaka; and National Development
Foundation for Disables’, Dhaka [SRO 316-AIN/2008]
23. Contribution to Jatir Janok Bangabondhu Sheikh Mujibur Rahman Memorial
Trust, Dhaka; Rafatullah Community Hospital (RCH), Thengamara, Bogra; and
Salvation for the Deserving (SFD), Manikgonj [SRO 32-AIN/2009 dated
09.03.2009]
24. Contribution to Asiatic Society of Bangladesh, Ramna, Dhaka [SRO 32-AIN/2009
dated 09.03.2009]

Reference:
Bangladesh Income Tax: Theory and Practice
Chapter – 5; Page no. – 109
 Income Tax

“Assessee” includes:
a) every person in respect of whom any proceeding under this Ordinance has
been taken for the assessment of his income or the income of any other person
in respect of which he is assessable, or of the amount of refund due to him or
to such other person;
b) every person who is required to file a return under section 75, section 89 or
section 91;
c) every person who desires to be assessed and submits his return of income
under this Ordinance; and
d) every person who is deemed to be an assessee, or an assessee in default, under
any provision of this Ordinance;
Here, the term “person” includes an individual, a firm, an association of persons, a
Hindu undivided family, a local authority, a company and every other artificial
judicial person. [Section 2(46)]

- section 2(7) of the ITO, 1984

Reference:
Bangladesh Income Tax: Theory and Practice
Chapter – 3; Page no. – 42
 Income Tax

Classification of Assessee

On the basis of On the basis of

person residential status

Individual Company Resident

Firm Local Authority

Non – resident

Artificial Judicial Association of

Person persons

Non –resident Non –resident

Hindu Undivided Family Bangladeshi Foreigner

Reference:
Bangladesh Income Tax: Theory and Practice
Chapter – 3; Page no. – 43
 Income Tax

According to the section 2(55)(a) of ITO 1984, an individual will be a resident

in any previous year if he fulfills any of the following two conditions:
if he stays in Bangladesh for a period of, or for
periods amounting in all to, one hundred and
eighty-two [182] days or more in that year; or

for a period of, or periods amounting in all to,

ninety days [90] or more in that year having
previously been in Bangladesh for a period of, or
periods amounting in all to, three hundred and
sixty-five days [365] or more during four years
preceding that year;

Reference:
Bangladesh Income Tax: Theory and Practice
Chapter – 3; Page no. – 45
 Income Tax

Mr. Bablu provides the following particulars of his stay in Bangladesh over a period of
last five years:

Days
Year
2002-03 40
2003-04 55
2004-05 182
2005-06 200
2006-07 94

a) Determine his residential status for the assessment year 2007-08.

b) What will happen if he stays for 85 days in the year 2006-07?
c) What will happen if he stays for 80 days in the year 2005-06?
d) What will happen if he stays for 185 days in the year 2006-07 and total 360 days
during last four years?

Reference:
Bangladesh Income Tax: Theory and Practice
Chapter – 3; Page no. – 47
 Income Tax

Effects of residential status in determining tax liability

Non resident Non resident

Resident
Bangladeshi Foreigner

Determination of Global Income Income

total income income generated in BD generated in BD

Minimum limit
of taxable income Tk. 165,000* Tk. 165,000* Nil

Rates Rates
Tax rate applicable as applicable as @ 25%
per law per law

Tax rebate applicable applicable Not applicable

Reference:
Bangladesh Income Tax: Theory and Practice
Chapter – 3; Page no. – 38