Income Tax in Bangladesh: A Detailed Guide on Calculation and Key Consideration

Income tax in Bangladesh is regulated under the Income Tax Ordinance, 1984, and the National Board of Revenue (NBR) is the body responsible for tax administration. As a progressive taxation system, income tax in Bangladesh applies to both individuals and businesses, with varying tax rates depending on income levels, types of income, and the taxpayer’s status. In this detailed guide, we will cover the essential aspects of calculating income tax for both individuals and businesses, including how to apply deductions, exemptions, tax credits, and how to file returns.

Income Tax Overview in Bangladesh

Income tax in Bangladesh is charged on income from various sources, including salary, business profits, dividends, rental income, and interest. The tax rates are progressive, meaning the rate increases with the taxpayer’s income level. The government provides various exemptions, deductions, and credits to reduce the overall tax burden for individuals and businesses. Proper tax planning and knowledge of tax laws are essential for minimizing liabilities and ensuring compliance with the law.

Who Must Submit Income Tax Return? Mandatory Return Submission

Condition	Details
Loan > Tk 20 lakh	Individuals applying for loans greater than Tk 20 lakh from banks or financial institutions
Property Transactions > Tk 10 lakh	Residents involved in land/building/apartment transactions where deed value > Tk 10 lakh
Credit Card	Individuals obtaining or maintaining a credit card
Professional Membership	Individuals joining or continuing professional bodies (e.g., doctors, engineers, architects)
Gas Connection	Individuals applying for or continuing residential gas connection
School Admission	Parents admitting a child to an English medium school in a city corporation/district headquarters
Postal Savings > Tk 5 lakh	Individuals opening a postal savings account with more than Tk 5 lakh
FDR > Tk 10 lakh	Individuals opening or maintaining a Fixed Deposit Receipt (FDR) over Tk 10 lakh in a year
Sanchayapatro	Investment in government savings instruments over Tk 5 lakh
Motor Vehicle Ownership	Registration, change of ownership, or renewal of motor vehicle fitness (excluding two/three-wheelers)

Required Documents for Tax Return Submission (Person)

Document Type	Details
Last Return Assessment Copy (if any)	If the individual has previously submitted a tax return, provide the last assessment copy.
For New Submissions
– ETIN Copy	Taxpayer Identification Number (ETIN) copy.
– NID Copy	National Identity Document (NID) copy.
– Passport Size Photo	A passport-size photograph.
For Salary Persons
– Salary Certificate	For the period from 01 July 2023 to 30 June 2024.
– Tax Deduction Certificate / Car AIT (if any)	Tax deduction certificate for the relevant period (01 July 2023 to 30 June 2024).
– Bank Statement	Bank statement for the period from 01 July 2023 to 30 June 2024.
– Provident Fund (if any), Dividend Certificate (if any)	Any related provident fund or dividend certificates.
Investment Information
– DPS, Insurance Premium, FDR Statement/Cert	For the period from 01 July 2023 to 30 June 2024, for any relevant DPS, insurance premiums, and FDR details.
– Sanchaypatro Tax Certificate (FY 2023-2024)	Certificate for investments in Sanchayapatra for the period 01 July 2023 to 30 June 2024.
– Share Market Portfolio BO Account	Details of the share market portfolio or BO account as of 30 June 2024.
Loan Information
– Bank Account Loan Statement/Certificate	Loan statements or certificates for all bank accounts for the period from 01 July 2023 to 30 June 2024.

Tax Calculation for Individuals

For individual taxpayers, the income tax calculation follows a simple yet structured process. The steps for calculating tax involve determining gross income, applying allowable deductions, calculating taxable income, and then applying the applicable tax rates.

1. Determining Gross Income

Gross income includes all income earned by the taxpayer during the fiscal year. This includes:

• Salary Income: Wages, allowances, and other benefits.
• Business Income: Profits from a business or self-employment earnings.
• Interest Income: Earnings from bank accounts or savings instruments.
• Rental Income: Earnings from renting out property.
• Dividends: Income from shares or mutual funds.
• Other Income: Such as capital gains or foreign income, among others.

2. Allowable Deductions and Exemptions

Once the gross income is determined, taxpayers can subtract eligible deductions and exemptions, reducing their taxable income. Some common deductions include:

• Investment Tax Credit: If the taxpayer invests in government-approved securities, bonds, or mutual funds, they may qualify for an investment tax credit. This deduction is typically a percentage of the invested amount.
• Contributions to Retirement Funds: Contributions to recognized pension or provident funds (such as Gratuity Fund, Provident Fund) are deductible.
• Medical Expenses: Certain medical expenses, including those for health insurance premiums or specific treatments, may be deducted from the taxable income.
• Education Expenses: In some cases, educational expenses for children can be deducted, especially when the taxpayer is paying for higher education.

Exemptions available for individuals include:

• Agricultural Income: Income from agricultural activities may be exempted from tax.
• Dividends: Dividends from certain sources may be exempt from tax.
• Interest on Government Bonds: Interest income from government bonds is generally tax-exempt.

Rebates Includes:

Tax Rebate Option	Description
Life Insurance Premium	Premium paid towards life insurance policies.
Govt. Employee Subscribed Provident Fund	Contributions to the government employee provident fund.
Recognized Provident Fund Subscription (Employer & Employee)	Contributions to recognized provident funds by both employer and employee.
Welfare Fund & Group Insurance Subscription Fund	Subscription to welfare or group insurance funds.
Superannuation Subscription Fund	Contributions to superannuation funds.
DPS (Deposit Pension Scheme)	Deposits up to Tk 120,000 to any scheduled bank under a Deposit Pension Scheme (DPS).
Purchase of Securities	Purchase of securities like Sanchayapatro (Govt. Savings Bonds) up to Tk 5 lakh.
Investment in Bangladesh Stock Exchange	Investment in shares, stocks, mutual funds, or debentures in listed companies on the Bangladesh Stock Exchange.
Donation to the Father of the Nation Memory Fund	Donations made to memorial funds dedicated to the Father of the Nation at a national level.
Donation to Zakat Fund	Donations made to the Zakat Fund.
Donation to Charitable Hospitals (NBR Approved)	Donations made to hospitals approved by NBR for charitable purposes.
Donation to Autism & Disabled Welfare Organizations	Donations to welfare organizations for autism and disabilities.
Donation to Freedom Fighter Museum	Donations to museums dedicated to freedom fighters.
Donation to Ahsania Mission Cancer Hospital	Donations made to the Ahsania Mission Cancer Hospital.
Donation to ICDDRB	Donations to the International Centre for Diarrheal Disease Research, Bangladesh (ICDDRB).
Donation to CRP (Center for the Rehabilitation of the Paralysed), Savar	Donations made to the Center for the Rehabilitation of the Paralysed in Savar.
Donation to Govt. Approved Public Welfare or Educational Institutes	Donations to government-approved public welfare or educational institutions.
Donation to Asiatic Society, Bangladesh	Donations to the Asiatic Society of Bangladesh.
Donation to Dhaka Ahsania Mission Cancer Hospital	Donations to the Dhaka Ahsania Mission Cancer Hospital.
Donation to Memory of Freedom Fighters at a National Level	Donations to any organization dedicated to preserving the memory of freedom fighters at a national level.

3. Calculating Taxable Income

Taxable income is the amount remaining after applying the allowable deductions and exemptions from the gross income. This is the income on which tax will be calculated.

Taxable Income = 1/3 of Gross or 4.5 lac, Whichever Lower – Rebates

4. Applying Tax Slabs

After determining taxable income, the next step is to apply the relevant tax rates according to the slabs

Taxable Income (in BDT)	Tax Rate (%)
Up to 3,50,000 For special category refer table below	0% (Tax-Free)
Next 1,00,000	5%
Next 4,00,000	10%
Next 5,00,000	15%
Next 5,00,000	20%
Any remaining income	25%

Special Category	1st Tier Exemption (BDT)	Remarks
Not Applicable	3,50,000	Standard exemption for individuals without special categories.
Women	4,00,000	Women taxpayers receive an additional exemption of BDT 50,000.
Senior Citizens (65 or older)	4,00,000	Senior citizens receive an additional exemption of BDT 50,000.
Third Gender Taxpayers and Persons with Disabilities (PWD)	4,75,000	Third-gender taxpayers and PWD receive an additional exemption of BDT 125,000.
Freedom Fighters (War-Injured Veterans)	5,00,000	Freedom fighters enjoy the highest exemption with an additional BDT 150,000 over the standard tier.

5. Applying Tax Credits and Prepaid Taxes

Tax credits, such as those for donations to charity or investments in infrastructure, may be deducted from the total tax payable. Additionally, if the taxpayer has already paid advance tax through salary deductions or quarterly tax payments, that amount is subtracted from the total tax liability.

Tax Calculation for Businesses

Businesses in Bangladesh, including sole proprietorships, partnerships, and corporations, are also required to pay income tax. Corporate tax rates depend on the type of business and its activities.

1. Determining Gross Income

For businesses, gross income includes:

• Revenue from Sales or Services: Total income generated from business operations.
• Other Income: This includes investment income, gains from asset sales, and other sources.

2. Allowable Deductions

Businesses can deduct a variety of expenses that are necessary for business operations, such as:

• Operating Expenses: Salaries, rent, utilities, raw materials, and any costs related to running the business.
• Depreciation: A portion of the cost of assets like machinery, buildings, and vehicles can be deducted through depreciation.
• Interest: Interest paid on loans and debts is deductible.
• Tax Reliefs: Certain businesses, such as those involved in exporting or new industries, may be eligible for tax reliefs or lower tax rates.

3. Applying Tax Rates

Corporate tax rates in Bangladesh are typically as follows:

• Publicly listed companies: 25%
• Private limited companies: 32.5%
• Non-resident companies: 37.5%

4. Tax Credits and Prepaid Taxes

Just like individual taxpayers, businesses can apply tax credits and adjust for any prepaid taxes, such as advance income tax or tax withheld by clients.

Filing Income Tax Returns

Income tax returns must be filed annually by both individuals and businesses. The following are key steps in the filing process:

1. Filing Deadline: The tax return for individuals must be filed by November 30th of each year, for the previous fiscal year (which ends on June 30th).
2. Documents Required: Individuals and businesses must submit proof of income, receipts for deductions, investment details, and other supporting documents.
3. Online Filing: The NBR provides an online portal for submitting tax returns electronically. Taxpayers can use the e-filing system to file their returns and make payments.

Penalties for Non-Compliance

Failure to comply with income tax laws can result in penalties, such as:

• Late filing fees: If the return is filed after the deadline.
• Underreporting: If income is underreported, penalties can include fines or additional tax liability.
• Interest: Interest is charged on unpaid taxes.
• Prosecution: In extreme cases, taxpayers may face legal action.

How is the Eid Bonus Taxed?

In all the above examples, the Eid Bonus is treated as part of gross income. It is not subject to a different tax rate and is included when calculating the total gross income for the year.

• Eid Bonus = Taxable Income: If the bonus is paid during the year, it is added to the total earnings.
• The total taxable income is then calculated based on the Eid Bonus plus other income.
• The tax on the Eid Bonus depends on the overall taxable income, and it may be taxed at the standard progressive tax rates.

In short, Eid Bonuses are treated like regular income and taxed accordingly, based on the total income of the individual during the fiscal year.

Conclusion

Income tax calculation in Bangladesh involves a systematic approach, starting from determining gross income, applying deductions and exemptions, calculating taxable income, and finally applying tax rates based on the applicable income slab. Taxpayers must stay updated with the latest tax laws and deadlines to ensure compliance and avoid penalties. By understanding the key components of tax calculation, individuals and businesses can effectively manage their tax liabilities and contribute to the nation’s growth.

 

This post is also available in: বাংলাদেশ (Bengali)