Definition of Income Tax
As per section-16 of
Income Tax ordinance 1984, "income tax for any assessment year at any rate
or rates shall be charged, levied, paid and collected in respect of the total
income of the income year or income years of every person."
A tax that governments impose on financial income
generated by all entities within their jurisdiction. By law, businesses and
individuals must file an income tax return every year to determine whether they
owe any taxes or are eligible for a tax refund. Income tax is a key source of
funds that the government uses to fund its activities and serve the public.
Source: "investopedia" (3,October 2013 )
Income tax is a direct and
single tax charged on the total income of a person for relevant income year, in
relevant assessment year.
Who is to pay tax?
Taxability
of a person is determined on the basis of his residential status. As per
section 2(55) of ITO 1984, all the residents of Bangladesh has to pay tax on
their taxable income during any income year and non-residents have to pay tax
on the amount that is earned from Bangladesh.
Non-resident except a
Bangladeshi non-resident has to pay tax at the maximum rate of
25% irrespective of total income. Moreover, a Non-Resident shall not be
entitled to any sort of tax rebate like investment tax rebates etc.
Who is resident?
There is 2 rules for a
person being resident of a country. The rules are:
Ø Anyone
staying in the taxable territory for 182 days or more in the income year .
Ø Anyone staying in the taxable territory for 90 days
or more in the income year and the person had stayed 365 days at a time or
consecutively within 04 years immediately before the income year just preceding
the assessment year, shall be deemed to be resident.
Otherwise, the person will
be treated as a non-resident.
Who should submit Income Tax Return?
If total income of any
individual other than female taxpayers, senior taxpayers of 65 years and above
and retarded taxpayers during the income year exceeds Tk 200,000/-.
If total income of any
female taxpayer, senior taxpayer of 65 years and above and retarded taxpayer
during the income year exceeds Tk 225,000/-.
If any person was assessed
for tax during any of the 3 years immediately preceding the income year.
A person who lives in any
city corporation/paurashava/divisional HQ/district HQ and owns a building of
more than one storey and having plinth area exceeding 1,600 sq. feet/owns
motor car/owns membership of a club registered under VAT Law.
Who should submit Income Tax Return?
If any person subscribes a
telephone.
If any person runs a
business or profession having trade license.
Any professional
registered as doctor, lawyer, income tax practitioner, Chartered Accountant,
Cost & Management Accountant, Engineer, Architect and Surveyor etc.
Member of a Chamber of
Commerce and Industries or a trade Association.
Any person who
participates in a tender.
A person who has a
Taxpayer's Identification Number (TIN).
Candidate for Union
Parishad, Paurashava, City Corporation or Parliament.
Heads/sources of income for the purpose
of computing income tax
As per income tax
ordinance 1984, there are seven Heads of income namely:-
(a) Salaries.
(b) Interest on
securities.
(c) Income from house
property.
(d) Agricultural income.
(e) Income from business
or profession.
(f) Capital gains.
(g) Income from other
sources.
Definition of salary
As per section 21 of ITO
1984, the following income of an assessee shall be classified and computed
under the head "Salaries", namely:-
(a) any salary due from an
employer to the assessee in the income year, whether paid or not;
(b) any salary paid or
allowed to him in the income year, by or on behalf of an employer though not due
or before it became due to him; and
(c) any arrears of salary
paid or allowed to him in the income year by or on behalf of an employer, if
not charged to income-tax for any earlier income year.
Where any amount of salary of an assessee is
once included in his total income of an income year on the basis that it had
become due or that it had been paid in advance in that year, that amount shall
not again be included in his income of any other year.
Elements of salary
According to ITO 1984,
following items will be considered as
the elements of income:
- Basic salary: According to section 33(2)A, basic salary is the amount paid or payable by an employer to the employee on monthly basis for services provided by him. Basic salary is fully taxable.
Structure of Salary:
The structure of salary
may be like that:
11000-1500-20000.
Here, 11000 is the basic
salary. The total amount of salary is calculated on the basis of basic salary.
1500 is the annual increment.
Structure of Salary
For the calculation of
income tax, taxable income from basic salary will be (11000*12) tk. 132000.
If we want to calculate
taxable income from salary for the income year 2012-2013, then,
Basic salary will be
tk.(11000*12) or tk. 132000.
If the period of annual
increment is 1st April 2013, then
Amount of Basic salary
will be:
from July to March
tk.(11000*9) or tk.99000
From April to June
tk.(12500*3) or tk.37500
Total tk.136500.
2. Dearness Allowance
Dearness allowance is the
amount paid by the employer to the employee to cope with the highest cost of
living, which is a certain percentage of basic salary. The full amount of
dearness allowance is taxable.
For example: if the basic
salary is tk.11000 and dearness allowance is 10% of basic salary, then,
tk.(11000*12*10%) or tk.13200 will be included in the taxable income.
3. Bonus
Bonus is the amount paid
based on basic salary for the purpose of festival like, Eid, christmas or
rewards for good performance. Bonus may be (1) Festival Bonus, (2) Performance
Bonus and (3) Incentive Bonus. Bonus is fully taxable.
For example: if 2 festival
bonus is given each equal to one months basic salary, then, tk.(11000*2)m or
tk.22000 will be included in the taxable income from salary.
4. Medical Allowance:
If any amount is paid to
meet medical expenses of the assesse, spouse, children, parents, then, the
amount exceeding the actual expenditure is to be included under the head
salary.
For example: if medical
allowance is tk. 700 per month and actual expenditure is tk.5000 for the income
year, then tk.(8400-5000) or tk.3400 will be included in the taxable income.
5.House Rent allowance:
When house rent allowance is provided in cash, then,
the amount exceeding 50% of basic salary or tk. 15000 per month, whichever is
lower, shall be added with salary. For example: if House Rent allowance is 6500
per month and paid in cash , then
6. Conveyance Allowance in cash
When conveyance allowance is paid in cash, then, the
amount exceeding tk.24000 annually is to be added with salary.
For example: if conveyance allowance is given
tk.3000 per month, then
7. Provident Fund:
Provident Fund is 4 types:
(1) general provident fund, (2)Contributory provident fund, (3)Recognized
provident fund, (4) Unrecognized provident fund.
General provident fund and
Contributory provident fund is not taxable.
Employee’s contribution to
recognized provident Fund is not taxable. Only employer’s contribution to
recognized provident Fund is fully taxable.
For example: if Employee’s
and employer’s contribution to recognized provident Fund is 10% of basic
salary, then, tk.(132000*10%) or tk.13200 will be added under the head salary.
8. Interest on provident Fund:
Interest on General
provident fund, Contributory provident fund and Unrecognized provident fund is
not taxable.
Interest on Recognized
provident fund is taxable. Amount of interest exceeding 14.5% rate or 1/3 of
basic salary, whichever is lower will be added with salary.
For example: if the
employee receives tk7200 as 18% interest on recognized provident fund, then
Calculation of 14.5%
interest=(7200/18)*14.5%
=5800
9. Travelling Allowance
If any amount is paid for
travelling purpose, then, the amount exceeding actual expenditure will included
under the head salary.
For example: if tk.10000
is given as Travelling Allowance and tk.8000 is actually expended, then tk.2000
will be added under the head salary.
10. Overtime
Full amount of overtime is
taxable.
11. Telephone/mobile bill allowance
Full amount of the
telephone/mobile bill is taxable.
Items
included in investment allowance to facilitate tax rebate:
As per rules explained in
part-B of sixth schedule of the ITO 1984, the following items are considered as
a part of the investment allowance and will be deducted from tax under the head
investment allowance :
- Employee’s contribution to General provident fund and Contributory provident fund.
- Employee’s and Employer’s contribution to recognized provident Fund
- Employee’s contribution to group insurance scheme and deposit Pension Scheme.
- Employee’s contribution to life insurance premium(maximum 10% 0f policy value).
- Purchase of primary and secondary shares of listed company.
- Purchase of debentures and savings certificate
- Contribution to government zakat Fund.
Rates of Taxes as per Finance Act, 2012:
Individual / Firm / Hindu
Undivided Family Association of Person (AOP)
First Tk.200,000
----------------------------------------Nil
Next Tk.300,000
-----------------------------------@ 10%
Next
Tk.400,000-------------------------------------@ 15%
Next Tk.300,000------------------------------------@
20%
On the balance
------------------------------------@ 25%
Provided that a lady tax payer or a Senior person of
65 and above shall enjoy the initial exemption of Tk.225,000, the other slabs
shall remain as aforesaid. A disable person shall belong to the minimum ceiling
of Tk.275,000.
Non-residents except a Bangladeshi
Non-resident, (NRB) shall be charged to tax at the maximum rate of 25%.
But the amount of tax
shall be not be less than Tk.3,000/- for any particular assessment year.
Computation of Investment Allowance
Tax rebate is applicable
@10% of allowable investment, that is, (34400*10%) or tk.3440. Tax rebate is to
be deducted from gross tax to calculate net tax liability.
Calculation of net tax liability:
For women,
Up to tk. 225000, tax rate
is Nill.
So no tax is to be paid.
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