3103: Laws and Practices

of Taxation- II

Chapter- 1
Introduction
 Learning Objectives
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 To understand the different between accounting

income and taxable income.
To know about the characteristics of income.
To learn about the general principles and exception to
general principles of income taxes.
To learn about non-assessable income
To know about investment tax credit.
 Learning Objectives
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 In accounting: Income = Revenue – Expenses

Taxable Income = Assessable Income - Deductions
 Income:
Page Title defined
/ heading under
goes here section 2(34)

According to definition of section 2(35) of the ITO:

“Income” includes –
Income, profits, or gains, from whatever sources derived
Loss of such income, profits, or gains
Any sum deemed to be income in Bangladesh [sec. 19]
Income accrued or arose in Bangladesh
Income received in Bangladesh
Income deemed to accrue or arise in Bangladesh [sec. 18]
Income deemed to be received in Bangladesh
 Some
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here

“Income” does not include –

Bonus shares or bonus issued to shareholders by a
company to increase its paid up capital.
 Basic Principles of Charging/Imposing
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Income Taxgoes here
- Sec. 16
General Principles u/s 16(1):
1. Income taxpayer: Income tax is payable by ‘every
person’ as stated in S. 2 (46)[u/s 16(1)].
2. Income tax rate: Income tax rate is provided by an ‘Act
of Parliament’, which is called the Finance Act [u/s 16(1)].
3. Income tax base: Income tax base is the “total income” of
the taxpayer during the income year [u/s 16(1)].
4. Timing of income tax base: Income tax base, i.e., total
income is to be computed for the “income year” [u/s 16(1)].
5. Timing of income tax payment: Income tax is to be paid
in the “assessment year” [u/s 16(1)].
 Exceptions
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1. Income tax payment otherwise: Income Tax shall be

deducted at sources or paid or collected in advance where
applicable [section 16(2)].
2. Special income tax rate: For “capital gain”, “accidental
income” or “non-corporate non-resident’s income” tax
rates are special and given in the Second Schedule
[section 16(3)].
3. Imposition of surcharge: There may be surcharge to be
imposed as a percentage of normal income tax (section
16A).
 Exceptions
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/ heading goes here Principles

4. Imposition of additional tax: By inserting section 16B by

the FA 2002, a provision has been made to impose
additional tax on undistributed profit @ 5% (in addition to
normal tax) if a listed public limited company (not being a
banking or insurance company) has not issued, declared or
distributed dividend or bonus share equivalent to at least
15% of paid up capital within 6 months after the end of the
income year.
 Exceptions
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/ heading goes here Principles

For AYs 2002-03 and 2003-04, “undistributed profit”

means total income with accumulated profit
including free reserve as reduced by the aggregate of
dividend or bonus share issued, declared or
distributed for that year, the tax which is payable
under section 74 and the paid-up capital. From AY
2004-05, “undistributed profit” means accumulated
profit including free reserve (changed by FA 2004).
 Exceptions
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/ heading goes here Principles

5. Imposition of excess profit tax: Under section 16C

(inserted by the FA 2002), a bank company operating
under the Bank Companies Act 1991, if shows, in the
return, profit exceeding 50% of the aggregate sum of
capital and reserve, shall pay tax @ 15% of such
excess profit as excess profit tax in addition to
normal tax.
6. Imposition of minimum tax: Under section 16CC
(inserted by the FA 2006), a company shall pay a
minimum income tax of Tk. 5,000 or 0.50% of
turnover whichever is higher, irrespective of profit or
loss.
 General Principles: Sec. 16(1)
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Income tax shall be imposed on total income of the income

year of every person and payable in the assessment year
at the tax rate determined by the Finance Act.
Taxpayer: Assessee – every person
Tax-base: Total income
Tax Period: Period for tax-base – income year
Period for tax-rate and tax-payment – assessment year
Tax rate: Prescribed by an Act of the Parliament (the
Finance Act)
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Exceptions to Basic Principles:

• TDS (tax deducted at source)/AIT (advance income tax)
• Special tax rates for selective income in Second Schedule
• Provision of surcharge and special taxes
 Formula to Calculate Income Tax Liability

Aggregate Income
–Exclusions
=Gross Income
–Allowable Deductions
=Taxable Income [Total Income as defined under ITO]
×Tax Rate
=Gross Tax
–Tax Credit on investment allowance
=Net Tax
–Tax Rebate & Tax Relief
=Tax Payable
–Tax deducted at sources (TDS) & Advance income tax (AIT)
=Tax Payable at the time of submitting return
 Scope
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/ heading Total
goes here Income u/s 17

SL Type of Income Included in Total Included in Total

Income of an Income of an non-
Resident Assessee resident Assessee

I Income received in Yes Yes

Bangladesh
Ii Income deemed to be Yes Yes
received in Bangladesh
Iii Income accrued or arisen in Yes Yes
Bangladesh
Iv Income deemed to accrue Yes Yes
or arise in Bangladesh
V Income accrued or arose Yes No
outside Bangladesh
 Characteristics of Income under Income Tax Law
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• Revenue types usually – but it may include capital

receipts [sec. 2(50)(a)]
2. Measurable in terms of money
3. Regular and definite receipts usually – but may be casual or
incidental or windfall [sec.19(13)]
4. Specific heads of income [sec. 20, Rule 24]
5. Derived from other persons
6. Derived from any sources – legal/illegal,
domestic/foreign
7. Temporary and permanent income
 Role
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goes here

8. Usually cash receipts – but may be “deemed to

be income, deemed to accrue or arise, or
deemed to be received”
9. Positive or negative
10. Computed after deducting some allowances
which are not at all business expenses [say,
investment allowance u/s 29(1)(x), 29(1)(xa)]
11. Computed after deducting some capital
expenditures in full in the year of incurrence
[u/s 29(1)(xx), 29(1)(xxiii)]
 Tax Rate for Non-Corporate Taxpayers
Investment tax credit
Tax rates applicable for every resident individual assessee, non-
resident Bangladeshi, HUF, AOP and every other judicial persons
except capital gain and accidental income:

Taxable Income Tax Rate

On the first TK 165, 000 of total income Nil

On the next TK 275,000 of total income 10%

On the next TK 325,000 of total income 15%

On the next TK 375,000 of total income 20%

On the balance of total income 25%

 Tax Rate for Non-Corporate Taxpayers
Investment tax credit

 The minimum non-assessable income limit will be TK

180,000 for women, elderly citizens being more than 65 years
of age.
 The minimum non-assessable income limit will be TK
200,000 for disable persons.
 However, the minimum tax would be TK 2,000.
 The assessee who paid tax at the highest rate of 25% in the
assessment year (AY) 2008-09, will enjoy 10% tax rebates on
the additional tax paid if he/she disclose more than 10% higher
income in (AY) 2009-10.
 Non-resident foreigner has to pay tax at the rate of 25% of his
income received in Bangladesh.
 Tax Rate for Non-Corporate Taxpayers
Investment tax credit

Capital Gain Tax Rate:

• Where the capital asset has been disposed off within
five years of acquisition- Capital gain should be
included in total income and taxed accordingly.
• Where the capital asset has been disposed off after
five years of acquisition- Lower of 15% and the rate
applicable to total income including capital gain.
Accidental Income:
• Income from winnings included in income from other
sources- Lower of the rate applicable to total income
including winnings and 20%.
 Tax Rate for Non-Corporate Taxpayers
Investment tax credit

 No tax is payable by a non-resident assessee in

respect of profits and gains arising from the transfer
of stocks or shares of a public company if the
assessee is entitled to similar exemption in his/ her
resident country.
 Profits and gains made from shares transactions in
stock exchanges by Bangladeshi residents are
exempted.
 Income Tax Rates for corporations
Investment tax credit

Tax Rate for Corporate Taxpayers: according to Finance ACT

2009, tax rates applicable to companies are as follows:
3. Publicly Traded Companies other than Bank, insurance,
financial institutions and mobile phone companies.
a. Capital Gain:
i. Transfer of stocks & shares of private limited
company [S.R.O. No. 220-Ain/Aykar/2004 dated
13.07.2004] at the rate of 10%.
ii. Transfer of other capital assets at the rate of 15%.
b. Dividend income at the rate of 20%.
c. Other income at the rate of 27.5%.(Notes on next slide)
 Income Tax Rates for corporations
Investment tax credit
• If the publicly traded company declared dividend higher than 20%,
it will get 10% tax rebate on the income tax payment.
• However, if the publicly traded company declared dividend lower
than 10%, the appropriate tax rate will be 37.5%.
• If the company is not publicly traded, the tax rates will be 37.5%
• Minimum tax of Tk. 5,000 for companies [u/s 16(CC)] or 0.50% of
turnover irrespective of profit or loss. However, this provision is
applicable from AY 2006-07 and not applicable in following cases:
a. Company enjoying Tax Holiday;
b. Company having tax exemption under any S.R.O.;
and
c. Income of a company on which tax deduction is
applicable and the TDS (tax deducted at source) is a
final settlement of tax liability as per section 82C.
 Income Tax Rates for corporations
Investment tax credit

2. Bank, insurance and financial institutions:

a. Capital Gain:
i. Transfer of stocks & shares of private
limited company [S.R.O. No. 220-
Ain/Aykar/2004 dated 13.07.2004] at
the rate of 10%.
ii. Transfer of other capital assets at the rate
of 15%.
b. Dividend income at the rate of 20%.
c. Other income at the rate of 42.5
 Income Tax Rates for corporations
Investment tax credit

3. Mobile phone companies

a. Capital Gain:
i. Transfer of stocks & shares of private
limited company [S.R.O. No. 220-
Ain/Aykar/2004 dated 13.07.2004] at
the rate of 10%.
ii. Transfer of other capital assets at the rate
of 15%.
b. Dividend income at the rate of 20%.
c. Other income at the rate of 42.5%.(Notes on
next slide)
 Income Tax Rates for corporations
Investment tax credit

However, 35% tax rate on mobile phone company instead of

45% in case of Initial Public Offering (IPO) with maximum 5%
Pre IPO Placement
 Tax Incentives
Investment tax credit

 Tax holiday : Tax holiday is allowed for industrial undertaking,

tourist industry and physical infrastructure facility established
between 1st July 2008 to 30th June 2011 in fulfillment of certain
conditions.
Industrial Undertaking Eligible for Tax holiday :
(i) Anindustry engaged in production of textile, textile
machinery, jute goods, high value garments, pharmaceuticals,
melamine, plastic products, ceramics, sanitary ware, steel from
iron ore, MS Rod, CI Sheet, fertilizer, insecticide & pesticide,
computer hardware, petro-chemicals, agriculture machinery,
boilers, compressors, basic raw materials of drugs, chemicals and
pharmaceuticals.
(ii) An industry engaged in agro-processing, ship
building, diamond cutting.
 Tax Incentives
Investment tax credit

Physical Infrastructure Eligible for Tax holiday:

Sea or river port, container terminals, internal container depot,
container freight station, LNG terminal and transmission line,
CNG terminal and transmission line, gas pipe line, flyover,
mono rail, underground rail, telecommunication other than
mobile phone, large water treatment plant & supply through
pipe line, waste treatment plant, solar energy plant, export
processing zone
Tourism Industry Eligible for Tax holiday
Residential hotel having facility of three star or more.
 Tax Incentives
Investment tax credit

b) Accelerated depreciation: Accelerated depreciation on cost of

machinery is admissible for new industrial undertaking in the first
year of commercial production 50%, in the second year 30% and
in the third year 20%.
c) Income derived from any Small and Medium Enterprise (SME)
engaged in production of any goods and having an annual
turnover of not more than taka twenty four lakh is exempt from
tax.
d) Industry set up in EPZ is exempt from tax for a period of 10 years
from the date of commencement of commercial production.
 Tax Incentives
Investment tax credit

e) Income from fishery, poultry, cattle breeding, dairy farming,

horticulture, floriculture, mushroom cultivation and sericulture are
exempt from tax up to 30th June, 2011, subject to investing at
least 10% of the exempted income that exceeds one lakh Taka, in
government bonds.
f) Income derived from export of handicrafts is exempted from tax up
to 30th June, 2011.
g) An amount equal to 50% of the income derived from export
business is exempted from tax.
 Tax Incentives
Investment tax credit

h) Listed companies are entitled to 10% tax rebate if they declare

dividend of 20% or more.
i) Income from Information Technology Enabled Services (ITES)
business is exempted up to 30th June, 2011.
 Non-Assessable
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 Income which will not be included in the taxable income is

called non-assessable income mentioned in Part A, Sixth
Schedule [section 44(1)] or through S.R.O. circulated under
section 44(4).
 Part-A, Sixth Schedule [28 items]

 Paragraphs # 1-8, 12-13, 14, 15-22, 22A, 24-30, 31A, 31B

 Paragraphs
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Para-1: Income derived from house property held under trust

or other legal obligation (not applicable for an NGO
registered with NGO Affairs Bureau)
Para-1A: Income derived from micro credit operation by a NGO
registered with NGO Affairs Bureau.
Para-2: Income of a religious or charitable institution derived
from voluntary contributions
Para-3: The income of a local government.
Para-4: Income of a Govt. provident fund (PF) and workers
participation fund
 Paragraphs # 5-8, 12- 13

Para-5: Special allowance, benefits or perquisite granted to meet

official expenses
Para-6: Income of a recognized PF, an approved superannuation
fund and an approved gratuity fund.
Para-7: Income of persons working in embassy, high
commissioner, or other foreign mission
Para-8: Pension
Para-12:Interest from taxable govt. securities up to Taka 5,000
Para-13:Interest on debenture up to Taka 20,000
But joint exemption under para 12 and para 13 up to Taka
20,000.
 Paragraphs
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Para-14: Income from newly constructed house property (valid

up to income year 2003-2004).
Para-15: “Salaries” of a foreign technician employed in
manufacturing industries for a maximum period of 3 years
from the date of his arrival
Para-16:Tax paid by employer on salary of foreign technicians
for a maximum period of 5 years after expiry of first 3 years
of exemption
Para-17: “Salaries” of a foreign technician employed in
Bangladeshi consulting and engineering firm in Bangladesh
for a maximum period of 3 years from the date of his arrival
and then for employer tax on salary for another maximum 5
years
 Paragraphs
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/ heading goes – 22A, 24-25

Para-18: Share of income of a partner out of the capital gains on

which tax has been paid by the firm
Para-19: Income of a member of a HUF paid out of the income
of the family.
Para-20: Gratuity.
Para–21:Payment from Govt. PF, recognized PF, approved
superannuation fund or workers participation fund
Para-22A: Income from dividend of a mutual or Unit Fund
where such dividend does not exceed 25,000 taka.
Para-24: Interest on tax-free Govt. securities
Para-25: Interest on accumulated balance of an employee in a
recognized PF up to 1/3rd of salary or 14.5% interest rate
 Paragraphs
Page Title # 26here
/ heading goes - 29
Para-26: Amount received by an employee of a Government
organization, a local authority, or an autonomous or semi-
autonomous body at the time of his voluntary retirement
Para-27: Income of an individual, being an indigenous Hillman
of any of the hill districts of Rangamati, Bandarban and
Khagrachari, derived from economic activities within the hill
districts
Para-28: 50% of the export income except in case of an
assessee, who is enjoying exemption of tax or reduction in rate of
tax by any notification
Para-29: “Agricultural income” up to Taka 40,000 when only
source of income is agriculture
 Paragraphs
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Para-30: Income of the mutual fund of the person issuing such

mutual fund
Para-31A: Capital gains from transfer of machinery or plant
used for the purpose of business or profession
Para-31B: Income not exceeding Taka 25 thousand received
from interest on savings instruments, where no source-tax is
deducted u/s 52D (i.e., savings instruments purchased during 10
June 1999 to 31 December 2003).
 Investment
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This is a tax incentive on “investment allowance” at the rate

of 15%.

Part-B, Sixth Schedule

Investment allowance consists of those items of
investments, donations, contributions, etc. mentioned in
Part-B, Sixth Schedule except paragraphs 15 and 16 of
Part B, Sixth Schedule [section 44(2)].
 Investment
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Para-1: Insurance premium or payment towards deferred annuity

contract, on the life of the assessee or spouse or minor children up
to 10% of policy value
Para-2:Insurance premium on a member of HUF
Para-3:Sum deducted from salary for a deferred annuity or of
making provisions for his wife or children, up to deduction of 1/5th
of salary.
Para-4:Contribution to any Govt. provident fund
Para-5:Assessee's and employer's contribution to a recognized PF
Para-6:Ordinary annual contribution to approved superannuation
fund
 Investment tax credit

Para-8: Investment in stocks or shares of a company (listed with a Stock

Exchange in Bangladesh) or other body corporate by non-corporate
assessee
Para-9: Investment in the purchase of debentures or debenture-stocks
from primary market by a non-corporate assessee, up to lesser of
following two:-
(a) Net investment in concerned income year ;
(b) Net investment in last three income years.
Para-10: Investment by a non-corporate assessee in the purchase of: (a)
savings certificates or instruments; (b) ICB unit certificates and
mutual fund certificates; (c) other Government securities (including
Development loans or Bonds); and (d) shares of investment
companies, but investment tax credit will be disallowed if sold
within 5 years from the date of investment.
 Investment tax credit
Investment tax credit

Para-11: Contribution by an individual in DPS

Para-11A: Donation by an assessee to a charitable hospital
Para-11B: Donation by an assessee to an organization set up for
the welfare of retarded people
Para-13: Payment by an assessee as Zakat to the Zakat Fund
Para-17: Payment by an assessee, to a benevolent fund or any
group insurance premium
Para-21: Payment by an assessee as donation to any socio-
economic or cultural development institution established in
Bangladesh by the Aga Khan Development Network.
Para-22: Payment by an assessee as donation to a philanthropic
or educational institution