Understanding income tax in Bangladesh is essential for salaried individuals to ensure they comply with regulations and avoid any discrepancies in their payments. For many, the tax calculation process can seem complex—especially when dealing with various income components. However, with the right knowledge, the process can be made easy and straightforward. This guide will walk you through everything you need to know about calculating income tax for the fiscal year 2025-26.
What is Income Tax in Bangladesh?
Income tax in Bangladesh is governed by the Income Tax Act of 1961. This law requires individuals, including salaried professionals, to contribute a percentage of their earnings to the government. The act has undergone several amendments over the years to accommodate changes in tax rates, exemptions, and deductions. Taxable income is calculated by subtracting allowable deductions from the total income, and the remaining amount is taxed based on specific tax rates.
Key Updates in Income Tax Policy for FY 2025-26
The tax policy for FY 2025-26 brings some crucial changes to income tax rates and income thresholds for individuals. Here are the key updates:
Tax-Free Income Ceiling
For the fiscal year 2025-26, the tax-free income ceiling remains at BDT 350,000, meaning that individuals with annual income below this amount will not be required to pay any income tax.
New Top Tax Rate
A new top tax rate of 30% has been introduced for individuals whose annual income exceeds BDT 3.85 crore.
Revised Tax Brackets
The tax brackets have been updated to better balance the tax burden across different income levels, ensuring that the tax system is fairer for individuals across various earning categories.
Updated Income Tax Rates for Individuals (FY 2025-26)
Here’s a breakdown of the revised tax rates for individuals based on their income:
| Income Range (BDT) | Tax Rate (%) |
|---|---|
| Up to BDT 350,000 | 0% |
| BDT 350,001 to BDT 450,000 | 5% |
| BDT 450,001 to BDT 850,000 | 10% |
| BDT 850,001 to BDT 1,350,000 | 15% |
| BDT 1,350,001 to BDT 1,850,000 | 20% |
| BDT 1,850,001 to BDT 3,850,000 | 25% |
| Above BDT 3,850,000 | 30% |
Additional Changes in Tax Rates
Aside from individual taxes, there are also updates for businesses and organizations:
Non-Publicly Traded Companies: The tax rate for these companies has been reduced from 27.5% to 25%, subject to certain conditions.
One Person Companies (OPC): The tax rate for OPCs has decreased from 22.5% to 20%, with specific conditions applying.
Cooperative Societies: The tax rate for cooperative societies has increased from 15% to 20%.
These changes reflect the government’s commitment to economic reform and fairness in the tax structure.
How to Calculate Income Tax on Your Salary
To calculate your income tax, you need to understand the different components that make up your salary, including basic salary, allowances, bonuses, and deductions. Below is an example salary breakdown to illustrate how taxes are calculated.
Key Salary Components:
Basic Salary: Your regular wage.
House Rent Allowance (HRA): Amount paid for housing.
Conveyance Allowance: Reimbursement for commuting.
Medical Allowance: For medical expenses.
Bonuses: Including performance and festival bonuses.
Leave Encashment: Payment for unused leave.
Overtime Allowance: Additional pay for extra work.
Transportation Allowance: For additional travel expenses.
Advance Income Tax (AIT): Tax deducted at source by the employer.
Example Salary Breakdown:
| Particulars | Amount (BDT) |
|---|---|
| Basic Salary | 600,000 |
| House Rent Allowance (HRA) | 360,000 |
| Conveyance Allowance | 180,000 |
| Medical Allowance | 60,000 |
| Leave Encashment | 10,000 |
| Performance Bonus | 50,000 |
| Yearly Bonus | 100,000 |
| Festival Bonus | 20,000 |
| Overtime Allowance | 10,000 |
| Transportation Allowance | 10,000 |
| Total Gross Pay | 1,400,000 |
| Advance Income Tax (AIT) | 18,000 |
| Net Pay | 1,382,000 |
In this example, the employee’s total gross pay is 1,400,000 BDT, with an Advance Income Tax of 18,000 BDT deducted at source. The net pay becomes 1,382,000 BDT.
Step-by-Step Income Tax Calculation
Let’s go through the steps to calculate the income tax on your salary.
Step 1: Determine Tax-Free Income
The tax-free income is the lesser of:
One-third of your total earnings, or
The maximum tax-free limit, which is 350,000 BDT.
In this example:
One-third of total earnings = 466,667 BDT
Maximum tax-free limit = 350,000 BDT
Thus, the tax-free income is 350,000 BDT.
Step 2: Calculate Taxable Income
To calculate your taxable income, subtract the tax-free income from your total earnings.
Taxable Income = 1,400,000 BDT – 350,000 BDT = 1,050,000 BDT
Step 3: Apply Income Tax Slabs
Now, apply the relevant tax rates based on the updated tax slabs:
First Slab (0%): 0 BDT (for income up to 350,000 BDT)
Second Slab (5%): 5% of 100,000 BDT = 5,000 BDT
Third Slab (10%): 10% of 400,000 BDT = 40,000 BDT
Fourth Slab (15%): 15% of 200,000 BDT = 30,000 BDT
Total tax = 5,000 BDT + 40,000 BDT + 30,000 BDT = 75,000 BDT
Step 4: Calculate Rebate
You can reduce your tax burden with rebates. Common rebates include:
3% of taxable income: 3% of 1,050,000 BDT = 31,500 BDT
15% of total investment: If you have eligible investments (e.g., life insurance, provident funds), this rebate is 15% of your investment.
In this example, the lowest rebate of 31,500 BDT applies.
Step 5: Final Tax Calculation
Finally, subtract the total rebate from the total tax to calculate the net tax payable:
Net Tax Payable = 75,000 BDT – 31,500 BDT = 43,500 BDT
Tax Calculation for a Monthly Salary of 50,000 BDT
If you earn a monthly salary of 50,000 BDT, the annual income would be 600,000 BDT. Here’s how to calculate your tax:
First Slab (0%): 0 BDT
Second Slab (5%): 5% of 100,000 BDT = 5,000 BDT
Third Slab (10%): 10% of 150,000 BDT = 15,000 BDT
Total tax = 5,000 BDT + 15,000 BDT = 20,000 BDT
Recommendations for Tax Filers
To ensure you don’t overpay or underpay your taxes, here are some tips:
Track all earnings and deductions.
Leverage tax-saving opportunities, such as investments and tax-exempt allowances.
File returns on time to avoid penalties.
Consult a tax professional for complicated cases.
For a detailed walkthrough, refer to How to fill up an Income Tax Return form online and Submit an Income Tax Return Online in Bangladesh.
Conclusion
Understanding how to calculate income tax is key for every salaried individual in Bangladesh. By following this guide and staying on top of the latest updates to tax rates, you can avoid potential tax issues and ensure compliance. If you’re unsure or dealing with complex financial situations, don’t hesitate to consult with a professional tax advisor to ensure everything is in order.
FAQs
What is the tax-free income ceiling for FY 2025-26?
BDT 350,000, meaning those earning below this threshold do not pay tax.
How is income tax calculated for salaried individuals in Bangladesh?
Tax is calculated based on taxable income, which is income after allowable deductions. Tax is then applied using progressive tax slabs.
What are the new tax rates for FY 2025-26?
The updated tax slabs range from 0% to 30%, with new thresholds for higher earners.
Can I reduce my tax liability with rebates?
Yes, you can reduce your tax by utilizing available rebates, such as a percentage of taxable income or total investments.
What happens if I miss the deadline for submitting my income tax return?
Late submissions may incur penalties and interest charges. Always file on time to avoid this.
This guide helps you confidently calculate your taxes and ensures that you are prepared for any changes in the tax law.
