Income tax is a significant source of revenue for the government and plays a crucial role in the nation’s financial framework. For salaried individuals in Bangladesh, understanding how to compute income tax is essential to fulfill their obligations efficiently and avoid any discrepancies in payments. Although the process of calculating income tax might seem complicated, especially for those with various income components, this guide simplifies the calculation process for the fiscal year 2024-25.
What is income tax in Bangladesh?
In Bangladesh, income tax is governed by the Income Tax Act of 1961, which mandates that every salaried individual contribute a portion of their earnings to the government. Over the years, various amendments and modifications have been introduced to address tax payments, deductions, and computations. The amount of tax paid is calculated after considering all applicable tax-saving provisions and deductions.
Income Tax Policy in Bangladesh for FY 2024-25
The income tax rates for individuals in Bangladesh for the 2024-2025 assessment year (which applies to income earned in the 2023-2024 fiscal year) were proposed in the national budget for 2024-2025. These rates are expected to remain in effect, with key changes summarized as follows:
Key Changes:
Tax-free income ceiling remains at BDT 350,000.
Introduction of a new top bracket rate of 30% applicable to income exceeding BDT 3.85 crore.
Revision of certain lower bracket thresholds to adjust tax liabilities for individuals with different income levels.
Here’s an updated summary of the income tax brackets for individuals for the fiscal year 2024-25:
| Income Range (BDT) | Tax Rate (%) |
|---|---|
| Up to 350,000 | 0% |
| 350,000 to 450,000 | 5% |
| 450,000 to 850,000 | 10% |
| 850,000 to 1,350,000 | 15% |
| 1,350,000 to 1,850,000 | 20% |
| 1,850,000 to 3,850,000 | 25% |
| Above 3,850,000 | 30% |
Additional Changes in Tax Rates:
Non-publicly traded companies: Tax rate reduced from 27.5% to 25.0% with specific conditions.
One Person Companies (OPC): Tax rate reduced from 22.5% to 20.0% with certain conditions.
Cooperative societies: Tax rate increased from 15.0% to 20.0%.
For the most up-to-date tax information, it’s recommended to consult the National Board of Revenue of Bangladesh (NBR) or a professional tax advisor in Bangladesh.
How to Calculate Income Tax on Your Salary
The income tax calculation involves understanding various components of your salary, including basic salary, allowances, bonuses, and any deductions. Here’s a breakdown of how to approach tax calculation:
Key Salary Components:
Basic Salary: This is your regular monthly wage or base income.
House Rent Allowance (HRA): Covers your housing expenses.
Conveyance Allowance: Covers commuting expenses.
Medical Allowance: For medical expenses.
Bonuses: Includes performance, yearly, or festival bonuses.
Leave Encashment: Payment for unused leave days.
Overtime Allowance: Additional compensation for working beyond regular hours.
Transportation Allowance: Covers additional travel expenditures.
Advance Income Tax (AIT): Taxes deducted at the source by your employer.
Example Salary Breakdown
Let’s look at an example of an employee’s salary to see how the components add up:
| Particulars | Amount (BDT) |
|---|---|
| Basic Salary | 600,000 |
| House Rent Allowance | 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 (AIT) of 18,000 BDT deducted at the source, leaving a net pay of 1,382,000 BDT.
Step 1: Determine Tax-Free Income
Tax-free income is calculated as the lesser of one-third of your total earnings or the maximum tax-free income limit of 350,000 BDT. In this case, one-third of the total earnings equals 466,667 BDT, but since 350,000 BDT is the limit, the tax-free income is 350,000 BDT.
Step 2: Calculate Taxable Income
Your taxable income is obtained by subtracting the tax-free income from your total earnings. For this example:
Taxable Income = 1,400,000 BDT – 350,000 BDT = 1,050,000 BDT.
Step 3: Apply Income Tax Slabs
Next, apply the appropriate tax rates based on the slabs for the fiscal year 2024-25. Let’s break down the tax calculation:
First Slab: Up to 350,000 BDT – 0% tax = 0 BDT
Second Slab: 350,001 to 450,000 BDT – 5% tax on 100,000 BDT = 5,000 BDT
Third Slab: 450,001 to 850,000 BDT – 10% tax on 400,000 BDT = 40,000 BDT
Fourth Slab: 850,001 to 1,050,000 BDT – 15% tax on 200,000 BDT = 30,000 BDT
Total Tax = 5,000 BDT + 40,000 BDT + 30,000 BDT = 75,000 BDT.
Step 4: Rebate Calculation
Rebates can reduce the tax payable. These include:
3% of Taxable Income: 3% of 1,050,000 BDT = 31,500 BDT
15% of Total Investment: 15% of 800,000 BDT = 120,000 BDT
Choose the Lowest: The smallest rebate is 31,500 BDT.
Adding this to the Advance Income Tax (AIT) of 18,000 BDT, the total rebate is:
Total Rebate = 31,500 BDT (lowest rebate) + 18,000 BDT (AIT) = 49,500 BDT.
Step 5: Final Tax Calculation
Subtract the total rebate from the initial tax to find the net tax payable:
Net Tax = 75,000 BDT – 49,500 BDT = 25,500 BDT.
Tax Calculation Example for a Monthly Salary of 50,000 BDT
Now, let’s consider a scenario where a person has a monthly salary of 50,000 BDT. The annual income would be:
Annual Salary = 50,000 BDT × 12 months = 600,000 BDT.
Let’s break it down according to the income tax slabs:
First Slab: The first 350,000 BDT is tax-free.
Second Slab: The next 100,000 BDT is taxed at 5% = 5,000 BDT.
Third Slab: The remaining 150,000 BDT is taxed at 10% = 15,000 BDT.
Total Tax = 5,000 BDT + 15,000 BDT = 20,000 BDT.
Thus, the total tax payable for an annual income of 600,000 BDT would be 20,000 BDT for the fiscal year.
Recommendations
To ensure compliance and avoid overpaying or underpaying taxes, it’s essential to consider the following recommendations:
Keep Track of Your Earnings and Deductions: Always maintain a clear record of your salary components, including bonuses, allowances, and reimbursements. This helps in accurately calculating your tax liability.
Take Advantage of Tax Savings: If you have investments or are eligible for tax-saving opportunities, make sure to leverage these benefits to reduce your taxable income.
Submit Your Tax Returns on Time: Ensure you file your tax returns before the due date to avoid penalties or interest for late submission.
Consult a Tax Professional: If you have any doubts about your tax situation, consulting a tax professional or a certified tax advisor can help you navigate the complexities of tax laws.
Plan for Future Tax Liabilities: Consider your salary growth and potential changes in tax slabs in future fiscal years. Planning ahead can help you optimize your tax burden in the long term.
Conclusion
Understanding how to calculate your income tax in Bangladesh is crucial for ensuring you pay the correct amount and avoid overpayment or underpayment. By following the steps outlined above, you can accurately compute your tax liability based on your salary, bonuses, allowances, and deductions. Always ensure that you keep track of your investments and allowances as they may offer valuable tax rebates.
If you’re unsure about your tax situation, it’s advisable to consult a professional tax advisor or lawyer to ensure compliance with the regulations and avoid any issues with the tax authorities
