Income Tax (Ranjan Sir)

e-mail: [email protected], Cell no - 01922939126

Study Materials

Taxation

Lectures

Of

Ranjan Kumar Bhowmik FCMA

Compiled by:

Asif Ahmed

Articled Student

KPMG in Bangladesh

Rahman Rahman Huq

Chartered Accountants

UserText BoxSpecial thanks to Rajesh Chandra Kuri, Md. Masrul Mollah and A S M Mahfuz of KPMG for their nice cooperation.

ASIF AHMED (KPMG) Page 2 of 74

SL Lectures Contents Page

01 Lecture # 01 Income tax authority, types of taxes, some important

definitions, tax rate, reduced tax rate

3 9

02 Lecture # 02 & 03 Income from salary 10 20

03 Lecture # 04 Income from interest on securities, Income from house

property, Agricultural income

21 31

04 Lecture # 05 Capital Gain 32 34

05 Lecture # 06 & 07 Income from business and profession (deemed income) 35 43

06 Lecture # 08 Income from other sources, Company assessment (math) 44 48

07 Lecture # 09 Set off and carry forward losses, Advance income tax 49 50

08 Lecture # 11 Deduction and collection of tax at source 50 50

09 Lecture # 10 Assessment of partnership firm 51 49

10 Lecture # 12, 13 & 14 Assessment, Penalty 50 57

11 Lecture # 15 Tax appeal 60 65

12 Lecture # 16 Individual Tax Assessment Problem, Salient features of

finance act, 2012.

66 66

13 Lecture # 17 Alternate Dispute Resolutions, Resident Vs. Non-

resident; DTAA

67 74

14 Lecture # 18

:Contents:


Lecture # 01

02.06.2012

Coverage:

1. Income Tax Ordinance 1984

2. Income Tax Ordinance 1984

3. SRO (Statutory Regulatory Order)

4. Circular of NBR

5. Case References

a. ITR (Indian Tax Report)

b. BTD (Bangladesh Tax Decisions)

Direct Tax Vs Indirect Tax:

Impact and incidence of the direct tax are on the same people, but in case of indirect tax both of them can be shifted

to others which is ultimate bear by the final consumer.

Income Tax Laws:

Section (sub section)

Section Clause (sub clause)

Rule (sun rule)

IT Ordinance Vs IT Rules:

Tax Ordinance made or changed by the parliament

Tax Rules made by NBR

Govt. can reduce tax burden through SRO but cannot imply tax. Power to impose new tax is lid on the parliament.

Income Tax Authority (Section 3):

Section 3:

There shall be the following classes of income tax authorities for the purposes of this Ordinance, namely:-

1. (1) The National Board of Revenue,

2. [(1A)]Deleted. F.A. 1995

3. [(1B) Chief Commissioner of Taxes;]Added F. A. 2011

4. (2) Directors-General of Inspection (Taxes),

5. (2A) Commissioner of Taxes (Appeals),

6. (2B) Commissioner of Taxes (Large Taxpayer Unit),

7. (2C) Director General (Training);

8. (2D) Director General, Central Intelligence Cell ;

9. (3) Commissioners of Taxes,

10. (3A) Additional Commissioners of Taxes who may be either Appellate Additional Commissioner of

Taxes or Inspecting Additional Commissioner of Taxes,

11. (4) Joint Commissioner of Taxes who may be either Appellate Joint Commissioners of taxes or

Inspecting Joint Commissioner of Taxes,

12. (5) Deputy Commissioners of Taxes,

13. [(6) Tax Recovery Officers nominated by the Commissioner of Taxes among the Deputy

Commissioner of Taxes within his jurisdiction;]Subs F. A. 2011

14. (7) Assistant Commissioners of Taxes,

15. (8) Extra Assistant Commissioners of Taxes; and

16. (9) Inspectors of Taxes


Income tax authority is as follows

1. NBR Supreme authority headed by the Chairman.

2. Chief Commissioner of Taxes (not yet appointed anyone)

3. Commissioner of Taxes (CT);

a. DG (Central Intelligence Cell, CIC);

b. DG (Inspection);

c. CT (Appeal);

d. DG (Training);

e. CT (Large Taxpayer Unit);

4. Additional Commissioner of Taxes (ACT);

a. Appellate Additional Commissioner of Taxes (AACT);

b. Inspecting Additional Commissioner of Taxes (IACT);

5. Joint Commissioner of Taxes (JCT);

a. Appellate Joint Commissioner of Taxes (AJCT);

b. Inspecting Joint Commissioner of Taxes (IJCT)

6. Deputy Commissioner of Taxes (DCT)

a. TRO Tax Recovery Officer;

7. Assistant Commissioner of Taxes;

8. Extra Assistant Commissioner of Taxes; and

9. Inspector of Taxes.

Types of Taxes:

Some Important Definitions:

NBR

Customs & VAT Income Tax

Income

Tax

Foreign

Travel Tax

Gift

Tax

Value

Added Tax

Turnover

Tax

Supplementary

Duty

Income; (section 2(34)):

Income" includes--

1. (a) any income, profits or gains, from whatever source derived, chargeable to tax under any provision of

this Ordinance under any head specified in section 20;

2. (b) any loss of such income, profits or gains;

3. (c) the profits and gains of any business of insurance carried on by a mutual insurance association

computed in accordance with paragraph 8 of the Fourth Schedule;

4. (d) any sum deemed to be income, or any income accruing or arising or received, or deemed to accrue or

arise or be received in Bangladesh under any provision of this Ordinance:

5. []Deleted F.A. 1993

6. Provided that the amount representing the face value of any bonus share or the amount of any bonus

declared, issued or paid by any company registered in Bangladesh under , 1994 (1994 18 ) to its shareholders with a view to increase its paid-up share capital shall not be included as income of that share holder;


Income Year and Assessment Year:

TAX; (section 2(62)):

"Tax" means the income tax payable under this Ordinance and includes any additional tax, excess profit tax,

penalty, interest, fee or other charges leviable or payable under this Ordinance;"

Assessee; (section 2(7)):

"Assessee", means a person by whom any tax or other sum of money is payable under this Ordinance, and

includes -

1. (a) every person in respect of whom any proceeding under this Ordinance has been taken for the

assessment of his income or the income of any other person in respect of which he is assessable, or of

the amount of refund due to him or to such other person;

2. (b) every person who is required to file a return under section 75, section 89 or section 91;

3. (c) every person who desires to be assessed and submits his return of income under this Ordinance; and

4. (d) every person who is deemed to be an assessee, or an assessee in default, under any provision of this

Ordinance; leviable or payable under this Ordinance;"

Person; (section 2(46)):

"Person" includes an individual, a firm, an association of persons, a Hindu undivided family, a local authority, a

company and every other artificial juridical person;

Assessment Year; (section 2(9)):

"Assessment year" means the period of twelve months commencing on the first day of July every year; and

includes any such period which is deemed, under the provisions of this Ordinance, to be assessment year in

respect of any income for any period;

Income Year; (section 2(35)):

"Income year", in respect of any separate source of income, means--

(a) the financial year immediately preceding the assessment year; or

(b) where the accounts of the assesses have been made up to a date within the said financial year and the

assesses so opts, the twelve months ending on such date; or

(c) in the case of a business or profession newly set up in the said financial year, the period beginning with the

date of the setting up of the business or profession and -

(i) ending with the said financial year; or

(ii) where the accounts of the assesses have been made up to a date within the said financial year and the

assesses so opts, ending on that date; or

(d) in the case of a business or profession newly set up in the twelve months immediately preceding the said

financial year--

(i) if the accounts of the assessee have been made up to a date within the said financial year and the period

from the date of the setting up of the business or profession to the first-mentioned date does not exceed

twelve months, then, at the option of the assesses, such period, or

(ii) if any period has been determined under sub-clause (e), then the period beginning with the date of the

setting up of the business or profession and ending with the last day of that period, as the case may be; or

(e) in the case of any person or class of persons or any business or profession or class of business or

profession such period as may be determined by the Board or by such authority as the Board may authorise in

this behalf;

(f) in respect of the assessee's share in the income of a firm of which the assessee is a partner and the firm has

been assessed as such, the period determined as the income year for the assessment of income of the firm;

(g) where in respect of a particular source of income an assessee has once been assessed or where in respect of

a business or profession newly set up, an assessee has once exercised the option under sub-clause (b) or sub-

clause (c) (ii) or sub-clause (d) (i) then, he shall not, in respect of that source, or, as the case may be, business

or profession, be entitled to vary the meaning of the expression "income year" as then applicable to him,

except with the consent of the Deputy Commissioner of Taxes upon such conditions as the Deputy

Commissioner of Taxes may think fit to impose;


Income Year Assessment Year

July 1, 2011 June 30, 2012 2012-2013

January 1, 2011 December 31, 212 2012-2013

August 1, 2011 July 31, 2012 2012-2013

1. If proper books of accounts maintained, income year can be started from any month, but cannot be changed

without prior notice to DCT.

2. If proper books of accounts not maintained (individual), income year must be the financial year.

3. Firms (partnership) income year and its partners income should be the same.

Resident and Non-Resident:

For Individual 182 days or 90 days + 365 days in previous 4 years

For Company and Firm

Tax Rate:

Other than Company:

Entity other than the company (individual, HUF, firms etc) are taxed at progressive rate as below

On the 1st tk. 200,000 Nil

On next tk. 300,000 10%

On next tk. 400,000 15%

On next tk. 300,000 20%

Balance amount 25%

For women and senior citizen (65+) first slab will be of tk. 225,000 and for handicapped it is of tk. 275,000.

As per second schedule, in case of non-resident non-Bangladeshi tax rate is 25% direct.

Firm Company

Partial Control & Management Resident Non-Resident

Full Control & Management Resident Resident

Resident; (section 2(55)):

"Resident", in respect of any income year, means -

1. (a) an individual who has been in Bangladesh -

1. (i) for a period of, or for periods amounting in all to, one hundred and eighty two days or more in that

year; or

2. (ii) for a period of, or periods amounting in all to, ninety days or more in that year having previously been

in Bangladesh for a period of, or periods amounting in all to, three hundred and sixty-five days or more

during four years preceding that year;

2. (b) a Hindu undivided family, firm or other association of persons, the control and management of whose

affairs is situated wholly or partly in Bangladesh in that year; and

3. (c) a Bangladeshi company or any other company the control and management of whose affairs is situated

wholly in Bangladesh in that year;

Study References:

1. Finance Act

2. Section 16 of ITO

3. Second Schedule of ITO

4. SRO (Reduced tax rate)


Company:

Company tax rate is direct on its assessment income at following rate

1. Listed company 27.5%

2. Non listed or non-resident company 37.5%

3. Bank, insurance & NBFI 42.5%

4. Mobile Phone

a. If listed 35%

b. If not listed 45%

5. Cigarette

a. If listed 35%

b. If not listed 42.5%

6. Merchant Bank 37.5%

Income from any dividend received from any other company (where the company hold shares) tax on such

dividend will be 20%.

Tax on capital gain of the company will be 15%.

Income other than these two will be taxed as above.

Section 16:

Declared dividend

more than 10%

Declared dividend

more than 20%

Tax rate will be

24.75%

Tax rate will be

37.50%

Listed Company

Section - 16B; Charge of additional tax:

1. Notwithstanding anything contained in section 46A, where a public limited company, not being a

banking or insurance company, listed with any stock exchange in Bangladesh, has not issued, declared

or distributed dividend or bonus share equivalent to at least fifteen percent of its paid up capital to its

share holders within a period of six months immediately following any income year, the company shall

be charged additional tax at the rate of five per cent on the undistributed profit in addition to tax payable

under this Ordinance.

2. Explanation.- For the purpose of this section, "undistributed profit" means total income with

accumulated profit including free reserve.

Section - 16C; Charge of excess profit tax:

1. Where a banking company operating under , 1991 (1991 14 ) shows profit in its return of income for an income year at an amount exceeding fifty per cent of its capital as

defined under the said Act together with reserve, the company, in addition to tax payable under the

Ordinance, shall pay an excess profit tax for that year at the rate of fifteen per cent on so much of profit

as it exceeds fifty per cent of the aggregate sum of the capital and reserve as aforesaid.


Capital Gain (Second Schedule):

Example, salary income tk. 500,000 and capital gain tk. 1,000,000 = total income tk. 1,500,000, tax

On 1st tk. 200,000 Nil

Next tk. 300,000 30,000

Next tk. 400,000 60,000

Next tk. 300,000 60,000

Next tk. 300,000 75,000

Total tk. 1,500,000 225,000

Or

(300,000*10%) + (1,000,000*15%) = tk. 180,000

Lower one (which is Tk. 180,000)

Section - 16CCC; Charge of minimum tax:

1. Notwithstanding anything contained in any other provisions of this Ordinance, every company shall,

irrespective of its profits or loss in an assessment year for any reason whatsoever, including the

sustaining of a loss, the setting off of a loss of earlier year or years or the claiming of allowances or

deductions (including depreciation) allowed under this Ordinance, be liable to pay minimum tax at the

rate of zero point five zero (0.50%) per cent of the amount representing such company's gross receipts

from all sources for that year.

2. Explanation: For the purposes of this section, 'gross receipts' means-

1. (a) all receipts derived from the sale of goods;

2. (b) all fees or charges for rendering services or giving benefits including commissions or

discounts;

3. (c) all receipts derived from any heads of income.]Added F.A. 2011

Section - 16E; Charge of tax on sale of share at a premium over face value:

Notwithstanding anything contained in any other provisions of this Ordinance or any other law, where a company

raises its share capital through book building or public offering or rights offering or placement or preferential

share or in any other way, at a value in excess of face value, the company shall be charged, in addition to tax

payable under this Ordinance, tax at the rate of three (3) percent on the difference between the value at which the

share is sold and its face value. Added F.A. 2010

Other than Company:

Company:

15%

Within 5 yrs of purchase:

normal rate

Capital Gain

After 5 yrs of purchase:

1. Slab rate on total

income; or

2. Tax on cap. Gain

15% and on other

income, normal

slab rate

Whichever is lower


In case of gain of winning any lottery tax are deducted @ 20% at source though it can be computed with total income,

but no further tax rebate can be claimed.

Reduced Tax Rate (SRO):

1. Capital gain on sale of share for company 10%

2. Jute, Textile 15%

3. Private University, Private College 15%

4. Local authority (RAJUK, BRTA, CDA, KDA etc) 25%

Asif Ahmed Articled Student

KPMG (Bangladesh) Rahman Rahman Huq

[email protected]

01922939126


Lecture # 02 & 03

09.06.2012 / 10.06.2012

Income from Salary:

Definition of Salary:

There is no exhaustive definition of salary at Income Tax Ordinance, 1984. Only an inclusive definition is given at

section 2(58) where salary includes the following:-

a) Wages

b) Annuity

c) Pension Totally exempted as per 6th Schedule (Part-A) Para-8

d) Gratuity Totally exempted as per 6th Schedule (Part-A) Para-20

e) Fees

f) Commission

g) Allowances

h) Perquisites

i) Profits in lieu of salary or wages

j) Profits in addition to salary or wages

k) Advance Salary

l) Leave encashment

However, the term Basic Salary has been defined at Rule 33(2) as well as at Rule 65A (1) where basic salary

means the pay and allowances payable monthly or otherwise but does not include the following:

a) Dearness allowance (unless it enters into the computation of Superannuation or retirement benefits of the

employee)

b) Employers contribution to Recognised Provident Fund and interest credited on the accumulated balance

c) Allowances which are tax exempted

d) Allowances, perquisites, annuities and other benefits

Section 2(58) contains definitions within the definition. Salary includes perquisites and profits in lieu of salary, which

again defined at section 2(45) and 2(50) respectively.

Perquisite is defined in the Oxford English Dictionary as "any casual emolument, fee or profit attached to an

office or position in addition to salary or wages. There is an exclusive definition of perquisite at section 2(45)

where perquisite means any payment or benefit made to an employee in the form of cash or any other form but

excluding the following:

a) Basic Salary

b) Festival bonus

c) Incentive bonus

d) Arrear Salary

Study Reference:

Definition: Section 2(58), 2(45), 2(50), 2(27), 2(28) read with rule 33(2)(b)

Section 21, 50, 50B read with rule 21 and 22

108 read with rule 23

124(2), 165 and 172

Exemption: Rule 33 read with Sixth Schedule (Part A) para 5

Provident Fund:

1st schedule (Part B) read with Rule 43, 44

6th Schedule (Part A) Para 4,6, 21, 25

SRO 454 (Serial 19) date 31/12/1980


e) Advance Salary

f) Leave encashment

g) Leave Fare Assistance (LFA)

h) Overtime

i) Contribution by the employer to-

1) Recognized provident fund.

2) Approved Pension Fund.

3) Approved Gratuity Fund and

4) Approved Superannuation Fund.

There is an inclusive definition of "Profits in lieu of salary" at section 2(50) where profits in lieu of salary include: -

a) The amount of compensation is connection with the termination / modification of any terms and

conditions relating to employment.

b) Any payment from a provident or other fund to the extent to which it does not consist of contributions

by the employee and the interest on such contributions.

Classification of Salary (Section : 21)

The following 3 (three) categories of income of an assessee is classified and computed under the head salaries,

namely;-

a) Salary due from an employer to an employee in the income year, whether paid or not ;

b) Salary paid or allowed to an employee in the income year though not due before it become due to him; and

c) Arrears of salary paid or allowed to him in the income year, if not charged to income tax for any earlier

income year.

Salary once included in any year on due basis or advance payment basis is not includible again in salary income of an

employee of any other year. No payment can fall and to be taxed under the head salary unless the relationship of

employer and employee exists between the payer and the payee. Salary can be taxed not only on payments made by

an employer during employment, but also on payments by a former employer after the employment has come to an

end. The definition of employee is given at section 2(28) where employee includes a director also. It has been

provided that an employee, in relation to a company, includes the managing director or any other director or other

person, who irrespective of his designation performs any duties or functions in connection with the management of

the affairs of the company. So a director who is not connected with the management of affairs of the company may

not be called employee. For the purpose of determining the value of perquisites of an employee under rule-33,

employee includes a shareholder director. If the shareholder director is director of more than one company then he

shall be entitled to the benefits under rule-33 for one company only.

Apportionment of salary over the years due to arrear or advance salary (sec.172)

Where the salary is assessable at a rate higher than that at which it would otherwise have been assessed by reason of-

(a) Any portion of salary being received in arrear or in advance;

(b) Salary received in the year for more than 12 months;

(c) Received a payment, which is a profit in lieu of salary;

The DCT may, on the basis of application to him by the assessee, allocate salary over the year or years to which it

relates and may refund the amount of tax, if any, paid in excess. According to section 21, salary is taxable in the year

in which it is due or is paid. Where salary is paid in arrear or in advance, or where a retirement benefit or salary for

more than 12 months is received in any one year, the income for that year may be liable to assessment at a rate higher

than that at which it would otherwise have been assessed. Section 172 authorises the DCT to grant appropriate relief

for income tax in the above situation.


Pay and Allowances totally exempt from Tax: (Sixth Schedule, Part-A)

The following pay and allowances shall be exempted from payment of tax and shall not be included in the

computation of salary income:-

a) Interest accrued on P.F.on which Provident Fund Act, 1925 applies (Para 4(1).

b) Interest accrued on Workers Profit Participation Fund established under the Companies Profit (workers

participation) Act, 1968 (Para 4(2)

c) Any special allowances, benefits, or perquisites granted to meet expenses incurred for official duties (Para-5)

d) Remuneration of Ambassadors/High Commissioner/Charge daffairs etc. of Embassies of foreign states and

their non-Bangladeshi employees (Para-7).

e) Pension (Para-8).

f) Gratuity (Para-20).

g) Any payment from provident fund to which PF Act. 1925 applies or from a recognized provided fund, an

approved superannuation fund or workers profit participation fund (Para-21).

h) Interest credited on accumulated balance of a recognized provident fund. The exemption limit is 1/3rd of

salary [here salary means basic salary and dearness allowance (if any)] or interest credited @ 14.5%

whichever is higher (Para-25, definition of salary as per 1st Schedule (Part -B) and S.R.O.no 310 dated

27/06/1984).

i) Any amount received at the time of voluntary retirement in accordance with any scheme approved by the

Govt. (Para-26).

Salaries exempt from payment of tax (as per S.R.O.):

Salaries of the following categories are exempted as per Govt. S.R.O. and notification: -

(a) As per Private Sector Power Generation Policy of Bangladesh, income of any foreigner employed in a private

power generation company of Bangladesh is tax-free for 3 years from the date of his arrival in Bangladesh.

(S.R.O. no 114/1999)

(b) Any salary drawn by any foreigner from the contracting state or agency as per bilateral agreement between the

Govt. of Bangladesh and Govt. of the contracting state or agency from any foreign aided development project

is fully exempt from payment of tax. (S.R.O. NO 207/1997)

(c) Salaries of categorized personnel of United Nations and its agencies are tax free as per provision of schedule-1

(Article-V) Section-17 and schedule-2 (Article-VI) section-18 of United Nations and Specialized Agencies

(Privileges and Immunities) Act, 1975. (NBR Circular No: NBR/Tax-7/Tax Policy/02/2006, dated. 29/4/2007.)

(d) When in any year an assessee has ceased to be an employee participating in a recognised Provided Fund and

has been declared by the employer maintaining the Fund not to be eligible to receive the whole for the

accumulated balance due to him, so much of his income as is assessable for that year shall be exempted from

income tax and shall be excluded from the computation of his total income and if such amount exceeds the

amount of his income in that year, so much of his income in the following year or years as is equal to the

amount of such excess shall be so exempted and excluded is such year or years. [S.R.O.no 454(serial no19)

dated:31/12/1980]

(e) Festival bonus and all other allowances and benefits (except basic salary or remuneration) of Govt. employees,

Ministers, MP and Judges of Supreme Court are exempted from payment of tax [SRO No:226,227 and 228

dated 04/7/2011]

Information regarding payment of salary (Section 108 read with rule 21, 22 and 23)

Every employer shall furnish salary statement of employees in the form prescribed at rule-23 to the DCT before 1st

September each year. The DCT may however extend this date. This section requires information to be given

regarding accrual and actual payment of salary in order to help detection of any avoidance of tax. In case of non-govt.

employees every person responsible for making deduction before payment of salaries to them shall send forthwith a

statement prepared in the form prescribed in rule-21 to the concerned DCT.


The Commissioner of Taxes may under rule-22 permit an employer to pay tax on the income of his employees in a

lump sum every month based on the average amount of tax deductible from such income from salaries and submit at

the end of the year the statement in the form prescribed in rule-23(3) Such statement must show not only the salary

which is paid but also the salary due. Because salary due is chargeable under section 21, whether paid or not.

Failure to furnish statement is punishable under section 124(b) and for making a false statement under section 165.

Tax on Tax

Salary of the employees is exempt if tax is being borne by the employer and there is no tax on tax in this case.

(S.R.O. no 182/1999 dated 01-07-1999)

Salary Income Computation

As per income tax law the following pay and allowances will be included in computing salary income:-

a) Full basic salary;

b) Full festival bonus;

c) Full incentive bonus;

d) Full dearness allowance.

e) Full entertainment allowance;

f) Any allowance where there is no exemption limit

g) Employers contribution to Recognised provident fund;

h) Cash house rent allowance if it exceeds 50% of basic salary or Tk. 15,000/- per month whichever is lower;

Example:

Basic Salary (50,000*12) 600,000

House Rent (30,000*12) 360,000

960,000

Less: Exampted House rent

(15,000*12) (180,000)

Acutal Total Income 780,000

If actual HR is less than tk. 180,000 than

actual one is allowable

i) Rental value of the rent-free accommodation or 25% of basic salary of the employee whichever is less.

Example:

Basic Salary (50,000*12) 600,000

Free accomodation

(25% of Basic Salary) 150,000

Acutal Total Income 750,000

If rental value is not given, 25% of BS should be (Where the accommodation is provided at a concessionary rate, the rent actually paid by him shall be deducted);

Example:

Basic Salary (50,000*12) 600,000

House Rent (25% of BS) 150,000

Less: House rent given

(2,000*12) (24,000)

126,000


j) Cash conveyance allowance if it exceeds Tk. 24,000/ per year.

Example:

November 2011 - June 2012 Received Exempted Net

Basic Salary (50,000*8) 400,000 - 400,000

House Rent (20,000*8) 160,000 120,000 40,000

Coveyance Allowance 24000 24,000 0

584,000 144,000 440,000

House Rent: (15,000*8) = 120,000 or 50% of BS = 200,000; lower one

Coveyance Allowance is allowable upto tk. 24,000 irrespective of months

k) 7.5% of basic salary if conveyance is provided by the employer for the use of the employee exclusively for

personal or private purpose;

l) In case of medical allowance, the amount exceeding the actual expenditure.

m) The value of any benefit provided free of cost or at a concessionary rate;

n) Any sum paid by an employer in respect of any obligation of an employee.

o) In case of leave fares assistance; if it is mentioned in the job contract than it is exempted up to actual

expenditure. If not mentioned in the job contract than fully taxable. But if the travel is outside the country the

exemption is only applicable for every alternative year. If within the country, than exemption is for every time

of travel.

Investment Tax Rebate:

According to section 44(2) and Part-B of the 6th schedule, the following investments and donations are eligible for

tax rebate:-

a) Life insurance premium (Para-1)

b) Employees contribution to provident fund to which P.F. Act, 1925 applies (Para-3)

c) Both employees and employers contribution to Recognized Provident Fund (Para-5)

d) Employees contribution to approved superannuation fund in which the employee is a participant (Para-6)

e) Contribution to benevolent fund and group insurance scheme (Para 17)

f) Contribution to any DPS up to Tk.60,000 per year at any scheduled bank. (Para-11)

g) Investment in the following instruments-

(1) Savings Certificates

(2) ICB Unit Certificates

(3) ICB Mutual Fund Certificates

(4) Government Bonds and Securities (Para-10)

h) Purchase of 1computer (desktop) within Tk. 50,000/ or1 laptop within Tk.1,00,000/(Para-23).

i) Donation to:

(1) Rural charitable hospital approved by the Govt (Para- 11A)

(2) Organisation for the welfare of the retarded people approved by the Social Welfare

Department and NBR (Para 11B)

(3) Donation to Jakat Fund (Para 13)

(4) Donation to an institution of Aga Khan Development Network (Para 21)

(5) Donation to Govt. approved philanthropic and educational institutions (Para-22)

(6) National level institution set up in memory of the liberation war (Para-24)

(7) National level institution set up in memory of Father of the Nation. (Para-25)

(8) Prime Minister's Higher Education Fund (Para-26)

j) Investment at shares through IPO only. (Para-27)

K) Investment at Govt. Treasury bond (Para-28)


GPF Vs RPF Vs UPF:

SL Subject GPF RPF UPF

Employees contribution Automatic taxable* Automatic taxable* Automatic taxable*

Employers contribution N/A Taxable Taxable but at the

end of the service

Investment allowance Yes Yes (both) No

Interest on PF Tax free ** Fully taxable

Treatment on the hand of employer N/A Allowable

expenditure on Profit

and loss account

Not allowable

Pre-mature termination / leave the job *** *** ***

*Automatic Taxable = deduction of contribution to PF cannot be considered. Total basic salary are added to the total

income

**

One third (1/3) of the basic salary (Basic + Dearness allowance)

Or

Interest @ 14.5%

Whichever is higher is exempted

For example, a person received interest on his PF @ 16% which is tk. 230,000 and his basic salary is tk. 600,000.

Than exemption will be

1. 1/3 of his BS, which is tk. 200,000 or

2. Interest @ 14.5% = ((230,000/.16)*.145) = 208,438

Higher one is exempted, that is tk. 208,438 is exempted.

So his total income = (600,000+(230,000 -208,438)) = 621,562

But this interest should be excluding from the total income in time of calculating investment allowance.

***

In case of pre-mature job leave and where employees received nothing from the PF, on which the employee has

already pay tax should be deducted from his total income in the subsequent years.

Allowable Investment Allowance:

The allowable investment allowance is the lower amount of the following three:

20% of total income excluding

(1)employers contributions to

recognized provident fund(RPF)

(2) taxable portion of interest on RPF

(3) any income u/s 82C

OR

TK. 1,00,00,000/=

OR

Actual Investments

Whichever is lower is to

be treated as investment

allowance

Tax rebate @10% is

applicable on such

allowable investment.

After rebate, minimum tax is Tk.3000/ if total income exceeds the minimum taxable limit.


1. Income tax rate for the assessment year 2011-2012

Rates

i. On the First Tk. 2,00,000/- of total income = nil

ii. On the next Tk. 3,00,000/- of total income = 10%

iii. On the next Tk. 4,00,000/- of total income = 15%

iii. On the next Tk. 3,00,000/- of total income = 20%

v. On the balance of total income = 25%

However, the threshold limit for woman and senior citizen ageing 65 years or more is Tk.2,25,000/ and for

physically handicapped persons Tk. 2,75,000/

However, the minimum tax is Tk. 3,000/ if total income exceeds the minimum taxable limit.

Deduction of tax at source from salaries (Section 50+Rule-13)

The employer including Govt. (govt. Employees are taxed only on their basic salaries) shall deduct tax at source at

the time of paying salaries at an average rate applicable to the estimated total income of the employee. At the time of

making such deductions, the amount to be deducted may be increased or decreased for the purpose of adjusting any

excess or deficiency arising out of any previous deductions or failure to make deductions. The employers liability to

deduct tax is absolute and is not affected by any private arrangement whereby the employee has undertaken to

discharge his own tax liability.

The amount deducted shall be deposited to the credit of the Govt. within 3 weeks from the date of such deduction.

However DCT can, with the prior approval of the IJCT, permit an employer to pay the tax deducted at source under

the head salaries quarterly on: -

a) 15th September

b) 15th December

c) 15th March; and

d) 15th June

Practical Problem -1:

Mr. X (50 years old) is the Managing Director of ABC Co. Ltd. He has been given the following monthly

salary and allowances for the year ending on 30th June, 2012.

1. Basic Salary 25,000/-

2. Dearness Allowance 5,000/-

3. Entertainment Allowance 1,000/-

4. Employers Contribution to P.F. (Recognized) 2,500/-

5. Lunch Allowance 1,000/-

6. School fee for the Children of Mr. X 5,000/-

7. Utility Allowances 3,000/-

8. Fee for Golf Club (yearly) 5,000/-

9. Medical Allowance

(Actual expenditure during the year was Tk. 30,000/-)

3,000/-

10. Festival Bonus Equal to basic pay (got two bonus during the year)


Other Particulars:-

(1) He has purchased 5 years savings certificates amounting to Tk. 1,00,000/-.

(2) Employer provided him a free accommodation. (Rent of the house is roughly Tk. 35,000p.m.)

(3) Employer also provided him a full time car.

(4) He has been given a servant from his office whose monthly salary is Tk. 1,200/-.

(5) He paid L.I.P. Tk. 50,000/-. (Policy value is Tk. 4,00,000/-).

(6) He contributed Tk. 2,500/- per month to the recognized provident fund (RPF). Employer also

contributed the same.

(7) During the year he received bank interest amounting to Tk. 1,80,000/-( net of tax)

(8) He purchased secondary shares of Tk.75,000/- of a public ltd. company which is listed in DSE.

Compute the total income and determine the tax liability of Mr. X for the assessment year 2012-2013.

Computation of Total Income of Mr. X

[Assessment Year-2012-2013]

1. Income from Salary (Section-21)

(1) Basic Salary (25000 X12) 3,00,000/-

(2) D.A. (5000X12) 60,000/-

(3) Entertainment Allowance (1000 X12) 12,000/-

(4) Employers Contribution to R.P.F (2500 X12) 30,000/-

(5) Lunch Allowance (1000 X12) 12,000/-

(6) School Fee (5000 X12) 60,000/-

(7) Utility Allowance (3000 X12) 36,000/-

(8) Notional income for full time car for private use (7.5%

of Basic Salary as per Rule: 33D)

22,500/-

(9) Fee for Golf Club 5,000/-

(10) Medical Allowance (3000 X 12) 36,000/-

Less Actual Expenditure 30,000/- 6,000/-

(11) Festival Bonus (25000 X 2) 50,000/-

(12) Full Free Accommodation:

Rental value of accommodation (35000 X 12) 4,20,000/-

25% of basic Salary (whichever is less) 75,000/- 75,000/-

(13) Servants Salary (1200 X 12) 14,400/-

Salary Income 6,82,900/-

2. Income from Other Sources [Section-33]

Bank Interest (1,80,000 x 10100

100

)

2,00,000

Total Income 8,82,900/-


Computation of Investment Allowance

1. Savings Certificate 1,00,000/-

2. LIP (10% of sum assured) 40,000/-

3. Contribution to R.P.F. (Self + Employer) 60,000/-

Total investment allowances claimed 2,00,000/-

As per Section 44(3) of the I.T. Ordinance, allowable investment allowance comes to 20% of total income

[excluding employers contribution to R.P.F.] = (8, 82,900-30,000) x 20% = 1,70,580/

TAX CALCULATION

On 1st Tk. 2,00,000/- of Total Income Tax Nil

On Next Tk. 3,00,000/- of Total Income Tax @ 10% Tk. 30,000/-

On Next Tk. 3,82,900/- of Total Income Tax @ 15% Tk. 57,435/-

Tax on Total Income of Tk. 8,82,900 Tk.87,435/-

Less: Tax Rebate on Investment Allowance

(1,70,580/- X 10%)

17,058

Total Tax: 70,377/

Less:- Tax deducted at source from bank interest 20,000/-

Net tax liability 50,377/-

Answer: (1) Total Income: - Tk. 8,82,900/-

(2) Net tax liability: - Tk. 50,377/-


Solutions:

Mr. X

Calculation of Total Income

AY: 2012-13

Description Workings Amount (BDT)

a) Salary Income:

Basic Salary (BS) 20,000*12 2,40,000

Dearness allowance 20% of BS 48,000

Bonus 1 months BS 20,000

House rent allowance (55% of BS) 1,32,000

Less: 50% of BS or 15,000 p.m. lower one (1,20,000) 12,000

Medical Allowance 6,000

Less: Allowable 6,000 -

Conveyance Allowance 14,400

Less: Allowable (14,400) -

Posting Allowance (it can also be allowable fully under sixth

schedule (part A) Para 5)

60,000

Employers' contribution to PF 24,000

Interest accrued 96,000

Less: Allowable @ 14.5% or 1/3 of BS (BS+DA), higher one (96,000) -

Total Salary Income 4,04,000

b) Interest on Securities:

Interest on SEC approved debenture 35,000

Interest on Govt. bond 70,000

Total income from interest on securities 1,05,000

c) Income from House Property:

Annual value 1,20,000

Less: Repair and maintenance 25% of AV (30,000)

Municipal tax (10,000)

Insurance premium (6,000)

Interest on HP loan (73,500)

Total income from house property 500

d) Income from business:

Partnership income 225,000*1/3 75,000

Total income from business 75,000

e) Capital gain:

Sale of share of listed company 10,00,000

Less; Exempted (fully as individual) (10,00,000) -

Total capital gain -

f) Income from other sources:

Cash dividend 45,000/.90 50,000

Interest on savings bank account 5,400/.90 6,000

Total income from other sources 56,000

Total income for Mr. X 6,40,500


Investment Allowance:

Employees contribution to RPF 24,000

Employers' contribution to RPF 24,000

Investment in share 1,00,000

Pension scheme (5000*12) 60,000

Interest on RPF

-

2,08,000

or, 20% of total income (excluding PF) 1,23,300

or, 1,00,00,000

Lower one.

So, investment allowance will be on tk. 1,23,300 @ 10%

Tk.12,330

Calculation Tax Liability:

On the first 2,00,000 0% 0

Next 3,00,000 10% 30,000

Balance 1,40,500 15% 21,075

6,40,500 51,075

Less: Investment allowance (12,330)

38,745

Less: Tax rebate on partnership income* (4,537)

34,208

Less: TDS (5,000+600) (5,600)

Net Tax Liability 28,608

* (as per sixth schedule (part b) Para - 16)

On 640,500 38,745

So, on 1 38,745/640,500 0.060491803

So, on 75,000 0.0605*75,000 4,537

Asif Ahmed

Articled Student KPMG (Bangladesh)

Rahman Rahman Huq [email protected]

01922939126


Lecture # 04

16.06.2012

Income from Interest on Securities:

Types of Securities:

1. Government Securities

2. Government Approved Securities

3. Securities/Debentures issued by company or local authority.

Sixth Schedule (part A):

Para 24: Interest on tax free government securities are totally tax free.

Para 40: Interest on Zero Coupon Bond (ZCB) is tax free

Section 22:

But Supreme Court says tax should be deducted when it is received or withdrawn (case ref: Lal Bhai Dolpat Bhai Vs

CIT Bombay, 1952)

Section 23:

Study Reference:

Section; 22, 23, 51, 172(d), 106

Sixth Schedule (part A); Para 24 and Para 40

Section 22; Interest on securities:

The following income of an assessee shall be classified and computed under the head "Interest on securities",

namely:-

(a) interest receivable by the assessee on any security of the Government or any security approved by

Government; and

(b) interest receivable by him on debentures or other securities of money issued by or on behalf of a

local authority or a company.

Section 23; Deductions from interest on securities:

1. (1) In computing the income under the head "Interest on securities", the following allowances and

deduction shall be made, namely:-

1. (a) any sum deducted from interest by way of commission or charges by a bank realising the

interest on behalf of the assessee;

2. (b) any interest payable on money borrowed for the purpose of investment in the securities by

the assessee:

3. Provided that no allowance or deduction on account of any interest or commission paid under

clause (a) or (b), as the case may be, in respect of, or allocable to the securities of

Government which have been issued with the condition that interest thereon shall not be

liable to tax, shall be made in computing the income under section 22;

4. [(c)]Deleted F.A. 1995

2. (2) Notwithstanding anything contained in sub-section (1), no deduction shall be allowed under this

section in respect of any interest payable outside Bangladesh on which tax has not been paid or

deducted in accordance with the provisions of Chapter VII.


Section 51:

Example (Upfront Systems);

A person purchase securities of tk. 10,000,000 @ 6% simple interest matured after 3 years.

So, interest income after 3 years = tk. (10,000,000*6%*3) = tk. 1,800,000.

But TDS @ 10% on tk. 1,800,000 (which is tk. 180,000) should be deducted today.

Section 172(d):

Section 106; Avoidance of tax by transactions in securities:

See the Income Tax Ordinance

Section 51; Deduction at source from interest on securities:

1. (1) In the case of the security of the Government, or security approved by the Government, unless the

Government otherwise directs, the person responsible for issuing any security, income of which is

classifiable under the head "Interest on securities", shall collect income tax at the rate of ten percent

(10%) upfront on interest or discount, receivable on maturity, from the purchaser of the securities:

2. Provided that the provision of sub-section (1) of this section shall not apply to the Treasury bond or

Treasury bill issued by the Government.

3. [(2)]Deleted F.A. 2005

4. (3) Nothing in this section shall apply to any payment on account of interest payable on debentures

issued by or on behalf of a local authority or a company.

Section 172(d); Relief:

His (person) having received in arrears in one income year any portion of his income from interest on securities

relatable to more income years than one; the Deputy Commissioner of Taxes may, on an application made to him

in this behalf, determine the tax payable as if the salary, payment or interest had been received by the assessee

during the income year or years to which it relates and may refund the amount of tax, if any, paid in excess of the

tax so determined.


Income from House Property:

Introduction:-

As per Income Tax Ordinance, 1984 house property means any building (including furniture, fixture, fittings etc.) and

land appurtenant thereto owned by the assessee and rented for commercial or residential purposes. Property

situated outside Bangladesh should also be assessed according to the same provision of section 24 of the Income Tax

Ordinance, 1984. Rental income derived from vacant plots of land will not be treated as house property income rather

it will be treated as income from other sources u/s 33.If an assessee let out his machinery, plant or furniture along

with building and the letting out building is inseparable from the letting of machinery, plant or furniture, the income

must necessarily be assessed as income from other sources and in such a case there is no room for disintegrating the

rent or assessing a part of the rent as income from house property.

Section 24; Income from House Property:

Ownership of the property:-

The tax on house property income is upon the owner (either legal or beneficial) and not upon the occupant. The mere

existence of a dispute regarding the title to ownership of a certain property cannot of itself hold up an assessment

even if a suit has been filed, otherwise it would be open to an assessee to delay assessment indefinitely. The DCT has

prima facie the power to decide whether the person sought to be taxed is the owner of the property.

For example, if a person (a government employee) give rent to his government quarter and received rent @

tk. 10,000 per month. This house property income will not be added to his HP income as he does not possess the

ownership of the house. Rather it can be added to his income from other sources.

Assessment of Co-owner:-

As per section 24(2), where property is owned by two or more persons and their respective shares are definite and

ascertainable, the co-owners should not be assessed in respect of their income from such property as an association of

persons (AOP), but each co-owner must be assessed individually in respect of his share of house property income.

Though the property may be possessed jointly by co-heirs under the Muslim law, the shares of co-heirs under that law

are definite and ascertainable, and therefore each of the heirs must be separately assessed u/s 24 in respect of his

share of house property income.

For example, Mr. A having been a building at Motijhel C/A received rent @ tk. 1,000,000 per month. But

after his death the property is divided among his 4 sons (B, C, D and E) and they received tk. 250,000 each from this

building. But according to income tax law they cannot be assessed for tk. 1,000,000 aggregately as an AOP, rather

portion of their receipt will be added up with their individual income and they will assessed individually.

Self occupied property:-

In respect of house property, no tax is payable if the owner occupies the property for his own residence or for the

purpose of his business or profession the profits of which are assessable to tax u/s 28. Moreover, interest on

maximum loan amount Tk.20, 00,000/- will be treated as allowable deduction from total income if the loan has been

taken to acquire, construct, renew or reconstruct the self occupied property.

Study References:

Section; 2(3), 24, 25, 19(22), 33(c), 53A

Sixth Schedule (Part A); Para 1, Para 38

SRO 454 (Serial No. 18) Date 31/12/1980


Section 2(3); Annual Value:

Income tax is levied not upon the actual income from the property but upon the notional income based an annual

value. Annual value is defined in section 2(3) as The sum for which the property might reasonably be expected

to let from year to year and any amount received by letting out furniture, fixture, fittings etc. That is, the sum for

which the owner could let the premises having regard to all the prevailing circumstances such as local conditions and

the demand for house in that particular locality. Where the property is let out and the rent is received by the owner,

the annual value may be more or less than the actual rent received as the annual value is only a hypothetical sum. In

case where the actual consideration received by the owner from his tenant does not represent the annual value,

evidence of such annual value may be afforded by the rents paid for similar and similarly situated properties in the

locality.

Grossing-up when the owners burden borne by the tenant:

It is necessary to take into account the whole of the consideration exacted by the owner for the right to use and

occupy the property. For example, where the tenant agrees to pay the service charge which is actually payable by the

owner, the total consideration paid by the tenant is the house rent plus the service charge and that is the figure which

may be taken as evidence of the annual value by grossing-up.

Treatment of advance when it is not adjustable against house rent:

In case the advance received by the owner is not adjustable against house rent then such advance will be treated as

house property income as per section 19(22) of the Income Tax Ordinance, 1984. However, such advance may be

allocated into 5 years including 1st year in equal proportion if the assessee opts so. Where such advance or part

thereof is refunded by the owner then the amount so refunded shall be deducted if it is taken as income as per section

19(22).

Deduction of tax at source from house rent (Section 53A):

Tax is to be deducted at source by the following tenants from the payment of house rent at the prescribed rate

enumerated below:

Sl.

no.

Monthly rent Rate of Deduction Deducting Authority (Tenant)

1. Up to Tk. 20,000/- Nil 1. Govt. Organization

2. N.G.O.

3. Company

4. Bank (including Co-operative Bank)

5. University

6. Medical/ Dental/ Engineering College

2. Tk. 20,001 to Tk. 40,000/- 5%

3. Tk. 40,001 and above 5%

For Example, P Bank let a house @ tk. 50,000 per month with advance of tk. 500,000 which is adjustable with rent @

tk. 10,000 per month, so

TDS on rent = tk. (50,000*5%) = tk. 2,500

Payment in each month = tk. (50,000 10,000, - 2,500) = tk. 37,500

Annual Value = tk. (50,000*12) = tk. 600,000

TDS on tk. 500,000 (at the time of payment) = 0


Exemption from payment of tax (Sixth Schedule):

Income from house property held under trust or other legal obligation wholly for religious or charitable purpose is

exempt from payment of tax as per 6th schedule (part-A) paragraph-1(1). However, this provision will not be

applicable for NGO.

Allowable deductions from annual value to derive income from house property (Section 25):-

In computing house property income the following allowances are deductible from the annual value:-

(1) Repairs and maintenance:-

The following expenditure relating to repairs, maintenance and provision of basic services is granted as a deduction

even if no evidence for such expenditure is produced. Where the property is let out for residential purposes the

allowable deduction is 1/4th of the annual value and where it is let out for commercial purpose the allowable

deduction is 30% of the annual value:

(a) Repairs;

(b) Expenditure relating to collection of rent;

(c) Water and sewerage;

(d) Common electricity;

(e) Salary of darwan, security guard, pump-man, lift-man, caretaker

(f) All other expenditure related to maintenance and provision of basic services.

(2) Land development tax*;

(3) Municipal tax*;

(4) Ground rent*;

(5) Insurance Premium*,

(6) Vacancy allowance (if the property remain vacant during a part of the year);

(7) Where the let out property is acquired, constructed, repaired, renewed or reconstructed with loan then the interest payable for the year on such loan*;

(8) Where the let out property has been constructed with borrowed capital and there was no house property income during the period of construction, the interest payable during the period of construction will be allowable in 3

equal installments from first 3 years of letting out*;

(9) Irrecoverable rent:-

Relief in respect of irrecoverable rent has been granted through S.R.O. No:-454-L/80 dated 31-12-1980 if the

following conditions are fulfilled:-

(a) The tenancy is bona-fide;

(b) The defaulting tenant has vacated, or steps have been taken to compel him to vacate the property;

(c) The defaulting tenet is not in occupation of any other property of the assessee;

(d) The assessee has taken all reasonable steps to institute legal proceedings for the recovery of the unpaid

rent or satisfies the Deputy Commissioner of Taxes that legal proceedings would be useless and;

Sixth Schedule (Part A), Para 38:

Any income derived from any building, not less than five storied having at least ten flats, constructed at any

time between the first day of July, 2008 and the thirtieth day of June, 2013 (both days inclusive), for ten years

from the date of completion of construction of the building:

Provided that the building shall be situated in any area of Bangladesh other than the areas of City

Corporation, headquarters and any pourashava under Dhaka district.


(e) The annual Value of the property to which the unpaid rent relates has been included in the assessed

income of the year during which that rent was due and income tax has been duly paid on such assessed

income;

The concession given here appears to be an exemption but it is actually a deduction as that part of rent which

will be irrecoverable and which has already been charged in the preceding year will be deducted from the

total income in the subsequent year.

*If the full house is not rented (partly used by owner or his dependent) than all of these deduction shall be made

proportionately.

Problem 1:

Mr. Alam a retired govt. officer owns a two-stored house in Dhanmondi, Dhaka. He along with his family occupies

the ground floor while the first floor has been let out October 1, 2011 for a monthly rental of tk. 60,000 and before

than it was vacant for about 3 months. He has constructed the house with a loan of tk. 25 lac from National Bank

Limited and paid interest of tk. 321,000 during the construction period from January 2010 to June 2010. During the

financial year 2009-10 he has paid tk. 5 lac to the bank. His other expense relation to the property for 2011-12 FY are

Repair and maintenance tk. 50,000

Insurance premium tk. 5,000

Municipal tax tk. 20,000

Bank interest tk. 50,000

Salary of security guard tk. 10,000

Municipal value of the property tk. 300,000

Compute the house property income for Mr. Alam for the assessment year 2012-13.

Solution:

Mr. Alam

Calculation of House Property Income

AY: 2012-13


Annual Value (AV)* 60,000*12 7,20,000

Less: Repair and Maintenance 1/4 of AV (1,80,000)

Municipal Tax 1/2 (10,000)

Insurance 1/2 (2,500)

Bank interest 1/2 (25,000)

Vacancy allowances 60,000*3 (1,80,000)

Interest at construction stage 1/2 of 1/3 (53,500)

Net House Property Income 2,69,000

*As no reasonable rent is given, total rent is assumed as annual value.

** Assumed that house was rented for residential purpose.


Problem 2:

Mr. Azim owns a house the municipal value of which is tk. 220,000. Half of the house has been let out at tk. 25,000

per month. The rest of the house is used by his son in law who pays nothing for the use. Following were the expenses

for the house in FY 2011-12;

White wash and repair tk. 6,000

Insurance premium tk. 4,000

Municipal tax tk. 5,000

Water and sewerage charges tk. 7,000

Interest on mortgage tk. 4,000

Service charges tk. 6,000

Land revenue tax tk. 2,000

Cost of alteration tk. 15,000

He has a residential house situated at Uttara, Dhaka. The city corporation for tax purpose valued its annual value at

tk. 200,000. He spent tk. 6,000 for its repair and paid city corporation tax at tk. 5,000. He also paid interest on a loan

taken from Agrani bank for alteration and expansion of the house for which interest payable was tk. 20,000 per year.

Compute the house property income for Mr. Azim for the assessment year 2012-13.

Solution:

Mr. Azim

Calculation of House Property Income

AY: 2012-13


Annual Value (AV)* 25,000*12 3,00,000

Less: Repair and Maintenance 1/4 of AV (75,000)

Municipal Tax 1/2 (2,500)

Insurance 1/2 (2,000)

Land revenue tax 1/2 (1,000)

Interest on mortgage 1/2 (2,000)

Net House Property Income 2,17,500

*As no reasonable rent is given, total rent is assumed as annual value.

* Assumed that house was rented for residential purpose.

* white wash and repair, water and sewerage and service charges are within

1/4 statutory deduction of repair and maintenance.

* Cost of alteration is capital expenditure which is not cover u/s 25. so it is

not considered in computing HP income.

* As the full house was not let out and annual value is determined on 50% of

the property, so all related expenditure allowed proportionately.


Agricultural Income:

Section 2(1) & 26; Agricultural Income:

Study References:

Section; 2(1), 26, 27, 35, 19(17), 19(19)

Rule: 31 and 32

Third Schedule

Sixth Schedule (Part A); Para 27, Para 29 and Para 45

Section 2(1):

Agricultural income means -

(a) any income derived from any land in Bangladesh and used for agricultural purposes -

1. (i) by means of agriculture; or

2. (ii) by the performance of any process ordinarily employed by a cultivator to render marketable the

produce of such land; or

3. (iii) by the sale of the produce of the land raised by the cultivator in respect of which no process, other

than that to render the produce marketable, has been performed; or

4. (iv) by granting a right to any person to use the land for any period; or

(b) any income derived from any building which -

5. (i) is occupied by the cultivator of any such land as is referred to in sub-clause (a) in which any

process is carried on to render marketable any such produce as aforesaid;

6. (ii) is on, or in the immediate vicinity of such land; and

7. (iii) is required by the cultivator as the dwelling house or store-house or other out-house by reason of

his connection with such land;

Section 26; Agricultural income:

(1) The following income of an assessee shall be classified and computed under the head "Agricultural income",

namely:-

1. (a) any income derived by the assessee which comes within the meaning of "agricultural income" as

defined in section 2(1);

2. (b) the excess amount referred to in section 19(17);

3. (c) the excess amount referred to in section 19(19).

(2) Agricultural income derived from the sale of tea grown and manufactured by the assessee shall be computed in

the prescribed manner.

(3) Where the Board, by notification in the official Gazette, so directs, agricultural income from the sale of rubber,

tobacco, sugar or any other produce grown and manufactured by the assessee may be computed in the manner

prescribed for the purpose.


Section 27; Deduction Agricultural Income:

Section 27; Deductions from agricultural income:

(1) In computing the income under the head "Agricultural income", the following allowances and deductions shall

be made, namely:-

(a) any land development tax or rent paid in respect of the land used for agricultural purposes;

(b) any tax, local rate or cess paid in respect of the land used for agricultural purposes, if such tax, rate or

cess is not levied on the income arising or accruing, or deemed to accrue or arise, from agricultural

operations or is not assessed at a proportion or on the basis of such income;

(c)

1. (i) subject to sub-clauses (ii) and (iii), the cost of production, that is to say, the expenditure incurred

for the following purposes, namely:-

1. (a) for cultivating the land or raising livestock thereon;

2. (b) for performing any process ordinarily employed by a cultivator to render marketable the

produce of the land;

3. (c) for transporting the produce of the land or the livestock raised thereon to the market; and

4. (d) for maintaining agricultural implements and machinery in good repair and for providing

upkeep of cattle for the purpose of cultivation, processing or transportation as aforesaid;

2. (ii) where books of accounts in respect of agricultural income derived from the land are not

maintained, the cost of production to be deducted shall, instead of the expenditure mentioned in

sub-clause (i). be sixty per cent of the market value of the produce of the land;

3. (iii) no deduction on account of cost of production shall be admissible under this clause if the

agricultural income is derived by the owner of the land from the share of the produce raised through

any system of sharing of crop generally known as adhi, barga or bhag;

(d) any sum paid as premium in order to effect any insurance against loss of, or damage to, the land or

any crop to be raised from, or cattle to be reared on, the land;

(e) any sum paid in respect of the maintenance of any irrigation or protective work or other capital assets

; and such maintenance includes current repairs and, in the case of protective dykes and embankments, all

such work as may be necessary from year to year for repairing any damage or destruction caused by flood

or other natural causes;

(f) a sum calculated at the rate as provided in the Third Schedule on account of depreciation in respect of

irrigation or protective work or other capital assets constructed or acquired for the benefit of the land

from which agricultural income is derived or for the purpose of deriving agricultural income from the

land, if the required particulars are furnished by the assessee;

(g) where the land is subject to a mortgage or other capital charge for purposes of reclamation or

improvement, the amount of any interest paid in respect of such mortgage or charge;

(h) where the land has been acquired, reclaimed or improved by the use of borrowed capital, the amount

of any interest paid in respect of such capital;

(i) where any machinery or plant which has been used by the assessee exclusively for agricultural

purposes has been discarded, demolished or destroyed in the income year, the amount actually written off

on that account in the books of accounts of the assessee,-

4. (i) subject to the maximum of the amount by which the written down value of the machinery or

plant exceeds the scrap value thereof if no insurance, salvage or compensation money has been

received in respect of such machinery or plant; and

5. (ii) subject to the maximum of the amount by which the difference between the written down value

and the scrap value exceeds the amount of insurance, salvage or compensation money received in

respect of such machinery or plant;

(j) where any machinery or plant which has been used by the assessee exclusively for agricultural

purposes has been sold or transferred by way of exchange in the income year, the amount actually written

off on that account in the books of accounts of the assessee, subject to the maximum of the amount by

which the written down value of the machinery or plant exceeds the amount for which it has been actually

sold or transferred; and

(k) any other expenditure, not being in the nature of capital expenditure or personal expenditure, laid out

wholly and exclusively for the purpose of deriving agricultural income from the land.

Notwithstanding anything contained in sub-section (1), no deduction shall be allowed under this section in respect

of any interest on which tax has not been paid or deducted in accordance with the provisions of Chapter VII.


Section 35; Method of accounting:

Books of accounts shall be maintain in

1. Income from Business and Profession

2. Agricultural Income

3. Income from Other Sources

Rule 31 and 32: Sale of Tea and Rubber:

Section 19 (17) and 19(19):

For example, an agricultural machinery

Cost price Tk. 100

Less: Depreciation (30)

WDV Tk. 70

Now, if machine is sold @ tk. 78 or tk. 68 or tk. 114 treatment of gain will be as follows;

Case 1: Tk. 8 is agricultural income

Case 2: Tk. 2 is agricultural loss

Case 3: Tk. 30 is agricultural income and tk. 14 is capital gain

Rule 31; Computation of income derived from the sale of tea:

1. Income derived from the sale of tea grown and manufactured by the seller in Bangladesh shall be computed as if

40% of such income was derived from business and 60% of such income was derived from agriculture:

2. Provided that in computing, such income from business, an allowance shall be made in respect of the cost of

planting bushes in replacement of bushes that have died or become permanently useless in an area already planted,

unless such area has previously been abandoned:

3. Provided further that in computing such income an allowance shall be made in respect of the expenditure

incurred in the income year by the assessee in connection with the development of the new areas for bringing them

under tea cultivation

Rule 32; Computation of income derived from the sale of rubber:

1. Income derived from the sale of rubber grown and manufactured by the seller in Bangladesh shall be computed

as if 40% of such income was derived from business and 60% of such income was derived from agriculture.

2. Provided that in computing such income an allowance shall be made in respect of the expenditure incurred in

the income year by the assessee in connection with the development of the new areas for bringing them under

rubber cultivation.

Section 19(17):

Where any machinery or plant exclusively used by an assessee for agricultural purposes has been disposed of in

any income year and the sale proceeds thereof exceeds the written down value, so much of the excess as does not

exceed the difference between the original cost and the written down value shall be deemed to be the income of

the assessee for that income year classifiable under the head "Agricultural income".

Section 19(19):

Where any insurance, salvage or compensation moneys are received in any income year in respect of any

machinery or plant which having been used by the assessee exclusively for agricultural purpose is discarded,

demolished or destroyed and the amount of such moneys exceed the written down value of such machinery or

plant, so much of the excess as does not exceed the difference between the original cost and the written down

value less the scrap value shall be deemed to be the income of the assessee for that income year classifiable under

the head "Agricultural income".


For example, an agricultural machinery

Cost price Tk. 100

Less: Depreciation (30)

WDV Tk. 70

Now, if machine is destroyed and insurance claim and sale of scrap generate tk. 78 or tk. 68 or tk. 114 treatment of

such gain will be as follows;

Case 1: Tk. 8 is agricultural income

Case 2: Tk. 2 is agricultural loss

Case 3: Tk. 30 is agricultural income and tk. 14 is capital gain

Sixth Schedule (Part A):

Third Schedule; Computation of Depreciation Allowance:

Para 1; Depreciation allowance on assets used for agricultural purposes

Para 2; Allowance for depreciation

See the details from the Income Tax Ordinance 1984.

Para - 27:

Notwithstanding anything contained in any order or regulation for the time being in force, any income of an

individual, being an indigenous hillman of any of the hill districts of Rangamati, Bandarban and Khagrachari,

which has been derived solely from economic activities undertaken within the said hill districts.

Para - 29:

Any income, not exceeding fifty thousand taka, chargeable under the head "Agricultural income" of an assessee,

being an individual, whose only source of income is agriculture.

Para - 45:

Any income derived from corn, mize, sugarbeet are exempted upto fifty (50) percent.



[email protected]

01922939126


Lecture # 05

17.06.2012

Capital Gain:

Section 2(15) & 31:

Section 32; Computation of capital gains:

Capital gain computed as follows;

1. If capital gain is from purchased property:

Capital gain = Sales price Acquisition price

Acquisition price = actual cost + other expenses to make it useable

Study References:

Section; 2(15), Capital Asset

31, Capital Gain

32, Manner of computing capital gain; read with rule - 42

Second Schedule; Tax rate on capital gain

Sixth Schedule (Part A), Para 18, Para 43

Share Market: SRO No. 289; date 01/07/2010.

Section 2(15); Capital Assets:

"capital asset" means property of any kind held by an assessee, whether or not connected with his business or

profession, but does not include--

(a) any stock-in-trade (not being stocks and shares), consumable stores or raw materials held for the purposes of

his business or profession;

(b) personal effects, that is to say, movable property (including wearing apparel, jewellery, furniture, fixture,

equipment and vehicles), which are held exclusively for personal use by, and are not used for purposes of the

business or profession of the assessee or any member of his family dependent on him; and

[(c) agricultural land in Bangladesh, not being land situated

(i) in any area which is comprised within the jurisdiction of Dhaka, Narayanganj and Gazipur districts,

Chittagong Development Authority (CDA), Khulna Development Authority (KDA), Rajshahi

Development Authority (RDA), a City Corporation, Municipality, Paurashava, Cantonment Board; or

(ii) in any area within such distance not being more than five miles from the local limits of Rajdhani

Unnayan Kartripakya (RAJUK), Chittagong Development Authority (CDA), Khulna Development

Authority (KDA), Rajshahi Development Authority (RDA), a City Corporation, Municipality,

Paurashava, Cantonment Board referred to in paragraph (i), as the Government may having regard to the

extent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf

by notification in the official Gazette;]F.A. 2011

Section 31; Capital gains:

1. Tax shall be payable by an assessee under the head "Capital gains" in respect of any profits and gains

arising from the transfer of a capital asset and such profits and gains shall be deemed to be the income of

the income year in which the transfer took place[.]Subs F. A. 2011

[Proviso] Deleted F.A. 2011


2. If capital gain is from gifted property:

Capital gain = Sales price Acquisition price of the person gifted the property.

If that person, who gifted the property, also received the property as gift, than the fair market value at the

time of his receipt.

For example, Mr. A gifted a land by Mr. X, which have a fair market value to Tk. 10 lac. Few years later Mr.

A gifted it to Mr. B. B sales the land for tk. 25 lac. Than capital gain for B is,

Capital gain = tk. 10 lac tk. 25 lac = tk. 15 lac.

3. If capital gain is from inherited property:

Capital gain = Sales price Acquisition price.

Acquisition price = fair market value when the seller received the land.

For example, Mr. A has some land. Few years later Mr. A became dead and all of his land goes to his son

Mr. B, which has a fair market value of tk. 20 lac at that moment. 2 years later B sales the land for tk. 25

lac. Than capital gain for B is,

Capital gain = tk. 20 lac tk. 25 lac = tk. 5 lac.

TDS: Tax shall be deducted at 2% on the sale price and this deduction is final for tax settlement of capital

gain.

Capital gain on sale of property of business and profession is tax free if another property is purchased within

one (1) year.

For example,

A Capital machinery with cost of tk. 1,000

Sales price (1,600)

Capital Gain tk. 600

Purchase another building within one year (before or after) by this capital gain than this tk. 600 is tax free. But,

Sl Situation Consequences

1 If purchase price is tk. 600 No gain tax and tax depreciation is not allowable for that property.

2 If purchase price is tk. 500 Gain tax on tk. 100 and tax depreciation is not allowable for that

property.

3 If purchase price is tk. 900 No gain tax, but tax tax depreciation is allowable for tk. 300.

Gain on sale of govt. securities is tax free.

Second Schedule; Para 2 (Tax rate on capital gain):

Where the total income of an assessee includes any income chargeable under the head "Capital gains" (hereinafter

referred to as the "said income"), the tax payable by him on his total income shall be-

(a) in the case of a company-

(i) tax payable on the total income as reduced by the said income had such reduced income been the total

income; plus

(ii) tax at the rate of fifteen per cent on the whole amount of the said income;

(b) in the case of a person other than a company-

(i) where the said income arises as a result of disposal by the assessee of his capital assets after not more

than five years from the date of their acquisition by him, tax payable on the total income including the said

income; and

(ii) where the said income arises as a result of disposal by the assessee of his capital assets after five years

from the date of their acquisition by him, tax payable on the capital gains at the rate applicable to his total income

including the said capital gains, or tax at the rate of fifteen per cent on the amount of the capital gains whichever

is the lower.


Sixth Schedule (Part A); (Exclusion from income):

1. Para 18; share of capital gain from partnership.

2. Para 43; capital gain from sale of share of non-resident Bangladeshi shareholders F.A. 2011.

In case of non-resident no-Bangladeshi shareholders, if this gain is tax free in his country, than it will also

tax free in Bangladesh.

If property is sold (and capital gain is also happened) in exchange of share (not in cash) than this gain is

totally tax free. For example, Mr. X sold his land @ tk. 1 crore to ABC Co. which has a cost price of tk. 60

lac. But he receives share of tk. 1 crore from the company instead of cash. Than his capital gain of tk. 40 lac

is tax free.

SRO 289; (Tax on Capital Gain from sale of share);

1. In case of company @ 10%.

2. In case of placement shareholder or sponsor shareholders @ 5%.

3. If any person holds more than 10% of share of a company than gain on sale of such share is taxable @ 5%.

4. In case of individual, tax free.



[email protected]

01922939126


Lecture # 06 & 07

23.06.2012 / 29.06.2012

Income from Business and Profession:

Definitions:

Study References:

Section; 2(34), Income

2(14), Business

2(49), Profession Definitions

2(61), Speculative Business

Section; 19(15) a, aa, b, c

19(16)

19(18) Deemed Income

19(20)

19(23) read with rule 30A

Section; 28 read with rule - 19(6)

29

30 read with rule 65 Main Section

35

46B + 46C

Sixth Schedule (Part A), Para 1A, Para 33, Para 35, Para 37, Para 39, Para42, Para 44, Para 45.

Third Schedule; tax depreciation

SRO; CSR

Rule 30, 31, 32

Section 2(14); Business:

Business includes any trade, commerce or manufacture or any adventure or concern in the nature of trade,

commerce or manufacture.

Section 2(34); Income:

Income includes-

(a) any income, profits or gains, from whatever source derived, chargeable to tax under any provision of this

Ordinance under any head specified in section 20;

(b) any loss of such income, profits or gains;

(c) the profits and gains of any business of insurance carried on by a mutual insurance association computed in

accordance with paragraph 8 of the Fourth Schedule;

(d) any sum deemed to be income, or any income accruing or arising or received, or deemed to accrue or arise

or be received in Bangladesh under any provision of this Ordinance:

[]Deleted F.A. 1993

Provided that the amount representing the face value of any bonus share or the amount of any bonus declared,

issued or paid by any company registered in Bangladesh under , 1994 (1994 18 ) to its shareholders with a view to increase its paid-up share capital shall not be included as income of that share

holder;


Rules:

Section 2(49); Profession:

Profession includes a vocation

Section 2(61); Speculative Business:

Speculation-business means business in which a contract for the purchase or sale of any commodity, including

stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the

commodity or scripts, but does not include business in which -

(a) a contract in respect of raw materials or merchandise is entered into by a person in the course of his

manufacturing or mercantile business to guard against loss through future price fluctuations for the purpose of

fulfilling his other contracts for the actual delivery of the goods to be manufactured or the merchandise to be

sold by him;

(b) a contract in respect of stocks and shares is entered into by a dealer or investor therein to guard against loss

in his holdings of stocks and share through price fluctuations; and

(c) a contract is entered into by a member of a forward market or a stock exchange in the course of any

transaction in the nature of jobbing or arbitrage to guard against loss which may arise in the ordinary course of

his business as such member;

Rule 30; Determination of income from business when such income is also partially agricultural:

In the case of income which is partially "agricultural income" and partially income from "business", in

determining that part of income which is from "business", the market value of any agricultural produce which

has been raised by the assessee or received by him in kind and which has been utilised as raw material in such

business or the sale proceeds of which are included in the accounts of the business shall be deducted, and no

further deduction shall be made in respect of any expenditure incurred by the assessee as a cultivator or receiver

of the produce in kind.

Rule 31; Computation of income derived from the sale of tea:

1. Income derived from the sale of tea grown and manufactured by the seller in Bangladesh shall be computed as if 40% of such income was derived from business and 60% of such income was derived

from agriculture:

2. Provided that in computing, such income from business, an allowance shall be made in respect of the cost of planting bushes in replacement of bushes that have died or become permanently useless in an area already planted, unless such area has previously been abandoned:

3. Provided further that in computing such income an allowance shall be made in respect of the expenditure incurred in the income year by the asssssee in connection with the development of the new

areas for bringing them under tea cultivation

Rule 32; Computation of income derived from the sale of rubber:

1. Income derived from the sale of rubber grown and manufactured by the seller in Bangladesh shall be

computed as if 40% of such income was derived from business and 60% of such income was derived

from agriculture.

2. Provided that in computing such income an allowance shall be made in respect of the expenditure

incurred in the income year by the assessee in connection with the development of the new areas for

bringing them under rubber cultivation.


Deemed Income:

Example 1: Salary charged in the Income Statement and allowed by the tax authority in A

Documents

Income Tax (Ranjan Sir)