Ranjan Sir Lecture_Details.unlocked

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

User

Text Box

Special 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

http://taxmatebd.com/index.php?pid=3#3-1A


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 ক োম্পোনী আইন, 1994 (1994

সননর 18 নং আইন) to its shareholders with a view to increase its paid-up share capital shall not be

included as income of that share holder;

http://taxmatebd.com/index.php?pid=2#2-34


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 ব্োং ক োম্পোনী আইন, 1991 (1991 সননর 14 নং আইন) 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

mailto:[email protected]


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) Employer‟s 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 d‟affairs 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) Employer‟s 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) Employee‟s contribution to provident fund to which P.F. Act, 1925 applies (Para-3)

c) Both employee‟s and employer‟s contribution to Recognized Provident Fund (Para-5)

d) Employee‟s 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)employer‟s 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 employer‟s 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. Employer‟s 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) Employer‟s 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) Servant‟s 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 employer‟s 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/-

(a) Salary Income:

Basic Salary Tk. 20,000 per month

Dearness allowance -20% of Basic Pay

Bonus - 1 month's Basic salary

House rent allowance - 55% of basic salary

Medical Allowance -Tk 500 p.m.

Conveyance allowance- Tk. 1,200 p.m.

Posting allowance Tk 5,000 p.m. to meet extra cost of living at Hill District

Subscription to RPF- 10% (Employwer's contribution also same)

Interest accrued Tk. 96,000 on P.F. balance calculated @16% p.a.

(b) Interest on Securities:

Interest on SEC approved debentures TK. 35,000/-

© Income from House property

Following actual expenditures were incurred by Mr. X for the full house

Taka

Municipal tax 20,000

Repairs and maintenance 60,000

Insurance premium 12,000

Salary of caretaker 30,000

Interest on house building loan 147,000

(d) Income from Business

1/3rd share income from a partnership business firm Tk. 73,000 (after tax)

Firm's Income Tk. 225000

(e) Capital Gain:

Gain from sale of listed companies shares Tk. 10,00,000

(f) Income from other sources:

Cash dividend (net) from a listed company Tk. 45,000

Stock dividend of 100 shares (face value Tk. 10 but market price on that day Tk 1,500 per share)

Interest (net) on savings bank account Tk. 5,400

During the year Mr. X made the following investments:

1 Life Insurance premium at the name of his father Tk 60,000 (policy value Tk. 500,000)

2 Investment in shares of a listed company Tk. 1,00,000

3 Contribution to montly pension scheme at Islami Bank Tk. 5,000 p.m.

Particulars

From the following particulars compute the total income and tax liability of Mr. X for the income year ending

30 June, 2012

Mr. X has one residential house - one half of which is let out at a montly rent of Tk. 10,000 and the other

half-self occupied

Interest on Govt. Bond Tk. 70,000 (TDS @10% Tk. 7,000 at upfront system 3 years before)


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.

http://taxmatebd.com/index.php?pid=6#23-1c


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 owner’s 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


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.



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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

http://taxmatebd.com/index.php?pid=6#31


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.



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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 ক োম্পোনী আইন, 1994 (1994 সননর 18 নং আইন) 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 AY 2011-12. But

subsequently the salary was not withdrawn by the employee. Than this expenditure will be treated as income in AY

2012-13.

Example – 2: Interest on loan was incurred (but not paid) in IY 2011. But if it is not paid in the subsequent 3 years

than it will be treated as income in the following year (IY 2015). But if the interest paid subsequently in 2016 it will

deducted from the income of 2016.

Section 19(15)(c) is like Section 19(15)(aa) but for trading liability.

Section 19(15); Deemed Income:

Where, for the purpose of computation of income of an assessee under section 28, any deduction has been made

for any year in respect of any loss, bad debt, expenditure or trading liability incurred by the assessee, and--

1. (a) subsequently, during any income year, the assessee has received, except as provided in clause (aa)

whether in cash or in any other manner whatsoever, any amount in respect of such loss, bad debt, or

expenditure, the amount so received shall be deemed to be his income from business or profession

during that income year (example -1);

2. (aa) such amount on account of any interest which was to have been paid to any commercial bank or the

Bangladesh Shilpa Bank or the Bangladesh Shilpa Rin Sangstha or on account of any share of profit

which was to have been paid to any bank run on Islamic principles and which was allowed as a

deduction in respect of such expenditure though such interest or share of profit was not paid by reason

of the assessee having maintained his accounts on mercantile basis, within three years after expiry of

the income year in which it was allowed, shall, to such extent as it remains unpaid, be deemed to be

income of the assessee from business or profession during the income year immediately following the

expiry of the said three years (example -2);

3. (b) the assessee has derived, during any income year, some benefit in respect of such trading liability

(discount), the value of such benefit, if it has not already been treated as income under clause (c), shall

be deemed to be his income from business or profession during that income year;

4. (c) such trading liability or portion thereof as has not been paid within three years of the expiration of

the income year in which deduction was made in respect of the liability, such liability or portion, as the

case may be, shall be deemed to be the income of the assessee from business or profession during the

income year immediately following the expiry of the said three years; and the business or profession in

respect of which such allowance or deduction was made shall, for the purposes of section 28, be

deemed to be carried on by the assessee in that year:

5. Provided that where any interest or share of profit referred to in clause (aa) or a trading liability

referred to in clause (c) is paid in a subsequent year, the amount so paid shall be deducted in

computing the income in respect of that year

Section – 19(16):

Where any building, machinery or plant having been used by an assessee for purpose of any business or profession

carried on by him is disposed of during 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 "Income

from business or profession (see below example).


For example, a machinery

Cost price Tk. 100


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 Business income

Case – 2: Tk. 2 is Business loss

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

For example, a machinery

Cost price Tk. 100


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 business income

Case – 2: Tk. 2 is business loss

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

Sixth Schedule (Part A); Inclusion from income;

Income from the following business is totally tax free –

1. Para - 1A; Any income derived from operation of micro credit by a non-government organization registered

with NGO Affairs Bureau.

2. Para – 33; Any income derived from the business of software development and Information Technology

Enabled Services (ITES) for the period from the first day of July, 2008 to the thirtieth day of June,

[2013]Subs. F.A. 2011

3. Para – 35; Any income derived from the export of handicrafts for the period from the first day of July, 2008

to the thirtieth day of June, 2011.

Section – 19(18):

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

machinery or plant which having been used by the assessee for the purpose of business or profession is discarded,

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

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 "Income from business or profession (see below example).

Section – 19(20):

Where an asset representing expenditure of a capital nature on scientific research within the meaning of section 29

(1) (xx) is disposed of during any income year, so much of the sale proceeds as does not exceed the amount of the

expenditure allowed under the said clause shall be deemed to be the income of the assessee for that income year

classifiable under the head "Income from business or profession.

Section – 19(23):

Where during any income year an assessee, being an exporter of garments, transfers to any person, the export

quota or any part thereof allotted to him by the Government, such portion of the export value of the garments

exportable against the quota so transferred as may be prescribed for this purpose shall be deemed to be the income

of the assessee for that income year, classifiable under the head "Income from business or profession".


4. Para – 37; Income of any private Agricultural College or private Agricultural University derived from

agricultural educational activities.

5. Para – 39; Income derived from any Small and Medium Enterprise (SME) engaged in production of any

goods and having an annual turnover of not more than taka forty lakh:

6. Para – 42; Any income from poultry farming for the period from the first day of July , 2011 to the thirtieth

day of June, 2013 subject to the following conditions :

a. if such income exceeds taka 1,50,000/- an amount not less than 10% of the said income shall be

invested in the purchase of bond or securities issued by the Government within six months from the

end of the income year;

b. the person shall file return of his income in accordance with the provisions of clause (c) of sub-

section (2) of section 75 of this Ordinance; and

c. no such income shall be transferred by way of gift or loan within five years from the end of the

income year.

7. Para – 44; Cinema Hall or Cineplex has been given exemption facility up to 2015

a. Dhaka and Chittagong areas – for five years

b. Other than Dhaka and Chittagong areas – for seven years

8. Para – 45; Exemption facility for Production of rice bran oil has been given up to 2015

a. Dhaka and Chittagong areas – for five years

b. Other than Dhaka and Chittagong areas – for seven years

Exemption

For 5 Years

For 7 Years

For 2 Years

For 2 Years

For 1 Year

For 3 Years

For 3 Years

For 1 Years

100% tax-free

50% tax-free

25% tax free

100% tax-free

50% tax-free

25% tax free

Exemption

For 5 Years

For 7 Years

For 2 Years

For 2 Years

For 1 Year

For 3 Years

For 3 Years

For 1 Years

100% tax-free

50% tax-free

25% tax free

100% tax-free

50% tax-free

25% tax free


Section 46B and 46C; Tax Holiday:

1. Industrial undertakings;

a. Dhaka and Chittagong divisions, excluding Dhaka, Narayanganj, Gazipur, Chittagong, Rangamati,

Bandarban and Khagrachari districts, for a period of five years beginning with the month of

commencement of commercial production of the said undertaking.

b. Rajshahi, Khulna, Sylhet and Barisal divisions and Rangamati, Bandarban and Khagrachari

districts, for a period of seven years beginning with the month of commencement of commercial

production of the said undertaking.

2. Physical infrastructure facility;

a. Subject to the provisions of this Ordinance, income, profits and gains under section 28 from

physical infrastructure facility (hereinafter referred to as the said facility) set up in Bangladesh

between the first day of July, 2011 and the thirtieth day of June, 2013 (both days inclusive) shall be

exempted from the tax payable under this Ordinance for ten years beginning with the month of

commencement of commercial operation, and at the rate, specified below:

Period of Exemption Rate of Exemption

For the first five years (first, second, third, fourth and fifth year) 100% of income

For the next three years (sixth, seventh and eighth year) 50% of income

For the last two years (ninth and tenth year) 25% of income

For tax holiday purpose a entity has to fulfill some conditions and apply with prescribed from. Details of these are

found at IT ordinance 1984 in section 46B and 46C.

Section – 35; Method of accounting:

Accounts shall be maintained for –

1. Income from business and profession.

2. Income from agriculture

3. Income from other sources.

Section – 28; Income from business or profession:

Example, X corporation have made a bridge in Bangladesh (in 2008) and kept its instruments here in hope of getting

another project but did not operate any liaison office. But in the last four (4) years they did not get any project and

sold their machine this year, which become scrap, more than WDV. Though their office is not active in Bangladesh at

this time, their business deemed to be carried on and tax is imposed as the business is in operation.

The following income of an assessee shall be classified and computed under the head "Income from business or

profession", namely :-

1. (a) profits and gains of any business or profession carried on, or deemed to be carried on (see below

example), by the assessee at any time during the income year;

2. (b) income derived from any trade or professional association or other association of like nature on

account of specific services performed for its members;

3. (c) value of any benefit or perquisite, whether convertible into money or not, arising from business or the

exercise of a profession;


Section – 29; Deductions from income from business or profession;

“Sec page 27 of Income Tax ordinance 1984”

“Any expenditure, not being in the nature of capital expenditure or personal expenses of the assessee, laid out or

expended wholly and exclusively for the purpose of the business or profession of the assessee” (Omnibus clause at

the end of the section 29) .

Section – 30; Deduction not admissible in certain circumstances;

30(a); if salary paid without deducting TDS

30(aa); any other payment without deducting TDS or VDS

30(b); firm‟s (partnership) partners can not provided with

1. Salary

2. Remuneration

3. Commission

4. Interest

30(c); brokerage or commission to non-resident without TDS u/s 56.

30(d); if payment from unrecognized provident fund without deducting TDS.

30(e); excess perquisite (over tk. 250,000 per employee per year)

30(f) (with rule 65); entertainment, free sample, holidaying & recreation. These expenditure are allowable under rule

65.

1. Entertainment:

Entertainment expense is only allowable if the company is make profit. Not profit no entertainment! And

expense is allowable at –

On the 1st tk. 10 lac of assessed profit – 4%

And on the balance profit over tk. 10 lac – 2%

Or

The actual entertainment expense charged in the profit and loss account, whichever is lower.

“profit should be assessed after disallowing charged entertainment expenses in profit and loss a/c”.

2. Free Sample:

Pharmaceuticals Others

On the first 5 crore of disclosed turnover 2% 1.5%

On the next 5 crore of disclosed turnover 1% 0.75%

On the balance 0.50% 0.375%

Or, the actual free sample given whichever is lower.

3. Holidaying & Recreation:

¾ of the actual expenditure or 3 months basic salary of the employee (who enjoyed the opportunities)

whichever is lower is allowable.

For example, Mr. X is an employee of ABC ltd. the company given him an holiday opportunity of tk.

100,000 which was also his actual expenditures. His basic salary is tk. 20,000 per month. So allowable

expenditure will be ¾ of actual expenditure (tk. 75,000) or basic salary of 3 months (tk. 60,000) lower one,

which is tk. 60,000 other tk. 40,000 will add back with the company‟s profit.

However, the company has to fulfill the following conditions –

a. If expense is more than tk. 10,000, it should be given in crossed cheque or through bank transfer.

b. Same employee cannot be provided with foreign holidaying opportunity for subsequent year.

If the company did not fulfill the above condition full expense will disallowed.


30(g); Headquarter expenditures of foreign companies are allowable up to 10% of assessed profit (or actual, lower

one).

30(h); Royalty and technical knowhow fee is allowable up to 8% of assessed profit (or actual, lower one).

30(i); monthly gross salary over tk. 15,000 shall be given in cheque or bank transfer.

30(j); incentive bonus allowable up to 10% of disclosed net profit before tax.

30(k); overseas travelling allowable up to 1% of disclosed turnover.

30(l); no brokerage / commission is allowable to shareholder directors (FA – 2012).

30(m); any payment over tk. 50,000 should be in cheque or bank transfer, but not applicable in – salary, raw material

purchase and payment to government (FA – 2012).

Third schedule; Tax Depreciation:

There five types of depreciation mentioned in the IT Ordinance –

1. Normal depreciation:

According to the chart in third schedule of ITO, tax depreciation is allowable on written down value (cost in

the first year) at the following rate –

Building (factory) 20%

Building (office) 10%

Plant and machinery 20%

Furniture 10%

Computer 30%

Road/bridge/flyover 2%

Car* 20%

* in case of car depreciation is allowable up to tk. 20 lac. If the car‟s price is over tk. 20 lac, depreciation

should be calculated as if the price in tk. 20 lac.

In case of financial lease, assessee will get the depreciation not the leasing company.

In the year of acquisition, full depreciation is allowable but in the year of disposal no depreciation is

allowable.

For example, Car price tk. 3,000,000. After 2 years sold at tk. 2,400,000. Compute gain.

Notional cost price tk. 2,000,000

Less: Depreciation (Y 1) (400,000)

WDV after Y 1 tk. 1,600,000

Less: Depreciation (Y 2) (320,000)

WDV after Y 2 tk. 1,280,000

Proportionate sales price = (Notional cost price / actual price) * actual sales price

= (2,000,000 / 3,000,000) * 2,400,000

= tk. 1,600,000

Gain (business income) = (tk. 1,600,000 – tk. 1,280,000) = tk. 320,000

Expenses allowable on assessed profit –

1. Entertainment

2. Head office expenses

3. Technical know how fee


2. Accelerated Depreciation:

Only applicable for plant and machinery used for the first time in Bangladesh. But this opportunity cannot be

taken if the company is in the tax holiday or vice versa.

Rate of depreciation:

1st year 50% of cost

2nd year 30% of cost

3rd year 20% of cost

Application to the DCT for applying this depreciation should be made within the 6 months of starting

production.

3. Initial Depreciation:

Only applicable for Building and Plant & machinery. But the property should be new and given only in the

first year of addition along with normal depreciation.

Rate of depreciation:

Building 10%

Plant and machinery 25%

For example, a machinery coats tk. 100 lac. In first year depreciation allowance is –

Initial depreciation (25%) tk. 25 lac

Normal depreciation (20%) tk. 20 lac

Depreciation allowance (year 1) tk. 45 lac

WDV after 1st year tk. 55 lac.

4. Extra depreciation

5. Special depreciation

Last two depreciation policy is not applicable now.

Hand Outs to be attached:

1. Tax Holiday

2. Case laws

3. Company tax assessment

4. CSR

Asif Ahmed

Articled Student KPMG (Bangladesh)


01922939126



Lecture # 08

03.07.2012

Income from other sources:

Section – 33; Income from other sources;

The following income of an assessee shall be classified and computed under the head "Income from other sources",

namely:-

(a) dividend and interest;

(b) royalties and fees for technical services;

(c) income from letting of machinery, plants or furniture belonging to the assessee, and also of buildings

belonging to him if the letting of buildings is inseparable from the letting of the machinery, plant or furniture;

(d) any income to which section 19 (1), (2), (3), (4), (5), (8), (9), (10), (11), (12), (13), (21), (21A) or (24) applies;

(e) any other income of any kind or from any source which is not classifiable under any of the other heads

specified in section 20.

Section – 34; Deductions from income from other sources;

(1) The amount of interest paid in respect of money borrowed for the purpose of acquisition of shares of a

company.

(2) Any expenditure, not being in the nature of capital expenditure or personal expenses of the assessee, incurred

solely for the purpose of making or earning the relevant income.

(3) Where the income is derived from letting on hire of machinery, plant or furniture belonging to the assessee and

also of building belonging to him if the letting of the building is inseparable from the letting of such machinery,

plant or furniture, the same allowances as are admissible under section 29(1) (vi), (vii) and (xi) to an assessee in

respect of income under the head "Income from business or profession" subject to the same conditions and

limitations as if the income from such letting on hire were income from business or profession:

Provided that the provisions of section 19(16) shall also be applicable for the determination of any profits where

the sale proceeds of such machinery, plant, furniture or building exceeds the written down value thereof.

(4) Notwithstanding anything contained in this section, no allowance shall be made on account of-

1. (a) any interest chargeable under this Ordinance which is payable outside Bangladesh on which tax

has not been paid and from which tax has not been deducted at source under section 56; or

2. (b) any payment which is chargeable under the head "Salaries" if tax has not been paid thereon or

deducted there from under section 50.

Section – 35; Method of accounting:

Section – 36; Allocation of income from royalties, literary works, etc:

Where the time taken by the author of a literary or artistic work in the making thereof exceeds twelve months, the

amount received or receivable by him during any income year in lump sum on account of royalties or copyright fees

in respect of that work shall, if he so claims, be deemed to be the income of-

Study References:

Section; 2(26) Dividend; read with rule 19(7)

2(56) Royalty

2(31) Fees for technical services

Section; 33, 34, 35, 36

Section; 19(1) – 19(5)

19(8) – 19(13)

19(21), 19(21B), 19(24), 19(26), 19(27), 19(28)


(a) the income year in which it is received and the immediately preceding income year if the time taken in

making such work exceeds twelve months but does not exceed twenty-four months ; and

(b) the income year in which it is received and the two immediately preceding income years if the time taken

in making such work exceeds twenty-four months, and shall be allocated in equal proportions to each such

income year and the income of the assessee in respect of an income year shall be computed accordingly.

Explanation.- For the purposes of this section, the expression "author" includes a joint author and the

expression "lump sum" in regard to royalties or copyright fees includes an advance payment on account of

such royalties or copyright fees which is not returnable.

Section – 19; Un-explained investments, etc., deemed to be income;

(1) Where any sum is found credited in the books of an assessee maintained for any income year and the assesses

offers no explanation about the nature and source thereof, or the explanation offered is not, in the opinion of the

Deputy Commissioner of Taxes, satisfactory, the sum so credited shall be deemed to be his income for that income

year classifiable under the head "Income from other sources".

(2) Where, in any income year, the assessee has made investments or is found to be the owner of any bullion,

jewellery or other valuable article and the Deputy Commissioner of Taxes finds that the amount expended on making

such investments or in acquiring such bullion, jewellery or other valuable article exceeds the amount recorded in this

behalf in the books of account maintained by the assessee for any source of income and the assessee offers no

explanation about the excess amount or the explanation offered is not, in the opinion of the Deputy Commissioner of

Taxes, satisfactory, the excess amount shall be deemed to be the income of the assessee for such income year

classifiable under the head "Income from other sources".

(3) Where, in any income year, the assessee has incurred any expenditure and he offers no explanation about the

nature and source of the money for such expenditure, or the explanation offered is not in the opinion of the Deputy

Commissioner of Taxes, satisfactory, the amount of the expenditure shall be deemed to be the income of the assessee

for such income year classifiable under the head "Income from other sources".

(4) Where, in the financial year immediately preceding the assessment year, the assessee has made investments which

are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers

no explanation about the nature and source of fund for the investments, or the explanation offered is not, in the

opinion of the Deputy Commissioner of Taxes, satisfactory, the value of the investments shall be deemed to be the

income of the assessee for such financial year classifiable under the head "Income from other sources".

(5) Where, in the financial year immediately preceding the assessment year, the assessee is found to be the owner of

any money, bullion, jewellery or other valuable article which is not recorded in the books of account, if any,

maintained by him for any source of income, and the assessee offers no explanation about the nature and source of

fund for the acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered is not, in

the opinion of the Deputy Commissioner of Taxes, satisfactory, the money or the value of the bullion, jewellery or

other valuable article, shall be deemed to be the income of the assessee for such financial year classifiable under the

head "Income from other sources".

(8) Where any assets, not being stock-in-trade or stocks, and shares, are purchased by an assessee from any company

and the Deputy Commissioner of Taxes has reason to believe that the price paid by the assessee is less than the fair

market value thereof, the difference between the price so paid and the fair market value shall be deemed to be income

of the assessee classifiable under the head "Income from other sources".

(9) Where any lump sum amount is received or receivable by an assessee during any income year on account of

salami or premia receipts by virtue of any lease, such amount shall be deemed to be income of the assessee of the

income year in which it is received and classifiable under the head "Income from other sources":

Provided that at the option of the assessee such amount may be allocated for the purpose of assessment

proportionately to the years covered by the entire lease period, but such allocation shall in no case exceed five years.

(10) Where any amount is received by an assessee during any income year by way of goodwill money or receipt in

the nature of compensation or damages for cancellation or termination of contracts and licences by the Government or


any person, such amount shall be deemed to be the income of such assessee for that income year classifiable under

the head "Income from other sources".

(11) Where any benefit or advantage, whether convertible into money or not, is derived by an assessee during any

income year on account of cancellation of indebtedness []Deleted F.A. 1999, the money value of such advantage or benefit

shall be deemed to be his income for that income year classifiable under the head "Income from other sources":

Provided that the provisions of this sub-section shall not apply in case of a loan or interest waived in respect of an

assessee by a commercial bank including Bangladesh Krishi Bank, Rajshahi Krishi Unnyan Bank, Bangladesh Shilpa

Bank or Bangladesh Shilpa Rin Sangstha or a leasing company or a financial institution registered under আর্থি

প্রর্িষ্ঠোন আইন, 1993 (1993 সননর 27 নং আইন)

(12) Any managing agency commission including compensation received during any income year by an assessee for

termination of agencies or any modification of the terms and conditions relating thereto shall be deemed to be his

income for that income year classifiable under the head "Income from other sources".

(13) Any amount received by an assessee during any income year by way of winnings from lotteries, crossword

puzzles, card games and other games of any sort or from gambling or betting in any form or of any nature whatsoever

shall be deemed to be his income for that income year classifiable under the head "Income from other sources".

(21) Where any sum, or aggregate of sums exceeding taka fifty thousand is claimed or shown to have been received

as loan by an assessee during any income year from any person, not being a banking company or a financial

institution, otherwise than by a crossed cheque drawn on a bank, and has not been paid back in full within three years

from the end of the income year in which it is claimed or shown to have been received, the said sum or part thereof

which has not been paid back, shall be deemed to be the income of the assessee for the income year immediately

following the expiry of the said three years and be classifiable under the head "Income from other sources":

Provided that where the loan referred to in this sub-section is paid back in a subsequent income year, the amount so

paid shall be deducted in computing the income in respect of that subsequent year.

[(21B) Where any sum, shown as initial capital of business or profession in return of income filed under section

82BB, is transferred by a person partly or fully within the period of limitation stipulated in the said section, the sum

so transferred shall be deemed to be his income of the year in which such sum was transferred and shall be

classifiable under the head "Income from other sources".] Added F.A. 2011

[(24) Where an assessee, being a private limited company or a public limited company not listed with a stock

exchange, increases its paid up capital by issuing shares in an income year, the amount so received as increased paid

up capital, not being received by crossed cheque or bank transfer, shall be deemed to be the income of such assessee

for that income year classifiable under the head "Income from other sources.]Subs. F.A. 2010

[(25)]Deleted F.A. 2007

[(26)Where an assessee, being a company, receives any amount as loan from any other company otherwise than by a

crossed cheque or by bank transfer, the amount so received shall be deemed to be the income of such assessee for that

income year in which such loan was taken and shall be classifiable under the head "Income from other sources".]Added

F.A. 2011

[(27)Where an assessee, being a company, purchases directly or on hire one or more motor car or jeep and value of

any motor car or jeep exceeds ten percent of its paid up capital, then fifty percent of the amount that exceeds such ten

percent of the paid up capital shall be deemed to be the income of such assessee for that income year classifiable

under the head "Income from other sources".]Added F.A. 2011




Solutions of Problem:

ABC Company Limited

Calculation of Total Income

For the year ended 31st December 2012

AY: 2012-13

Description Workings

Amount

(BDT)

a) Income from business:

Net profit as per P/L accounts

5,73,000

Less: Income of other head

Dividend income 16,000

Interest on bank deposits 14,400

Profit on sale of machineries 30,000

Interest on govt. securities 10,000

Sundry income 5,000

Refund on income tax (neither an income nor an expenditure) 30,000 (1,05,400)

4,67,600

Add: Expenditure for consideration as per tax afterworks

Entertainment 54,000

Depreciation 1,80,000 2,34,000

7,01,600

Add: Inadmissible expenditure

i) Salary and allowances

Salary without TDS 10,50,000

Excess perquisite 3,70,000

Salary paid in cash (4,250,000-1,050,000-370,000-542,700) 22,87,300

ii) Excess payment of incentives

(600,000-573,000*.10) 5,42,700

iii) Interest on loan from sister concern 35,000

iv) charity (as it is private) 10,000

v) Income tax paid in advance 2,00,000

vi) Fine 20,000

vii) Profit on sale of machineries

sales price (42,000+30,000) 72,000

Less: WDV (12,000)

Capital gain (10,000)

45,65,000

52,66,600

Less: Tax depreciation

(1,15,000)

51,51,600

Less: Entertainment (as per rule 65)

on first 10,00,000 @ 4% 40,000

on next 41,51,600 @ 2% 83,032

or the actual expenditure (lower one) 1,23,032 (54,000)

50,97,600

b) Interest on Securities:

Interest on Govt. securities

10,000

51,07,600

c) Capital gain:

Sale of machineries

10,000

51,17,600

d) Income from other sources:

Loan to sister concern (deemed inc. u/s 19(26)) 3,50,000

Dividend income (16,000/.80) 20,000

Interest on bank deposit (14,400/.90) 16,000

Sundry income 5,000 3,91,000

Total Income

55,08,600


Calculation of gross tax liability:

Total income

55,08,600

Less: Capital gain

(10,000)

Dividend income

(20,000)

Total income for 37.5%

54,78,600

Tax liability at 37.5%

20,54,475

Tax on capital gain (15%)

1,500

Tax on dividend income (20%)

4,000

Gross tax liability

20,59,975

Calculation of minimum tax liability:

Sales

89,80,000

Dividend

20,000

Interest

16,000

Sale of machineries

72,000

Interest on govt. securities

10,000

Sundry income

5,000

Gross receipt

91,03,000

Minimum tax @ 0.50% on gross receipt

45,515

So minimum tax of ABC Company Limited will be

20,59,975

Calculation of net tax liability:

Gross tax liability

20,59,975

Less: TDS on dividend

(4,000)

TDS on bank deposit

(1,600)

Advance tax (assuming it is paid for AY 2012-13) (2,00,000)

Net Tax Liability of ABC Company Limited

18,54,375


KPMG (Bangladesh)


01922939126



Lecture # 09

14.07.2012

Set Off and Carry Forward Losses:

Set Off Losses: Section 37

Wherever an assessee sustains a loss in any year under any head of income, he is entitled to set off the loss so

sustained against his income, profits or gains under any other head in that year. Provided that any loss in respect of

any speculation business or any loss under capital gains or any loss from any other source, income of which is

exempted from tax shall not be so set off.

Carry forward of loss from business: Section 38

Whenever an assessee sustains any loss under the head “Business or Profession” and the loss cannot wholly be set-

off against under any other head, such unadjusted loss shall be carried forward to the following year to be set-off

against the profits and gains of the same business or profession. Loss cannot be carried forward for more than 6

successive assessment years.

Section - 46B: Exemption from tax of newly established industrial undertakings set up between the

period of July 2011 and June 2013, etc. in certain cases.-

1. (1) Subject to the provisions of this Ordinance, income, profits and gains under section 28 from an industrial

undertaking (hereinafter referred to as the said undertaking) set-up in Bangladesh between the first day of

July, 2011 and the thirtieth day of June, 2013 (both days inclusive) shall be exempted from the tax payable

under this Ordinance for the period, and at the rate, specified below:

2. if the said undertaking is set-up in-

1. (i) Dhaka and Chittagong divisions, excluding Dhaka, Narayanganj, Gazipur, Chittagong,

Rangamati, Bandarban and Khagrachari districts, for a period of five years beginning with the

month of commencement of commercial production of the said undertaking:

2.


For the first two years (first and second year) 100% of income

For the next two years (third and fourth year) 50% of income

For the last one year (fifth year) 25% of income

3. (ii) Rajshahi, Khulna, Sylhet and Barisal divisions and Rangamati, Bandarban and Khagrachari

districts, for a period of seven years beginning with the month of commencement of commercial

production of the said undertaking:

4.


For the first three years (first, second and third year) 100% of income

For the next three years (fourth, fifth and sixth year) 50% of income

For the last one year (seventh year) 25% of income

Study References:

Section; 37: carry forward losses.

Section; 38 read with section 46B and 3rd schedule

39

40

41

42


Carry forward of loss in speculation business: Section 39

Loss from speculation business, which cannot be set-off during the year against income from any other speculation

business, can be carried forward to the next following year and set-off against income from any speculation business

in the said following year. If the loss cannot be wholly set-off, it can be carried forward to the next year and so on,

restricted upto 6 successive years.

Carry forward of loss under the head “Capital Gains”: Section 40

Loss under the head “Capital Gains” can be set-off against income from the same head during the income year. If the

loss cannot be set-off in the above manner, the loss or portion thereof can be carried forward to the next assessment

year and set-off against income under the same head in that year restricted upto 6 successive assessment years.

Loss upto Taka 5,000 cannot be carried forward. Amount in excess of Taka 5,000 can only be carried forward and

set-off in the aforesaid manner.

Loss of Agricultural Income: Section 41

Where any assessee sustains a loss of profit or gains in any year under the head “Agricultural Income” and the loss

cannot be wholly set-off under Section 37, the loss or portion thereof where the assessee has no income under any

other head, shall be carried forward to the following year and set-off against the profits and gains, if any, of such

agricultural income and if the loss in either case cannot be wholly set-off, the amount of loss not so set-off, shall be

carried forward to the next year and so on but not more than 6 years.

Set-off of loss in the case of succession in business: Section: 42

In case of succession in business otherwise than by inheritance, the person succeeding in the business shall not be

entitled to set – off the loss of the person succeeded. In the case of change in constitution of firm, the firm shall not be

entitled to set-off the proportionate share of loss of the retired or deceased partner. A partner of the firm shall also not

be entitled to the benefit of such loss.

Carry forward of depreciation allowance: Section 42(6)

Depreciation allowance which cannot be given full effect of, in any year, because of there being no profits or of

inadequate profits, unadjusted allowances or portion thereof as the case may be, shall be carried forward to the next

year or years and be part of allowance for that year.

While setting-off loss on account of depreciation allowance, effect shall first be given to business loss including loss

from speculation business.

Advance income tax:

Detail sheet to be attached here, with –

Income tax return

Lecture # 11

20.07.2012

Deduction and collection of tax at source (TDS):

Detail Sheet to be attached


Lecture # 10

16.07.2012

Assessment of Partnership Firm:

Study References:

Section – 30(b);

43(3)

85

Sixth Schedule (Part A) Para – 18

Sixth Schedule (Part B) Para – 16

Section – 30(b); Deduction Inadmissible:

Any payment by way of interest, salary, commission or remuneration made by a firm or an association of persons

to any partner of the firm or any member of the association, as the case may be

Section – 43(3); Computation of total income:

Where the assessee is a partner of a firm, then, whether the firm has made a profit or a loss, his share (whether a

net profit or a net loss) shall be taken to be any salary, interest, commission or other remuneration payable to him

by the firm in respect of the income year increased or decreased respectively by his share in the balance of the

profit or loss of the firm after the deduction of any interest, salary, commission or other remuneration payable to

any partner in respect of the income year []Deleted F.A. 1995 and such share shall be included in his total income.

Provided that if his share so computed is a loss, such loss may be set off or carried forward and set off in

accordance with the provisions of section 42.

Section – 85; Special provisions regarding assessment of firms:

1. (1) Notwithstanding anything contained in this Ordinance, where the assessee is a firm and the total

income of the firm has been assessed under sections 82, 83, or 84, as the case may be,-

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

2. (b) in the case of a firm, the tax payable by the firm shall be determined on the basis of the total

income of the firm.

2. (2) Whenever any determination is made in accordance with the provisions of sub-section (1), the

Deputy Commissioner of Taxes shall, by an order in writing, notify to the firm-

1. (a) the amount of tax payable by it, if any ;

2. (b) the amount of the total income on which the determination has been based; and

3. (c) the apportionment of the amount of income between the several partners.



[email protected]

01922939126


http://taxmatebd.com/index.php?pid=10#85-1a


Salary to Partner A 150,000 Gross profit 2,000,000

Commission to Partner C 200,000 Capital gain 1,000,000

Office Rent 300,000

Interest on Capital B 125,000

Interest on Capital C 175,000

Provision for Bad debts 400,000

Net Profit 1,650,000

3,000,000 3,000,000

Requirements:

1. Compute the total income of ABC firm

2. Tax payable by the firm

3. Allocate profit among the partners

4. Compute total income of Mr. B

5. Tax payable by Mr. B

Solution:

1. Total income of ABC firm

Computation of total income for ABC firm

for the year ended 30 June 2012 (Assessment year 2012-2013)

Net Profit as per P/L acc 1,650,000

Less: Capital gain for separate consideration (1,000,000)

Business income 650,000

Add: Ibadmissibe expenses

Provision for bad debt sec 30(b) 400,000

Salary to partner A sec 30(b) 150,000

Commission to partner B sec 30(b) 200,000

Intarest on capital (B+C) sec 30(b) 300,000 1,050,000

Income from business 1,700,000

Capital gain 1,000,000

Total income 2,700,000

Assessment of Pirtnership firm

ABC Limited

P/L Account

2. TAX PAYABLE

Capital gain is within five years (A):

On the first Tk 200,000 Nil

On the next Tk 300,000 @ 10% 30,000

On the next Tk 400,000 @ 15% 60,000

On the next Tk 300,000 @ 20% 60,000

On the balance Tk 1,500,000 @ 25% 375,000

2,700,000 525,000

Capital gain is after five years (B):


On the next Tk 300,000 @ 10% 30,000

On the next Tk 400,000 @ 15% 60,000

On the next Tk 300,000 @ 20% 60,000

On the balance Tk 500,000 @ 25% 125,000

1,700,000 275,000

capital gain tax on Tk. 1,000,000 @ 15% 150,000

425,000

Tax payable lower of A and B 425,000

3. Allocation of profit among partners:

A B C Total

Profit from the firm(1/3) 350,000 350,000 350,000 1,050,000

Salalry 150,000 150,000

Commission 200,000 200,000

Interest 125,000 175,000 300,000

500,000 475,000 725,000 1,700,000

Total income 2,700,000

Less: Capital gain 1,000,000

1,700,000

Less: Salary, Commission and interest 650,000

1,050,000

4. Total income of Mr. B

i) House property income:

Annual value (Reasonable rent) 300,000

Less: Repair and maintance 30% 90,000

210,000

ii) Income from partnership firm 475,000

685,000

5. Tax Liability


On the next Tk 300,000 @ 10% 30,000

On the next Tk 185,000 @ 15% 27,750

685,000 57,750

Less: Tax at average rate on share of partnership firm income=(57,750*475,000)/685,000 40,046

17,704


Lecture # 12, 13 & 14

22.07.2012 / 27.07.2012 / 29.07.2012

Assessment:

1. PROVISIONAL ASSESSMENT (SEC.81):

The D.C.T. is empowered under section 81 of I. T. Ordinance, 1984 to make provisional assessment in a

summery manner–

i. On the basis of return and statements, where return has been filed (after allowing depreciation as per

3rd Schedule and also after setting off any loss carried forward if any); or

ii. On the basis of last assessed income, where no return has been filed.

As the name indicates that it is not final, just an assessment done provisionally to collect tax before regular

assessment. There shall be no right of appeal against provisional assessment. Rather all penal measures can

be enforced to recover tax as per provisional assessment.

2. ASSESSMENT ON THE BASIS OF CURRECT RETURN (SEC.82):

Where in the opinion of the D.C.T. normal return or revised return submitted by the assessee is correct and

complete in all respect he shall assess total income on the basis of that return and communicate the

assessment order within 30 days from the date of such assessment. The following are the restrictions to do

assessment under this section:

i. Return must be filed within the prescribed time;

ii. Tax as per return shall be paid before submission of return;

iii. Such return does not show any loss.

iv Such return does not show lesser income than the last assessed income.

v. Assessment on the basis of such return does not result in refund.

3. UNIVERSAL SELF- ASSESSMENT (SEC. 82BB):

Universal self assessment system has been introduced in our country from the assessment year 2007-2008.

Every assessee (including company) is eligible to submit return under this system. In this system assessee

has to tick the box universal self assessment at the top of the return form. DCT will issue a receipt of such

return and that receipt will mean that assessment is complete. It is hassle free in the sense that assessment

has been done on the basis of return and without any physical presence. Meanwhile, due to this simplicity, it

becomes very popular method of submitting return. But it should be kept in mind that return must be correct

and complete.

Procedure to submit return under universal self assessment system:

The procedure is very simple. Assessee has to prepare his return either by himself or with the help of other

and then it is to be signed and verified. Assessee has to tick the box universal self assessment at the top of

the return form and after paying tax (if applicable) submit the return within the last date of submission of

return. However, the assessee should keep in mind the following:

(a) Such return must be submitted within the last date of submission of return or within the extended

time allowed by the DCT.

(b) Tax as per return (if any) is to be paid before submission of return.

(c) No question is to be raised by the DCT as to the source of initial capital investment in case of new

assessee showing new business if at least 25% of initial capital is shown as income. Initial capital

formed in such way is not transferable within 5 years from the end of the assessment year in any

manner.

Tax audit:

The return submitted at this system may, afterwards, be selected by the NBR or its subordinate authority (if

so authorized by the Board) for audit. The Board will determine the manner of such selection. However an

assessee will be out of the scope of audit if he submits return under universal self assessment system


showing at least 20% higher income than the income assessed or shown in the immediate preceding

assessment year. But to keep himself out of audit, an assessee will have to fulfill the following conditions:

Such return does not show any tax free income;

Such return does not show any receipt of gift;

Such return does not show any receipt of loan except bank loan;

Such return does not show any wealth accretion which is not covered by income;

If the return is selected for audit, then DCT will proceed to make fresh assessment by issuing notice under

section 83(1) for hearing and he will make assessment within 2 years from the end of the assessment year.

Otherwise it will be barred by time limitation. Assessment can be done under section 83(2) or under section

84 as the situation permits.

Re-open the universal self assessment under section 93:

If any concealment has been detected in the return submitted by the assessee under universal self assessment

scheme within 5 years from the end of the assessment year then the DCT may re-open the case and proceed

to assess further.

4. FINAL SETTLEMENT OF TAX LIABILITY (SEC. 82C):

Any tax deducted /collected at source from the following heads shall be deemed to be the final discharge of

tax liability:

1. Contractors and suppliers (Section 52+Rule 16)

2. Royalty and Technical know-how fee (Section 52A(2)

3. C&F Agency commission (Section 52AAA)

4. Handmade cigarette (Section 52B)

5. Compensation against property acquisition (Section 52C)

6. Import [other than raw-material import] (Section 53+Rule 17A)

7. Shipping Agency Commission(Section 53AA)

8. Manpower export(Section 53B+Rule 17C)

9. Export of -

(a) knit-wear

(b) Woven garments

(c) Terry towel

(d) Carton

(e) Garments accessories

(f) Jute goods

(g) Frozen foods

(h) Vegetables

(i) Leather goods and

(j) Packed foods

10. Member of Stock Exchange (Section-53BBB)

11. Public Auction (Section 53C+Rule 17D)

12. Non-resident Courier (Section 53CC)

13. Salary of foreign technicians serving in a diamond cutting industry (Section-52 O)

14. Real Estate and Land Development Business (Section-53FF)

15. Insurance Commission (Section 53G)

16. Surveyor of General Insurance (Section-53GG)

17. Sale of property (Section-53H)

18. Share Premium (Section-53L)

19. Capital Gain from transfer of shares by sponsor shareholders (Section 53M)

20. Income from Lottery (Section 55)

21. Amount received by rental power company u/s 52N

22. Amount received by international gateway service provider companies u/s 52S

23. Amount received as export cash subsidy u/s 53DDD

(Section-53BB)


Section 82C has been re-drafted through Finance Act, 2011 keeping area of final tax liability unchanged but

changing the way of calculating income which will suffer more taxes. Some new conditions are as follows:

(1) Income to be determined through back calculation

(2) Such income will not set off with loss under any other head or loss of earlier year or years.

(3) Though it is final settlement of tax liability but tax is to be paid again in the following situations:

If shown income is in excess of the amount determined under back calculation, then tax is to be

paid again at the applicable rate on excess income shown.

Tax at applicable rate will also be payable on disallowances under sec. 30

Assessee shall have to pay surcharge if net wealth exceeds Tk.2 crore.

5. SPOT ASSESSMENT (SEC.82D):

Where an assessee, not being a company, who has not previously been assessed but carrying on business or

profession in any shopping centre or commercial market or having a small establishment, the D.C.T may fix

tax payable by him at the rate prescribed at Rule-38B and the receipt obtained for payment of such tax shall

be deemed to be an assessment order.

6. ASSESSMENT AFTER HEARING (SEC.83):

When the D.C.T. is not satisfied without requiring the physical presence of the assessee who filed the return

or the production of evidences then he will issue notice u/s 83(1) fixing a date and time for hearing.

After hearing and considering the evidences produced and if necessary considering such other evidences by

issuing another notice u/s 83(2) the D.C.T. will make assessment u/s 83(2) within 30 days from the last

hearing and communicate the assessment order within another 30 days from the date of assessment.

Thus section 83(1) deals with notice of hearing and section 83(2) deals with both requisition notice and

assessment.

7. ASSESSMENT ON THE BASIS OF REPORT OF NBR APPOINTED CHARTERED

ACCOUNTANT (SEC.83AAA):

When NBR has reasonable cause to believe that a return submitted by any company assessee is incorrect or

incomplete, then the Board may appoint a chartered accountant to examine the books of accounts of that

company. He will then exercise the powers and functions of a DCT only relating to section 79 and other than

clause (f) of section 113.After examination of the books of accounts he will submit report to the Board and

the Board will then forward the report to the DCT for consideration. After receiving the report DCT will

proceed to assess the income of the company by issuing notice u/s 83(1)

8. BEST JUDGMENT ASSESSMENT (SEC. 84):

Where any assessee fails to file return required by a notice u/s 77/93 and has not filed a return or revised

return u/s 78 or to comply with the requirements of notices u/s 79, 80 or 83(I), the D.C.T. shall assess

income to the best of his judgment.

9. ASSESSMENT OF BUS, TRUCK, MINIBUS ETC.:

Deviating from the normal assessment procedure, owner of bus/mini bus, truck/truck Lorries, coaster, taxi

cab etc. will pay tax on at the fixed rate prescribed at SRO No 267-law/2010 dated 01/07/2010.

10. ASSESSMENT OF PARTNERSHIP FIRM (SEC.85):

Like other category of assessee, DCT will assess the income of the partnership firm and determine the tax

payable thereon by the firm. He will also apportion the total income of the firm (arrived before tax) between

the partners.

11. ASSESSMENT IN CASE OF CHANGE IN THE CONSTITUTION OF THE FIRM (SEC.86):

If DCT found at the time of assessment of a firm that a change has occurred in the constitution of the firm,

the assessment shall be made on the re-constituted firm but the conditions are:

(1) Income will be apportioned between those partners who were partners during the income year.

(2) When tax assessed on any partner is not recoverable from him it will be recovered from the re-

constituted firm.


12. ASSESSMENT IN CASE OF CONSTITUTION OF A NEW SUCCESSOR FIRM (SEC.87):

If it is found at the time of assessment of a firm that a new firm has been constituted to succeed the previous

firm DCT will make 2 assessments one for the predecessor firm and the other for the successor firm.

13. ASSESSMENT IN CASE OF SUCCESSION TO BUSINESS OTHERWISE THAN ON DEATH

(SEC.88):

Where any person carrying on business or profession has been succeeded otherwise than by death by another

person the predecessor shall be assessed for the period up to the date of succession and the successor shall be

assessed for the period after the date of succession. Provided that-

(1) Where the predecessor can not be found the assessment shall be made on the successor

(2) Where tax is not recoverable from the predecessor it is to be recovered from the successor

who shall be entitled to recover it from the predecessor.

14. ASSESSMENT IN CASE OF DISCONTINUED BUSINESS (SEC.89):

When any business or profession is discontinued, a notice of such discontinuance must be given to the

D.C.T. within 15 days of such discontinuance of the business or profession accompanied by a return of total

income for the broken period. If the person discontinuing such business or profession fails to give such

notice, the D.C.T. may impose penalty a sum not exceeding the amount of tax subsequently assessed on him.

15. ASSESSMENT IN CASE OF PERSONS LEAVING BANGLADESH (SEC. 91):

Whenever any person is leaving Bangladesh and has no intention to come back, the D.C.T. may proceed to

assess him for all the completed income years for which his assessments remain pending as well as for the

broken period up to the probable date of his departure from Bangladesh.

Here is deviation from the usual practice as the assessment of the broken period may be completed before

the commencement of the relevant assessment year. One important thing to note here is that, the assessee is

entitled under the law to get at least seven days time to file his return and statements of income.

16. ASSESSMENT OF A DECEASED PERSON (SEC. 92):

Whenever any person dies, his executor, administrator or other legal representative is liable under the law to

pay out of the estate of the deceased any tax which was payable by him and any other tax liability which

might be payable in consequence of any assessment made after his death. Liability of the legal representative

is limited to the extent to which decreased estate is capable of meeting the liability.

Legal representative shall be deemed to be an assessee for this purpose, provided a notice is given to him as

per section 92(2).

17. ESCAPED ASSESSMENT (SEC. 93):

A fresh assessment can be made by the D.C.T. in case of –

i) Escaped assessment;

ii) Under assessment;

iii) Assessment at too low a rate;

iv) Assessment results excessive relief or refund.

Preconditions:

i) Action under section 93 cannot be initiated unless definite information has come into the possession

of the D.C.T.

ii) Before initiating the proceeding under section 93 previous approval in writing from the IJCT is to

be taken, except in a case where a return has not been filed u/s 75/77

iii) Notice under section 93 can be issued within 5 years from the end of the assessment year in case it

is escaped assessment or under assessment and within 2 years from the end of the assessment year

in case it is assessed at too low a rate or has been subject to excessive relief or refund.

18. ASSESSMENT IN THE CASE OF MINORS, LUNATICS, IDIOTS, BENEFICIARIES OF ANY

TRUST. (SEC. 95):

Minors, lunatics and idiots are assessable to tax as beneficiaries through their guardians and trustees in the

same way and to the same extent as it would have been livable and recoverable from such beneficiaries of

full age or sound mind in direct receipt of any income profits and gains. In the like manner, the beneficiaries


of any property managed by a Trust, Court of Words, receiver or manager will be brought to tax through the

Trustees, Court of Words, receivers or manager.

19. ASSESSMENT OF SHIPPING BUSINESS (SEC. 102):

If any Ship calls on any port in Bangladesh, the aggregate of the receipt arising from the carriage of

passenger, livestock, mail or goods shipped at the port since the last arrival of the ship or at any port outside

Bangladesh for which amount is received or deemed to be received in Bangladesh shall be treated as income

received in Bangladesh and in this case tax rate will be 8% (usually tax rate is 4% in case where there is a

double taxation avoidance agreement with the country the ship is originated).

20. ASSESSMENT OF AIR TRANSPORT BUSINESS (SEC. 103A):

If any Aircraft calls on any airport in Bangladesh, the aggregate of the receipts arising from the carriage of

passengers, livestock, mail or goods loaded at the said airport into that aircraft shall be deemed to be income

received in Bangladesh and in this case tax rate will be 3% (usually no tax in case where there is a double

taxation avoidance agreement with the country the aircraft is originated).

Penalty:

There are provisions for imposition of penalties on fraudulent assessee at chapter XV (section 123-133) of the Income

Tax Ordinance, 1984. The penalty is the additional amount of income tax though as per definition of tax at section 2

(62), tax includes penalty. The power to impose penalty is given mainly to the Deputy Commissioner of taxes (DCT)

and in case of concealment of income the power to impose penalty is also given to the Commissioner of Taxes

(Appeal), Appellate Joint Commissioner of Taxes and Taxes Appellate Tribunal. The power to impose penalty is

subject to the prior approval of the Inspecting Joint Commissioner of taxes (IJCT) except in the case of imposing

penalty for failure to file return u/s 124. Penal proceedings can be initiated by the DCT only in the course of any

proceedings in connection with the regular assessment and no such proceedings can be started after completion of the

assessment order. If the penalty proceedings are not finalized but the assessment is completed there is nothing to bar

the DCT to impose penalty. There is another restriction that assessee has been heard or has been given a reasonable

opportunity of being heard before imposing penalty.

Penal Provisions

The penal provisions are tabulated below: -

Sl. Grounds of Penalty Section Amount of Penalty Pre-conditions/

Comments

1. Penalty for not

maintaining accounts in

the prescribed manner

123

(Read with

section 35 and

Rule-8)

(a) 1.5 times of the amount

of tax payable (Maximum)

(b) Tk.100 where the total

income does not exceed the

threshold limit (Maximum)

1) Penalty cannot be

imposed unless the

assessee has been heard

or has been given a

reasonable opportunity of

being heard.

2) DCT shall not impose

the penalty without the

previous approval of the

IJCT.

2. a) Penalty for failure to

file return

124(1) 10% of the last assessed tax

or Tk. 1,000/- whichever is

higher plus Tk. 50/- per day

during which the default

continues.

Penalty cannot be

imposed unless the


or has been given a


being heard.



Comments

b) Penalty for failure to

furnish certificate,

statement, accounts,

information etc. required

u/s 58, 108, 109, 110 and

184C

124(2) Tk 500/- plus 250 per month

during which the default

continues.

-Do-

c) Penalty for failure to

furnish information

required u/s 113

124(2) Proviso Tk.25,000/- plus 500/- per

day during which the default

continues.

-Do-

d) Penalty for using fake

T.I.N. or T.I.N. of

another person

124A Tk.20,000/( maximum) 1) Penalty cannot be

imposed unless the


or has been given a


being heard.




IJCT

3 Failure to pay advance

tax

125 The amount of short fall

(maximum)

1) Penalty cannot be

imposed unless the


or has been given a


being heard.




IJCT.

4. Penalty for non-

compliance with notice

u/s 79, 80, 83(1) and

83(2)

126 The amount of tax

subsequently assessed

(maximum)

-Do-



Comments

5 Failure to pay tax u/s 74

on the basis of return

127 If tax paid u/s 74 is less than

80% of the payable amount

then 25% of the short fall

(maximum).

If 80% is covered then no

penalty.

-Do-

6. Penalty for concealment

of income

128 10% of the tax evasion. If

the tax evasion is detected

after one year or more, then

the amount of penalty will

increase by additional 10%

for each earlier assessment

year

-Do-

7. Penalty for default in

payment of tax

137 The amount of arrear tax

(maximum)

If the amount of tax on

which penalty was

imposed has been fully

reduced by the order of

any Appeal/ Tribunal/

Supreme court, the

penalty shall

automatically be

cancelled and if any

penalty paid shall be

refunded.

8 Failure to deduct/collect

tax at source or having

deducted/collected fails

to deposit into national

exchequer.

57 2% per month of the amount

of tax to be deducted,

collected or deposited

(1)The deducting

authority will also be

treated as an assessee in

default.

(2)Expenditure will be

disallowed as per section

30(a) and 30(aa)

9 Failure to give notice to

the DCT regarding the

discontinuance of

business

89(3) The amount of tax

subsequently assessed

(maximum)

No pre-condition.

The above-mentioned sections prescribe the maximum penalty (except section 124 and section 57 where penalty is

fixed). But the fact is that the ceiling of penalty does not mean that penalty must necessarily be imposed in every

case. The discretion of the DCT to levy or not to levy a penalty is still preserved by the penalty sections mentioned

above.

Penalty for not maintaining accounts in the prescribed manner (section 123).

As per provision of section 35 income shall be computed in accordance with the method of accounting regularly

employed by the assessee in case of the following heads of income: -

1. Income from business or profession.

2. Agricultural Income

3. Income from other sources.

Medical practitioners known as doctors, surgeons, physicians, dentists, psychiatrists, homeopaths, veterinary surgeons

other than medical practitioners, who do not make any separate charge for consultation but make a charge for the


medicines supplied by them and legal practitioners (including income-tax practitioners) accountant and auditors,

architects and engineers, are to maintain accounts in the manner prescribed in rule-8.

Penalty for failure to file Income Tax Return (Section- 124)

The Deputy Commissioner of Taxes has not the absolute power to impose penalty without giving due regard to see

the circumstances which causes default on the part of the assessee to file the return on time and if there is any

reasonable cause for which he failed to file the return on time penalty should not be imposed. Absence of reasonable

cause is necessary to justify a penalty-mere non-furnishing of, or delay in furnishing a return of income is not enough.

Imposition of penalty is not compensatory but punitive and the proceeding to impose penalty is quasi criminal. It is

well settled that the liability to pay penalty does not arise merely on proof of default in filing the return on time and

the discretionary power of the authority to impose penalty for failure to file return on time is to be exercised judicially

and on consideration of all the relevant circumstances. Penalty may be imposed for not furnishing a return within the

time allowed in the notice calling for a return, even if the assessee does furnish a return after the expiration of the

time allowed.

Penalty for concealment of income (section 128)

This section prescribes penalty for concealment of income An assessee who had deliberately filed an incorrect return

submitted a revised return when the omission in the first return was on the point of being discovered and the DCT

while assessing on the basis of the revised return imposed a penalty under section 128 of I.T. Ordinance, 1984 for

concealment of income in the first return.

Concealment of income in the original return would be attracting penalty even if the assessee submits a revised return

u/s-78 before the assessment is completed.

This section specifies the different nature of concealment and prescribed the maximum amount of penalty to be

imposed depending on the nature and circumstances of the case. For concealing particulars of income or for

furnishing inaccurate particulars of income which includes suppression of any item of receipt liable to tax or showing

such expenditure which has not been actually incurred or claiming any deduction which is not legally allowable. For

such type of concealment DCT shall impose @10% of the tax evasion. If the tax evasion is detected after one year or

more, then the amount of penalty will increase by additional 10% for each earlier assessment year.

Penalty for default in payment of tax (section-137)

This section gives discretion to the DCT to impose or not to impose a penalty when an assessee is in default in

payment of tax including advance tax. It is not obligatory on the DCT to impose a penalty in every case where there is

default in payment of tax and the amount of the penalty is also in his discretion, but the total amount of penalty

should not exceed the amount of tax in arrear.

The penalty so imposed under this ordinance shall be in addition to any other liability of the assessee, which he has

incurred in any other provisions under this ordinance or under any other law of the country.



[email protected]

01922939126



Lecture # 15

02.08.2012

Appeal:

An appeal lies to the Appellate Joint Commissioner of Taxes (AJCT) or to the Commissioner (Appeals), as the case

may be, against the order of the Deputy Commissioner of Taxes (DCT). Section 153 gives the right of appeal only to

the tax payer and not to the department. Therefore, income tax department cannot appeal against any order of the

DCT. But the Inspecting Joint/Additional Commissioner of Taxes (IJCT/IACT) has the power U/S 120 to revise any

order passed by the DCT if it is erroneous and prejudicial to the interest of the revenue. Commissioner of Taxes

working in the territorial zone can also exercise his revisional power U/S 121A and pass such order not being an

order prejudicial to the interest of the assessee. Therefore, no appeal would lie if a right of appeal is not given at our

tax law because appeal is not an inherent right. The sequence of appeal is given below through a flow chart:

2nd appeal to the Taxes

Appellate Tribunal (both

assessee and income tax

department can go)

Choose an

Appeal Option

Order

of the

DCT

1st Appeal to the

AJCT (other

than company

cases and its

directors) Review

application

to the CT

of

Territorial

Zone

Reference application to

High Court Division of

the Supreme Court (Only

at question of law point)

Appeal to the Appellate

Division of the Supreme Court

against the judgment of the H/C

division (if the H/C division

certifies to be fit case for appeal

to the Appellate Division)

1st Appeal to the

AACT

(For company

cases and its

directors)

1st Appeal to the

Commissioner

(Appeals)

(For company

and its directors)

END

END

1

2

3

4 5 6

7

8

9


1. First appeal to the AJCT/AACT/Commissioner (Appeals)

Only assessee can file 1st appeal to the Appellate Joint Commissioner of Taxes (AJCT) or Appellate Additional

Commissioner of Taxes (AACT) or Commissioner (Appeals) as per jurisdiction. The jurisdiction is usually

mentioned at the bottom of the demand notice issued by the DCT. Normally, AACT and Commissioner (Appeals)

deal with company cases along with the directors of the company and the AJCT deals with other individual cases.

Appeal to the Commissioner (Appeals) also lies against the order made by the IJCT U/S 10 or U/S 120.It is to be

noted here that the right of appeal is given to the assessee. Where an assessment is made on the representative or on

the agent of a non-resident, the person beneficially entitled to the income is nevertheless an assessee within the

meaning of section 153 and has therefore a right to appeal.

(a) When 1st appeal can be filed

Appeal can be filed by the assessee against the following order of the DCT:

(i) Assessment Order (except assessment U/S 81, 82 and 82BB)

(ii) Determination of tax liability to pay.

(iii) Tax Computation (including an order imposing simple interest U/S 73)

(iv) Set-off of losses U/S 37 (If the assessee has any objection as to the computation

of loss or set-off of loss).

(v) Penalty U/S 124, 125, 126,127, 128 and 137.( There is no provision to file appeal against the order

of charging additional amount @2% per month for non deduction/ collection of tax at source).

(vi) Refusal to allow a claim of refund.

(vii) Determination to the actual amount of refund.

(viii) Disallowing the claim of foreign tax credit (7th Schedule(para-7)

Appeal can also be filed to the Commissioner (Appeals) against the following order of the IJCT/IACT:

(i) Assessment Order U/S 10.

(ii) Order to revise the order of the DCT U/S 120.

(b) Procedure to file 1st Appeal

The following procedure should be followed to file 1st appeal:

(i) Appeal shall be filed at the form prescribed at Rule -27 and Rule-27A with duly signed and verified.

(ii) Appeal fee of TK. 200/- is to be paid before submission of appeal.

(iii) Tax as per return is to be paid if it is not paid at the time of filing return or afterwards.

(iv) Appeal shall have to be filed within 45 days from the date of service of demand notice except in case

of appeal against the disallowances of the foreign tax credit as per 7th schedule Para-7.

However appeal authorities can entertain an appeal after condoning the delay if he is convinced that

assessee has sufficient reason for failure of file appeal in time. Demand notice should be served

properly otherwise assessee will get unlimited time. The power to condone such delay is

discretionary. Provision for time limitation of 45 days will not attract if demand notice was not

served with assessment order (I.T. 88) and Tax computation form (I.T. 30), in which case assessee

will get unlimited time for filing appeal. So without I.T.88 and I.T.30 the service of demand notice is

not complete. In computing the 45 days, the time required for obtaining a certified copy of such

order should be excluded.

Where the 45 days expires on day which is a holiday, the appeal may be made on the day next

following such holiday.


(c) Disposal of appeal cases by the appeal authority

The following procedure should be followed by the appeal authority to dispose of an appeal:

(i) Notice of hearing is to be given to both appellant and the concerned DCT.

(ii) Appeal authority can make enquiry and call for such particulars as he may require before

disposing of an appeal. He can also give instruction to the DCT for further enquiry.

(iii) Appeal authority can allow new or additional ground of appeal if he is satisfied that the omission

of that ground was not willful or unreasonable.

(iv) Appeal authority will not admit any documentary evidence which was not produced before the

DCT unless he is satisfied that appellant was prevented by sufficient cause from producing such

evidence before DCT.

(v) Appeal authority in his judgment can give following decision when an appeal filed against

assessment order:

a. confirm

b. reduce

c. Enhance

d. Set aside with the direction to make fresh assessment. (only on the ground that notice was

not served properly)

e. Annul

Enhancement of assessment means increase in the amount of total income or tax. It can be

done only after giving the assessee a reasonable opportunity of being heard.

If the AJCT or Commissioner (Appeals) does not enhance the total income but by means of

reduction under one head and an increase under another head allows the assessment to remain

the same or reduces it, it can not be said to have enhanced merely because income under one

head has been increased Where the assessee‟s income has been assessed under more than one

head, even if the assessee‟s appeal is confined to the income assessed under only one of the

heads, the AJCT or Commissioner (Appeals) may enhance the assessment by increasing the

amount assessed under another head of income in respect of which the assessee has not

appealed. The reason is that income tax is only one tax and when the assessee goes in appeal

then exposes the assessment as a whole.

But appeal authority has no power to enhance the assessment by assessing entirely new sources

of income outside the subject matter of the assessment appealed against. He has no jurisdiction

to travel beyond the subject matter of the assessment and his power of enhancement relates only

to that income which has been subjected to the process of assessment.

On the other hand it is not open to the assessee who has preferred an appeal to withdraw it so as

to prevent the Appellate Joint Commissioner of Taxes (AJCT) or Commissioner (Appeals) from

enhancing the assessment.

(d) Appeal authority in his judgment can give the following decisions when an appeal filed against

penalty order:

(i) confirm

(ii) set-aside (only an the ground that notice was not served properly)

(iii) cancel

(iv) reduce

(v) enhance (only after giving reasonable opportunity of being heard)

(e) In any other case, appeal authority can pass such order as they think fit. But the AJCT or Commissioner

has no power to review his own order in any case but he is empowered U/S 173 to rectify any mistake

apparent from record.


(f) Appeal shall be disposed of by the appeal authority with 150 days from the end of the month of which the

appeal was filed and such order shall be communicated to the appellant, DCT and Commissioner of Taxes

within 30 days. If the appeal is not disposed of within the period of limitation the appeal so filed shall be

deemed to have been allowed.

2. Procedure to file 2nd appeal to the Taxes Appellate Tribunal

(a) Both assessee and DCT (with prior approval of his Commissioner) can prefer 2nd appeal against the

1st appeal order (Including an order imposing penalty u/s 128 by the AJCT or Commissioner

(Appeals). An order of the AJCT or Commissioner (Appeals) refusing to condone delay ( if there is

any application for condo nation) and refusing to admit, or rejecting after hearing, an appeal as time

barred, will be treated as an order passed in the appeal and a 2nd appeal would lie to the tribunal.

(b) Appeal shall be filed at the form prescribed at Rule-28 with duly signed and verified by the

appellant.

(c) Tribunal fee of TK.1000/- is to be paid before submission of 2nd appeal (this fee is not applicable

when appeal is filed by the DCT).

(d) Assessee has to pay tax @ 10% of the difference between the tax as per appeal order and tax as per

section 74. However, authority to reduce such tax has been given to the Commissioner of Taxes if

assessee applies for this.

(e) Appeal shall be filed to the Taxes Appellate Tribunal within 60 days from the date of receiving 1st

appeal order.

3. Disposal of appeal by the Taxes Appellate Tribunal

The following procedure should be followed by the Taxes Appellate Tribunal to dispose of an appeal:

(a) Notice of hearing is to be given to both appellant and the department. Even if the appellant does not

appear on the day fixed for hearing, the Tribunal is bound to decide the appeal on merit and cannot

dismiss the appeal for default.

(b) Tribunal may call for such particulars as they may require or can give instruction to the DCT for

further inquiry.

(c) Tribunal will give judgment as they think fit. The power to pass such order as the Tribunal thinks fit

can be exercised only in relation to the matters that arise in the appeal. It is not open to the Tribunal

to adjudicate or give a finding on a question which is not in dispute and which does not form the

subject matter of the appeal.

The Tribunal would be entitled to enhance the assessment as it stands after the appeal order in case

of appeal by the department or in case of cross appeal. But when the appeal is filed by the assessee

and there is no cross appeal by the department, it is not open to the Tribunal to give a finding

adverse to the assessee.

(d) Since a reference application to the High Court division lies only on a question of law, the Tribunal

is the final fact finding authority.

(e) Appeal shall be disposed of by the Appellate Tribunal within 6 months from the end of the month of

filing appeal; otherwise appeal so filed shall be deemed to have been allowed. Such order should be

communicated within 30 days for the date of order.

(f) Tribunal has no power to review its own order but they are empowered by section 173 to rectify any

mistake apparent from record.

(g) Tribunal has power to permit an appeal to be withdrawn.

(h) Decision shall be given in accordance with the opinion of the majority of its members. It is the duty

of the members of the Tribunal who heard the appeal in the first instance to formulate clearly the

point on which they differ and it is only thereafter that a reference can be made to a third member.

After the decision of the third member on the point referred to him the case should go back to the

original Bench, since the third member has not given the jurisdiction to decide and dispose of the

appeal. In this way decision will be based on the opinion of the majority of the members.


4. Procedure to file reference application to High Court Division of the Supreme Court

(a) Both assessee and the Commissioner of Taxes (with prior permission from NBR) can file reference

application to High Court Division of the Supreme Court only against any question of law arising

from the order( including an order under section 173) of the Taxes Appellate Tribunal. An order of

the Tribunal dismissing an appeal as time barred or refusing to condone delay is obviously an order

of the Tribunal and consequently a reference lies against it. Where assessee is the applicant the

Commissioner of Taxes will be the respondent and where the Commissioner of Taxes is the

applicant, the assessee will be the respondent.

(b) Application shall be filed within 90 days from the date of receipt of the Tribunal order at the form

prescribed at Rule-29 with duly signed and verified.

(c) Fee of Tk. 2,000 is to be paid before submission of application. However no fee is needed if

application is made by the Commissioner of Taxes.

(d) Where the assessee is the applicant then 25% or 50% of the difference between the tax as per return

and the tax as per tribunal order is to be paid followingly.

Particulars Rate Rate to be applied

i. If tax demand is below Tk. 1,000,000 25% On the difference between the

tax as per Tribunal order and

tax as per return.

ii. If tax demand is more than Tk. 1,000,000 50%

However NBR has the power to waive or modify the requirement of such payment

(e) Application shall be in triplicate and accompanied by the following document:

(i) Certified copy of Tribunal Order

(ii) Certified copy of Appeal Order

(iii) Certified copy of Assessment Order

(iv) Any other document relevant to the question of law which was submitted to the DCT or to

the AJCT or to the Tribunal.

(f) After getting hearing notice from the High Court Division, the respondent shall have to submit the

reply in writing at least 7 days before the date of hearing.

(g) Tax as per Tribunal order shall be payable notwithstanding the pendency of a reference in the High

Court Division. The High Court Division may in a proper case stay of recovery proceedings till the

disposal of the reference.

5. Disposal of reference application by the High Court Division

(a) A division bench of not less than 2 Judges will hear the case as per section 98 of the Code of Civil

Procedure, 1908.If the judges are equally divided the question on which there is the difference of

judicial opinion may be referred to another judge or to a larger Bench and the decision of the

majority of the judges would prevail.

(b) The High Court Division will decide the question of law and deliver its judgment containing the

grounds on which the decision is founded. The judgment of the High Court Division as a whole is

binding between the parties in the particular case. If the judgment expounds a wrong construction of

the Ordinance, an appeal against it is open and there is no other procedure by which it can be

corrected.

(c) The cost of the reference shall be in the discretion of the Court.


6. Procedure to file appeal to the Appellate Division of the Supreme Court

An appeal shall lie to the Appellate Division against the judgment of the High Court Division provided the

High Court Division certifies the case to be a fit one for appeal to the Appellate Division of the Supreme

Court. The High Court Division would certify the case as a fit one for appeal and grant leave to appeal to the

Appellate Division if a substantial question of law is involved or if the question is otherwise of great public or

private importance.

If the High Court Division refuses to certify a case to be a fit one for appeal to the Appellate Division, an

application may be made to the Appellate Division for special leave to appeal against the decision of the High

Court Division in special circumstances.

7. Disposal of appeal by the Appellate Division of the Supreme Court

The appellate division will hear and dispose of the appeal as per provision of Code of Civil Procedure, 1908

8. Revisional Power of Commissioner of Taxes under section 121A

While section 120 empowers the Inspecting Joint Commissioner of Taxes and Inspecting Additional

Commissioner of Taxes to exercise revisional power in favour of revenue, section 121A empowers the

Commissioner of Taxes of the territorial zone to exercise revisional power in favour of the assessee. The

following procedure should be followed to file a review application to the Commissioner of Taxes:

(i) Application shall be made in a plain paper as there is no prescribed form.

(ii) Review fee of TK. 200/- is to be paid before submission of application.

(iii) Tax as per return is to be paid if the application is filed against the order of the DCT and undisputed

portion of tax as per 1st appeal order is to be paid if the application is filed against the AJCT or AACT.

(iv) Application shall have to be submitted within 60 days from the date the date of receiving order.

However Commissioner of Taxes can entertain an application after condoning the delay if he is

convinced that assessee has sufficient reason for failure of submit application in time. However the

power to condone such delay is discretionary. If it is made against the order of the DCT, it is to be made

either after the time of appeal (45 days) is over or with an affidavit waiving the right of appeal and if it

is made against the order of the AJCT or AACT it is to be made either after the time of 2nd appeal (60

days) is over or with an affidavit waiving the right of filing Tribunal.

9. Disposal of revisional application by the Commissioner of Taxes

(1) Commissioner of Taxes will hear a case which is passed by any authority subordinate to him. DCT is

directly the subordinate to the Commissioner of Taxes. Though AJCT and AACT are not subordinate to

the Commissioner but for the purpose of section 121A, they will be deemed to be the subordinate to the

Commissioner so that their order can be revised by the Commissioner of Taxes.

(2) Commissioner of Taxes will pass order within 60 days from the date of receiving application failing

which application will be deemed to have been allowed fully.

(3) Commissioner of Taxes can make enquiry and can also give instruction to the DCT for further enquiry.

(4) Commissioner of Taxes shall not pass any order which is prejudicial to the assessee. A prejudicial order

is that order which places the assessee in a different and worse position than before. But an order

declining to interfere shall not be deemed to be an order prejudicial to the assessee. Commissioner‟s

revisional power is of an administrative nature and therefore he is not bound to hear the assessee before

passing his order.

(5) An order passed by the Commissioner of Taxes under section 121A is not appeal able to the Taxes

Appellate Tribunal and no reference will lie against such order.


Lecture # 16

03.08.2012

Individual Tax Assessment Problem.

Salient Features of Finance Act, 2012.

Sheet to be attached here.


KPMG (Bangladesh)


01922939126



Lecture # 17

05.08.2012

Alternate Dispute Resolutions:

Finance Act 2011 introduces new chapter titled Alternate Dispute Resolution in IT Ordinance 1984 to resolve any

dispute of an assessee lying with any income tax authority, Taxes Appellate Tribunal, or Court. This is done to

simplify and speed up dispute resolution process. The whole process is summarized in following figure:


An assessee may apply for resolution of the dispute through the ADR process if aggrieved by an order of an income

tax authority or if a dispute is pending before any income-tax authority, tribunal or court. In case of any pending

dispute, the assessee is required to get permission from the authority where it is pending in writing before applying

for ADR and if approval is received and assessee applies for ADR, the matter shall remain stayed during ADR

negotiation process.

To resolve dispute in an alternative way, the Board may select or appoint Facilitator and determine his duties and

responsibilities. The assessee shall be allowed to negotiate himself personally or along with an authorized

representative, with the Commissioner's Representative for the concerned dispute under the facilitation and

supervision of such Facilitator. Upon receiving the application of ADR, the Facilitator shall forward a copy of the

application to the respective Deputy Commissioner of Taxes and also call for his opinion on the grounds of the

application. If the Deputy Commissioner of Taxes fails to give his opinion regarding fulfillment of the conditions, the

Facilitator may notify in writing the applicant and the Commissioner of Taxes or the Commissioner's Representative

to attend the meetings for settlement of disputes on a date mentioned in the notice. Where an agreement is reached,

either wholly or in part, between the assessee and the Commissioner's Representative, the Facilitator shall record, in

writing, the details of the agreement, sign and shall communicate the same to the assessee and the concerned Deputy

Commissioner of Taxes.

However, where no agreement is reached or the dispute resolution is ended in disagreement between the assessee and

the concerned Commissioner's Representative for noncooperation of either of the parties, the Facilitator shall

communicate it within fifteen days from the date of disagreement, to the applicant and the Board, the concerned

court, Tribunal, appellate authority and income tax authority, as the case may be, about such unsuccessful dispute

resolution.

Where an agreement is reached, it shall be binding on both the parties and it cannot be challenged in any authority,

Tribunal or court either by the assessee or any other income tax authority. Where an agreement is not reached, the

assessee may prefer an appeal in following manner:

Dispute Arises out of an order of Appeal to

Deputy Commissioner of Taxes

Appellate Joint Commissioner of Taxes

OR

Appellate Additional Commissioner of Taxes

OR

Commissioner of Taxes (Appeals)

Appellate Joint Commissioner of Taxes

OR

Appellate Additional Commissioner of Taxes

OR

Commissioner of Taxes (Appeals)

Taxes Appellate Tribunal

The assessee-applicant may also appeal to the respective appellate authority or court from where he has got

permission to apply for ADR.


Resident Vs Non-Resident:

Not only the rate of tax depends upon the residential status of the assessee but also the category of income to be

included in computing total income depends upon the residential status of the assessee. So in income tax viewpoint

firstly the residential status of the assessee is to be determined. As per section 2(55) a person will be resident if he

fulfils the following conditions:-

Sl.

No

Category of person Condition for being resident Analysis

1. Individual

(Bangladeshi or

foreigner)

Stay in Bangladesh for at

least 182 days in aggregate

during the income year.

OR

Stay in Bangladesh for at

least 90 days in aggregate

during the income year

+

An aggregate stay of at least

365 days in Bangladesh in

the course of 4 years

preceding the income year.

The test of residence here are alternative not

cumulative. Each of the 2 tests requires the personal

presence of the assessee in Bangladesh during the

income year. If the assessee is continuously out of

Bangladesh during the whole year, he must be

treated as non-resident in that year.

If the 1st criteria of 182 days has fulfilled he is

to be regarded as resident irrespective of any other

consideration. If anybody resides here for less than

90 days then obviously he is non-resident. Thus a

man may be resident in 2 different countries in the

same year, although he can have only one domicile.

2. (i) Hindu Undivided

Family (HUF)

(ii) Partnership firm

(iii) Association of

Persons (AOP)

The control and management

of its affairs is situated

wholly or partly in

Bangladesh during the

income year.

If the control and management is situated

wholly outside Bangladesh only then an HUF, firm

or other AOP can be treated as non-resident. Since

partial control is sufficient for the purpose of

residence, a firm may have 2 places of residence;

The residence of partners or an individual member

of HUF is immaterial for the purpose of determining

the residence of a firm or family.

The place of control may be different from the

place where the actual trading is carried on. Control

of a business does not necessarily mean the carrying

on of the business and therefore the place where

trading activities or physical operations are carried

on is not necessarily the place of control and

management. Control and management signifies the

controlling and directive power and situated implies

the functioning of such power at a particular place

with some degree of performance.

Control and management means de facto

control and management and not merely the right or

power to control and manage. The absence of the

karta from Bangladesh throughout the year does not

by itself lead to the conclusion that the family is

non-resident in that year, since the business of the

family, though it is normally controlled by the karta,

may at a particular point of time be controlled by

some one else. The same principle applies equally to

cases of firms and other association of persons.


Sl.

No

Category of person Condition for being resident Analysis

3. Company The control and management

of its affairs is situated

wholly in Bangladesh during

the income year.

A company whether a Bangladeshi company or

a foreign company whether it is registered at

Registrar of Joint Stock Companies of Bangladesh

or not is resident here in Bangladesh if the control

and management of its affairs is situated fully in

Bangladesh during the income year.

In the classical word, a company can not eat or

sleep but it can keep house and do business and for

the purpose of income tax a company resides where

it really keeps house and does business, i.e. where

the central management and control actually abides.

While the location of control and management is the

sole test of residence for HUF, Firm and AOP, it is

also a test for companies.

Here controls mean de facto control not merely

de jure control. The control and management, the

head and brain, does not reside where there is some

ultimate power of control such as the power to alter

the articles of associations by a special resolution or

the power to interfere with fundamental finance.

A company may be resident in Bangladesh

even though its entire trading operations are carried

on abroad. If the management and control is situated

here, the company is resident here and it does not in

the least matter where the actual selling and buying

of the goods takes place.

Incidence of taxation on the basis of residential status:

Section 16 is the charging section where it was clearly mentioned that income tax is to be charged on the total income

of the assessee. The liability to tax arises by virtue of the charging section. The assessment order only quantifies the

liability which is finally created by the charging section.

Here total income as per section 2(65) means total amount of income as referred to in section 17 and includes any

other income which is to be included in the total income of the assessee as per provision of The Income Tax

Ordinance, 1984. The principle underlying section 17 is to make the chargeability of income depending upon the

locality of receipt or accrual. Section 43 also deals with the computation of total income by inclusion, in some cases,

of other person's income. Assesses can be divided into 2 categories:-

(i) Resident; and

(ii) Non-resident.

The basic difference between resident and non-resident is tabulated below:-

Sl.

No

Area Resident Non-resident Analysis

1. Income

point of

view

The entire income

accruing or arising in

any part of the world,

irrespective of whether it

is received in

The income accruing or

arising in Bangladesh

only is taxable.

(a) A non-resident, unlike a resident, is

not chargeable in respect of income

accruing or arising outside Bangladesh

and not received in Bangladesh.

(b) If an income is taxed on the ground


Bangladesh or not is

taxable

of accrual or deemed accrual, it can not

be taxed again on the ground of receipt

either in the same year or in a different

year.

(c) As per S.R.O. No. 216-Law/ Income

tax/2004 dated 13/07/2004 foreign

income of a Bangladeshi national,

irrespective of resident or non-resident,

is exempt from payment of tax if it

comes through official channel.

2. Tax point

of view

General tax rate is

applicable.

Maximum tax rate is

applicable.

(a) The only exception is non-resident

Bangladeshi where general tax rate is

applicable.

(b) If any resident assessee proves to the

satisfaction of the DCT that, he has paid

tax at foreign country by deduction or

otherwise on any income which has

accrued or arisen to him outside

Bangladesh with which there is no

reciprocal tax treaty, the DCT may

deduct from the tax payable by the

assessee a sum equal to the tax

calculation on such doubly taxed income

at the average rate of tax of Bangladesh

or the average rate of tax of the foreign

country whichever is less.

3 Investment

Tax Credit

Point of

view

Investment tax credit

facility is applicable

Investment tax credit

facility is not applicable

The only exception is non-resident

Bangladeshi where investment tax credit

facility is applicable like resident.

Thus the incidence of tax depends upon and is determined by the question whether the assessee is resident in

Bangladesh. A non-resident entitles partial exemption from chargeability to which resident is not entitled to.

Generally speaking, the incidence of tax is higher in the case of persons who are resident and lower in the case of

persons who are non-resident.

Avoidance of tax through transactions with non-residents (Sec.104 read with rule-34 and 35)

Business may be carried on between a resident and a non resident and owing to the close connection between them,

the course of business may be so arranged that the resident makes either no profit or less than the ordinary profit in

that business. Such an arrangement might deprive Bangladesh Govt. from tax which would otherwise be payable by

the resident. In such cases the resident may be charged in respect of the profits which he has not in fact made but

which he might reasonably be expected to have made had he done the business on ordinary commercial terms.

Rule-35 read with rule-34 prescribes the method of determining the amount of notional income in respect of which

the resident may be charged under section 104.

Double Taxation Avoidance Agreement (Sec. 144 read with 7th Schedule):

Double taxation avoidance agreement is usually an agreement between 2 countries seeking to avoid double taxation

by defining the taxing rights of each country with regard to cross, border flows of income and providing tax credits or

exemptions to eliminate double taxation. The Govt. of Bangladesh also may enter into an agreement with the Govt. of


other countries for the avoidance of double taxation and the prevention of fiscal evasion. Income tax policy wing of

the National Board of Revenue (NBR) is entrusted to negotiate the double taxation treaty with foreign countries to

promote foreign direct investment in Bangladesh. Such agreement will come into force through notification in the

official Gazette. It will be treated as an international law and accordingly its legislative position would be over and

above our Bangladesh tax law. The objectives of such agreement are:-

1. To provide relief from Bangladesh tax.

2. To determine income accruing or arising to non-residents from sources within Bangladesh.

3. To determine income of a non-resident carrying on business from within and outside Bangladesh.

4. To determine the income of a resident person having special relation with non-resident.

5. To recover tax.

6. To exchange the information for avoidance of double taxation and the prevention of fiscal evasion.

The Bangladesh model of Agreement on Avoidance of Double Taxation consists of 29 Articles that are as

follows:

Article 1 : Persons Covered

Article 2 : Taxes Covered

Article 3 : General Definitions

Article 4 : Resident

Article 5 : Permanent Establishment

Article 6 : Income from Immovable Property

Article 7 : Business Profits

Article 8 : Shipping and Air Transport

Article 9 : Associated Enterprises

Article 10 : Dividends

Article 11 : Interest

Article 12 : Royalties

Article 13 : Fees for Technical Services

Article 14 : Independent Personal Services

Article 15 : Dependent Personal Services

Article 16 : Director's Fees

Article 17 : Artists and Sportsmen

Article 18 : Pensions

Article 19 : Government Service

Article 20 : Students and Trainees

Article 21 : Lecturers and Researchers

Article 22 : Other Income

Article 23 : Elimination of Double Taxation

Article 24 : Non-Discrimination

Article 25 : Mutual Agreement Procedure

Article 26 : Exchange of Information

Article 27 : Diplomatic Agents and Consular Officers

Article 28 : Entry into Force

Article 29 : Termination

Like many others developed as well as developing countries of the world, Bangladesh too cannot absolve herself

from the need to facilitate her trade and investments with the outside world through international tax treaty network

with other countries. The increased pace of industrialization coupled with increased foreign direct investment in the

country necessitated tax treaty arrangements with other countries to provide investors with certainty and guarantees in

the area of taxation. As on March, 2011, the status of Bangladesh on Avoidance of Double Taxation Agreements is as

follows:


Name of the countries with which Agreement on Avoidance of

Double Taxation is in force.

Sl. No Name of the Country SRO Date of effect in Bangladesh

(assessment year

commencing on or after)

No. Date

1. U.K 227-L/80 08/07/1980 01/07/1978

2. Singapore 124-L/82 21/04/1982 01/01/1980

3. Sweden 382-L/83 19/10/1983 01/07/1984

4. Korea 433-L/84 02/10/1984 01/07/1984

5. Canada 247-L/85 06/06/1985 01/07/1982

6. Pakistan 221-L/88 11/07/1988 01/01/1980

7. Romania 348-L/88 23/11/1988 01/07/1989

8. Sri Lanka 365-L/88 10/12/1988 01/07/1989

9. France 2-L/89 04/01/1989 01/07/1989

10. Malaysia 67-L/90 15/02/1990 01/01/1982

11. Japan 235-L/91 06/08/1991 01/07/1992

12. India 45-L/93 27/02/1993 01/07/1993

13. Germany 1-L/94 01/01/1994 01/01/1990

14. Netherlands 267-L/94 14/09/1994 01/07/1995

15. Italy 63-L/97 12/03/1997 01/07/1980

16. Denmark 72-L/97 17/03/1997 01/07/1997

17. China 114-L/97 13/05/1997 01/07/1998

18. Belgium 11-L/98 14/01/1998 01/07/1998

19. Thailand 222-L/98 07/09/1998 01/07/1999

20. Poland 39/L/99 03/03/1999 01/07/2000

21. Philippines 56/L/2004 04/03/2004 01/07/2004

22. Vietnam 301-L/2004 18/10/2004 01/07/2005

23. Turkey 308/L/2004 31/10/2005 01/07/2004

24. Norway 20-L/2006 12/02/2006 01/07/2006

25. Indonesia 60-L/2007 20/04/2007 01/07/2007

26. USA 71-L/2007 10/05/2007 01/07/2007

27. Switzerland 52-L/2010 23/02/2010 13/12/2009

28. Oman (only on airlines

business)

10/5/2008

29 Myanmar 07/10/2008 Gazette not yet published

30 Mauritius 21/12/2009 Gazette not yet published

31 Saudi Arabia 04/01/2011

(date of signing)

Gazette not yet published

32 UAE 17/01/2011

(date of signing)

Gazette not yet published


Comparative Rates in Double Taxation

Avoidance Agreement

Sl. No. Name of the Country Permanent

Establishment

Maximum tax rate

for dividend

Maximum tax

rate for Interest

Maximum tax rate

for Royalties

1. U.K 183 days 10%/15% 7.5%/10% 10%

2. Singapore 183 days 15% 10% 10%

3. Sweden 183 days 10%/15% 10% 10%

4. Korea 183 days 10%/15% 10% 10%

5. Canada 183 days 15% 10% 10%

6. Pakistan 183 days 15% 15% 15%

7. Romania 183 days 10%/15% 10% 10%

8. Sri Lanka 183 days 15% 15% 15%

9. France 183 days 10%/15% 10% 10%

10. Malaysia 183 days 15% 15% 15%

11. Japan 6 months 10%/15% 10% 10%

12. India 183 days 10%/15% 10% 10%

13. Germany 183 days 15% 10% 10%

14. Netherlands 6 months 10%/15% 10% 10%

15. Italy 183 days 10%/15% 10%/15% 10%/15%

16. Denmark 183 days 10%/15% 10% 10%

17. China 6 months 10% 10% 10%

18. Belgium 183 days 15% 15% 10%

19. Thailand 183 days 10%/15% 10%/15% 15%

20. Poland 183 days 10%/15% 10% 10%

21. Philippines 6 months 10%/15% 15% 15%

22. Vietnam 6 months 15% 15% 15%

23. Turkey 12 months 10% 10% 10%

24. Norway 6 months 10%/15% 10% 10%

25. Indonesia 183 days 10%/15% 10% 10%

26. USA 183 days 10%/15% 10% 10%

Documents

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