Salary income: Sec.

21
Sections 21, 50, 172, 108, 18(1) Subsections of sec. 2: (5A), (6), (24), (27), (28), (45), (48), (50), (51), (52), (58) Rules 21-24, 33, 33A-33J, 43-58, ,58A-58F, Schedules Sixth Schedule (Part A, Part B) First Schedule (Part A, Part B, Part C) Interest rate on accumulated balance of Recognized Provident SROs

Fund [S.R.O. No. 310-L/84, dated 27.06.1984; under para 5(2), Part B, First Schedule; para 25, Part A, Sixth Schedule] Exemption of employees tax on salary paid by employer [S.R.O. No. 182-Ain/99, dated 01.07.1999]

Statutory Definitions: Section 2(5A): Approved gratuity fund Section 2(6): Approved superannuation fund Section 2(24): Director or manager Section 2(27): Employer Section 2(28): Employee Section 2(45): Perquisite Section 2(48): Principal officer Section 2(50): Profits in lieu of salary Section 2(51): Public servant Section 2(52): Recognized provident fund Section 2(58): Salary

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Salary defined u/s 2(58) Salary includes Wages Annuity Pension exempted under para 8, Part A, Sixth Schedule Gratuity exempted under para 20, Part A, Sixth Schedule Fees Commission Allowance Perquisite defined u/s 2(45) Profit in addition to salary or wages Profit in lieu of salary or wages Profit in lieu of salary defined u/s 2(50) Advance of salary Leave encashment

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Conditions for identifying something received by employee as Salary (1) Employee-Employer relationship between the recipient and the payer (2) Payment of service, not payment for service (3) Holding a position in the office Perquisite defined in sec. 2(45) for employer to apply the provision of sec. 30(e), where maximum allowable expenditure for perquisite for 1 employee is Tk. 250,000 (since AY 2010-11). Perquisite means (i) anything (cash/noncash) received from employer except: Basic salary Festival bonus Incentive bonus not exceeding 10% of disclosed profit of relevant income year Arrear salary Advance salary Leave encashment Leave fare assistance and Overtime (ii) Any other benefit whether convertible into money or not, called by whatever name, other than employers contribution to a i. Recognized provident fund ii. Approved pension fund iii. Approved gratuity fund and iv. Approved superannuation fund.

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Limit of Perquisite Section Items of Salary 2(45) Basic Salary [BS] House Rent Allowance Medical Allowance Conveyance Allowance Entertainment Allowance Telephone Bill Other Utility Bill Domestic Travel Allowance 30(f)(ii) Foreign Travel Allowance 2(45) 2(45) 2(45) 2(45) 2(45) 2(45) 2(45) 2(45) 2(45) Festival Bonus Incentive Bonus Leave Encashment Leave Fare Assistance Overtime Employees Contribution to RPF Employers Contribution to RPF Employers Contribution to APF Employers Contribution to AGF Employees Contribution to ASF Employers Contribution to ASF Transport Rent-free Accommodation Accommodation at Concessional Rent Others TOTAL per employee per year

"Perquisite" includes No Yes Yes Yes Yes Yes Yes Yes Yes up to a limit No No up to a limit No No No Yes No No No Yes No Yes Yes Yes Yes

Limit

Lower of 3 months' BS or 3/4th of Actual Expenditure u/r 65A

10% of disclosed profit

Tk. 250,000

Profit in lieu of salary defined u/s 2(50) Profit in lieu of salary includes (a) compensation received due to termination or modification of terms and conditions of employment (b) payment from provident or other fund out of employers contribution Scope of Salary: Section 21 1. Salary due, paid or not 2. Advance salary (Salary paid though not due or before it became due) 3. Arrear salary, not taxed earlier
Under sec. 172, tax paid in the year of receipt on advance salary of future income years, is to be adjusted at the time of submission of future income tax returns considering the total income of future income years and the changed slab tax rates.

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Items of Salary and Extent of Taxability: Rules 33, 33A-33J

[Refer to Schedule-1 (Salaries) in Part-III of Income Tax Return Form u/r 24] For Government employees, only Basic Pay is taxable. For others:

Pay & Allowances Basic pay [Basic salary defined u/r 33(2)(a)] Special pay Dearness allowance Conveyance allowance (without any car) Provision of car for personal and/or official purpose (without any cash allowance)
* Some amount may be deducted from salary

Rule 33 33 33 33C 33D

Taxability or Exemption Fully taxable Fully taxable Fully taxable Exempted up to Taka 24,000 Taxable amount: 7.5% of basic salary
Less: Amount deducted from salary

Provision of car for personal 33E and/or official purpose (with cash allowance) House rent allowance (cash) 33A Medical allowance Servant allowance Leave allowance Honorarium/Reward/Fee Overtime allowance Bonus/Ex-gratia Employers contribution to recognized provident fund Interest accrued on recognized provident fund 33I

Taxable amount: 7.5% of basic salary plus Cash allowance Exempted: 50% of basic salary or Taka 15,000 per month, lower one Exempted: Actual medical or hospitalization expense Fully taxable Fully taxable Fully taxable Fully taxable Fully taxable Fully taxable
Exempted: 1/3rd of salary or 14.5% interest rate

Para 25, Part A, Sixth Sch.

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Deemed income for free furnished/unfurnished accommodation

* Some amount may be deducted from salary

Rule 33B(1)

Taxable: [Actual rental value or 25% of basic salary, lower one]

Less: Amount deducted from salary

Furnished/unfurnished accommodation with concessional rent Free or concessional passage for travel abroad Free or concessional passage for travel within Bangladesh Free or concessional passage provided by an organization doing transport business Entertainment allowance

Rule 33B(2)

Rule 33G Rule 33G Rule 33G

Taxable: [Actual rental value or 25% of basic salary, lower one] less Rent paid by employee Exempted: once in every 2 years if provided as per terms of employment Exempted: if provided as per terms of employment Fully exempted

33H

Other benefits

33J

Fully taxable (except free tea, coffee, beverage or like provided during the office hour) Exempted: if provided for official purpose

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Basic salary defined u/r 33(2)(a) Basic salary means the pay and allowances payable monthly or otherwise, but does not include (i) dearness allowance or dearness pay unless it enters into the computation of superannuation or retirement benefits of the employee concerned; (ii) employers contribution to a recognized provident fund or a government provident fund and the interest credited on the accumulated balance of an employee in such fund; (iii) allowances which are exempt from the payment of tax; and (iv) allowances, perquisites, annuities and benefits referred to in sub-rule (1) of rule 33 [i.e., benefits mentioned in rules 33A to 33J].

Tax Deduction at Source from Salary: Sec. 50

Rule 21: Statement of Deduction of Tax under the head Salaries where such deduction is not made by or on behalf of the Government Rule 22: Commissioners power to permit employer to deduct tax under the head Salaries in lump sum every month and submit yearly statement Rule 23: Persons responsible for making payments under the head Salaries [Section 108: Information regarding payment of Salary] Rule 24: Return of Income [Form No. IT-11GA] Part-III: Schedules Showing Details of Income Schedule-1: (Salaries)

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First Schedule, Part B: Recognized Provident Fund Sec. 2(52): Recognized Provident Fund Rules 43-58: Provident Fund Conditions to be Satisfied by a Recognized Provident Fund: Para 3, Part B, First Schedule a. Employment of employees and place of business b. Employees contribution at a definite proportion c. Employers contribution not more than employees contribution d. Composition of the fund (employees & employers contributions,
donations received, if any, and interest income and capital gains arising from the transfer of capital assets of the fund)

e. Operated under a board of trustees f. Bar on employer to recover any sum g. Accumulated fund to be paid to an employee on the day he ceases to be an employee h. NBR may impose any restriction on payment of any portion of the accumulated balance First Schedule, Part C: Approved Gratuity Fund Sec. 2(5A): Approved Gratuity Fund Rules 58A-58F First Schedule, Part A: Approved Superannuation Fund or Pension Fund Sec. 2(6): Approved Superannuation Fund

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Effects of Different Items of Provident Funds, Approved Superannuation Fund and Approved Gratuity Fund on Computation of Salary Income
Items of the Fund

Law applicable

Employees contribution

Provident Fund ( PF ) Government PF Non-Government PF General PF Contributory PF Recognised PF Unrecognised (GPF) (CPF) (RPF) PF (URPF) Provident Provident Fund Part-B, First Fund Act, Act, 1925 & Schedule, Income 1925 & Contributory Tax Ordinance, -------General Provident 1984 (ITO) Provident Rules, 1979 Rules, 1979 Added with Added with Added with salary Added with salary as a salary as a part as a part of basic salary as a part part of of basic salary salary [Para-4, 1st of basic basic [ ** A Sch., Part-B]. salary salary component of [** A component [ ** Not a [ ** A investment of investment component of component allowance (6th allowance (6th investment of Schedule, PartSchedule, Part-B, allowance ] investment B, para-4) ] para-5) ] allowance (6th Schedule, Part-B, para-4) ] N/A ( Not applicable ) Added with salary. Added with salary [Para-4, 1st Sch., Part-B]. [** A component of investment allowance (6th Schedule, Part-B, para-5) ] Not to be added with salary up to 1/3 rd of salary or up to 14 % interest rate [Para25, 6th Sch., PartA; Para-5(2), 1st Sch., Part-B]. ------Not to be added with salary.

Approved Superannuation Fund (ASF) Part-A, First Schedule, ITO

Approved Gratuity Fund (AGF) Part-C, First Schedule, ITO

Employers contribution

Not to be added with salary, if it is an ordinary annual contribution [Para-5(3), 1st Sch., Part-A]; otherwise it shall be added with salary. [ ** A component of investment allowance (6th Sch., Part-B, para-6) ] Added with salary.

N/A ( Not applicable )

Added with salary.

Interest on accumulated balance

Not to be added with salary.

Not to be added with salary.

Not to be added with salary.

-------

--------

Income from investments or deposits of fund & capital gains from transfer of capital assets of such fund Receipt of any money from the Fund

-------

-------

-------

Not to be added with salary [Para-5(1), 1st Sch., Part-A]

Not to be added with salary [Para5, 1st Sch., Part-C ].

Not to be added with salary [Para-21, 6th Sch., Part-A.]

Not to be added with salary [Para-21, 6th Sch., Part-A.]

Not to be added with salary [Para21, 6th Sch., PartA.]

Employers contribution & interest thereon to be added with salary.

Not to be added with salary [Para-21, 6th Sch., Part-A.]

Not to be added with salary.

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Proceeds from the Fund due or received on maturity or at other time such as at the time of leaving the service

Not to be added with salary.

Not to be added with salary.

Balance of URPF transferred to a RPF

Not applicable.

Not applicable.

Employers contribution (including interest) repaid to employee

-------

-------

Not to be added with salary, in case of 5-year continuous service or leaving service for any unavoidable reasons approved by Commissioner [Para-6, 1st Sch., Part-B]. Usually not to be added, but part of balance remaining in URPF to be added with salary [Para-10(3), 1st Sch., Part-B].. -------

Employers contribution & interest thereon to be added with salary.

Not to be added with salary.

Not to be added with salary.

Amount not transferred to be added with salary.

Not applicable.

Not applicable.

-------

Added with salary [Para-6, 1st Sch., Part-A]

Added with salary [Para7, 1st Sch., Part-C]

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Exempted Salary Items:

Part A, Sixth Schedule
Para-4: Para-5: Para-6: Para-7: Para-8: Para-20: Para-21: Para-25: Para-26: Income of a Govt. provident fund (PF) and workers participation fund Special allowance, benefits or perquisite granted to meet official expenses [also see Rule 33J] Income of a recognized PF, an approved superannuation fund and an approved gratuity fund. Salary income of persons working in embassy, high commissioner, or other foreign mission Pension Gratuity. Payment from Govt. PF, recognized PF, approved superannuation fund or workers participation fund Interest on accumulated balance of an employee in a recognized PF up to 1/3rd of salary or 14.5% interest rate, whichever is higher [S.R.O. No. 310-L/84, dated 27.06.1984] Amount received by an employee of a Government organization, a local authority, or an autonomous or semiautonomous body at the time of his voluntary retirement

SRO

Any income from salary other than Basic Salary of Government employee is tax exempted [S.R.O. No. 228-Ain/2011, dated 04.07.2011] Employees tax on salary borne and paid by employer [S.R.O. No. 182-Ain/99, dated 01.07.1999]; Tax on government employees salary is paid by government since AY 2002-2003 [Circular-1 (Income-tax): 2002-2003, dated 27.07.2002]. Financial reward given by the Government of Bangladesh to any of its official or employee for any laudable government contribution [S.R.O. No. 245-Ain/2001, dated 29.08.2001]

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Investment Allowance Items: Part B, Sixth Schedule

Para-3: Para-4: Para-5: Para-6: Para-17: Sum deducted from salary for a deferred annuity or of making provisions for his wife or children, up to deduction of 1/5th of salary. Contribution to any Govt. provident fund (PF) Assessee's and employer's contribution to a recognised PF Ordinary annual contribution to approved superannuation fund Payment by an assessee, to a benevolent fund or any group insurance premium

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Basic Salary or Basic Pay: Rule 33 Pay Scale: 4,800-250x4-5,800-EB-350x2-6,500 Date of joining: 1 November, 2005 Basic salary on 1 November 2005: Taka 4,800 Basic salary on 1 November 2006: Taka 5,050 Basic salary on 1 November 2007: Taka 5,300 Basic salary on 1 November 2008: Taka 5,550 Basic salary on 1 November 2009: Taka 5,800 Efficiency Bar (EB) successfully crossed Basic salary on 1 November 2010: Taka 6,150 Basic salary on 1 November 2011: Taka 6,500 Income Year: 2010-2011 (1 July 2010 to 30 June 2011) Basic salary on 1 July 2010: Taka 5,800 Basic salary on 1 November 2010: Taka 6,150
July-October, 2010: Monthly salary Taka 5,800 for 4 months November-December 2010 and January-June 2011: Taka 6,150 for 8 months

Festival Bonus: 2 bonuses, each equivalent to monthly basic salary, paid in September and November 2010

September 2010: Taka 5,800 November 2011: Taka 6,150

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Salary Assessment-1:
Mr. Qader Box has been working as the Manager (Accounts) of a reputed private company getting his salary in pay-scale 20,0002,000326,000EB 2,500231,000. The monthly basic salary in the ending month of last income year 2010-11 (i.e., June 2011) was Tk. 28,500. The date of annual increment in the basic salary is 1st October. In addition to his basic salary, Mr. Box is entitled to receive entertainment allowance Tk. 3,000 per month, servant allowance Tk. 1,500 per month, medical allowance Tk. 1,000 per month, festival bonus equivalent to two monthly basic salary (one paid in September 2010 and another in November 2010) and a full time car used both for private and official purposes. Mr. Box has also been provided a free-furnished quarter for his family accommodation, the annual rental value of which is Tk. 80,000. He contributes to his recognized provident fund at a rate of 10% of his basic salary. His employer also contributes the same amount to the provident fund. His actual medical expense was Taka 10,000. Compute taxable salary income of Mr. Box.

Solution -1: Computation of Income from Salary

Pay & Allowances
Basic pay: July-September Oct.-June Provision of car for personal 33D and/or official purpose (without any cash allowance) Medical allowance 33I

Rule 33

Taxable Amount (Taka) Tk. 26,000 x 3 Tk. 28,500 x 9 7.5% x 334,500 Tk. 1,000 x 12 less Taka 10,000 Tk. 1,500 x 12 Tk. 26,000 + Tk. 28,500 Tk. 3,000 x 2 10% x 334,500
Rental Value Tk. 80,000 or (25% x 334,500 = 83,500), lower one

334,500 25,088 2,000 18,000 54,500 36,000 33,450 80,000

Servant allowance Festival Bonus (Sept. & Nov.) Entertainment allowance 33H Employers contribution to recognized provident fund Deemed income for free Rule furnished/unfurnished 33B(1) accommodation

Total Income from Salary

583,538

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Salary Assessment-2: Mr. X (age 50 years) is a Manager receiving Taka 50,000 basic salary per month. He is entitled to receive the following benefits from his employer: Accommodation at concessional rent the employee pays Taka 5,000 per month out of total monthly rent of Taka 20,000. Full time car plus Taka 2,000 cash allowance per month Entertainment allowance Taka 10,000 p.m. Servant allowance Taka 5,000 p.m. Life insurance premium Taka 35,000 p.a. (on life policy of Taka 300,000) Medical allowance Taka 3,000 p.m. (actual medical expenses Taka 40,000 for the year) Festival bonus two months basic salary Foreign tour allowance Taka 200,000 per annum. Besides he contributes 10% of his basic salary to his recognized provident fund and his employer also contributes the same amount to this provident fund. Last year he purchased primary shares of listed company of Taka 200,000. His foreign tour allowance was tax exempted last year. Employer of Mr. X has already deducted tax on his salary income Taka 140,000.

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Solution: Computation of Income from Salary

Pay & Allowances Basic pay Rule 33 Provision of car for personal 33D
and/or official purpose (with any cash allowance)

Taxable Amount (Taka) Tk. 50,000 x 12 600,000 7.5% x 600,000 69,000 +24,000 Tk. 3,000 x 12 less Exempted Taka 40,000 Tk. 5,000 x 12 Tk. 50,000 x 2 10% x 600,000
Actual rent Tk. 240,000 or 25% x 600,000, lower one, i.e. Taka 150,000 Tk. 60,000

Medical allowance

33I

nil 60,000 100,000 60,000 90,000

Servant allowance Bonus (Festival) Employers contribution to recognized provident fund Furnished/unfurnished Rule accommodation at 33B(1) concessional rent Entertainment allowance 33H Other benefits: Insurance 33J premium Foreign tour allowance 33G Total Income from Salary

10,000 x 12

120,000 35,000 200,000 1,334,000

Computation of Tax Liability

Total Income On first Taka 180,000 On next Taka 300,000 On next Taka 400,000 On next Taka 300,000 On balance Taka 154,000
Gross Tax on Total Income Taka 1,334,000

Tax Rate 10% 15% 20% 25%

Less: Investment Tax credit @ 10% on Taka 254,800 Net Tax Payable Less: Tax deducted at source by employer Tax payable at the time of filing return u/s 74

Amount of Tax Nil 30,000 60,000 60,000 38,500 188,500 25,480 163,020 140,000 23,020

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Investment Allowance: Part B, Sixth Schedule Actual Amount Items Amount Para-1: Insurance premium (Actual Tk. 35,000, but 30,000
allowed up to 10% of Tk. 300,000) Para-5: Assessee's contribution to a recognised PF (10% of Tk. 600,000) Para-5: Employer's contribution to a recognised PF (10% of Tk. 600,000) Para-27: Investment in primary stocks Total

60,000 60,000 200,000 350,000

Actual investment allowance Taka 350,000. Maximum investment allowance: Lower of the following two Taka 10 million
20% of [Taka 1,334,000 Employers Contr. to RPF Taka 60,000 Taxable interest on RPF balance Taka nil] = Taka 254,800. i.e., Taka 254,800 Investment tax credit = Taka 254,800 x 10% = Taka 25,480.

Salary Assessment-3:
Mrs. Haque is a Manager receiving Taka 35,000 basic salary per month. Shee is entitled to receive the following benefits from her employer: House rent allowance Taka 16,000 p.m. Cash conveyance allowance Taka 2,500 p.m. Entertainment allowance Taka 1,000 p.m. Medical allowance Taka 1,500 p.m. (actual medical expenses Taka 10,000 for the year) Festival bonus two months basic salary Besides she contributes 10% of her basic salary to her recognized provident fund and her employer also contributes the same amount to this provident fund. Last year she purchased primary shares of listed company of Taka 40,000. Employer of Mrs. Haque has already deducted tax on her salary income without considering her investment in shares.

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Page 18 of 26

Solution: Computation of Income from Salary

Pay & Allowances Basic pay House rent (cash) Rule 33 allowance 33A Annual Taxable Amount (Taka) Tk. 35,000 x 12 420,000 16,000x12=192,000 12,000 Less: Lower of 50%x420,000=210,000 or 15,000x12=180,000 ie, Taka 180,000 2,500 x 12 = 30,000 6,000 Less Taka 24,000 Tk. 1,500 x 12 = 18,000 8,000 Less Exempted Taka 10,000 Tk. 35,000 x 2 70,000 10% x 420,000 42,000 1,000 x 12 12,000 570,000

Cash conveyance allowance Medical allowance

33C 33I

Bonus (Festival) Employers contribution to recognized provident fund Entertainment allowance 33H Total Income from Salary

Computation of Tax Liability

Total Income On first Taka 200,000 On next Taka 300,000 On next Taka 70,000
Gross Tax on Total Income Taka 570,000

Tax Rate 10% 15%

Less: Investment Tax credit @ 10% on Taka 105,600 Net Tax Payable Less: Tax deducted at source by employer Tax payable/(Refundable) at the time of filing return u/s 74

Amount of Tax Nil 30,000 10,500 40,500 10,560 29,940 32,100 (2,160)

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Investment Allowance: Part B, Sixth Schedule Actual Amount Items Amount Para-5: Assessee's contribution to a recognised PF 42,000
(10% of Tk. 420,000) Para-5: Employer's contribution to a recognised PF (10% of Tk. 420,000) Para-27: Investment in primary stocks Total

42,000 40,000 124,000

Actual investment allowance Taka 124,000. Maximum investment allowance: Lower of the following two Taka 10 million
20% of [Taka 570,000 Employers Contr. to RPF Taka 42,000 Taxable interest on RPF balance Taka nil] = Taka 105,600.

i.e., Taka 105,600

Investment tax credit = Taka 105,600 x 10% = Taka 10,560.

Tax Deducted by Employer:

Actual investment allowance Taka 84,000 [excluding investment in primary stocks].

Allowed investment allowance: Lower of the following two

Taka 10 million 20% of [Taka 570,000 Taka 42,000 Taka nil] = 20% of Taka 528,000= Taka 105,600.

i.e., Taka 105,600.

Investment tax credit = Taka 84,000 x 10% = Taka 8,400.

Net tax for deduction by employee = Gross Tax Taka 40,500 Taka 8,400 = Taka 32,100

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Salary Assessment-4:
Mrs. Haque is a Manager receiving Taka 35,000 basic salary per month. Shee is entitled to receive the following benefits from her employer: House rent allowance Taka 16,000 p.m. Cash conveyance allowance Taka 2,500 p.m. Entertainment allowance Taka 1,000 p.m. Medical allowance Taka 1,500 p.m. (actual medical expenses Taka 10,000 for the year) Festival bonus two months basic salary Besides she contributes 10% of her basic salary to her recognized provident fund and her employer also contributes the same amount to this provident fund. Last year her income from other sources was Taka 200,000 and she purchased primary shares of listed company of Taka 40,000. Employer of Mrs. Haque has already deducted tax on her salary income without considering her investment in shares.

Ans.
Income from Salary: u/s 21 Income from Other Sources: u/s 33 Total Income: Gross Tax: Employers contribution to RPF Actual total investment allowance Employment related inv. allowance Allowed Investment Allowance: Investment Tax Credit: Tax Deducted by Employer: Net Tax Payable on Return-Filing: Tk. 570,000 Tk. 200,000 Tk. 770,000 Tk. 70,500 Tk. 42,000 Tk. 124,000 Tk. 84,000 Tk. 124,000 (max. Tk. 145,600) Tk. 12,400 Tk. 32,100 Tk. 26,000

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Interest on Securities : u/s 22 & 23

Sections 22, 23, 109, 106 Subsections of sec. 2: (15), (30), (38) TDS (Tax Deducted at Source): [common sections 48 & 49], 51 Rules 12 [u/s 49] Sixth Schedule, Para-12, Para-13, Para-24, Para-31B
Part A Sixth Schedule, Para-9, Para-10 Part B

Statutory Definitions: Section 2(15): Capital assets Section 2(30): Fair market value Section 2(38): Interest
Conditions of treating any income under the head Interest on Securities:
(a) (b) Income must be identified as interest Income must be on securities

Outside the scope of this head of income: Interest income on Government Savings Instrument (Sanchaypatra) under the head Income from other sources [TDS u/s 52D @ 5%] Dividend income on share/stock or discount income on bond under the head Income from other sources Interest income on loan given under the head Income from other sources [Note: Above incomes may be classified as Income from Other Sources for banks and financial institutions.]

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Scope of Interest on Security: Interest on any Government security or any security approved by Government, and ii) Interest on debenture or other security of money issued by or on behalf of a local authority or a company.
i)

Deductions from Interest on Security: u/s 23 i) ii) Banks commission or charges on realisation of the interest [u/s 23(1)(a)] Interest expense on money borrowed for investment in the securities [u/s 23(1)(b)] Limitations on deduction: No allowance or deduction shall be made on account of banks commission or charges, or interest expense in respect of, or allocable to tax-exempted Government security [Proviso to section 23(1)]. No deduction in respect of interest expense shall be allowed, if it is payable outside Bangladesh but tax has not been deducted or collected at source under sections 49(1)(g) & 56 and rule 12 [vide u/s 23(2) ]. Tax deducted at source from Interest on Security & Grossing-up that Interest: Section 51 Interest on security is subject to tax deducted at source (TDS) under the provisions of sections 49(1)(b), and 51 and rule 11. As per provision of section 51, TDS on interest on securities (other than debenture issued by or on behalf of a local authority or a company) shall be at 10% upfront, except on Treasury Bond/Bill. Under section 48(2), TDS shall be deemed to be the income received by the assessee and it shall be treated as payment of tax in due time by the assessee. So, interest on security net of tax or tax-deducted interest has to be grossed-up.

Formula for grossing-up:

Gross Interest = (Interest net of tax) / (1 Rate of TDS) .

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Non-Assessable Income in respect of Interest on Security : Sixth Schedule, Part-A: Para-24: Interest on tax- free Government security (totally). Classification of Securities for Computation of Interest on Security:
Major Classification Government Security: u/s 22(a) Subclassification Tax-free Government securities TDS & requirement of grossing-up Non-assessable limit Subject to no TDS & no Totally non-assessable, if issued with grossing-up required. the condition that interest thereon shall not be liable to tax [Para-24, Sixth Schedule, Part-A]. Taxable other Subject to TDS & grossingsecurities up required only if interest net of tax given. TDS at 10% [sec. 51(1)] Subject to no TDS & no grossing-up required [sec. Debenture 51(3)]. Subject to TDS at 10% if the Totally assessable, i.e., no nonOther security is approved by the assessable limit. Securities of Government [sec. 51] and Money grossing-up required only if interest net of tax given.

NonGovernment Security (issued by a local authority or a company): u/s 22(a)

Investment Allowance Items relating to Securities Part B, Sixth Schedule

Para-10: Investment by a non-corporate assessee in the purchase of: (a) savings certificates or instruments; (b) ICB unit certificates and mutual fund certificates; (c) other Government securities (including Development loans or Bonds); and (d) shares of investment companies, but investment tax credit will be disallowed if sold within 5 years from the date of investment or before the expiry of maturity thereof.
Para 27: Any sum invested by an assessee, being an individual, in the acquisition, through Initial Public Offering (IPO), of any stocks or shares of a company, mutual fund or debenture listed with any stock exchange (FA11). Para 28: Any sum invested by an assessee, being an individual, in the purchase of Bangladesh Government Treasury Bond (FA11).

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Example:
Mr. X (age 45 years) has purchased the following securities on which he earned the income mentioned below: (a) Interest on 3-month Development Bond (purchased in August 2010 and matured in November 2010): Taka 90,000 (after deduction of tax @ 10% upfront) [Purchased Development Bond of Taka 4,000,000 with an interest rate of 10% per annum, with cash payment of Taka 4,010,000 including upfront tax, and received Taka 4,100,000]. (b) Interest on Government bond Taka 180,000 (after deduction of tax @ 10%) (c) Interest on debenture Taka 55,000; Following were the expenses to earn the above income: Bank collection charge Taka 12,000 Interest on borrowed capital Taka 6,000.
Compute the income under the head Interest on securities.

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Solution:
Particulars Interest on Securities: u/s 22 Interest on Development Bond [90,000/(1-10%)] Interest on Government bond [180,000/(1-10%)] Taka 100,000 200,000 300,00 0 55,000 355,000 18,000 337,000 Taka

Interest on debenture
Gross income under Interest on Securities Less: Allowable deductions u/s 23 Bank collection charge Interest on borrowed capital Income under the head Interest on Securities 12,000 6,000

Total Income
On other income: Taka 337,000

Tax Rate 10%

Amount of Tax Nil 15,700 15,700 30,000 (14,300)

On first Taka 180,000 On next Taka 157,000 Gross Tax on Taka 337,000 Less: TDS u/s 51 Net tax payable/(refundable)

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