Taxes can feel confusing if you are just starting to learn about them. In Bangladesh, there’s a new Income Tax Act 2023 that one needs to check before making any decision. Well, it’s the new law that has different sources, rules, and calculations. It also gives direction for employees to do the basics. In this article, I’ll break down the main theme of salary income and tax of the new act to help you understand it. Here I go!
What Is Salary Income Tax?
Income tax is a small portion of the money that you pay to the government based on your salary. As a citizen of BD, it’s a duty for everyone to pay taxes properly. And, it’s what everyone knows as income tax. But why should you pay tax? Well, the government uses this tax portion to develop the country, like making schools, roads, and so on.
Understanding Salary Income!
When talking about income tax, you’ll need to get familiar with the income. Well, the government doesn’t only check your salary but also wants to know the land or financial resources you own. So, what counts for income tax? Based on the recent law, here are a few things that count for income tax:
- Fixed assets like land, buildings, apartments, or houses.
- Mobile assets like cars, ornaments, or anything that you can transfer.
- Cash and savings, like money in hand, bank accounts, or extra funds.
- Shares and securities, like investments in companies, bonds, or debentures.
- Other properties that can be declared by the Anti-Corruption Commission.
- Profits are earned from assets like rent from a flat or dividends from shares.
Note: Keep in mind that all the tangible and intangible assets count in the salary income tax.
What Are the Sources of Income Tax?
A finger rule is to submit an income tax return after declaring your assets. With this, you’ll find around 10 types of sources from which the law gets the tax. Based on the Income Tax Act, 2023, it includes:
- Income from employment.
- Income from rent.
- Income from agriculture.
- Income from business.
- Capital gains.
- Income from financial assets.
- Income from other sources.
What Are the Changes in the Income Tax Act 2023 for Employees?
There are a few changes that you’ll notice in the new income tax law. Let me share some of the crucial ones below:
1. New Law in Bangla
The new law of income tax has slightly changed in a few aspects, like numbers or calculations, than the old one. In fact, the 2023 income tax act is written fully in Bangla. So, people will find it easier to read and understand compared to the old English-based law.
2. Follow International Standards
The new act is made by looking at the world’s best practices. Wherever possible, the law uses formulas instead of long explanations. Thanks to this, it makes the rules easier to apply. With that, it added a new SOP to make the tax audits more systematic and clearer.
3. Fewer Returns to File
In the old law, businesses or individuals had to file 29 different withholding tax returns per year. Now, this is reduced to just 12 returns or statements in a year. This also means less paperwork and hassle for taxpayers.
4. Simpler Salary Income Calculation
The process to calculate taxable salary income is pretty simple with the new rule. Plus, this helps both employers and employees understand how much tax should be paid on salary.
5. Clear Classification of Income
The new law adds new types of income sources that are more standardized. This also makes it easier for the legal team to know the salary type.
What Are the Changes in the Tax Rate in the New Act?
The Income Tax Act 2023 has some vital changes in tax rates based on income, gender, and group. Here is a simple breakdown of the new rules:
New Income Tax Slabs
The new income slabs are progressive. In other words, the tax rate increases with income. Like:
| Income Range in BDT | Tax Rate |
| On the first 3,50,000 Tk | 0% |
| On the next 1,00,000 Tk | 5% |
| On the next 4,00,000 Tk | 10% |
| On the next 5,00,000 Tk | 15% |
| On the next 5,00,000 Tk | 20% |
| Any amount above this | 25% |
Note: Some groups now get a bigger tax-free amount. This also helps reduce taxes for low and middle-class people.
Minimum Payable Tax
Even if your tax is less after tax rebates, it’s crucial to pay a minimum tax, depending on where you live. It includes:
- If you live in Dhaka or Chittagong City Corporation, pay 5,000 Tk.
- If you live in other city corporations, pay 4,000 Tk.
- If you live in other areas and your income is above the minimum limit, pay 3,000 Tk.
Special Tax-Free Limits for Certain Groups
The new act gives tax-free income limits to certain types of special groups for additional support. Here are the details:
- For women and 65-year-old taxpayers get a tax rebate of 4,00,000 Tk.
- For 3rd-gender taxpayers & physically challenged persons, it’s 4,75,000 Tk.
- For the 1971 war-wounded freedom fighters, it’s 5,00,000 Tk.
- For parents/guardians of physically challenged children or dependents, it’s 50,000 Tk per child. However, if both parents pay tax, only one can use this benefit.
How to Calculate the Total Income Tax in the New Act?
Calculating your tax under the Income Tax Act 2023 is pretty easy if you follow the steps carefully. The law also sets clear rules for tax rates and allows some reductions if you make certain investments. Here’s the process:
1. Find Your Total Taxable Income
Start with all your assets and count the total income. Just be sure not to include the following aspects:
- Income that already has a minimum tax.
- Income that has a lower tax rate.
2. Calculate Tax on Income
For the remaining income that you counted, the tax rate is 3%. So, you’ll need to count the tax amount from it by multiplying the rate. For instance, if your total income is 4,00,000 Tk, then the total income tax amount is 4,00,000 Tk x 3% = 12,000 Tk.
3. Check for Tax Rebate on Investments
You can reduce your tax on the investments. In that case, the tax rebate is the smaller one between 15% of your allowed investment or 10,00,000 Tk.
4. Calculate Final Tax
Finally, you’ll need to go for the smaller amount between 3% of tax rate, 15% of tax rebate, and 10,00,000 Tk.
Final Thoughts on Salary Income Tax!
By understanding the Income Tax Act 2023, you won’t panic when you get a notice from NBR. With this, you can easily know how much tax to pay, plan your money better, and avoid hassle. Well, it’s the first step to managing your finances based on the law. And, it’s fine to feel confusion on these topics. If you need help or want to learn about this on a deeper level, don’t be shy to get help from a reliable income tax professional. Have a great day ahead!