Income Tax Procedure In Bangladesh: A Case Study
The process of calculating income tax in Bangladesh is complicated. It is common for people who are not familiar with taxation to be intimidated by the mere mention of income tax, especially salaried ones.
It is obvious that you will end up either paying more tax or paying less tax than you are supposed to if you do not have the necessary information. You should therefore know the basic terminology and how to calculate the amount of income tax you need to pay.
Many people avoid doing taxation because they lack information. It's a big problem. Learn how to calculate and manage your income tax on salary.
What Does it Mean by Income Tax?
The Income Tax Act of 1961 states that every salaried person is required to pay an amount to the country as tax. We call this amount the income tax. Various amendments and variations in the law describe the details of tax payments, deductions, and computations. Deductions from subsection 80C to 80U are available. The amount left over after all the tax-saving provisions and deductions is given to the government as income tax.
The Components that Contribute to Calculating Income Tax
It is important to keep a few basic terminologies in mind when calculating income tax. Click here to learn more.
The Tax Year
Tax year is the previous financial year for which income tax is calculated. The fiscal year starts on April 1 and finishes on March 31 of the next year. In order to calculate your 2019 income tax, you must take your pay income from April 1, 2018, to March 31, 2019.
1.Year of evaluation
The word assessment year is often used, yet it is often misunderstood. The fiscal year is not the same as the assessment year. It's completely different. An assessment year, in fact, begins after the previous fiscal year has ended. The assessment year is the year in which your income tax for the previous fiscal year is determined. So, if you're working out your salary income tax for the 2018-19 fiscal year, your assessment year will be 2019-20, and the deadline for filing your ITR will be July 2019.
1.Taxable income
You must compute your taxable income after you have the breakdown of your salary. Taxable income refers to all other sources of income other than your salary on which you must pay taxes.
Income Source
1. Salary-based income
2. Property-based income
3. Profession-related earnings
4. Gains in Income
5. Other sources of income
Description
1. All of your job-related revenue, such as salary, leave encashment, and allowance.
2. House or land-based income
3. Part-time job or profession earnings
4. Profits from the disposal of a capital asset
5. Earnings from a fixed deposit, gifts, and other sources of residual income.
Calculation of the tax due
The final and most important step is to compute the tax due. The amount you get after deducting all appropriate deductions and TDS is the tax amount you must pay to the BD government. You do not have to pay income tax if your total income is less than 2.5 lakhs. If you earn more than this, you must pay income tax based on your wage slab.
The tax rate for a salaried person under the age of 60.
Income Slab
Up to 2.5 lakhs
2.5 lakhs - 5 lakhs
5 lakhs - 10 lakhs
Above 10 lakhs
Tax Rate
None
10% of exceeding amount
20% of the exceeding amount
30% of the exceeding amount
Savings on Taxes
Every citizen wishes to raise their income while paying less tax. There are a few alternatives available. These tax-saving strategies help you save money for the future while simultaneously reducing your income tax liability. Some of the most prevalent tax-saving tactics are as follows:
Equity Linked Savings Schemes
Equity Linked Savings Schemes are a type of mutual fund that has some unique characteristics. ELCCs are exempt up to 1.5 lakhs if they qualify under section 80C. Almost every mutual fund firm offers these, and they have a 3-year lock-in term. Because the returns are reliant on market fluctuations, there is no fixed return rate on ELSS. However, the returns from ELSS are fully tax-free, which is one of the main reasons why people prefer to invest in ELSS.
Public Provident Fund
Public Provident Fund (PPF) is another popular investing option. PPF has been the chosen way of investment and tax savings for millions of salaried individuals since its inception. People have a lot of faith in it because it is a government program. PPFs pay a fixed rate of interest, which is presently 7.9%. PPF investments have a maximum limit of 1.5 lakhs and a minimum limit of INR500 each year. PPFs have a 15-year lock-in duration that can be extended in 5-year increments. PPF is the greatest alternative for people who do not want their investments to be volatile and prefer to invest in safe solutions services.
Unit Linked Insurance Plan
The Unit Linked Insurance Plan, or ULIP, is a combination of insurance and market-linked assets. With a 5-year lock-in period, it provides both protection and savings. The lock-in period might be up to 15 or even 20 years long. In a ULIP, there are nine fund options from which an investor can choose at any moment, and the returns are tax-free.
How to Calculate Income Tax
Calculating income tax is actually rather simple. The formula is as follows:
Basic wage
HRA,
Special Allowance
Transportation Allowance
any extra allowances
======================
Profit after taxes
A Real Example
Mr. Bajaj's taxable income would be determined as follows: If Mr. Bajaj's monthly salary is Rs. 25,000, with a DA of Rs. 4500, an entertainment allowance of Rs. With a taxable income of Rs. 2250 and a professional tax payment of Rs. 3500, his taxable income would be as follows:
Basic Salary
25000*12
= 3,00,000
DA
4500*12
= 54,000
EA
2250*12
= 27,000
Gross Salary
3, 81,000
Professional Tax
Net income
3500
= 3,77,500
His taxable income is Rs. 3,77,500, which puts him in the 2.5 lakhs to 5 lakhs income tax bracket.
As a result, he must pay income tax on 10% of his net income
Tax on excess net income = ten percent of $37,500 = 37,750
To Conclude
It is critical to disclose all investments at the start of the assessment year in order to compute the tax due correctly. Knowledge of taxes, deductions, and returns is essential for laying a solid financial foundation. Wrong tax payments, presenting incorrect information, and lying are all illegal. The following are examples of income tax fraud:
On deliberately, avoiding filing the IT return
Willfully allowing tax obligations to get behind
Intentionally underreporting total revenue
Tax returns that have been falsified
False assertions
Knowing how to do accurate calculations and deductions aids in proper money investment and tax savings, allowing you to live the lavish life you've always wanted. It also protects you from tax fraud.
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