Handbook of Income Tax (HIT) by Farid Mohmmad Nasir

Handbook of Income Tax

Handbook of Income Tax regarding Admissible and Inadmissible Income/Expenses (Assessable and Non-assessable Income) as per seven

heads of Income Prepared By

Farid Mohammad Nasir Articled student

S. F. Ahmed & Co.

Based on the latest Finance Act 2014

Edition 1.0.1 (Independence Edition)

Email: [email protected]

Facebook: http://facebook.com/farid.pq LinkedIn: http://bd.linkedin.com/in/faridpq

Farid Mohammad Nasir Page 2 of 43 [email protected] www.fb.com/farid.pq

Table of Contents 0. Prelude ................................................................................................................................................. 03

1. Income from Salary ............................................................................................................................... 04

2. Income from Interest on Securities ....................................................................................................... 08

3. Income from House Property ................................................................................................................ 10

4. Income from Agriculture ....................................................................................................................... 13

5. Income from Business or Profession ...................................................................................................... 17

6. Capital Gain .......................................................................................................................................... 27

7. Income from Other Sources .................................................................................................................. 30

8. Sixth Schedule Part-A (Exclusions from Total Income) ........................................................................... 34

9. Sixth Schedule Part-B (Allowances for Investment Credit) ..................................................................... 38

10. Annexure I ............................................................................................................................................ 40

11. Annexure II ........................................................................................................................................... 41

12. Annexure III .......................................................................................................................................... 42

13. Bibliography.......................................................................................................................................... 43


Prelude The sole objective of this handbook is to help determine the assessable incomes of the seven heads which will help us in our professional examination as well as in our professional life to determine the assessable income of both the individuals and companies. This handbook is mainly prepared to combat the exam and solve the mathematical problems we face while we encounter to find the assessable income of both individuals and companies. This handbook is a secondary level guideline, not a primary level guideline. Before studying this handbook you should have a minimum level of knowledge of Taxation & the respective acts and its sections (ITO 1984 & its Rules) and you should also read the respective Sections of the ITO 1984 and/or Rules of this act & SROs regarding taxation issued by the Government time to time. In this handbook, it is tried hard at the maximum effort to discuss all the issues in respect of the seven heads to determine the assessable income of the respective income head but this handbook is not an inclusive one. Some issues can be missed. If anyone finds anything missing or contradictory while and after reading this handbook that an issue or some issues are left that are not included in this handbook, please be it known to me so that I can include those issues in further editions. I seek your kind and sincere cooperation in this regard.

First Edition (Independence Edition) : March 2015 The above mentioned areas have been discussed very sincerely and carefully. The author of the handbook was very sincere and careful when preparing this handbook. Despite that If any errors, mistakes or any mispresentations are found in this handbook, it is totally unintentional and due to mistake. So I urge all the readers to let me know the facts so that I can amend those errors or mistakes in future. Best regards Farid Mohammad Nasir Date: 09 March 2015


1. Income from Salaries: Related References:

Sections - 21 & 172 2(45) & 2(58) Schedule 6th Part A - Para 4, 5, 8 20, 21, 25, 26 (for Bangladeshi) & 7, 15, 16 (for foreigners) Rule - 33, 33(a, b, c, d, e, f, g, h, i, j) SROs - 226-Law/IT/2011 dated 4th July 2011 227-Law/IT/2011 dated 4th July 2011 228-Law/IT/2011 dated 4th July 2011

As per Section 2(58) of the Income Tax Ordinance 1984, Salaries include:

1. Any pay or wages 2. Any annuity, pension or gratuity 3. Any fees, commission, allowances, perquisites or profits in lieu of (See Section2(50)), or in

addition to salary or wages 4. Any advance of salary 5. Any leave encashment.

Section 21(1) provides that the following income of an assessee shall be classified and computed under the head "Salaries", namely:-

(a) any salary due from an employer to the assessee in the income year, whether paid or not; (b) any salary paid or allowed to him in the income year, by or on behalf of an employer though

not due or before it became due to him; and (c) any arrears of salary paid or allowed to him in the income year by or on behalf of an employer,

if not charged to income-tax for any earlier income year. When we work with the head - Salaries, we should be familiar with the concept of Perquisite As per Section 2(45) Perquisite means

(i) any payment made to an employee by an employer in the form of cash or in any other form excluding

1. basic salary, 2. festival bonus, 3. incentive bonus not exceeding ten percent of disclosed profit 4. arrear salary, 5. advance salary, 6. leave encashment or 7. leave fare assistance and 8. overtime.

(ii) any benefit, whether convertible into money or not, provided to an employee by an employer, called by whatever name, other than contribution (by employer) to a

1. recognized provident fund (RPF) 2. approved pension fund (APF) 3. approved gratuity fund (AGF) 4. approved superannuation fund (ASF)

N.B: when you read the section 2(45), always read the Section 30(e) along with.


The following table shows the items whether the income or part of the income to be included in the total income under the head Income from Salaries or not

# Description Ref To be included in Total Income

To be exempted from Total Income

01 Basic Salary Full 02 Dearness Allowance Full 03 Bonus Full 04 Festival bonus/performance bonus Full 05 Overtime Full 06 Commission and fees Full 07 Advance salary Sec. 172(a) Full 08 Accrued / outstanding salary Sec. 172(a) Full 09 Profit in lieu of salary Sec. 172c Full 10 Leave encashment /Compensation Full 11 Annuity Full 12 Education allowance for children Full 13 Servant allowance Full 14 Allowance received as Head of a department / Charge

allowance Full

15 Residence telephone bills / utility bills / club bills reimbursed

Full

16 House rent allowance in Cash Rule 33a 50% of Basic or Annually Tk 240000, whichever is lower

17 Rent free accommodation Rule 33b(1) The rental value or 25% OF Basic, whichever is lower

18 Accommodation at a concessional rate Rule 33b(2) The difference between Rule-33b(1) and actually cash paid by the assessee

19 Conveyance allowance received in Cash Rule 33c Excess over Tk. 30000 Up to Tk 30000 20 Conveyance provided for personal use Rule 33d 5% of Basic Salary will be

added

21 Additional conveyance allowance along with conveyance facility

Rule 33e

5% of Basic Salary will be added plus the amount of the conveyance allowance paid in cash

22 Free or concessional passage for travel abroad or within Bangladesh

Rule 33g (1.i) If as per the terms of employment-the sum by which cash payments made by the employer exceeds the actual expenditure

If no cash is paid during travel, then nothing will be added to the total income. (see the rule*)


Rule 33g (1.ii) If not as per the terms of employment - the whole amount paid in cash, if no cash is paid then the amount would have been expended


Rule 33g (2)

Fully exempted - If any benefit as per Rule 33g (1) provided by the undertakings engaged in the transport of passengers or the carriage of goods.


25 Entertainment allowance Rule 33h

Full 26 Free Tea, coffee, beverage or the like thereof

provided at the office premises (i.e. launch or tiffin)

Fully exempted 27 Medical allowance

Rule 33i 10% of Basic or

Maximum Tk 60,000 whichever is lower

28 Any other benefit or annuity Rule 33j if not exempted; (see the rule)

(see the rule)

29 The value of any benefit provided free of cost or at a concessional rate

Rule 33j Full

30 Any sum paid by an employer in respect of obligation on employee

Rule 33j Full

31

RPF

Employers contribution to Recognized Provident Fund (RPF)

Full

32 Interest on RPF Para 25, 6th Sch-Part A & SRO_No._310/Law/IT/1984 (for the Rate 14.5%)

Actual interest less exempted to the extent of the interest @ 14.50% or, 1/3rd of basic salary

33

UPF

Both employees and employers contribution to Unrecognized Provident Fund (UPF) plus its interest(if any)

Fully exempted

34 Any payment received by an assessee from UPF at retirement

Full

35

ASF

Employers contribution to an Approved Superannuation Fund (ASF)

Full

36 Interest on accumulated balance of ASF Para5(1), Part-A, 1st Schedule

Fully exempted

37 Any payment received by an assessee from ASF at retirement

Fully exempted

38

AG

F

Employers contribution to an Approved Gratuity Fund (AGF)

Full

39 Interest on accumulated balance of AGF Para 5, Part-C, 1st Schedule

Fully exempted

40 Any payment received by an assessee from AGF at retirement

Fully exempted

41 Any payment (Accumulated balance while leaving job*) received from - (a) a government provident fund* (b) a recognized provident fund (RPF)* (c) an approved superannuation fund (ASF)* (d) a workers participation fund

Para 21, 6th Sch-Part A

Fully exempted

42 Any Pension received by an assessee Para 8, 6th Sch-Part A

Fully exempted

43 Gratuity Para 20, 6th Sch-Part A

Fully exempted

44 Any amount received by an employee of a Govt. organization at the time of voluntary retirement in accordance with any scheme approved by the Govt.


Fully exempted

45 Employers contribution to Life Insurance Policy Full 46 (1)Any income derived from a provident fund

established under the Provident Fund Act 1925 (for govt. employees)

(2)Any income derived from workers participation fund established under the Bangladesh Labor Act, 2006


Fully exempted


47 Any Special allowance, benefits or perquisite specially granted to meet some official expenses


Fully exempted

48 Remuneration of Ambassador/high Commissioner/Charge daffairs/ commissioner/ counselor/ counsel de carrier/ secretary/ advisor of any Embassies of foreign states and the their non-Bangladeshi employees


Fully exempted

Salaries are exempted from payment of tax (as per SRO & Notification):

01. 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/her arrival in Bangladesh. (SRO-114-Law/IT/1999)

02. Any salary drawn by any foreigner from thru 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 exempted from tax. (SRO-207-Law/It/1997)

03. Salaries of categorized personnel of United States 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 States and Specialized Agencies (Privileges and Immunities) Act, 1975. (NBR Circular No: NBR/Tax/Tax-7/Tax Policy/02/2006, dated 29/04/2007)

04. When in any year an assessee has ceased to be an employee participating in a recognized Provident 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 total income and if such amount exceeds the amount of his income in that year, so much of his income in the following year as is equal to the amount of such excess shall be so exempted and excluded is such year or years. (SRO-454-Law/IT/1980 dated 31.12.1980 (Serial No 19))

05. Chargeability of tax on only Basic Salary of certain persons e.g. ministers, MPs, Judges, Govt. employees etc.:

Name of person Chargeability of tax on

Prime Minister, Speaker, Ministers, and Advisors with minister rank, Deputy Speaker

Only Basic salary is taxable; other allowances/elements of salary are fully exempted from tax (SRO-226-Law/IT/2011 dated 04/07/2011

Honorable Judges of High Court and Appellate Division of the Supreme Court

Only Basic salary is taxable; other allowances/elements of salary are fully exempted from tax (SRO-227-Law/IT/2011 dated 04/07/2011

Government employees Only Basic salary is taxable; other allowances/elements of salary are fully exempted from tax (SRO-228-Law/IT/2011 dated 04/07/2011

Note: Salary received by a person as an MP is taxable as Income from Other Sources but if a person receives as a Minister of Govt., income is taxable under the head Salaries

The items to be considered under the head Salaries and regarding Salaries for investment credit purpose have been discussed in the section of Investment Credit / Allowance at the end part of this handbook.


2. Income from Interest on Securities: Related References:

Sections - 22 & 23 51, 106 & 172(d) Schedule 6th Part A - Para 24 & 40 Rule - there is no relevant rule to this head SROs - no is issued in relation to this head

As per Section 22, the following conditions should be met in order to be termed as an income under the head Income from Interest on Securities

(a) Income must be received as interest (the interest on securities will taxed in the year of actual receipt)

(b) The income must be from securities issued by the government and/or debentures or securities issued by local authorities and/or companies.

As interest on securities is a separate head of income, therefore, even if the securities are held as trading assets within the course of any business undertaken by a bank, an insurance company, a leasing company or a stock broker; the interest must be charged under the head Income from Interest on Securities not under the head Income from Business or Profession as per section 28. When these securities are sold, any gain or losses from such disposal will be considered as capital gain or losses; hence will not be recorded under the head Income from Interest on Securities. Rather any gain from such event will be recorded under the head Capital Gain

CLASSIFICATION OF SECURITIES Type of Securities Nature TDS as per Section 51 Taxable Status

Government Securities

Tax free: Treasury Bond Treasury Bill

No TDS Tax free

Less tax: National Bond Less tax govt. securities

5% Fully taxable

Commercial Securities

Debentures/Bonds: Approved Securities or Unapproved Securities

5% Fully taxable

Zero Coupon Bond No TDS Tax free The following interests from different sources will not be considered under the head Income from Interest on Securities but under the head Income from Other Sources

i) Income or profit received from all kinds of bank deposits like Savings Deposits or Fixed Deposits ii) Income from investments other than securities other than securities in any government or commercial

projects iii) Interest on capital and loan from a person or partnership firm iv) Interest on securities issued by any individuals, partnership firm, association of persons (AOP), club

etc. v) Interest on Savings Certificates vi) Interest on Post Office Savings Bank and Postal Savings Certificate vii) Interest on securities issued by any foreign government viii) Interest received from a company on Book-Debt / Accounts Receivable balance


# Description Ref To be included in Total Income

To be exempted from Total Income

01 Tax free govt. securities Para 24, 6th Sch-Part A

Fully exempted

02 Less tax govt. securities Sec. 28 (a) Full 03 Approved commercial securities Sec. 28 (b) Full 04 Unapproved commercial securities Sec. 28 (b) Full 05 Zero Coupon Bond (ZCB) Para 40, 6th Sch-

Part A Fully exempted

Admissible Expenses # Payment/Account head /At the account head Reference Purposes of expenses / Limit for Admissible Expenses 01 Bank commission/charges for collecting

interest Sec. 23 (1) (a) Any sum for this purpose

02 Interest on borrowed capital for investment in securities

Sec. 23 (1) (b) Any interest payable for this purpose

03 No allowance or deduction will be allowed for tax-free govt. securities [Ref: Proviso of Section 22] 04 No deduction will be allowed in respect of any interest payable outside Bangladesh on which tax has not been paid or

deducted as per Chapter VII [Ref: Section 23] Grossing up of interest while calculating the taxable income: Interest on securities, which is subject to tax and tax is deducted at source, must be the gross amount, not the net amount. As per Finance Act 2014, TDS rate of any type of securities such as less tax govt. securities and Commercial securities is 5%. The formula for grossing up of interest is: Gross Interest = Net Interest [100 (100 Rate of Tax Deducted at Source i.e. 5% now)] The items to be considered under the head Interest on Securities and regarding Securities for investment credit purpose have been discussed in the section of Investment Credit / Allowance at the end part of this handbook.


3. Income from House Property: Related References:

Sections - 24 & 25 2(3)-Annual Value; 19(22), 33(c) & 53(a) Schedule - 6th Schedule Part A - Para 1, 14 & 38 Rule - there is no relevant rule to this head SROs - 454(Serial No. 18)-Law/80 dt.21.12.1980; 210-L/IT/13 dt. 01.07.2013

Annual Value under Section 2(3) shall be deemed to be in relation to any property let out-

(i) the sum for which property might reasonably be expected to let from year to year 1[and any amount received by letting out furniture, fixture, fittings etc; or

(ii) where the annual rent in respect thereof is in excess of the sum referred to in paragraph (i), the amount of the annual rent

Income from house property under Section 24:

(1) Tax shall be payable by an Assessee under the head "Income from house property" in respect of the annual value of any property, whether used for commercial or residential purposes, consisting of any building, furniture, fixture, fittings etc. and lands appurtenant thereto of which he is the owner, other than such portions of the property as he may occupy for the purposes of any business or profession carried on by him, the income from which is assessable to tax under this Ordinance.

(2) Where any such property as is referred to in sub-section (1) is owned by two or more persons and their respective shares are definite and ascertainable, such persons shall not constitute and shall not be deemed to be, an association of persons; and for the purpose of computation of the income of an Assessee in respect of that property, only such part of such income as is proportionate to the share of the Assessee shall be reckoned as his income from that property.

Conditions of income to be charged under this head:

1. Assessee must be the legal owner or deemed to be the owner (beneficiary of the property) 2. House property must be rented for commercial or residential purposes 3. Property must consist of any buildings or land / lands appurtenant thereto

RENTAL STATUS OF THE HOUSE PROPERTY:

1. Fully let out house property: All reasonable income (municipal value) or actual annual rental income (whichever is

higher) is chargeable to tax and all admissible expenses are fully considered in this regard

2. Partly let out house property: All reasonable income (municipal value) or actual annual rental income generated from the

let out part of the property (whichever is higher) is chargeable to tax and all admissible expenses are proportionately considered for the let out part in this regard

3. Fully occupied house property by the owner: Annual value in such a case is not needed and considered as non-assessable income as per

the ITO 1984


Non-assessable Income

# Reasons / areas Reference Limit for Admissible Expenses 01 Annual value of the house used by the

owner for his own residence purpose and for the purpose of business or profession

Sec. 24 (1) (a) Any sum for this purpose

02 Vacancy allowance (also discussed below) Sec. 25 (1) (j&k)

The amount equal to such portion of the annual value

03 Any income derived from the house property held by the trust or other legal obligation wholly used for religious or charitable purpose

Para 1(1), 6th Sch-Part A

Any amount

04 Any income derived from any building for ten years from the date of completion of construction


(see the reference for details)

05 House property income of any chamber of commerce and industry

SRO-210 Dated: 01/07/13

Any amount of rent income

Admissible Expenses # Payment/Account head /At the account head Reference Purposes of expenses / Limit for Admissible Expenses 01 Land development tax or rent Sec. 25 (1) (a) Any sum payable for this purpose 02 Insurance premium Sec. 25 (1) (b) The amount of any premium for this purpose 03 Interest on mortgage loan Sec. 25 (1) (d) The amount of interest payable on such mortgage or charge 04 Annual tax/charge Sec. 25 (1) (e) Any tax leviable, in respect of property or income from property,

by local authority or Govt but does not include any tax leviable under the ITO 1984

05 Ground rent Sec. 25 (1) (f) The amount of such rent 06 Interest on borrowed capital Sec. 25 (1) (g) The amount of any interest payable on such capital borrowed

from bank or financial institution 07 Interest on borrowing during construction Sec. 25 (1) (gg) Where no income is earned during the period of construction, the

interest payable during such period will proportionately be distributed in subsequent first three years for which income is assessable (see the section if not clear)

08 Repair and maintenance includes: Expenditure for repairs Collection of rent Water and sewerage Electricity Salary of darwan, security guard,

pump-man, lift-man & caretaker All other expenditure related to

maintenance

Sec. 25 (1) (h) Admissible limit for Repair and maintenance is as follows:

(i) An amount equal to one-forth (25%) of the annual value where the property is used for residential purpose;

(ii) An amount equal to thirty percent (30%) of the annual value where the property is used for commercial purpose.

09 Vacancy allowance Sec. 25 (1) (j) Where the whole the property was let out and vacant during a part of the year, a sum equal to such portion of the annual value is admissible.

10 Vacancy allowance Sec. 25 (1) (k) Where the property was let out in parts and vacant during a part of the year, a sum equal to such portion of the annual value is admissible.

11 Uncollectible/irrecoverable rent SRO-454-L/80 Dated: 31/12/1980

Part of rent which cant be recovered anymore and which has been assessed in the preceding year will be deducted from total income in the subsequent year

# Provision for Inadmissible Expenses: No deduction shall be allowed in respect of any interest or annual charge payable outside Bangladesh on which tax has not been paid or deducted as per the provisions of Chapter VII [Ref: section 25(2)]


Treatment of advance rent when it is not adjustable against house rent: Section 19(22) Where 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). However such advance will 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 from income in which year it is refunded. Grossing-up Rental Value when the tenant bears any owners expenses: If the tenant bears any expenses like repair and maintenance which is supposed to be borne by the owner, actual rent will be increased by the same amount. Deducting from Rental Value when the owner bears any tenants expenses: If the owner bears any expenses like water bill, gas bill, electricity bill which is supposed to be borne by the tenant, actual rent will be decreased by the same amount. Income from letting out SUBLET by a tenant is considered as Income from Other Sources not as Income from House Property No items under the head Income from House Property and regarding House Property are considered for investment credit purpose.


4. Income from Agriculture: Related References:

Sections - 26 & 27 2(1), 19(17), 19(19) & 35(1) Schedule 6th, Part A - Para 27, 29& 46 Rule - 30, 31, 32 SROs - 208-Law-IT/2013 dt. 01 July 2013

Definition/Scope of Agricultural Income: See the Section 2(1) of the ITO 1984 for details to have a clear idea Characteristics of Agricultural Income:

(i) It must derive from any agricultural land situated in Bangladesh. The land may be situated in an urban area or in a rural area.

(ii) It must come from fundamental agricultural work like field cultivation or cultivation of ground, in the sense of tilling of land, sowing of seeds, planting and similar basic and subsequent operations on the land Basic Operations: Agriculture in its primary sense denotes the cultivation of the field and is restricted to cultivation of the land in the strict sense of the term, meaning tilling of the land, sowing of the seeds, planting and similar operation on the land.

Subsequent Operations: Such operations are absolutely necessary for the purpose of effectively raising the agricultural produce and are to be performed after the produce spouts from the land e.g. weeding, digging the soil around the growth, removal of undesirable undergrowth, and all operations which foster the growth and preservation of the produce not only from insects and pets but also from the depredation from outside, tending, pruning, cutting, harvesting and rendering the produce fit for the market, would all be agricultural operations when taken in conjunction with the basic operations

(iii) Income from any other assets solely used for agricultural purposes is considered as Agricultural Income

(iv) It may become necessary to perform a process to make the agricultural products marketable or saleable, then the gain in the value of the produce by such process is classified as Agricultural Income

(v) Income (rent) may come from any building situated in the agricultural land or adjacent vacant agricultural land (Remember: this rent is not regarded as Income from House Property)

(vi) Income may come from gain on sale or discarded value of machineries or plant used for agricultural purpose

(vii) Some income may partially be considered as agricultural income e.g. Sale of tea, Sale of rubber, Sale of tobacco and Sale of Sugar

From the above discussion, it is clear that agriculture would include horticulture, floriculture, arboriculture, sericulture etc. It would include the raising of grooves, plantations, raising of grass or pastures. It would extend to cultivation of all commodities of food value like sugarcane, coffee, mangoes and other fruits etc; artistic and decorative value like flowers and creepers; housing value like bamboo, timber; fuel value; medicinal value and health value. It would also include growing of animals, poultry when it is not done for business purpose. Agriculture income, however, cover only those incomes which are derived from human effort not naturally.

i.e. Crops or trees of spontaneous growth in forests or in any other areas where there is no human effort is not considered as agricultural income (This income is regarded as Income from Other Sources


SUMMERY OF PARTLY AGRICULTURAL INCOME Particulars AI BoP Reference

Income from tea garden 60% 40% Sec 26(2), Rule 31 Income from rubber garden 60% 40% Sec 26(3), Rule 32 Income from tobacco/sugar/other similar products industry: Where further processing is done by the assessee Where products are sold without further processing

60%

100%

40% 0%

Sec 26(3), Rule 32 Sec 26(3), Rule 32

OTHER FORMS OF AGRICULTURAL INCOME:

1. Income from cattle rearing 2. Income from sale of palm juice and date juice 3. Income from sale of seeds and grass, if grown by human effort 4. Income from agricultural cooperative society which was organized for farming and cattle rearing 5. Income from land or assets used for processing the agricultural commodities to make them marketable 6. Income from land leased for agricultural purposes 7. Income from any system of sharing of crop generally known as adhi, barga or bhag 8. Income from sale of herbal or medical plants 9. Income from cultivation of flower and fruits 10. Income from sale of honey if produced in agricultural land using special technologies like special box for

honey-comb 11. Income from dairy farm provided that

a) Assessee is the owner of the cattle b) Cattle are reared in cattle rearing field c) Milk is processed by the assessee

12. Income from poultry farm if they are reared in agricultural land Agricultural Income under Section 19(17) & 19(19):

Under section 19(17): Where any machinery or plant exclusively used by an assessee for agricultural purpose has been disposed and the sale proceeds thereof exceed the WDV, so much of the excess as does not exceed the difference between the Original Cost and the WDV shall be deemed to be the income classifiable under the head Agricultural Income

Under section 19(19): Where any insurance, salvage or compensation moneys are received in any income year in respect of any machinery or plant which has been used by the assessee exclusively for agricultural purpose is discarded, demolished or destroyed and the amount of such moneys exceed the WDV of such machinery or plant, so much of the excess as does not exceed the difference between the Original Cost and the WDV less the Scrap Value shall be deemed to be the income classifiable under the head Agricultural Income

DONT GET CONFUSED WITH SOME TYPICAL NON-AGRICULTURAL INCOME:

1. Income from ferry ghat, mooring terminal 2. Income from sale of products that grow up in the agricultural land without agricultural works e.g. forest

trees, wild grass, fruit and flowers grown spontaneously and without human effort 3. Income from sale of forest trees, flowers, bamboo, wild grass, reeds of fruits produced naturally without

any agricultural work 4. Income from salt production by flooding the land with sea water and then extracting salt therefrom 5. Income from cutting and selling of timber on contract 6. Income from interest on arrear of rent for agricultural land 7. Income from letting out vacant land not used for agricultural purpose 8. Income from royalty/ground rent against lease of land for mining, potteries, quarries etc 9. Income from sale of stones from quarries 10. Income from sale of sail for brick field


11. Income from sale of water for irrigation 12. Income from salary for working as an agricultural supervisor/manager 13. Income from sale of crops which have been purchased from other for resale 14. Income from dairy farm solely established for business purpose (Dont mix up with the Serial No. 11 above) 15. Income from poultry farm established separately for business purpose (Dont mix up with the Serial No. 12 above) 16. Income from fisheries/fishing 17. Income from fish hunting, ship anchoring etc 18. Income derived from butter and cheese making 19. Income received as commission foe working as middleman in agro products 20. Remuneration received by managing agent at a fixed percentage of net profit from a company having

agricultural income 21. Interest received by an assessee against loan in the form of agricultural produce 22. Income from dividend paid by a company out of its agricultural income.

Admissible Expenses # Payment/Account head /At the account head Reference Purposes of expenses / Limit for Admissible Expenses 01 Land development tax Sec. 27 (1) (a) Any sum payable for the land used for agricultural purposes 02 Local tax Sec. 27 (1) (b) Any tax, local tax or cess (see the Section for details) 03 Production costs: Sec. 27 (1) (c)

(i) Conditions to be met to be admissible: a) For cultivating the land or raising livestock thereon; b) For performing any process ordinarily employed by a

cultivator to render marketable the produce of the land; c) For transporting the produce of the land or the livestock raised

to the market; and d) For maintaining the agricultural implements and machinery in

good repair and for proving upkeep of cattle for the purpose of cultivation, process or transportation as aforesaid.

04 Production costs Sec. 27 (1) (c) (ii)

60% of market value of the produce of the land where no books of accounts in respects of agricultural income are maintained (NOTE: where books of accounts are maintained, 100% of actual production costs are admissible expenses)

05 Production costs in respect of adhi, barga or bhag (Inadmissible expenses)

Sec. 27 (1) (c) (iii)

No deduction is allowed if agricultural income is derived by the owner of the land from share of the produce raised through any system of sharing of crop generally known as adhi, barga or bhag

06 Insurance premium Sec. 27 (1) (d) Any sum paid as premium relating to any agricultural activities 07 Maintenance cost of Irrigation Plant Sec. 27 (1) (e) Any sum paid in respect of the maintenance of any irrigation or

protective work or other capital assets 08 Depreciation Sec. 27 (1) (f) A sum calculated at the rate as provided in the Third Schedule-Para 1 09 Interest on mortgage Sec. 27 (1) (g) The amount of interest paid in respect of mortgage or charge

where land is subject to a mortgage or other capital charge 10 Interest on borrowed capital Sec. 27 (1) (h) Where the land has been acquired or improved by the use of

borrowed capital, the amount of any interest is paid in respect of such capital

11 Loss incurred from sale of demolished machineries (see this Section if not clear)

Sec. 27 (1) (i) The amount actually written-off / the amount of losses from any demolishment is allowable expense but maximum allowable limit: i) where no insurance or compensation money is received - Maximum limit = (written down value scrap value[SV]) ii) where no insurance or compensation money is received - Maximum limit = (WDV SV) the amount of insurance or compensation money received


12 Loss incurred from sale or exchange of machineries (see this Section if not clear)

Sec. 27 (1) (j) The amount actually written-off by way of sale or exchange of machinery or plant which has been used exclusively for agricultural purpose but the maximum of the amount by which the WDV of the machinery or plant exceeds the amount for which the asset has been actually sold or transferred Maximum limit = (WDV the amount of actual sale/transfer)

13 Other expenses Sec. 27 (1) (k) Not being capital or personal nature, any other expenditure laid out wholly and exclusively for the purpose of deriving agricultural income from the land

# Provision for Inadmissible Expenses: No deduction shall be allowed in respect of any interest on which tax has not been paid or deducted as per the provisions of Chapter VII [Ref: Section 27(2)]

Non-assessable Agriculture Income 01 Any income including agricultural income of an indigenous Hillman of any of the hill districts of Rangamati, Bandarban &

Khagrachhari, which has been solely derived from economic activities undertaken within the said the said hill districts. [Ref: Para 27, Part-A,6th Schedule]

02 Any income, not exceeding Tk 200,000 chargeable under the head Agricultural Income of as assessee being an individual, whose only source of income is agriculture. [Ref: Para 29, Part-A,6th Schedule]

03 An amount equal to fifty percent (50%) of the income derived from corm, maize or sugar beet [Ref: Para 45, Part-A,6th Schedule] No items under the head Income from Agriculture and regarding Agriculture are considered for investment credit purpose.


5. Income from Business or Profession: Related References:

Main Section: 28, 29 & 30

Definition: 2(14) - Business 2(34) - Income 2(49) - Profession 2(61) - Speculative Business

Deemed Income: 19(15) - a, aa, b, c 19(16) with 3rd Schedule Para 10 19(18) with section 29(1) (xii) 19(20) & 19(23) with Rule-30A

Rule: 30, 30A, 31, 32, 65, 65A, 65C

Schedule: 6th, Part A - Para 1A, 33, 35, 37, 39, 42, 44, 45 & 3rd Schedule - all Para except Para 1

SROs: # Brief description of the SROs SRO Date 01 15% Tax on textile industries Have a sharp eye on these SROs

bcoz the validity of these will end on June 30, 2015. (These can be further amended)

SRO No. 207-Law/IT/2013 These are Amendment SROs

July 01, 2013

02 15% Tax on jute Industries SRO No. 206-Law/IT/2013 July 01, 2013

03 Tax exemption for 5 years & 7 years on different years on income of industries set up at EPZ

SRO No. 219-Law/Income Tax/2012 June 27, 2012

04 50% Tax exemption on income from export sales of any industry set up in any EPZ declared u/s Section 10 of the BEPZA Act, 1980 (Act No. XXXVI of 1980)

SRO No. 267-Law/IT/1986 (See para 34 of 6th schedule part A)

July 01, 1986

05 10% Tax on Export-oriented Garment Industries (Read the SRO No. 205-Law/IT/2013 dt. 06/07/2005 along with this SRO)

SRO No. 265-Law/IT/2010 SRO No. 206-Law/IT/2013

July 01, 2013

06 25% Tax on local authority / Autonomous Institutions SRO No. 158-Law/IT/2014 June 26, 2014 07 3 % reduced tax on various sources of income like

fisheries, poultry feed, cattle farming, dairy farming etc. Validity upto June 30, 2015 (See the SRO)

SRO No. 208-Law/IT/2013 July 01, 2013

08 Exemption on income of private power generation company (See all the three SROs to be clear about these)

SRO No. 211-Law/IT/2013 SRO No. 213-Law/IT/2013

For 15 years July 01, 2013

SRO No. 212-Law/IT/2013 For 10years 09 15% Tax on private university SRO No. 268-Law/IT/2010 July 01, 2010 10 Tax exemption of new private hospitals established

between 1st July 2005 to 30th June 2008 for 5 years SRO No. 204-Law/IT/2005 July 06, 2005

11 15% Tax on National level research institute SRO No. 157-Law/IT/2007 June 28, 2007 12 SRO on CSR i. SRO No. 229-Law/Income Tax/2011 July 04, 2011

ii. SRO No. 223-Law/Income Tax/2012 June 27, 2012 iii. SRO No. 186-Law/Income Tax/2014 July 01, 2014

13 Travel Tax on different rates SRO No. 159-Law/IT/2014 26 June, 2014 14 (Passenger) Vehicle Tax SRO No. 159-Law/IT/2014 26 June, 2014 15 (Personal) vehicle Tax SRO No. 160-Law/IT/2014 26 June, 2014 16 Tax on Water-way transport SRO No. 224-Law/IT/2012

SRO No. 162-Law/IT/2014 27 June, 2012 26 June, 2014

17 Exemption on Income of DSE & CSE for 5 years on various rates in each of 5 years

SRO No. 157-Law/IT/2014 26 June, 2014

18 Tax rebate for 10 years or upto 2019 for Production-oriented industries which are not situated in the city corporation area and subject to other conditions

SRO No. 185-Law/IT/2014 July 01, 2014

The list of SROs is not an inclusive one. There are a number of SROs regarding income tax to be paid on the income head Income from Business or Profession but the mostly important SROs are mentioned here.


Definition/Scope of Income from Business or Profession: See the Section 2(14), 2(34), 2(49) 2(61) & 28 of the ITO 1984 for details to have a clear idea

Business includes trade, commerce, manufacture and adventure or concern in the nature of trade, commerce and/or manufacture. Profession involves the idea of an occupation requiring purely intellectual skill or manual skill on the basis of some special learning.

Allowable deductions/Admissible Expenses # Payment/Account head /At the account head Reference Purposes of expenses / Limit for Admissible Expenses 01 Rent of premises Sec. 29(1)(i) The amount of rent paid for the premises

Provided that: *Proportional rent is allowed for deduction if the premises are partially used for dwelling *No deduction is allowed if the premise is owned by the assessee

02 Repair of the hired premises Sec. 29(1)(ii) The amount paid for the repair of hired premises Provided that: Proportional amount of sum paid for such repair is allowed for deduction if the premises are partially used for dwelling

03 Interest on borrowed capital Sec. 29(1)(iii) The amount of any interest paid or any profit shared with a bank run on Islamic principles. (see the proviso of this section)

04 Distribution of profits Sec. 29(1)(iv) Any sum paid by way of profit a bank run on Islamic principles on deposits

05 Transfer to Special Reserve Account Sec. 29(1)(v) An amount not exceeding 5% of total income transferred to any special reserve by financial institutions as approved by the Govt. provided that such reserve doesnt exceed the paid up capital

06 Current repair & maintenance Sec. 29(1)(vi) The amount paid on account of current repairs to buildings, machinery, plant or furniture used by the business or profession

07 Insurance premium Sec. 29(1)(vii) The whole or proportionate part of the amount on account of any premium paid against risk of.. (see the rest of the section)

08 Depreciation

(Fiscal depreciation, not accounting depreciation)

Sec. 29(1)(viii) Depreciation allowances of the business assets, or bridge or road or flyover owned by a physical infrastructure undertaking, as admissible under the Third Schedule

09 Amortization of license fee Sec. 29(1)(viiia) Amortization of license fee as admissible under the 3rd Schedule 10 Investment allowance for Ship Sec. 29(1)(ix) An amount of 20% of the original cost of a ship, being a

passenger vessel plying ordinarily on inland waters or a fishing trawler for the year in which the ship or the trawler is first put to use for public utility

11 Obsolescence allowance Sec. 29(1)(xi) An obsolescence allowance to the extent and computed in paragraph 10 of the Third Schedule

12 Allowance for disabled or dead animals Sec. 29(1)(xii) An amount equivalent to the difference of the original cost of the animal and the, if any, realized by sale or other disposition of the carcass of the animal (see the section for details)

13 Land development tax or Local Taxes Sec. 29(1)(xiii) Any sum paid on account of land development tax or rent, local rates or municipal taxes in respect of premises or part thereof as is used for the purpose of the business or profession

14 Bonus or Commission (paid to employees) Sec. 29(1)(xiv) Any sum paid to the employees as bonus or commission for services rendered (not payable as profits or dividends) with reference to: o the general practice in similar business or profession, o the profits of the business or profession, and o the pay and other conditions of service of the employees.

15 Bad debt Sec. 29(1)(xv) The amount of any debt or part thereof which is established to have become irrecoverable and has actually written off from the books of accounts (see the section for details)


16 Previous years bad debt (IY-income year)

Sec. 29(1)(xvi) Any debt actually written off as irrecoverable but has not been allowed earlier as irrecoverable; so much of such debt or part thereof as has been established to have become irrecoverable in any subsequent year shall be allowed as a deduction in that IY

17 Additional bad debt Sec. 29(1)(xvii) Any debt actually written as irrecoverable for an income year and the DCT is satisfied that the debt or part thereof became irrecoverable in an earlier income year not falling beyond fours immediately preceding the income year when it was written off

18 Provision for bad and doubtful debt Sec. 29(1)(xviiia) & Sec. 29(1)(xviiiaa)

Provision for bad and doubtful debts made by banks is applicable for some assessment years (see the two sections for details)

19 Payment for scientific research Sec. 29(1)(xx) Any capital expenditure laid out or expended on scientific research in BD related to the business carried on by the assessee: Provided that where a deduction allowed for any income year under this clause, no depreciation/obsolescence allowance shall be allowed under clause (viii) or (xi) for the same income year.

20 Donation to research institute/body Sec. 29(1)(xxi) Any sum paid (i) to a scientific institute, association or other body engaged in such scientific research or, (ii) to a university, college, technical school or other institution [subject to the approval of the Board] for the purpose of scientific research or training related to the class of business carried on by the assessee

21 Payment to educational institution or hospital

Sec. 29(1)(xxii) Any revenue expenditure laid out or expended on any educational institutional or hospital for the benefit of the employees, their families and dependents or on the training of industrial workers, if o no charge is made for services rendered by such institution or

hospital or for the training of the workers; and o no deduction or allowance is claimed for such expenditure

under any other clause of the section. 22 Donation to educational institution or

hospital (for construction & maintenance purpose)

Sec. 29(1)(xxiii) Any capital expenditure laid out or expended on the construction & maintenance of educational institutional or hospital established for the benefit of the employees, their families and dependents or on the training of industrial workers, if o no charge is made for services rendered by such institution or

hospital or for the training of the workers; and o no deduction or allowance is claimed under any other clause of

the section for the same income year in respect of expenditure represented either wholly or partly by any asset.

23 Expenditure on training Sec. 29(1)(xxiv) Any expenditure laid out or expended on the training of citizens of BD in connection with a scheme approved by the Board

24 Expenditure on traveling abroad as a member of Trade Delegation

Sec. 29(1)(xxv) Any revenue expenditure or personal expenses incurred by an assessee in connection with visits abroad as a member of a trade delegation sponsored b the Govt.

25 Subscription to a registered Trade Organization

Sec. 29(1)(xxvi) Any sum paid on account of annual membership subscription to a registered trade organization within the meaning of the Trade Ordinance, 1961 or to a professional institution recognized by the Board in this behalf.

26 Other revenue expenditure (for the sole purpose of the business /profession) [This clause is very important to claim any expenses as admissible]

Sec. 29(1)(xxvii) Any revenue, not personal, expenditure laid out or expended wholly or exclusively for the purpose of the business or profession of the assessee. Examples of some of such expenses are enumerated below:

Accounting and audit fees; Annual listing fees paid to stock exchanges; Brokerage paid for raising loan to finance; Commission for securing orders, getting tenders, retaining customers; Commission paid to selling agents; Compensation to an employee for injury or accident occurred while on duty; Compensation to employees due to dismissal, suspense; Contribution to a trade syndicate to preventing uneconomic competition; Employers contribution to a provident fund, approved gratuity and superannuation fund; Expenditures incurred to alter articles or memorandum of association;


Expenses incurred in defending a case for damages for breach of contract; Expenses incurred in defending the assessees title over his assets; Expenses incurred to secure the termination of a disadvantageous trade liability; Gift to employees; Incentives (10% of the net profit disclosed in the statements of accounts) given to employees to motivate Legal fees incurred for the sake of business or profession; Litigation expenses or legal fees incurred in partnership in validating the contract or for protecting the interest of the business; Periodical payment for the use of goodwill; Perquisites (up to Tk. 350000 per employee) or leave allowance given to employees; Production, transportation and marketing of inventories; Renewal fees of license; Revenue expenditure on publicity, campaign and advertisement; Royalty paid against patent or copyright; Sales tax, VAT, water, road tax, municipal tax, excise duty, customs duty etc; Stamp and registration charges for the purposes of entering into agreement for obtaining overdraft facilities; Telephone and telegraph expenses; Traveling expenses of the directors for the business purpose; Welfare expenditure incurred for employees;

(Ref: from the book of Shil, Masud & Alam) 27 Fair proportional allowance or deduction Sec. 29(2) Where any premises, building, machinery, plant or furniture are

not wholly used for the purposes of the business or profession, any allowance or deduction under section 29(1) shall be restricted to the fair proportional part of the amount.


Non-allowable deductions/Inadmissible Expenses

# Payment/Account head /At the account head Reference Reasons to be Inadmissible / Limit for Admissible Expenses 01 At the head of Salaries Sec. 30(a) If salaries are paid to the employees without deducting taxes at

sources (TDS) as per Section 50 02 Any head of expenses

(This clause is very important bcoz any expenses can be inadmissible expenses if TDS & VDS is not made)

Sec. 30(aa) If any payment is made to any person without deducting tax (TDS) as per Chapter VII of ITO, 1984 and without deducting value-added tax (VDS) as per VAT Act 1991.

03 Any payment to a Partner or member of any AOP (Association of Persons)

Sec. 30(b) Any payment by way of interest, salary, commission or remuneration made by a firm or an AOP to any partner or any member of the AOP, as the case may be

04 Brokerage or commission paid to a Non-resident

Sec. 30(c) Any payment by way of brokerage or commission made to person who is not a resident in BD is inadmissible unless tax (TDS) has been deducted therefrom under section 56

05 Any payment to provident fund or other fund

Sec. 30(d) Any payment to a provident fund or other fund established for the benefit of the employees unless the employer has made effective arrangements to secure that tax shall be deducted at source from any payments, made from the fund, which are taxable being income falling under the head Salaries

06 Perquisites Sec. 30(e) So much of the expenditure as per the provisions (see Section 2(45) for the definition and scope of Perquisites) of perquisites to any employee (per employee) exceeds Tk 350000 (see also its Proviso)

07 Expenses incurred in the head of Entertainment, Foreign travels of employees for holidaying and recreation and Distribution of free samples

Sec. 30(f)

Any expenditure in respect of the following as in excess of the amount or rate specified in this behalf and as in not, in the cases of sales and services liable to excise duty, supported by excise stamp or seal, namely:- (as follows)

Entertainment (*income, profits and gains mean the income, profits and gains after deducting all admissible expenses, other than only Entertainment, as per the ITO 1984)

Rule 65 The amounts or rates in excess of which no deduction shall be admissible for the expenditure in respect of entertainment are specified below: (a) On the first 10 lakh of *income, profits and gains of the business or profession (computed before making any allowance in respect of expenditure on Entertainment)...4%

(b) On the balance of income, profits and gains of the business or profession (computed in the manner as aforesaid).2%

Foreign travels Rule 65 A (1) The allowance in respect of expenditure on foreign travels for holidaying and recreation of the employee and his dependents in excess of the amount equivalent to three months basic salary of the employee or three-fourths of the actual expenditure, which is less (not oftener than once in every two years) shall be admissible

(2) Provided that any payment of sum exceeding Tk 10,000 shall not be allowed as a deduction unless such payment is made by a crossed cheque drawn on a bank or by a crossed bank draft

Distribution of free samples ( % on Turnover)

Rule 65 C The rates in excess of which no deduction shall be admissible for expenditure in respect of distribution of free samples are as follows:

(a) for a Turnover (Sales) upto Tk 5 crore..@ 1.5%

(b) for a turnover in excess of 5 crore but upto 10 crore...@ 0.75%

(c) for any amount or a turnover in excess of Tk 10 crore...@ 0.375% Provided that in the case of a pharmaceutical industry, the rates in respect of distribution of free samples are specified below:

(a) for a Turnover (Sales) upto Tk 5 crore.....@ 2%

(b) for a turnover in excess of 5 crore but upto 10 crore....@ 1%

(c) for any amount or a turnover in excess of Tk 10 crore.....@ 0.50% 08 Head Office expenses Sec. 30(g) Any expenditure exceeding 10% of the Net Profit disclosed in the

statements of accounts under the Head Office expenses by a company not incorporated in Bangladesh


09 Royalty, technical service fee, technical know-how fee or technical assistance fee

Sec. 30(h) Any payment by way of royalty, technical service fee, technical know-how fee or technical assistance fee exceeding 8% of the Net Profit disclosed in the statements of accounts

10 Any cash payment by way of Salary to an employee having gross monthly salary of Tk 15,000 or more

Sec. 30(i) Any payment by way of salary or remuneration made other than by a crossed cheque or bank transfer to an employee having gross monthly salary of Tk 15,000 or more

11 Incentive bonus Sec. 30(j) Any expenditure by way of incentive bonus exceeding 10% of the Net Profit disclosed in the statements of accounts

12 Overseas traveling Sec. 30(k) Any expenditure by way of overseas traveling exceeding 1% of the disclosed turnover

13 Any commission paid or discount made to a shareholder director

Sec. 30(l) Any payment by way of commission paid or discount made to its shareholder by a company

14 Cash payment over Tk 50,000 Sec. 30(m) Any payment exceeding Tk 50,000 or more, other than by a crossed cheque or bank transfer excluding (i) payment for the purchase of raw materials; (ii) salary or remuneration made to any employee, without

prejudice to an obligation referred to in Section 30 (i); (iii) any payment for government obligation

15 Office rent paid without a crossed cheque or bank transfer

Sec. 30(n) Any payment by way of any rent of any property whether used for commercial or residential purposes, other than a crossed cheque or bank transfer

# Provision for Disallowance: Notwithstanding anything contained in sections 28, 29 & 30, the DCT shall not make any disallowance or deduction for any year from any claim made by the assessee in the trading account or, profit or loss account without specifying reason for such allowance or deduction [Ref: Sec. 30A]

# Other Inadmissible Expenses Some other expenses which are not admissible expenses in general tax practice are enumerated below:

Any payment to partner in any form (in case of a partnership business); Capitalized expenditure in any form; Contingent liability; Contribution to political parties; Contribution to unrecognized provident fund; Cost of copy rights, patent etc (as this is not of revenue nature); Excess remuneration paid to the employees who have relation with the partner; Expenditure incurred for issuing of shares. Expenses for protecting against competition; Fees paid to obtain license to investigate and search minerals; Fund embezzlement after office hour; Fund embezzlement by stranger during office hour; Gratuity paid to a single employee where it was not the practice of the company to pay gratuity; Income tax and Provision for income tax; Legal expenses for income tax, alternation of capital, company dissolution; Loss of speculative business; Loss on sale of capital assets; New years presentation to employees; Past losses, in case of change of business; Payment of fine for violation of law; Payments made for acquisition of goodwill; Penalty, fine and damages paid in connection with the infringement/violation of law; Personal expenses for assessee; Preliminary expenses, underwriting commission, writing off share discount; Reserve for bad debt and reserve for discount;

[Read the Section 29 (xxvi) for the reason to consider the above mentioned expenses by the taxmen] (Ref: taken from the book of Shil, Masud & Alam)


Admissible Business Losses as per the general tax practice A trading loss of business is deductible in computing the profit earned by the business even though there is no specific provision in the ITO foe allowance thereof. Business losses can be allowed as deduction only if the following conditions are satisfied:

o Losses must be in revenue nature o Losses must be incurred in the respective income year o Losses must be incidental to the business or profession carried on by the assessee o It must not be notional or fictitious o It must have to be incurred and not merely anticipated to incur in the future o There should not be any, direct or indirect, restrictions under the Act against the deductibility of such loss

Some of such losses are follows: Depreciation of funds kept in foreign currency for purchase of stock-in-trade; Loss arising from negligence or dishonesty of employees; Loss arising from sale of securities held in the regular course of the business; Loss arising on account of failure on the part of the assessee to accept delivery of goods; Loss caused due to breach of contract for delivery of goods by either party; Loss caused due to forfeiture of a deposit made by the assessee for property carrying out of contract for supply of commodities; Loss caused due to theft or burglary in the factory premises during working hours; Loss due to exchange rate fluctuations of foreign currency held on revenue account; Loss incurred by a holding company which has guaranteed to a loan taken by its subsidiary company. Loss incurred by a sugar manufacturing company by foregoing advances made to sugarcane growers who used to sell sugarcane crop

exclusively to the company; Loss incurred due to freezing stock-in-trade by enemy action; Loss incurred on account of insolvency of banker with which current account is account is maintained by the assessee; Loss incurred on realization of amount advanced in connection with business; Loss of cash and securities in a banking company on account of burglary (may be after banking hours); Loss of security deposited for the purposes of acquisition of stock-in-trade; Loss of stock-in-trade as a result of enemy action, or arising under similar circumstances; Loss of stock-in-trade due to destruction by fire and other natural calamities or due to an Act of God; Loss on account of embezzlement by an employee; Loss on account of non-recovery of advances given by the assessee-company (engaged in the business of financing its subsidiaries) to

its 100% subsidiary company; (Ref: taken from the book of Shil, Masud & Alam)

Inadmissible Business Losses as per the general tax practice Losses which are not deductible from business income are as follows: Anticipated future loss; Depreciation of funds kept in foreign currency for capital purposes; Loss arising from as a result of seizure and confiscation of illegal stock-in-trade; Loss arising from non-recovery of tax paid by an agent on behalf of a non-resident; Loss caused by forfeiture of advance given fir purchase of capital assets; Loss due to sale of shares held as investment; Loss incurred due to damage, destruction of capital assets; Loss incurred in the closing of business; Loss of advances made for setting up a new business which ultimately could not be started; Loss of speculative business Loss relating to any business or profession discontinued before the commencement of income year; Loss which is not incidental to trade or profession carried on by the assessee; Violation of law is not a normal incident of trade and an expense incurred by way of penalty for infraction of laws is not deductible as

business loss. (Ref: taken from the book of Shil, Masud & Alam)


SUMMERY OF PARTLY INCOME FROM BUSINESS Particulars AI BoP Reference

Income from tea garden 60% 40% Sec 26(2), Rule 31 Income from rubber garden 60% 40% Sec 26(3), Rule 32 Income from tobacco/sugar/other similar products industry: Where further processing is done by the assessee Where products are sold without further processing

60%

100%

40% 0%

Sec 26(3), Rule 32 Sec 26(3), Rule 32

DEEMED INCOME CONSIDERED AS INCOME FROM BUSINESS OR PROFESSION Ref Particulars

Sec. 19(15) 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-- (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; (aa) such amount on account of any interest which was to have been paid to any commercial bank or the Bangladesh Development Bank Ltd. 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; (b) the Assessee has derived, during any income year, some benefit in respect of such trading liability, 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; (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: 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. Example -

Sec. 19(16) &

along with 3rd Schedule Para 10

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 Example -

Sec. 19(18) &

along with Sec. 29 (xi)

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". Example -

Sec. 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". (See the two explanations attached to the Section 19(20) in ITO, 1984) Example -


Sec. 19(23) Where during any income year an Assessee, being an exporter of garments, transfers to any person, the export quota or any art thereof allotted to him by the Government, such portion of the export value of the garments exportable against the quota o 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" Example -


CORPORATE TAX RATE

Types of Companies

Heads/sources of Income Tax Rate for Assessment Year 2013-14 2014-15

Publicly traded company

Business income/other income 27.5% 27.5% (a) If Dividend is declared by less than 10% or failure t pay dividend within 6 months

37.5% 35%

(b) If Dividend is declared by more than 30% (as per Finance Act - 2014,) the assessee-company will get 10% rebate on tax liability

24.75% 24.75%

(c) Newly listed companies in case of transferring 20% of paid-up capital to share market through IPO

24.75% 24.75%

Non-publicly traded company*

Business income/other income *(including non-resident company)

37.5% 35%

Bank, Insurance, Financial institutions

Business income/other income 42.5% 42.5%

Merchant Bank Business income/other income 37.5% 37.5%

Cigarette manufacturing company

Business income /other income

For publicly traded company 40% 40%

Other than publicly traded company 45% 45%

Mobile phone company

Business income /other income

For publicly traded company 40% 40% Other than publicly traded company 45% 45%

For any type of company

(1) Capital Gain (as per 2nd schedule) 15% 15% (2) Capital Gain from sale of shares of listed companies Ref: 53O and 82C(sss) [as per Finance Act-2014]

10% Ref: SRO-269-Law/IT/10

10%

(3) Dividend income 20% 20%

Additional tax (u/s 16B)

If a listed company, other than a bank and insurance company, has not issued, declared or distributed dividend or bonus share equivalent to at least 15% of its paid-up capital within 6 months immediately following any income year, the company shall be charged additional tax @ 5% on the undistributed profit (accumulated profit + free reserve)

Excess profit tax (u/s 16C)

If any bank show profit exceeding 50% of the aggregate sum of capital and reserve, the company (the banking company), in addition to tax payable under the ITO, 1984, shall have to pay an excess profit tax for that year @ 15% on such excess profit

Minimum tax (u/s 16CCC)

Minimum tax @ 0.30% on gross receipt is to be paid irrespective of profit or loss.


6. Capital Gains: Related References:

Sections - 31 & 32 2(15) - Capital Asset 2(30) - Fair Market Value 2(66) - Transfer 16(3)ii - Charge of tax on Capital Gains 53M, 53N & 53O Schedule: 2nd Schedule - Para 2

6th Schedule-Para 18 & 43 Rule - 42 SROs - SRO No. 217-Law/IT/2014

Capital Gains arise from the transfer of capital assets

Definition of 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; and Example: Any gain arising from selling consumable stores will be included in the head Income from Other Sources

(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; Example: (i) Any gain arising from selling the assessees personal car will not be included in the

head Capital Gains as well as Total Income. (ii) Any gain arising from the sale of assessees house or land will be included in the head Capital Gains"

Characteristics of Capital Gains:

(i) The Capital Asset has to be transferred. (ii) Income under this head has to be recognized in the income year in which the transfer took place.

SECTION-31 says:

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

CONPUTATION OF CAPITAL GAINS as per Section-32: (1) The income under the head "Capital gains" shall be computed after making the following deduction from the full value of the consideration received or accruing from the transfer of the capital asset or the fair market value thereof, whichever is higher, namely:-

Allowable deductions/Admissible Expenses

# Payment/Account head /At the account head Reference Purposes of expenses / Limit for Admissible Expenses 01 Any expenditure Sec. 32(1)a Any expenditure incurred solely in connection with the transfer of

the capital asset 02 Cost of acquisition of the capital asset Sec. 32(1)b Any capital expenditure incurred for any improvements thereto

but excluding any expenditure in respect of which any allowance is admissible under any provisions of Sections 23, 29 and 34

03 Cost of acquisition of the capital asset: where it was acquired by the assessee by purchase

Sec. 32(2)i The actual cost of acquisition


04 Cost of acquisition of the capital asset: where it became the property of the assessee: (cc) under a deed of gift, bequest or will; or (ccc) under a transfer on a recoverable or irrecoverable trust; or (d) on any distribution of capital assets on the liquidation of a company; or (e) on any distribution of capital assets on the dissolution of a firm or other association of persons or the partition of a Hindu undivided family; (See the Clauses 3, 4 of Section 32)

Sec. 32(2)ii The actual cost of acquisition to the previous owner of the capital asset as reduced by the amount of depreciation, if any, allowed to the previous owner; and where the actual acquisition to the previous owner cannot be ascertained, the fair market value at that date on which the capital asset became the property of the previous owner Provided that where the capital asset is an asset in respect of which the assessee has obtained depreciation allowance in any year, the cost of acquisition of the capital asset to the assessee shall be its written down value increased or diminished, as the case may be, by any adjustment made under section 19(16) or (17) or section 27 (1) (j) or Section 29(1) (xi) Provided further that where the capital asset became the property of the assessee by succession, inheritance or devolution, the actual cost of acquisition of the capital asset to the assessee shall be the fair market value of the property prevailing at the time the assessee became the owner of such property.

Non-assessable Capital Gain

# Source of Capital Gain Reference Particulars 01 Capital gain arising from the transfer of

Capital asset used for the purpose of the business

Sec. 32(5) If the capital gains, arising out of transfer of capital assets used for in the business or profession, are used fully or in part to purchase a new capital asset within a period of one year before or after the date of transfer and id the assessment for rolling over the gain on new asset. (See this Clause if not clear)

02 Capital gain arising from the transfer of Government securities

Sec. 32(7) Notwithstanding anything contained in this section or section 31, where a capital gain arises from the transfer of a capital asset being Government securities, then no tax shall be charged under this section.

03 Capital gain arising from the transfer of Buildings and Land to a new company

Sec. 32(10) Notwithstanding anything contained in this section or section 31, where a capital gain arises from the transfer of capital asset being buildings or lands to a new company registered under 7[the Companies Act, 1913 (VII of 1913) or Kvvbx AvBb, 1994 (1994 mbi 18 bs AvBb)], for setting up of an industry, and if the whole amount of capital gain is invested in the equity of the said company, then the capital gain shall not be charged to tax as income of the year in which the transfer took place.

04 Capital gain of a firm arising from the transfer of its capital asset to a new company

Sec. 32(11) Notwithstanding anything contained in this section or section 31, where a capital gain arises from the transfer of capital asset of a firm to a new company registered under the Companies Act, 1913 (VII of 1913) or Kvvbx AvBb, 1994 (1994 mbi 18 bs AvBb), and if the whole amount of the capital gain is invested in the equity of the said company by the partners of the said firm, then the capital gain shall not be charged to tax as income of the year in which the transfer took place.

05 Capital gain arising from the trading of securities list with any stock exchanges by general shareholders

SRO No. 217-Law/IT/2014 dt. 18 Aug 2014

The income earned from trading of securities, listed with any stock exchanges and approved by the BSEC, by all individual (general) shareholder-assessees is exempted from tax.

06 Capital gain arising from the transfer of a Power Generation Company

SRO No. 188-Law/IT/2009 dt. 01 July 2009

& SRO No. 235-Law/IT/2011 dt. 06 July 2011

Capital gain arising from the transfer of a Power Generation Company provided that the company began its commercial production within 30 June 2013


TAX RATE of CAPITAL GAINS

The items to be considered under the head Capital Gain for investment credit purpose have been discussed in the section of Investment Credit / Allowance at the end part of this handbook.

Capital Gain to different assessees

Particulars Tax Rate

Tax on capital gain (Para-2, 2nd Schedule) In case of a company Capital Gain disposed in any year (Irrespective of 5 years provision) 15%

In case of a person other than a company

(i) Capital Asset disposed before 5 years: The amount of capital gain will be included in total income and taxed accordingly at regular rate. If average tax exceeds 15%, then Capital Gain separately will be taxed @

15% If average doesnt exceed 15%, then Capital Gain will be taxed @ Average Rate (ii) Capital Asset disposed after 5 years 15%

Special Tax Rates on income earned from selling of Stocks & Shares: (SRO No. 217-Law/IT/2014 dt. 18 Aug 2014) (a.1) Sponsor Shareholders or Shareholder Directors (Individual Assessee)

Any gain earned from the transaction of securities of Bank, Financial Institution, Merchant Bank, Insurance, Leasing Company, Portfolio Management Company, Stock Dealer Company or Stock Broker Company

5%

( a.2) Any shareholder who holds more than 10% shares of paid-up capital of a listed company (Individual Assessee)

Any income earned from trading of shares/securities by a any Shareholder [excluding the Sponsor Shareholders / Director Shareholders mentioned in a.1 ] having 10% or more shares of the total paid-up capital of a company listed with any exchange at any time during the income year

5%

(b) Other Shareholders (Individual Assessee)

The income from trading of securities of all other individual shareholder-assessees excluding those mentioned in (a.1) & ( a.2) is exempted from tax

Tax exempted

Explanation: here the term Securities includes Stocks, Shares, Mutual Fund Unit, Bond, Debenture or other securities of all companies or institutions, being approved by the BSEC which are transactable and listed with any stock exchanges, excluding government securities. Tax on income earned from Transfer of securities or mutual fund units by Sponsor Shareholders: (as per ITO provisions) Sponsor Shareholder of Securities or Mutual Fund Units of a company . (53M & 82C)

On the difference between Transfer Value and Cost of Acquisition of the Securities or Mutual Fund Units at the time of transfer or declaration of transfer or according consent to transfer of Securities or Mutual Fund Units of a Sponsor-Shareholder or Director or Placement-holder of a company or Sponsor or Placement-holder of a Mutual Fund Units listed with a stock exchange.

5%

Tax on income earned from Transfer of share of Shareholder of Stock Exchanges: . (as per ITO provisions) Shareholder of Stock Exchanges . (53N & 82C)

Any profits or gain arising from the transfer of share of a shareholder of stock exchange at the time of transfer or declaration of transfer or according consent to transfer of share of Stock Exchange, whichever is earlier.

15%

Tax on income earned from Securities traded in any Stock Exchanges by Company-assessee: . (as per ITO provisions) Any Company or Firm . (53O & 82C)

On the realized gains derived by a any company, as defined in Clause 20 of Section 2 of this Ordinance, or firm before closing of a financial year.

10%


7. Income from Other Sources: Related References:

Sections - 33 & 34, 36 2(26)-Dividend; read with Rule-19(7); 2(38)-Interest; 2(31)-Fees for technical services; 2(56)-Royalty; Section: 19(1)-19(5); 19(8)-19(13); 19(21), 19(21A), 19(21B*), 19(24) [*read with Section 82BB (5)]; 19(26)-19(28); Schedule: 6th Schedule Part-A Para 11A & 22A Rule - 19(7)

Scope of Income from Other Sources (Section 33): 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), (21B), (24), (26), (27) or (28) 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.

As per Section 34

Allowable deductions/Admissible Expenses

# Payment/Account head /At the account head Reference Purposes of expenses / Limit for Admissible Expenses 01 Interest expense Sec. 34(1) The amount of interest paid in respect of money borrowed for the

purpose of acquisition of shares of a company (against this interest expense, the assessee wants to get dividend income from those shares)

02 Any revenue expenditure Sec. 34(2) Any revenue expenditure, but not personal expenditure of the assessee, incurred solely for the purpose of making or earning the relevant income.

03 Obsolescence allowance Repair & maintenance Insurance premium

Sec. 34(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

Handbook of Income Tax (HIT) by Farid Mohmmad Nasir

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