Are you a government employee and going to submit your tax return? But don’t know how to calculate government employee’s income tax which include total taxable income, tax rebate and tax liability?
It is easier than corporate employees. The calculation of taxable income and tax liability is very simple for government employees. Learn tax calculation and return preparation once with practical example and you will be able to prepare your own tax return each year.
We have an online tax training course ‘Tax Preparation for Government Employee‘ where we have shown the calculation in an excel sheet practically using an example. If you are looking for best tax preparation course at low price then the course is perfect for you.
Today I will discuss with you the steps to calculate taxable income, tax rebate and tax liability by a government employee. Step by step you will know all the above issues from this article.
Mr Rahim is a government employee and his income from salary for the income year was as follows:
a) Monthly basic salary BDT 40,000
b) Two festival bonuses @ BDT 40,000 each
c) Monthly medical allowance BDT 1,000
d) Bangla New Year allowance BDT 10,000
e) He lives in a government provided apartment
f) Monthly contribution to provident fund BDT 6,000
g) Yearly life insurance premium BDT 20,000
h) Monthly DPS BDT 5,000
So we have got all the earnings from his job and the savings during the last income year. Now we have to calculate taxable income and eligible tax rebate on his investment allowance and then net tax liability which he has to be paid in the assessment year.
All this calculation has been discussed in our video tutorial using a digital board which seems you are learning in a physical class room. The main attraction of our course is that we will provide you the excel soft copy where we have calculated in the course so that you could also prepare your tax return in the same excel sheet.
So let’s start!
Total taxable income
During calculation of taxable income by a corporate employee, there is a ceiling for exemption in each earning category. But for government employee’s income tax, there is no such individual category wise exemption.
For government employee’s income tax, only few income sources from salaries are taxable and any other sources of income from salaries are fully exempted from tax. That’s why it is easier to calculate taxable income by government employees.
Only basic salary, festival bonus or bonus by whatever name are fully taxable. And any other income from salaries is fully exempted from tax calculation. We have also develop a video based on this article which is embedded below for you.
So, after calculating your taxable income from your salary income considering the exemption as per tax law, then you have to calculate tax liability in the next step.
You may already hear that tax free limit has been increased to BDT 300,000 from BDT 250,000 for male taxpayer. If you are a female taxpayer then your tax free limit is BDT 350,000.
So, if your taxable income exceed the above tax free limit then you are eligible to pay tax to government treasury.
Not only the tax free limit increased through Finance Act 2020, on the other hand starting tax rate also reduced to 05% from 10%. slab wise tax rates also changed by this Finance Act.
So, based on the taxable income, you have to calculate your tax liability using the slab wise tax rates. The amount of tax liability seems big?
Guess you have heard about tax rebate which reduces tax liability significantly. But to avail the tax rebate facility, you have to invest or donate in the specified areas as mentioned in the tax law.
If you want to reduce your tax liability then you have to invest or donate in particular areas in accordance with sixth schedule part B of Income Tax Ordinance 1984. And if your invested or donated money fall under the above categories then only you are permitted to calculate tax rebate on that amount at a prescribed rates by NBR.
You may also watch the below video to know where to invest for tax rebate.
If you invest or donate in the specified areas then you are eligible to get the tax rebate at specific rate.
If your taxable income is upto BDT 1,500,000 then you will calculate your tax rebate at 15% on your eligible investment allowance. But if the taxable income is more than BDT 1,500,000 then you have to calculate tax rebate at 10% on your eligible investment allowance.
After calculating the tax rebate, now you have to deduct the tax rebate amount from your tax liability. And doing this, you will finally get the net tax liability which is payable to government.
Net tax liability
So, you have got total taxable income, total tax liability and tax rebate on your salary income.
Another point is tax deducted at source (TDS). All the TDS during the income year will be deducted from your net tax liability. And then finally the remaining amount, if any, as tax should be paid in government treasury during submission of return of income to NBR.
So, our calculation is done.
In this article, I have discussed the process step by step so that you could follow during your tax calculation. I have avoided the example to calculate because it will increase the length of size significantly.
Anyway, when your calculation will be completed then you have to collect all the required documents to fill-up the tax return.
After ending the June, start to collect the related documents. Collect your bank statement from July-June, salary certificate and tax challan from your company, proof of investment or donation related documents.
If you have DPS then collect DPS statement from your bank, insurance premium certificate, savings certificate photocopy etc. Ultimately which is required for the supporting about your financial information.
With above documents, you will require the calculation as per Income Tax Ordinance 1984 which I have discussed in above so that tax authority could understand your tax calculation is correct.
You may develop a format one year and preserve it for future so that same things do not require to work repeatedly.
Tax return preparation
When you will fill-up your tax return, take all the required documents and calculations so that you could easily complete the tax return.
There is a prescribed tax form for only salaried person as I discussed above, few years ago National Board of Revenue (NBR) has introduced a new tax form IT-11UMA which consist only three pages.
Taxpayers are afraid of tax payment mainly due to complexity. Therefore, NBR is trying to simplify the procedures so that taxpayers are encouraged to pay tax. The three pages tax form IT-11UMA is one example of this.
In first page, there are two parts. First part consists basic information like name, address, tax circle and zone, NID number etc.
Below this part, you have to provide your income and tax payment related information. Complete this part by following the figures you get from the above calculation.
Second page is related with assets, liabilities and expenses related information. But this statement is not mandatory for all taxpayers. If the gross wealth does not exceed BDT 40 lakh then it is not mandatory. Previously it was BDT 25 lakh. However, any taxpayer may submit this statement voluntarily.
And last page is acknowledgement receipt. This portion will be provided to you after giving sign and seal by tax official as a proof that you have submitted your tax return.
And that’s all!
So, you have got a full overview about government employee’s income tax step by step and then finally how to prepare tax return. Hope, it will help you.