Tax

How to calculate government employee’s income tax in Bangladesh

October 7, 2017
Government employee's income tax

Are you a government employee and having monthly basic salary of BDT 16,000 or more?

If yes, then do you know you have to submit return of income to NBR in Bangladesh this year?

The return of income submission to the NBR has already been started from 01 July and will continue till 30 November of this year for the income year 2016-17.

But don’t know how to calculate government employee’s income tax which include total taxable income, tax rebate and tax liability?

Don’t worry.

It is easier than corporate employees. The calculation of taxable income and tax liability is very simple for government employees.

Today I will discuss with you how to calculate taxable income, tax rebate and tax liability by a government employee. Step by step you will know all the above calculation with a practical example.

Mr Rahim is a government employee and his income from salary for the income year 2016-17 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 will calculate his 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 2017-18.

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.

So directly we will calculate the total taxable income of Mr Rahim for the income year 2016-17:

Income

Amount (BDT)

Basic salary (BDT 40,000X12 months)

480,000

Festival bonus (BDT 40,000X2)

80,000

Total taxable income

560,000

So we have only considered two items, basic salary and festival bonus. And income from other categories; medical allowance, rent free accommodation and bangle New Year allowance are excluded from taxable income.

So total taxable income of Mr Rahim is 560,000 and he has to pay tax on this amount.

Tax liability

Guess minimum taxable threshold for Mr Rahim is BDT 250,000 and his total tax liability will be as follows:

Income

Rate

Tax (BDT)

First 250,000

0%

Rest 310,000

10%

31,000

Total tax liability

31,000

The amount of tax liability seems big!

Guess you have heard about tax rebate which reduces tax liability significantly. Now you will see how tax rebate reduces the above tax liability significantly.

Tax rebate

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.

Mr Rahim has invested during the last income year and his all investments are eligible for the tax rebate calculation.

His total investment allowance is:

Investment

Amount (BDT)

Contribution to provident fund (BDT 6,000X12 months)

72,000

Life insurance premium

20,000

DPS (BDT 5,000X12 months)

60,000

Total investment allowance

152,000

We have got his actual investment but he is eligible to get maximum 25% of his total taxable income as investment allowance.

So his investment allowance on total taxable income is 140,000 (BDT 560,000X25%).

But his actual investment is more than his eligible investment on total taxable income. So he will not get benefit on his extra investment.

Upto BDT 250,000, the rate of tax rebate is 15% and his tax rebate will be BDT 21,000 (140,000X15%).

So his tax rebate amount is BDT 21,000 which is very big and this amount will be deducted from his total tax liability.

Net tax liability

So we have calculated total taxable income, total tax liability and tax rebate of Mr Rahim.

Now we will deduct tax rebate from his total tax liability to find out his net tax liability which is BDT 10,000 (BDT 31,000-BDT 21,000).

So Mr Rahim’s net tax liability is only BDT 10,000.

Guess now you are very happy. The tax liability has been significantly reduced.

Another point is tax deducted at source (TDS). All the TDS during the income year will be deducted from his net tax liability i.e. BDT 10,000. And then finally the remaining amount as tax should be paid in government treasury during submission of return of income to NBR.

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13 Comments

  • Reply tanvir November 1, 2017 at 5:03 PM

    Can i show my wife DPS as investment ? She is depends on me.

    • Reply jasimrasel November 1, 2017 at 6:07 PM

      Yes

  • Reply Rana November 17, 2017 at 4:32 PM

    If i get rebate such that my net tax leviable is below 5000 and I live in Dhaka, do I have to give a minimum of taka 5000 as per new rule?
    Scenario- my total tax is 21800 and according to calculations I get rebate of 17500. So, tax to be paid is 4250. Do I have to give 5000?

    • Reply jasimrasel November 18, 2017 at 1:39 PM

      yes

  • Reply mahfuz December 28, 2017 at 4:40 AM

    what about dearness allowance? is it taxable? same is with entertainment allowance, is it taxable?

  • Reply Shanto July 2, 2018 at 8:41 AM

    Savings from foreign training is taxable?
    during tax return, where I will enter the amount that I saved from foreign training.
    Example
    Company paid me Tk. 5,00,000/- for training in overseas
    Total expense during training is tk. 4,00,000/-
    So, I saved tk.1,00,000/-. Do I need to pay TAX on this amount? and where I will enter this amount in TAX return form.
    Thanks

  • Reply proshanta July 2, 2018 at 12:45 PM

    Would you pls give rebate slap of income tax of government employee

  • Reply rajib saha July 15, 2018 at 12:25 PM

    i have more than 200,000 tk in share market if there any rebate may i get from it?

  • Reply Kaniz July 15, 2018 at 12:53 PM

    Hello,

    Since that I live in Dhalka, do I have to pay TK. 5000 even if my net tax liability is 0 (zero)?

    Thanks in anticipation.

  • Reply Shahnewaz Nur Rashid July 22, 2018 at 5:52 PM

    How about CPF ??? whether Employers contribution will be taxable income ???? I am a banker and my bank contributes 10% to my CPF like own contribution. now to calculate taxable income, whether it will be included ???? Thanks in Advance

  • Reply nurul islam August 27, 2018 at 3:49 PM

    First 2,50,000/ taka income is tax free for male .
    Is it correct First 3,00,000/ Tk income is tax free for Female?

    ***nQ. have there any facility like female for aged tax payer more then 65 years old (Male)?????

  • Reply Akash September 10, 2018 at 10:11 PM

    is medical allowance is included in tax calculation for non government employee.??

  • Reply Dr Ashraf October 27, 2018 at 10:40 PM

    Its a wonderful explanation for new person who has just started to pay tax…. Thank you brother for this nice and simple way to learn the tax calculation…… I have just one query…Should I not include the Bengali New year allowance to total income (I am a Public University Teacher) …. I saw you didn’t include it in your calculation….

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