Are you paying more tax to the NBR each year? When you file return of income have heard about tax rebate?
Tax rebate reduces tax liability significantly. But first, you have to know your taxable income because investment allowance is determined on taxable income. And Tax rebate is calculated on investment allowance applying specified rates.
Tax rebate is related with investment. A certain amount is allowable for investment allowance to individual taxpayer. If you want to enjoy tax rebate, you have to know where to invest your money. In my last article, I have discussed in details where you should invest or donate money to get tax credit.
You could enjoy tax credit in two ways. One, by investing your money in the specified areas by NBR and two, by donating money in the specified organizations or institutions by the NBR.
Here I will discuss only how to calculate tax rebate on your investment allowance. If you want to know the areas of investments and donations then you may read the article “where to invest for tax rebate in income tax of Bangladesh”.
Most of the people share with me a huge amount is deducting each month from their salary. Why so much tax is deducted from their salary by accounts people?
Is there any way to reduce tax?
Should I hide my taxable income? Or should I request my accounts people to transfer my salary in several accounts?
These all are tax evasion. And if taxmen could identify your tax evasion, you will be fallen in danger.
So don’t go that way.
Now, you could ask what will you do?
Yes, there is a way as per income tax law of Bangladesh.
You need proper tax planning. It is very simple.
Invest your money in the specified areas and you will get tax credit on that amount which will reduce your tax significantly.
Now we will calculate tax rebate and try to know how it will reduce your tax liability.
So let’s start!
What is your total taxable income?
The ceiling of investment depends on total taxable income of individual taxpayer. So at first you have to know your total taxable income for the income year.
At the beginning of the year, it is wise to estimate the total taxable income. It will help you to plan your investment. It is necessary to know upto what amount you are eligible to claim investment allowance.
If you have submitted your return of income in previous year then you may assume your last year total taxable income as a base amount.
The taxpayer who are new and fall under the taxable income and going to submit return of income in the upcoming assessment year you may estimate your taxable income.
Thinking it is very complex to calculate total taxable income. It is not so complex.
In one of my previous article, I have discussed how to calculate TDS on salaries by responsible person (step by step). In that article I have calculated total taxable income in one section.
If you go through the article, I assure you that you will be able to calculate your taxable income.
Hope, you have gone through the section of that article and have able to calculate your total taxable income.
As I have already calculated the total taxable income there, so I will assume that figure here to calculate tax rebate.
And the total taxable income is BDT 954,000.
The figure is important because you will get investment allowance on this amount.
What is the eligible amount for investment allowance?
As per section 44(2)(b) and (c), the allowable investment allowance is the lower amount of the following three:
1. 25% of total income excluding few exceptions; or
2. BDT 10,000,000; or
3. Actual investment
At first we will calculate the total investment allowance based on total taxable amount i.e. BDT 954,000. So your investment allowance will be BDT 238,000 (BDT 954,000X25%).
Now if your actual investment at the end of the income year stands at below BDT 238,000 then you will be eligible to get tax rebate on that amount.
Suppose, we assume you have invested actually BDT 200,000 throughout the year then your investment allowance will be BDT 200,000. Upon this amount you will get tax rebate. You could not claim tax credit on BDT 238,000 though you are eligible for that amount.
But if you invest more amount than BDT 238,000 then you will get tax rebate upto BDT 238,000. And you could not claim tax credit for more investment amount as you are eligible upto this ceiling.
Assume, your actual investment is BDT 300,000 in the income year. But as your investment allowance limit is upto BDT 238,000. So the exceeded investment will not be recognized as investment allowance.
Hope you have understood the calculation of investment allowance. And found the figure for our tax rebate.
So now you could realize that to find out the total taxable income is very important as your investment depend on the amount.
It is not that always your investment has to match with the exact amount with eligible investment allowance. More investment than eligible amount is always safe. On the other hand, more investment is always helpful for your future life.
Each year your income may be increase due to increment in your job or may earn income from new sources. And therefore, you have to adjust your investment allowance figure with your total taxable income to enjoy the full benefit of the tax rebate.
What is the tax rebate?
As per section 44(2)(b) of the Income Tax Ordinance 1984, an individual taxpayer will get tax rebate at 15% if the taxable income is upto BDT 1,500,000. And at 10% if the taxable income exceeds that limit.
As your taxable income is below BDT 1,500,000 so you will get tax rebate @ 15% on the full investment allowance.
Now your tax rebate will be BDT 35,700 (BDT 238,000X15%). It’s a big amount. Isn’t it?
This big amount will be deducted from your tax liability as tax rebate.
Total tax liability on BDT 954,000 is BDT 85,600. After deducting tax rebate BDT 35,700, your net tax liability will be BDT 49,900.
Look, your investment has increased and on the other hand, your tax liability has reduced significantly.
The both way benefited.
So now you have learned how to calculate tax rebate. And if you have already read the article where to invest for tax rebate then you also know the areas of donation and investment.
Few months have already passed of the income year 2021-22, if you yet not planning your investment then start thinking about it.
Plan how you will manage your portfolio investment. Do not put full amount in one place. Invest in different areas.
It is better you think about your future.
What you will do after five years or 10 years or in the long run. Then invest your money as your plan.
A good plan will help you to get the most benefit from your today’s plan.
Think about your future goal.
Then fixed your money in the appropriate sectors.
Best of luck!