How much you will get tax rebate amount to reduce your tax liability has been mentioned in the Income Tax Act 2023. But what your investment allowance is not specified.
Investment allowance is very important for an individual taxpayer. Because, an individual taxpayer’s tax liability is calculated on his taxable income after deducting the allowable exemptions which he earned throughout the income year. And tax rebate is one of the ways to save taxpayers tax.
If a taxpayer wants to reduce the tax by availing this tax credit, he has to invest or donate in the particular areas mentioned in the Income Tax Act. If this investment or donation is as per income tax law then it is considered under investment allowance. And on this amount, an individual taxpayer gets the tax rebate facility which is deducted from the tax liability.
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So, an individual taxpayer keeps small investments or donations in the specified sectors throughout the year. Therefore, if the amount of investment allowance is known at the beginning of the year, then the taxpayer can plan and invest or donate throughout the income year.
Now the question is how much you can invest or donate for tax saving?
As I said at the beginning, the Income Tax Act 2023 does not specify the amount of investment allowance. Previously, what will be the investment allowance was mentioned and then in the second step, the taxpayer could calculate his tax credit amount using the tax rebate rates.
But the Income Tax Act 2023 specifies how much tax credit an individual taxpayer will get. So, first you figure out the tax rebate amount and then figure out the investment allowance.
So first let’s know what is your tax rebate amount per Income Tax Act 2023. The lower amount of the following three figures shall be the tax rebate of an individual taxpayer.
1. 3 percent of taxable income; or
2. 15 percent of actual investment; or
3. Tk 1 million.
So, you know that the lower amount among the three numbers mentioned above will be your tax rebate. Now we will find out how much you can invest to reduce your tax.
See in the above, serial number 2 says that you will get 15 percent tax credit on your actual investment. So first calculate 3 percent of your taxable income. Suppose your taxable income is Tk 1,000,000. Then 3 percent of this taxable income is Tk 30,000. This amount is your tax rebate amount which will be deducted from your tax liability.
See you have got a big amount to save your tax as well as your investment will give you a better return at the maturity. Therefore, investment is very important. However, as you have got the tax credit amount, now calculate the investment amount dividing the Tk 30,000 by tax rebate rate 15% or 0.15 and the amount will be Tk 200,000. This is your investment allowance which shall be invested in the specified areas per income tax act.