02. introduction to income ICAB, KL, Study Manual

f..3
Chapter 2
lntroduction to income tax
Contents
Introduction
Examination context
Topic List
2.1 The Concept of Income
,2.2 i Tax and Income Tax
2.4 : Residential Status
Worked Examples and Solutions
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Taxation-l Study Manual
Introduction
Learning objectives
. Get the idea about the income, tax and income tax
. Know the history of income tax
. Recognise the different rate of income tax on individual, corporate and others
. Obtain the concept about capital and revenue expenditure
. Recognise the residential status of an assessee
Practical significance
Income of different types is taxed at different rates of income tax. Before calculating income tax
liability one should have the concept of income, tax, income tax and income tax rate and other
relevant issues. Residential starus has significance for determining tax liability.
One way of helping people to deal with complexity in the tax system is to use technology.
Presently people can use computerized system to calculate tax on his/her taxable income.
Stop and think
Do you understand about income and income tax? lt is likely that you receive employment
income and income from various sources. Did you realise that you must pay different rates of tax
on each of these types of income?
Working context
In practice, much of the accountant's iob will be to check and then interpret the figures
produced by the individual and corporate clients.
The accountants sometime required to support to prepare their clients' tax returns. This will
include a computation of the tax payable, and may include other supporcing schedules and
summaries. However, Presently computers are used to produced the data and calculation of tax.
A good accountant can add perspective and give advice beyond mere compliance work.
Syllabus links
The topics covered in this chapter are fundamental to your understanding of income tax.
You will be using this knowledge again when you tackle the Taxation paper later on in the
Professional Stage and it will also underpin the technical aspects ar rhe Advanced stage.
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Examination context
Exam requirements
ln the examination, candidates may be reguired to:
. Define some terminologies reladng to income tax
r Determine the residential satus ofan arsessee based on given database
' ldentif the five tier ax rate for individual and other tax rites for other assesseei
Question practice
,
For question practice on these topics go to the suggested answers coverin! this chapter.
Examlner't comments on how students tackle questions
Candidates have historically prepared well for this area of the syllabus. Better prepared
candidates are able to perform ivell in this areas.
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2.0 INTRODUCTION TO INCOME TAX
Section Overview
There is no exhaustive definition of income in Income Tax Ordinance 1984 (Ordinance)
Income tax is anY tax on income.
The Ordinance got its root in the then British India in 1860.
Different tax rates are applicable for different types of assessee and classes of income'
lncome tax is levied on income and not on capital receipts'
The distinction between capital and revenue receipts is much more difficult than between
capital and revenue exPenditure.
Residential status is very vital for determining tax liability'
The Concept of Income
There is no exhaustive definition of "income" in the Income Tax Ordinance 1984 (Ordinance).
The term income is easy to understand but difficult to define. What is taxed' as so often has
been pointed out under the Income Tax Law, is nothing that is real ; it is the statutory income
measured in a particular waY.
The obiect of rhe Ordinance is ro rax "lncome". The term is expanded in sec. 28 and 3 | into
income, profits and gains ; but the expansion is more a matter of words than of substance. The
word ,.income" is an expression of elastic ambit and the courts when describing income have
almost always qualified their description by saying that it is not exhaustive.
From various judicial decisions, the following are held to be characteristics of income:
(") lncome should be received in the form of money or money's worth'
(b) lncome should in the form of revenue nature'
i.t lt should arise from some definite source or a source with some son of regularity.
(d) lt should be derived from a person other than the recipient'
Gt Income tainted wirh illegality are also classified as taxable under tax law.
Income is a more general term than profits or gains. The words "income, profits and gains" are
used in a distinctive sense, and the word "income" is not limited by the words "profits" and
..gains".
A receipt may be taxable as income, although it may contain no element of profits or
gain. profits or gains means something which is in the nature of interest or fruit, as opposed to
irincipal or tree-. "Gains" is really equivalent to "profits". The profit of a trade or business is the
surplus by which the receipts from the trade or business exceed the expenditure necessary for
the purpose of earning these receiPts.
Section 2(34) of the Income Tax Ordinance 1984 gives a defirtition of lncome as under :
'lncome' lncludes-
a) Any income, profits and gains, from whatever source derived, chargeable to tax under any
provision of the ordinance under any head specified in section 201
(b) Any loss of such income, profits or gains;
(c) The profits and gains of any business of insurance carried on by a mutual insurance
association computed in accordance with paragraph 8 of the Fourth Schedule;
(d) Any sum deemed to be income, or any sum accruing or arising or received, in Bangladesh
under any provision of the Ordinance;
But the amount of any bonus share or the amount of bonus declared to raise Paid uP share
capital shall not be included as income ofthat shareholder.
To understand the true nature of income, the following two case decisions can be referred toi
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2.1
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(a) Shaw Wallace & Co Case:
"lncomes in the Ordinance connotes a periodical monehry return coming in with some
sort of regularity or expected regularity from a definite source. The source need not be
continuously productive, but it must be one where object is the production of a definite
return, excluding anything in the nature of a mere windfall. Intome is essentially rhe
Product of something which is often loosely spoken as 'capital'. lt is not correct to say that
every receipt which is not a capital is assessable. On rhe other hand, it is only receipts that
are ofthe nature of income receipts that are assessable......."
(b) Rani Amrit Kunwar Case:
"lncome in order to be taxable need not arise from any business activity, investment of
enforceable obligation to pay, but may arise from voluntary or cusromary payments. Nor is
it necessary that it should be the result of some ouday on the part ofthe assessee......"
Therefore, for the PurPoses of the Income Tax Ordinance 19g4, income is a periodical monerary
return coming in with some som of regularity or expected regularity from a definite ,or..", noa
excluded by the Ordinance.
Total Income: Sec 2(65)
Section 2(65) delines the term "total Income" as follows:- "toral income" means the total
amount of income referred to in section 17 computed in the manner laid do.wn in the
ordinance, and includes any income which, under any provision of the ordinaniu i, to l"included in the total income of an assessee.
Tax and Income Tax:
lncome tax is a tax on income. Section 2(62) ol the Income Tax Ordinance l9g4 defines tax as
follows: "tax" means the income tax payable under the Ordinance and includes any additional tax,
excess prolit tax, penalty, inrerest, fee or other charges leviable o1. p.yiblu under the
Ordinance." Therefore, income tax is any tax, additional tai, excess profit tax, penalty, interest,
fee.or other charges leviable or payable on any income or deemed income under the drdinance.
Different Rates of Tax: .
There is a provision of the Finance Bill being presented to the Parliament by the Finance Minister
along with the Budget every year. lt contains the rates of income tax for the assessment year. A
few amendments in the tax_ laws are also incorporated therein: The rate structure being
presented here in respect of rhe assessmenr year 20 | 0- I l:
Tax rates applicable for every individual including Bangtadeshi Non-residents, Hindu
Undirided Famill, (HUF). Fitms, Aop .nd e"e"y otheri"tifici"r iudi.iar p"rson,
Income slab Rate
9n the tirst I.k. 1,55,000 of total income
On the next Tk. 2,75,000 of total income
On the next Tk. 3,25,000 of total income
On the nexr Tk 3,75,000 of rotal income
On the balance of Total income
Nil
l0%
t5%
20%
25%
2.2
2.3
2.4
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Taxation- | Study Manual
a) The minimum non-assessable income limit will be Tk. 1,80,000 for women, and elderly
cirizens being more than 65 years of age; and for disable persons the limit will be Tk.
2,00,000.
b) However, the minimum tax would be Tk. 2'000.
c) The assessees who paid tax at the highest rate of 25% in the assessment year 200809,
will enioy l0% tax rebate on the additional tax paid if they disclose more than l0%
higher income in the assessment year 2009-010.
d) lf lhe assessee is an owner of any small and cottage industry or engaged in such kind of
acrivities in a NBR specified less developed /least developed area, he/she will be eligible
to have a tax rebate on such income:
ff production / turnover increases by more than | 5% but less than 25% comparing to
previous year,57" rebate on lax applicable on such income will be allowed;
lf production / turnover increases by more than 25% comparing to Previous year, | 0%
rebate on tax applicable on such income will be allowed;
fax-rates applicable for C
Tax rate applicable for an individual Non'resident Foreigner
ln the case of an individual non-resident assessee (other than Bangladeshi non-resident); i.e. Non-
resident foreigner, the rate of tax would be the maximum rate applicable in the country i.e.25%.
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Nature of Rates
In case of companies being a publicly traded company and other
than banks, insurance and other financial institutions: Provided
that,
a) tax rebate @ l0% of the income tax would be allowed if such company
declares dividend at more than 20%.
b) lf the company declares dividend atthe rate less than l0% or does not
pay within the period fixed by SEC (which is currently two months from
the date of declaration), the rate of tax would be 37.5%,
27s%
il-m;a;iihee cotnpany not being publicly traded company and other than
banks. insurance and other financial institutions:
37.5%
ttt liclY traded
:ompany
45%
Dl" c-ase of l'4rtbile Phone operator Companies, being publicly traded
company by issuing minimum l0% of its total shares through stock
exchanges (of which issuance through Pre Initial Public offering Placement
cannot be more than 5%) .
35%
r) In case of Bank, Insurance comPany and financial institutions 42.5%
respect of dividend income or repatriation of profit by foreign comPany
; The "publicly trade company" means a public limited company which is registered in
Bangladesh under the Companies Act l9l3 or 1994 and the shares of which are listed
in a stock exchange in Bangladesh before the end of the year for which assessment is to
be made.
However, the minimum tax would be Tk. 5'000 irrespective of profit/loss'

Reduced tax rates applicable for certain industrial companies
Tax rates in resoect of Caoital Gains
Income tax shall be charged on capital gains at the rates specified in the Second Schedule of the
lTO, 1984. The provisions are as follows:
a) In the case of a company- .1
by the said income had such reducedi) tax payable on the total income as reduced
income been the total income; plus
ii) tax at the rate of fifteen per cent on the whole amount of the said income;
b) In case of a person other than a company-
i) where the said income arises as a result of disposal by the assessee of his capital
assets after not more than five years from the date of their acquisition by him, tax
payable on the total income including the said income; and
ii) where the said income arises as a result of disposal by the assessee of his capital
assets after five years from the date of their acquisition by him, tax payable on the
capital gains at the rate applicable to his total income including the said capital gains,
or ux at the rate offifteen per cent on the amount ofthe capital gains whichever is
the lower.
However, capital gains tax payable on sale of shares of private limited companies has
been reduced to ten percenc
Tax rate for income from Winnings etc.
lf the total income of an assessee includes any income by way of winning from lotteries, cross-
word puzzles, card games and other games of any sort or from gambling or betting under the
head "lncome from other sourcesn, the tax payable by him on the said income shall be at the rate
applicable to his total income including the said income or at the rate of twenq, percent,
whichever is low'er.
Tax rate appticable for charging of additional tax
5%, the details have been explained earlier under the title Charge of Additional Tax [Section -
| 68l.
Industries Rate
Jute industries for a period from July 0 |, 2008 to June, 30, 20 I | (As per SRO
No. 206-4lN/lT/2008i
Export Oriented Garment lndustries
Textile and Yarn manufacturing related companies registered under the
Company Act, 1 994 for a period from July 0 l , 2008 to June, 30, 20l l (As per
SRO No. 207-AlN/lT/2008i
t5%
0.2s%
t5%
!ote:
b)
In case of Expon Oriented Garment Industries, tax would be deducted by bank fron
expoft proceeds received. This is treated as final ux based on l0% of export proceeds 4:
deemed income as per SRO No. 205/Law/lT/2005 dated 0610712005.
However, rebate on income from export business and rebate/penalty for paying more/lesr
dividend shall not apply to the above companies.

Tax rate applicable for Charging of Excess Profit Tax in case of Banking companies
| 5%, the details have been explained earlier under the title Charge of Excess Profit Tax in case of
Banking companies [Section - l6C].
Tax rate applicable for Research lnstitute under the Trust Act [SRO No. | 57-
AlNltT/2007 dated 28.06.20071:
l5%, effective from l"July, 2007.
Tax rate applicable for private universities approved by the UGC ISRO No. 158-
AlNllT/2007 dated 28.06.2007 |
l5%, effective from l" July, 2007. But medical, dental, engineering and the private college or
universities imparting information technology shall remain outside this tax levy, subject to the
submission of the annual audited statement of account every year as usual. Public universities will
remain exempted from tax.
Tax rate applicable for public utility providers and Income from public service
activities of the NBR approved local authorities [SRO No. 169-AlNr200l, dated
28.06.200t t:
25%, effective from l'tJuly,20011
Tax rate applicable for Private Power Generation Companies starting operation
within June 30. 20 | 2 ISRO No. | 88-AlN/1Tr2009 dated 01.07.2009]
Exempted from income tox in respect of the following cases:
Income of the company, for l5 years from the day of staning the operation.
lncome of foreign nationals working in such company, for 3 years from the day of their
entry to Bangladesh.
Due interest on foreign loans taken by the company.
On payable amount of Royalties, Technical Know-how and Technical Assistance Fees by
the company.
Capital gain arisen from the transfer the company's shares.
Tax rate applicable for owners' of Motor car, feep or Microbus used for personal
purpose [SRO No. | 87-AlN/lT/20l0 dated 30.06.20 | 0]
An assessee, being the owner of any Motor car, Jeep or Microbus, has to pay tax on the basis of
the following rates at the time of registration or renewal of fitness:
Types of car (On the basis of cc) Per car I ieep I microbus tax
a. Motorcar (upto 1,500 cc)
b. Motorcar ( | ,50 | cc to 2,000 cc)
c. Motorcar (More thah 2,000 cc)
d. Jeep (upto 2,800 cc)
e. Jeep (Above 2,800 cc)
f. Microbus
tk. E,u{J0.(ru
Tk. r0,000.00
Tk. t6,000.00
Tk. r4,000.00
Tk. r8,000.00
Tk. 8,000.00
The tax amount paid will be adjusted with the total amount of tax. This provision will not be
applicable for the vehicles owned by any governmeng semi-government, autonomous, foreign
missions.

The income earned from ship/vessel used
will be exempted from tax subject to the
renewal of survey certificate:
Type of Water vessel
ax rate
Within l0 years from the
date of registration
After l0 from the
from the date of
registration
a. Ship/vessel used for inland watei
passenger service (On the basis of day
service capacity
@Tk. 50 per passenger @lk.25per
PassenSer
b. Cargo / Coaster used for inland water
goods trans ort (On the basis of
capacity to carry)
(9 | k. /5 per tross
tonnage
@Tk. 35 per gross
tonnage
c. Dump Barge used for inland water
goods transpon
(On the basis of capacity to carry )
@fk. 60 per tross
tonnage
(9 I k. 2E per gross
tonnate
Tax rate applicable for a company on income from fisheries [sRo .No. 263-
AINilT/20 l0 dated 0 t.07.20 I 0I
5%, for the period of l" July 20 l0 to 30'h june 20 | l. But income from fisheries for an individual
assessee is fully exempted from tax.
Tax rate applicable for income from pelleted poultry feed [sRo No. 264AtNllrtzoto
dated 01.07.2010I
5%, for the period of l" July 20l0 to 30'h June 201 l. Earrier, it was fully exempted from tax.
Tax rate applicable for owners' of bus, minibus, coaster, taxicab, primemover, truch,
tanklorry, pickup, human hauler, maxi or autorickshaws that carry goods [sRo No.
l7l AIN/lr/2009 dated 30.06.2009 later some changes incorporateJby sRo No. 267-
AlNllT/2o t0 dared 0 t.07.20 t0l
The income from bus, minibus, coastdr, taxicab, primemover, truch, tanklorry, pickup, human
hauler, maxi or autorickshaws that carry goods is chargeable to income tax on the basis of the
following rates subiect to the fulfillment of some conditions:
Types of vehicle
Tax rate
Within l0 years
from the date of
registration
After l0 years
from the date of
registration
a. Bus havinll more than 52 seats Tk.7,000 Tk. 3,500
b. Bus having 52 or less seats Tk.5,000 Tk. 2.500
c. (i) Air-Corfditioned Luxury Bus
(ii) Double Decker Bus
Tk.20,000
Tk. t0,000
Tk. t0,000
Tk.5.000
d. Air-Conditionedminibus/coaster Tk r0.000 Tk. 6,000
e. other types of minibus/coaster Tk. 4,000 Tk. 2,000
f. Primemover used for carrying container Tk.7,000 Tk. 4,000
g. Truck/Tank Lorry (capacity 5 ton or more) Tk. 5,000 Tk. 3,000
Tax rate applicable for owners' of ship/vessel used for public transport, Cargo, Coaster
and Dump barge ISRO No. | 73.AtN/tT/2009 dated 30.06.20091
for public transporg Cargo, Coaster and Dump barge
payment of the following amounr of taxes before the

Special Tax Treatment in resPect of investment in the Purchase of bond under
Bangladesh Infrastructure Finance Fund as Per Section - l9C
As per this provision, no question as to the source of any sum invested by any person in the
purchase of bond issued under Bangladesh Infrastructure Finance Fund during the period between
l,l July, 2010 to June 30, 20 ll (both days inclusive), shall be raised if the assessee pays tax @10%
on such sum invested before the filing of return of income for the relevant inconle year.
Special Reduced Corporate Tax Rates for newly established Business [SRO 172- Law /
rr/2009):
Special reduced tax rates for income, profits and gains of certain sPecific newly established
industries have been declared provided that [SRO 172- Law / lT/2009]:
(a) lt business / industrial units must have to be established between July 01, 2009 to June
30, 20 | 2 (both daYs inclusive);
(b) They must be registered under the Company Act' 1994;
(c) The categories of industry under this facility are: Agro-processing" (Fruit processing,
Baby Coin packaging, Fruit luice producing, Rubber based industry), Textile, Spinning'
Textiles machineries, Garments and its Forward and Backward Linkage industry, Leather
goods indusrry, Toy making industry, Furniture, lT industry, Pharmaceuticals, Light
Engineering (involved in producing mechanical, electrical or electrical machineries or
paits), Ceramic or indusrry producing Ceramic goods, Melamine, Plastic products,
Sanitary ware, Steel from iron ore, MS Rod, Cl sheet, Fertilizer, Insecticide and pesticide,
Computer Hardware, Petrochemical, Agricultural machineries, Boiler, Medicine,
'Chemicals, basic raw materials of drug/pharmaceuticals, Compressor, Ship Building'
Diamond cutring, Shrimp processing, Dairy processing, Tours operators, Energy saving
bulb, goods from waste, Jute, Environmental friendly Recycling industry. Herbal
medicine, Basic chemicals, Paint, Cosmetics and Toiletries, Tourism induscry, Foot ware,
MS Billet or any other industry specified by the Government Gazette'
h. Truck / Tank Lorry (capacity more than 1.5 and
less than 5 ton)
Tk. 3,000 Tk. 1,500
i. Truck / Pick up (capacity less than 1.5 ton )' all
of human hauler, maxi, goods carrying
autorickshaws
Tk. t,000 Tk.500
i. Air-Conditioned Taxi cab Tk. 7,000 Tk. 3,000
k. Taxi Cab without Air conditioned Tk. 2.500 Tk. t,000
(d) The tax rate for these industries will be:
Specified Areas Total period of
reduced tax rate
Period / Year Tax
rate
Dhaka and Chittagong
Divisions (excluding the hill
districts of Rangamati'
Bandarban and Khagrachari)
5
years
For the first two years
(Year I and 2)
5%
For the next two years
(Year 3 and 4)
to%
For the next one year
(Year 5)
t5%
Rajshahi, Khulna, Sylhet and
Barisal Divisions and the hill
districts of Rangamati,
Bandarban and Khagrachari
I
years
For the first three years
(Year 1,2 and 3)
5%
For the next three years
(Year 3, 4 and 5)
t0%
For the next one year
(Year 7)
l5%
II
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Moreover, any new industry established through expansion or division of an existing
business, through transferring machineries or plant of an existing business, will not avail
these reduced tax facilities-
lndustries enioying these reduced tax rate facility will not avail existing tax holiday and
accelerated depreciation allowance facility the Income Tax Ordinance, 1984.
Special tax rates on income earned from selling stocks and shares [SRO 269-
AlNllT/20l0 dated July 0l. 20 | 0I
l. The following reduced tax rates will be applicable on the income earned from
transaction ofsecurities (excluding government securities) listed in the Stock Exchanges:
lf a shareholder mentioned in Sl.(b) is a Company or Firm, then tax rate will be l0%,
same as mentioned in Sl. (a). j
In case of transferring the shares by any Sponsor Shareholder / Director mentioned in
Sl. (b), tax will be deducted at the rate of So,o on the difference between transfer value
and cost of acguisition of the securities as per Section 33M of the lTO, 1984.
The income from trading of shares of all other types of taxpayers' excluding those
mentioned in the above lists is exempted from tax.
Here, the term "Securities" will include any stocks, shares, mutual firnd units, bonds,
debentures or other securities of any listed company tradable in the stock exchanges of
the country (excluding the securities issued by the government).
This SRO is effective from July 0 | , 20 10.
Residential Status
1"".".::
2(55) defines the term "resident" as follows:- 'Resident', in respect of any income year,
(a) an individual who has been in Bangladesh-
0 for a period ol or for periods amounring in all to, one hundred and eighty-two days
or more in that year; or
(ii). for a period of, or for periods amountint in all to ninety days or more in that year
having previously been in Bangladesh for a period of, or for periods amounting in all
.tothree
hundred and sixty-five days or more during four years preceding that year;
(b) a Hindu un dividend family, firm or other association of persons, the control and
management of whose affairs is situated wholly or partly in Bangladesh in that year; and
(.) a Bangladeshi company or any other company the control and management of whose
affairs is situated wholly in Bangladesh in that year;
(e)
(f)
2.
4.
6.
2.5
sl. # Nature of Taxpayer's income I ax rate
(") Any income earned from trading of shares/securities by a company
defined as per section 2(20) and by a firm defined as per Section 2(32)
t0%
(b) Any income earned from trading of shares/securities by any Sponsor
Shareholder/Director of a Bank, Financial Institution. Merchant Bank,
Insurance Company, Leasing Company, Portfolio Management
Company, Stock Dealer or Stock Broker Comoany
5%
(c) Any income earned from trading of shares/securities by any
Shareholder [excluding the Sponsor Shareholders/Directors mentioned
in above Sl. (b)] having lO% or more shares of the total paid up capital
of a company / companies listed at any time during the income year.
5%
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Taxation- I Study Manual
and, under section 2(42), 'non-resident' means a person who is not a resident.
It is important to note here that the concept of resident as defined in the Income Tax
Ordinance has nothing to do with the nationality of a particular individual. A foreign
national may be treated as 'Resident' for a particular year if he or she fulfils the legal
requirements as above, where as a Bangladeshi national may be treated as a "Non-
resident" if he, or she does not fulfill the legal requirement.
Worked Example- !
Mr. X , a Bangladesh Citizen, who was appointed as a technical adviser by the Govt. of
Nigeria, leaves Bangladesh for the first time on September 26, 1999 for joining his duties in
Nigeria. During the previous year 2000-01 he comes to Bangladesh for 176 days.
Determine the residential status of Mr. X for the assessment years 2000-01 and 2001-02
(PE -1, Session May-June,2001).
Solution
(") Mr. X's stay in Bangladesh in relation to the Income year 1999-2000 are as follows:
Income year 1999-2000= 87 days (July 3ldays + Autust 3l days + September 25 days of
| 999).
So his stay was less than 90 days as stipulated u/s 2(55) (a)(ii). Therefore, he would be Non-
resident for the Assessment year 2000-01, relevant to the income year ended 30'h June
2000.
(b) Mr. X's stay in Bangladesh in relation to the Income year 2000-01 are follows:
Income year 2000-2001 = 176 days
So his stay was at least 90 days in the income year as provided under Sec 2(55)(a)(ii).
Let us examine his stay in the preceding four years:
Income year 1999-2000
| 998- | 999
t997-1998
1996-t997
| 998 -99
| 999 -00
2000 -0 |
200t -02
2002 -03
2003 -04
| 6 days
360 days
l8l days
305 days
65 days
100 days
87 days
365 "
365 "
365 "
{$2 days
His period of stay exceeds 365 days. As such Mr. X would be Resident for the assessment year
200 t -2002.
Worked Example -2
Mr. John. A foreign national, stays in Bangladesh for 85 days during financial year 2003-2004.
Determine his residential status for the assessment year 2004-2005 on the assumption that he
stayed in Eangladesh previously as follows:
Assessment year
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Taxation-l StudyManual
Solution
Mr. John stayed in Bangladesh for 85 days during the Income year 2003-04 which is below 90
days as provided under Sec 2(55)(a)(ll). So his stay during the four preceding years should nor be
counted at all. The provisions in Sec 2(55)(ll) are both mutually inclusive. Mr. John would be
Non-resident for the Assessmenr year 2004-05.
Taxation implication of resident or non-resident
Determination of residential status of an assessee has a significance bearing on rhe tax liability as
incidence of income tax varies according to the residential status of an assessee. In this regard
we can consider the following issues:
l. To determine the omount of totol income: Determination of total income is different for
residents and non-residents. A resident considers global income as his total income but a
non-resident does not consider income from other countries in his total income.
lf. To determine minimum limit of toxoble income: A resident and non-resident Bangladeshi has to
Pay tax if his total taxable income is more than Tk. | ,65,000 as per rhe Ordinance (in case of
women, elderly citizens being more than 65 years old, the limit is Tk. 1,80,000 and disable
Persons the limit is Tk. 2,00,0000). But for a non-resident foreigner such minimum limit is not
applicable.
lff. Tax rate: For a resident an non-resident Bangladeshi tax is calculated using the rates applicable
for various levels of income. Such as, for first Tk. 1,6s,000 @o% , for next Tk. ?,75,000 @
| 0%. But a non-resident foreigner has to pay tax at maximum rate i.e. @ 2S%.
fV. Income tox rebote: A resident and non-resident Bantladeshi assessee gets income tax rebate
on investment allowance and on tax exempted income from gross tax liability. Bug for a non-
resident foreigner no tax rebate is applicable.
V. Tax liobility: The average tax rate applicable for a residenr and non-resident Bangladeshi is less
than that of a non-resident foreitner since tax is calculated using different lower tax rates
(such as l0%, l5%,20"/" & 25%), But a non-resident foreigner has to pay tax at m:ximum rare
i.e. @25%.
Thus, determination of residential status of an assessee has a significant bearing on rhe tax
liability as total income, taxable income and tax rate are found to vaD/ according ro the
reside.rtial sEtus of an assessee.
2,6 Capital or Revenue
Difference between capital and revenue is of vital imponance. Income tax is levied on
income and not on capitat receipts. While ascertaining the profits of a business or
profession, the revenue expenditure and not the capital expenditure is deductible from the
trading receipts. Courts have often observed that it may conclusively be iudged that a particular
receipt is a capital or a revenue receipt. Decided cases merely illustrate and not atl are perfect
guides.
The distinctiontetween capital and revenue receipts is much more difticult than between capiel
and revenue expenditure. There are no hard and hst rules which may help in determining
whether a particular receipt is a capital or a revenue receipt.
Whether a Particular expenditure is incurred solely to earn profit or whether it is a capital
expenditure depends in each case on the nature of business, commercial practice, the nature of
the expenditure and other relative circumstances. No rQid rules can be laid down in this
connection.
@The Institute of Chartered Accounrants of Bangladesh
t-rrllj/

2.7 Tax Liability on lncome
The tax is payable on income earned during an income year in the following year i.e. assessment
year. However, there are provisions for payment of taxes in advance during the income year,
such as deduction oftaxes at source (Sec 48), advance Payment oftax u/s 64 etc.
Under Sec 2(35), Income year means-
a) the financial year (uly to June) immediately preceding the assessment year.
b) lf the accounts of an assessee (generally engaged in business or profession) have been made up to
a date within the said financial year, the period ending on that date.
c) lf, a business or profession is newly set up in the said financial year, the period from the starting
up of business or profession to the end of the financial year or where the accounts have been
made up to a date within the said financial year, the period ending on that date.
d) The Board may determine such period as income year in the case of any Person or class of
persons or any business or profession or class of business or professions (such as industrial units
under various Sector Corporations).
e) lf the assessee is a partner of a firm and the firm has been assessed as such, the period
determined as the income year for the assessment of income of the firm.
0 An assessee engaged in business or profession, once adopted a period as income year cannot
change the income year without the consent of the Deputy Commissioner of Taxes upon such
conditions as the Deputy Commissioner of Taxes thinks fit to impose.
Normally, income year of an individual, except engaging in business or profession ends on 30'h
June of a year. An income year cannot exceed a period of twelve calendar months.
Assessment year means the year following the end of financial year, i.e. income year:
Examples of income year and assessment year of some assesses engaged in business or
profession are given below:
Accounting
year ends on
lncome
Year
Assessment
year
30.06.2006 ZUU5- U6 2006- 07
30.09.2006 2005- 07 2007- 08
3 t. t2.2006 2006- 07 2007- 08
3 r.03.2007 2006- 07 ZOU/. UU
31.o7.2007 2007- 08 2008- 09
Worked Example - |
An assessee closes its annual accounts consistently on 30'n June. His assessment for the
accounting year ended 30'h June 2004 was completed. The assessee has decided to change its
account closing date on 3l" December from the next year. Determine the date when should the
assessee close its next year end accounts.
Solution
Upon taking approval from the Deputy Commissioner of Taxes, the assessee can close its next
annual accounts for six months period on 31" December 2004 and the income arisingtherefrom
would be assessed in the assessment year 2005-06.
iilltt, |
I

Worked Example -2
An assessee regularly closes its annual accounts on 3lst December and his last assessment for the
assessment year 2005-06, corresponding to the accounting year ended 3 l" December, 2004 was
completed. The assessee has decided to change its next annual accounts on 30'h June. Determine
the date when should this assessee close its next annual accounts.
Solution
Here tlre assessee would not be allowed to close its next annual accounts on 30th June 2005.
Because assessment of income arising therefrom becomes assessable in the assessment year
2005-06 when assessment for this assessment year had already been completed based on the
accounts ended 3l't December 2004. As such he would be required to close next annual
accounts on 306 June 2006, which would comprise a period of eighteen months.
Worked Examole -3
Can an assessee change its annual accounts closing date. lf so, under what conditions.
Solution
An assessee is allowed to change its annual accounts closing date upon taking approval from the
Deputy Commissioner of Taxes and on such conditions as the Deputy Commissioner of Taxes
thinks fit to impose. As for example, if due to change of accounting year, the assessee's tax
burden is reduced the Deputy Commissioner of Taxes is entided to charge tax at a higher rate
applicable for the assessment year had no change in closing date of accounts occurred.
i-;It--i';

r.#i
Chapter 3
Administration
Contents
lntroduction
Examination context
and Tribunal
Topic List
3. i Virioui Iniome tii A-uthoiiiiel
3.2 i Appointment of income Tax Authorities
3.3 NBR and lts Functions
' '
3.4
'
Subordination and Concrol of Income Tax authorities
3.5 Power and Functions of Income Tax Authorities
3.6 , Taiei Appellaie friS-nii
Self-Assessment Questions
Organization Structure of Income Tax Authorities
iJul| ;;'
|
I
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02. introduction to income ICAB, KL, Study Manual

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