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Taxation
Compiled by: Asif Ahmed Articled Student KPMG in Bangladesh Rahman Rahman Huq Chartered Accountants
Special thanks to Rajesh Chandra Kuri, Md. Masrul Mollah and A S M Mahfuz of KPMG for their nice cooperation.
:Contents:
SL 01 Lectures Lecture # 01 Contents Income tax authority, types of taxes, some important definitions, tax rate, reduced tax rate 02 03 Lecture # 02 & 03 Lecture # 04 Income from salary Income from interest on securities, Income from house property, Agricultural income 04 05 06 07 08 09 10 11 12 Lecture # 05 Lecture # 06 & 07 Lecture # 08 Lecture # 09 Lecture # 11 Lecture # 10 Lecture # 12, 13 & 14 Lecture # 15 Lecture # 16 Capital Gain Income from business and profession (deemed income) Income from other sources, Company assessment (math) Set off and carry forward losses, Advance income tax Deduction and collection of tax at source Assessment of partnership firm Assessment, Penalty Tax appeal Individual Tax Assessment Problem, Salient features of finance act, 2012. 13 Lecture # 17 Alternate Dispute Resolutions, Resident Vs. Nonresident; DTAA 14 Lecture # 18 67 74 32 34 35 43 44 48 49 50 50 50 51 49 50 57 60 65 66 66 10 20 21 31 Page 39
Page 2 of 74
Lecture # 01 02.06.2012
Coverage:
1. 2. 3. 4. 5. Income Tax Ordinance 1984 Income Tax Ordinance 1984 SRO (Statutory Regulatory Order) Circular of NBR Case References a. ITR (Indian Tax Report) b. BTD (Bangladesh Tax Decisions)
IT Ordinance Vs IT Rules:
Tax Ordinance made or changed by the parliament Tax Rules made by NBR Govt. can reduce tax burden through SRO but cannot imply tax. Power to impose new tax is lid on the parliament.
Income tax authority is as follows 1. NBR Supreme authority headed by the Chairman. 2. Chief Commissioner of Taxes (not yet appointed anyone) 3. Commissioner of Taxes (CT); a. DG (Central Intelligence Cell, CIC); b. DG (Inspection); c. CT (Appeal); d. DG (Training); e. CT (Large Taxpayer Unit); 4. Additional Commissioner of Taxes (ACT); a. Appellate Additional Commissioner of Taxes (AACT); b. Inspecting Additional Commissioner of Taxes (IACT); 5. Joint Commissioner of Taxes (JCT); a. Appellate Joint Commissioner of Taxes (AJCT); b. Inspecting Joint Commissioner of Taxes (IJCT) 6. Deputy Commissioner of Taxes (DCT) a. TRO Tax Recovery Officer; 7. Assistant Commissioner of Taxes; 8. Extra Assistant Commissioner of Taxes; and 9. Inspector of Taxes.
Types of Taxes:
NBR
Income Tax
Income Tax
Gift Tax
Turnover Tax
Supplementary Duty
18 ) to its shareholders with a view to increase its paid-up share capital shall not be
included as income of that share holder;
ASIF AHMED (KPMG) Page 4 of 74
TAX; (section 2(62)): "Tax" means the income tax payable under this Ordinance and includes any additional tax, excess profit tax, penalty, interest, fee or other charges leviable or payable under this Ordinance;" Assessee; (section 2(7)): "Assessee", means a person by whom any tax or other sum of money is payable under this Ordinance, and includes 1. (a) every person in respect of whom any proceeding under this Ordinance has been taken for the assessment of his income or the income of any other person in respect of which he is assessable, or of the amount of refund due to him or to such other person; 2. (b) every person who is required to file a return under section 75, section 89 or section 91; 3. (c) every person who desires to be assessed and submits his return of income under this Ordinance; and 4. (d) every person who is deemed to be an assessee, or an assessee in default, under any provision of this Ordinance; leviable or payable under this Ordinance;" Person; (section 2(46)): "Person" includes an individual, a firm, an association of persons, a Hindu undivided family, a local authority, a company and every other artificial juridical person; Income Year and Assessment Year: Assessment Year; (section 2(9)): "Assessment year" means the period of twelve months commencing on the first day of July every year; and includes any such period which is deemed, under the provisions of this Ordinance, to be assessment year in respect of any income for any period; Income Year; (section 2(35)): "Income year", in respect of any separate source of income, means-(a) the financial year immediately preceding the assessment year; or (b) where the accounts of the assesses have been made up to a date within the said financial year and the assesses so opts, the twelve months ending on such date; or (c) in the case of a business or profession newly set up in the said financial year, the period beginning with the date of the setting up of the business or profession and (i) ending with the said financial year; or (ii) where the accounts of the assesses have been made up to a date within the said financial year and the assesses so opts, ending on that date; or (d) in the case of a business or profession newly set up in the twelve months immediately preceding the said financial year-(i) if the accounts of the assessee have been made up to a date within the said financial year and the period from the date of the setting up of the business or profession to the first-mentioned date does not exceed twelve months, then, at the option of the assesses, such period, or (ii) if any period has been determined under sub-clause (e), then the period beginning with the date of the setting up of the business or profession and ending with the last day of that period, as the case may be; or (e) in the case of any person or class of persons or any business or profession or class of business or profession such period as may be determined by the Board or by such authority as the Board may authorise in this behalf; (f) in respect of the assessee's share in the income of a firm of which the assessee is a partner and the firm has been assessed as such, the period determined as the income year for the assessment of income of the firm; (g) where in respect of a particular source of income an assessee has once been assessed or where in respect of a business or profession newly set up, an assessee has once exercised the option under sub-clause (b) or subclause (c) (ii) or sub-clause (d) (i) then, he shall not, in respect of that source, or, as the case may be, business or profession, be entitled to vary the meaning of the expression "income year" as then applicable to him, except with the consent of the Deputy Commissioner of Taxes upon such conditions as the Deputy Commissioner of Taxes may think fit to impose;
ASIF AHMED (KPMG) Page 5 of 74
Income Year July 1, 2011 June 30, 2012 January 1, 2011 December 31, 212 August 1, 2011 July 31, 2012 1. 2. 3.
If proper books of accounts maintained, income year can be started from any month, but cannot be changed without prior notice to DCT. If proper books of accounts not maintained (individual), income year must be the financial year. Firms (partnership) income year and its partners income should be the same.
Resident and Non-Resident: Resident; (section 2(55)): "Resident", in respect of any income year, means 1. (a) an individual who has been in Bangladesh 1. (i) for a period of, or for periods amounting in all to, one hundred and eighty two days or more in that year; or 2. (ii) for a period of, or periods amounting in all to, ninety days or more in that year having previously been in Bangladesh for a period of, or periods amounting in all to, three hundred and sixty-five days or more during four years preceding that year; 2. (b) a Hindu undivided 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 3. (c) a Bangladeshi company or any other company the control and management of whose affairs is situated wholly in Bangladesh in that year; For Individual 182 days or 90 days + 365 days in previous 4 years For Company and Firm Firm Resident Resident Company Non-Resident Resident
Tax Rate:
Study References: 1. Finance Act 2. Section 16 of ITO 3. Second Schedule of ITO 4. SRO (Reduced tax rate) Other than Company: Entity other than the company (individual, HUF, firms etc) are taxed at progressive rate as below On the 1st tk. 200,000 On next tk. 300,000 On next tk. 400,000 On next tk. 300,000 Balance amount Nil 10% 15% 20% 25%
For women and senior citizen (65+) first slab will be of tk. 225,000 and for handicapped it is of tk. 275,000. As per second schedule, in case of non-resident non-Bangladeshi tax rate is 25% direct.
ASIF AHMED (KPMG) Page 6 of 74
Company: Company tax rate is direct on its assessment income at following rate 1. Listed company 27.5% 2. Non listed or non-resident company 37.5% 3. Bank, insurance & NBFI 42.5% 4. Mobile Phone a. If listed 35% b. If not listed 45% 5. Cigarette a. If listed 35% b. If not listed 42.5% 6. Merchant Bank 37.5% Income from any dividend received from any other company (where the company hold shares) tax on such dividend will be 20%. Tax on capital gain of the company will be 15%. Income other than these two will be taxed as above.
Listed Company
Section 16: Section - 16B; Charge of additional tax: 1. Notwithstanding anything contained in section 46A, where a public limited company, not being a banking or insurance company, listed with any stock exchange in Bangladesh, has not issued, declared or distributed dividend or bonus share equivalent to at least fifteen percent of its paid up capital to its share holders within a period of six months immediately following any income year, the company shall be charged additional tax at the rate of five per cent on the undistributed profit in addition to tax payable under this Ordinance. 2. Explanation.- For the purpose of this section, "undistributed profit" means total income with accumulated profit including free reserve. Section - 16C; Charge of excess profit tax: 1. Where a banking company operating under , 1991 (1991 14 ) shows profit in its return of income for an income year at an amount exceeding fifty per cent of its capital as defined under the said Act together with reserve, the company, in addition to tax payable under the Ordinance, shall pay an excess profit tax for that year at the rate of fifteen per cent on so much of profit as it exceeds fifty per cent of the aggregate sum of the capital and reserve as aforesaid.
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Section - 16CCC; Charge of minimum tax: 1. Notwithstanding anything contained in any other provisions of this Ordinance, every company shall, irrespective of its profits or loss in an assessment year for any reason whatsoever, including the sustaining of a loss, the setting off of a loss of earlier year or years or the claiming of allowances or deductions (including depreciation) allowed under this Ordinance, be liable to pay minimum tax at the rate of zero point five zero (0.50%) per cent of the amount representing such company's gross receipts from all sources for that year. 2. Explanation: For the purposes of this section, 'gross receipts' means1. (a) all receipts derived from the sale of goods; 2. (b) all fees or charges for rendering services or giving benefits including commissions or discounts; 3. (c) all receipts derived from any heads of income.]Added F.A. 2011
Section - 16E; Charge of tax on sale of share at a premium over face value: Notwithstanding anything contained in any other provisions of this Ordinance or any other law, where a company raises its share capital through book building or public offering or rights offering or placement or preferential share or in any other way, at a value in excess of face value, the company shall be charged, in addition to tax payable under this Ordinance, tax at the rate of three (3) percent on the difference between the value at which the share is sold and its face value. Added F.A. 2010
Capital Gain
Company: 15%
After 5 yrs of purchase: 1. Slab rate on total income; or 2. Tax on cap. Gain 15% and on other income, normal slab rate Whichever is lower
Example, salary income tk. 500,000 and capital gain tk. 1,000,000 = total income tk. 1,500,000, tax On 1st tk. 200,000 Nil Next tk. 300,000 30,000 Next tk. 400,000 60,000 Next tk. 300,000 60,000 Next tk. 300,000 75,000 Total tk. 1,500,000 225,000 Or (300,000*10%) + (1,000,000*15%) = tk. 180,000 Lower one (which is Tk. 180,000)
Page 8 of 74
In case of gain of winning any lottery tax are deducted @ 20% at source though it can be computed with total income, but no further tax rebate can be claimed.
Asif Ahmed Articled Student KPMG (Bangladesh) Rahman Rahman Huq asif.ahmed0001@yahoo.com 01922939126
Page 9 of 74
Definition of Salary:
There is no exhaustive definition of salary at Income Tax Ordinance, 1984. Only an inclusive definition is given at section 2(58) where salary includes the following:a) Wages b) Annuity c) Pension Totally exempted as per 6th Schedule (Part-A) Para-8 d) Gratuity Totally exempted as per 6th Schedule (Part-A) Para-20 e) Fees f) Commission g) Allowances h) Perquisites i) Profits in lieu of salary or wages j) Profits in addition to salary or wages k) Advance Salary l) Leave encashment However, the term Basic Salary has been defined at Rule 33(2) as well as at Rule 65A (1) where basic salary means the pay and allowances payable monthly or otherwise but does not include the following: a) Dearness allowance (unless it enters into the computation of Superannuation or retirement benefits of the employee)
b) Employers contribution to Recognised Provident Fund and interest credited on the accumulated balance c) Allowances which are tax exempted
d) Allowances, perquisites, annuities and other benefits Section 2(58) contains definitions within the definition. Salary includes perquisites and profits in lieu of salary, which again defined at section 2(45) and 2(50) respectively. Perquisite is defined in the Oxford English Dictionary as "any casual emolument, fee or profit attached to an office or position in addition to salary or wages. There is an exclusive definition of perquisite at section 2(45) where perquisite means any payment or benefit made to an employee in the form of cash or any other form but excluding the following: a) Basic Salary b) Festival bonus c) Incentive bonus d) Arrear Salary
ASIF AHMED (KPMG) Page 10 of 74
e) f) g) h) i)
Advance Salary Leave encashment Leave Fare Assistance (LFA) Overtime Contribution by the employer to1) Recognized provident fund. 2) Approved Pension Fund. 3) Approved Gratuity Fund and 4) Approved Superannuation Fund.
There is an inclusive definition of "Profits in lieu of salary" at section 2(50) where profits in lieu of salary include: a) The amount of compensation is connection with the termination / modification of any terms and conditions relating to employment. b) Any payment from a provident or other fund to the extent to which it does not consist of contributions by the employee and the interest on such contributions.
Apportionment of salary over the years due to arrear or advance salary (sec.172)
Where the salary is assessable at a rate higher than that at which it would otherwise have been assessed by reason of(a) Any portion of salary being received in arrear or in advance; (b) Salary received in the year for more than 12 months; (c) Received a payment, which is a profit in lieu of salary; The DCT may, on the basis of application to him by the assessee, allocate salary over the year or years to which it relates and may refund the amount of tax, if any, paid in excess. According to section 21, salary is taxable in the year in which it is due or is paid. Where salary is paid in arrear or in advance, or where a retirement benefit or salary for more than 12 months is received in any one year, the income for that year may be liable to assessment at a rate higher than that at which it would otherwise have been assessed. Section 172 authorises the DCT to grant appropriate relief for income tax in the above situation.
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Pay and Allowances totally exempt from Tax: (Sixth Schedule, Part-A)
The following pay and allowances shall be exempted from payment of tax and shall not be included in the computation of salary income:a) Interest accrued on P.F.on which Provident Fund Act, 1925 applies (Para 4(1). b) Interest accrued on Workers Profit Participation Fund established under the Companies Profit (workers participation) Act, 1968 (Para 4(2) c) Any special allowances, benefits, or perquisites granted to meet expenses incurred for official duties (Para-5) d) Remuneration of Ambassadors/High Commissioner/Charge daffairs etc. of Embassies of foreign states and their non-Bangladeshi employees (Para-7). e) Pension (Para-8). f) Gratuity (Para-20). g) Any payment from provident fund to which PF Act. 1925 applies or from a recognized provided fund, an approved superannuation fund or workers profit participation fund (Para-21). h) Interest credited on accumulated balance of a recognized provident fund. The exemption limit is 1/3 rd of salary [here salary means basic salary and dearness allowance (if any)] or interest credited @ 14.5% whichever is higher (Para-25, definition of salary as per 1st Schedule (Part -B) and S.R.O.no 310 dated 27/06/1984). i) Any amount received at the time of voluntary retirement in accordance with any scheme approved by the Govt. (Para-26).
(b)
(c)
(d)
(e)
Information regarding payment of salary (Section 108 read with rule 21, 22 and 23)
Every employer shall furnish salary statement of employees in the form prescribed at rule-23 to the DCT before 1st September each year. The DCT may however extend this date. This section requires information to be given regarding accrual and actual payment of salary in order to help detection of any avoidance of tax. In case of non-govt. employees every person responsible for making deduction before payment of salaries to them shall send forthwith a statement prepared in the form prescribed in rule-21 to the concerned DCT.
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The Commissioner of Taxes may under rule-22 permit an employer to pay tax on the income of his employees in a lump sum every month based on the average amount of tax deductible from such income from salaries and submit at the end of the year the statement in the form prescribed in rule-23(3) Such statement must show not only the salary which is paid but also the salary due. Because salary due is chargeable under section 21, whether paid or not. Failure to furnish statement is punishable under section 124(b) and for making a false statement under section 165.
Tax on Tax
Salary of the employees is exempt if tax is being borne by the employer and there is no tax on tax in this case. (S.R.O. no 182/1999 dated 01-07-1999)
i)
Rental value of the rent-free accommodation or 25% of basic salary of the employee whichever is less.
Example: Basic Salary (50,000*12) Free accomodation (25% of Basic Salary) Acutal Total Income 150,000 750,000 600,000
(Where the accommodation is provided at a concessionary rate, the rent actually paid by him shall be deducted);
Example: Basic Salary (50,000*12) House Rent (25% of BS) Less: House rent given (2,000*12) 150,000 (24,000) 126,000 600,000
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j)
House Rent: (15,000*8) = 120,000 or 50% of BS = 200,000; lower one Coveyance Allowance is allowable upto tk. 24,000 irrespective of months
k) 7.5% of basic salary if conveyance is provided by the employer for the use of the employee exclusively for personal or private purpose; l) In case of medical allowance, the amount exceeding the actual expenditure. m) The value of any benefit provided free of cost or at a concessionary rate; n) Any sum paid by an employer in respect of any obligation of an employee. o) In case of leave fares assistance; if it is mentioned in the job contract than it is exempted up to actual expenditure. If not mentioned in the job contract than fully taxable. But if the travel is outside the country the exemption is only applicable for every alternative year. If within the country, than exemption is for every time of travel.
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GPF Vs RPF Vs UPF: SL Subject Employees contribution Employers contribution Investment allowance Interest on PF Treatment on the hand of employer
RPF Automatic taxable* Taxable Yes (both) ** Allowable expenditure on Profit and loss account ***
UPF Automatic taxable* Taxable but at the end of the service No Fully taxable Not allowable
***
***
*Automatic Taxable = deduction of contribution to PF cannot be considered. Total basic salary are added to the total income ** One third (1/3) of the basic salary (Basic + Dearness allowance) Or Interest @ 14.5% Whichever is higher is exempted For example, a person received interest on his PF @ 16% which is tk. 230,000 and his basic salary is tk. 600,000. Than exemption will be 1. 1/3 of his BS, which is tk. 200,000 or 2. Interest @ 14.5% = ((230,000/.16)*.145) = 208,438 Higher one is exempted, that is tk. 208,438 is exempted. So his total income = (600,000+(230,000 -208,438)) = 621,562 But this interest should be excluding from the total income in time of calculating investment allowance. *** In case of pre-mature job leave and where employees received nothing from the PF, on which the employee has already pay tax should be deducted from his total income in the subsequent years.
Allowable Investment Allowance: The allowable investment allowance is the lower amount of the following three: 20% of total income excluding (1)employers contributions to recognized provident fund(RPF) (2) taxable portion of interest on RPF (3) any income u/s 82C OR TK. 1,00,00,000/= OR Actual Investments After rebate, minimum tax is Tk.3000/ if total income exceeds the minimum taxable limit.
ASIF AHMED (KPMG) Page 15 of 74
1.
Income tax rate for the assessment year 2011-2012 Rates i. ii. iii. iii. v. On the First Tk. 2,00,000/- of total income On the next Tk. 3,00,000/- of total income On the next Tk. 4,00,000/- of total income On the next Tk. 3,00,000/- of total income On the balance of total income = = = = = nil 10% 15% 20% 25%
However, the threshold limit for woman and senior citizen ageing 65 years or more is Tk.2,25,000/ and for physically handicapped persons Tk. 2,75,000/ However, the minimum tax is Tk. 3,000/ if total income exceeds the minimum taxable limit.
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Other Particulars:(1) (2) (3) (4) (5) (6) He has purchased 5 years savings certificates amounting to Tk. 1,00,000/-. Employer provided him a free accommodation. (Rent of the house is roughly Tk. 35,000p.m.) Employer also provided him a full time car. He has been given a servant from his office whose monthly salary is Tk. 1,200/-. He paid L.I.P. Tk. 50,000/-. (Policy value is Tk. 4,00,000/-). He contributed Tk. 2,500/- per month to the recognized provident fund (RPF). Employer also contributed the same. (7) During the year he received bank interest amounting to Tk. 1,80,000/-( net of tax) (8) He purchased secondary shares of Tk.75,000/- of a public ltd. company which is listed in DSE. Compute the total income and determine the tax liability of Mr. X for the assessment year 2012-2013.
Computation of Total Income of Mr. X [Assessment Year-2012-2013] 1. Income from Salary (Section-21) (1) Basic Salary (25000 X12) (2) D.A. (5000X12) (3) Entertainment Allowance (1000 X12) (4) Employers Contribution to R.P.F (2500 X12) (5) Lunch Allowance (1000 X12) (6) School Fee (5000 X12) (7) Utility Allowance (3000 X12) (8) Notional income for full time car for private use (7.5% of Basic Salary as per Rule: 33D) (9) Fee for Golf Club (10) Medical Allowance (3000 X 12) Less Actual Expenditure (11) Festival Bonus (25000 X 2) (12) Full Free Accommodation: Rental value of accommodation (35000 X 12) 25% of basic Salary (whichever is less) (13) Servants Salary (1200 X 12) Salary Income 2. Income from Other Sources [Section-33]
3,00,000/60,000/12,000/30,000/12,000/60,000/36,000/22,500/5,000/36,000/30,000/6,000/50,000/-
4,20,000/75,000/-
75,000/14,400/6,82,900/-
100 ) 100 10
2,00,000 8,82,900/-
Total Income
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Computation of Investment Allowance 1. Savings Certificate 2. LIP (10% of sum assured) 3. Contribution to R.P.F. (Self + Employer) Total investment allowances claimed
1,00,000/40,000/60,000/2,00,000/-
As per Section 44(3) of the I.T. Ordinance, allowable investment allowance comes to 20% of total income [excluding employers contribution to R.P.F.] = (8, 82,900-30,000) x 20% = 1,70,580/
TAX CALCULATION On 1st Tk. 2,00,000/- of Total Income On Next Tk. 3,00,000/- of Total Income On Next Tk. 3,82,900/- of Total Income Tax on Total Income of Tk. 8,82,900 Less: Tax Rebate on Investment Allowance (1,70,580/- X 10%) Total Tax: Less:- Tax deducted at source from bank interest Net tax liability Tax Tax @ 10% Tax @ 15% Nil Tk. 30,000/Tk. 57,435/Tk.87,435/17,058 70,377/ 20,000/50,377/-
Answer: (1) Total Income: - Tk. 8,82,900/(2) Net tax liability: - Tk. 50,377/-
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From the following particulars compute the total income and tax liability of Mr. X for the income year ending 30 June, 2012 (a) Salary Income: Basic Salary Tk. 20,000 per month Dearness allowance -20% of Basic Pay Bonus - 1 month's Basic salary House rent allowance - 55% of basic salary Medical Allowance -Tk 500 p.m. Conveyance allowance- Tk. 1,200 p.m. Posting allowance Tk 5,000 p.m. to meet extra cost of living at Hill District Subscription to RPF- 10% (Employwer's contribution also same) Interest accrued Tk. 96,000 on P.F. balance calculated @16% p.a. (b) Interest on Securities: Interest on SEC approved debentures TK. 35,000/Interest on Govt. Bond Tk. 70,000 (TDS @10% Tk. 7,000 at upfront system 3 years before) Income from House property Mr. X has one residential house - one half of which is let out at a montly rent of Tk. 10,000 and the other half-self occupied Following actual expenditures were incurred by Mr. X for the full house Particulars Municipal tax Repairs and maintenance Insurance premium Salary of caretaker Interest on house building loan Taka 20,000 60,000 12,000 30,000 147,000
(d) Income from Business 1/3rd share income from a partnership business firm Tk. 73,000 (after tax) Firm's Income Tk. 225000 (e) Capital Gain: Gain from sale of listed companies shares Tk. 10,00,000 Income from other sources: Cash dividend (net) from a listed company Tk. 45,000 Stock dividend of 100 shares (face value Tk. 10 but market price on that day Tk 1,500 per share) Interest (net) on savings bank account Tk. 5,400
(f)
During the year Mr. X made the following investments: 1 Life Insurance premium at the name of his father Tk 60,000 (policy value Tk. 500,000) 2 Investment in shares of a listed company Tk. 1,00,000 3 Contribution to montly pension scheme at Islami Bank Tk. 5,000 p.m.
Solutions: Mr. X Calculation of Total Income AY: 2012-13 Description Salary Income: Basic Salary (BS) Dearness allowance Bonus House rent allowance (55% of BS) Less: 50% of BS or 15,000 p.m. lower one Medical Allowance Less: Allowable Conveyance Allowance Less: Allowable Posting Allowance (it can also be allowable fully under sixth schedule (part A) Para 5) Employers' contribution to PF Interest accrued Less: Allowable @ 14.5% or 1/3 of BS (BS+DA), higher one Total Salary Income b) Interest on Securities: Interest on SEC approved debenture Interest on Govt. bond Total income from interest on securities Income from House Property: Annual value Less: Repair and maintenance Municipal tax Insurance premium Interest on HP loan Total income from house property Income from business: Partnership income Total income from business Capital gain: Sale of share of listed company Less; Exempted (fully as individual) Total capital gain Income from other sources: Cash dividend Interest on savings bank account Total income from other sources Workings 20,000*12 20% of BS 1 months BS 1,32,000 (1,20,000) 6,000 6,000 14,400 (14,400) Amount (BDT) 2,40,000 48,000 20,000 12,000 60,000 24,000 96,000 (96,000) 4,04,000
a)
c)
25% of AV
d)
225,000*1/3
75,000 75,000
e)
10,00,000 (10,00,000)
f)
45,000/.90 5,400/.90
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Investment Allowance: Employees contribution to RPF Employers' contribution to RPF Investment in share Pension scheme (5000*12) Interest on RPF
Calculation Tax Liability: On the first Next Balance Less: Investment allowance Less: Tax rebate on partnership income* Less: TDS (5,000+600) Net Tax Liability 2,00,000 3,00,000 1,40,500 6,40,500 0% 10% 15% 0 30,000 21,075 51,075 (12,330) 38,745 (4,537) 34,208 (5,600) 28,608
(as per sixth schedule (part b) Para - 16) On 640,500 So, on 1 So, on 75,000
38,745/640,500 0.0605*75,000
Asif Ahmed Articled Student KPMG (Bangladesh) Rahman Rahman Huq asif.ahmed0001@yahoo.com 01922939126
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Lecture # 04 16.06.2012
Income from Interest on Securities:
Study Reference: Section; 22, 23, 51, 172(d), 106 Sixth Schedule (part A); Para 24 and Para 40
Types of Securities:
1. 2. 3. Government Securities Government Approved Securities Securities/Debentures issued by company or local authority.
Section 22:
Section 22; Interest on securities: The following income of an assessee shall be classified and computed under the head "Interest on securities", namely:(a) interest receivable by the assessee on any security of the Government or any security approved by Government; and (b) interest receivable by him on debentures or other securities of money issued by or on behalf of a local authority or a company. But Supreme Court says tax should be deducted when it is received or withdrawn (case ref: Lal Bhai Dolpat Bhai Vs CIT Bombay, 1952)
Section 23:
Section 23; Deductions from interest on securities: 1. (1) In computing the income under the head "Interest on securities", the following allowances and deduction shall be made, namely:1. (a) any sum deducted from interest by way of commission or charges by a bank realising the interest on behalf of the assessee; 2. (b) any interest payable on money borrowed for the purpose of investment in the securities by the assessee: 3. Provided that no allowance or deduction on account of any interest or commission paid under clause (a) or (b), as the case may be, in respect of, or allocable to the securities of Government which have been issued with the condition that interest thereon shall not be liable to tax, shall be made in computing the income under section 22; 4. [(c)]Deleted F.A. 1995 2. (2) Notwithstanding anything contained in sub-section (1), no deduction shall be allowed under this section in respect of any interest payable outside Bangladesh on which tax has not been paid or deducted in accordance with the provisions of Chapter VII.
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Section 51:
Section 51; Deduction at source from interest on securities: 1. (1) In the case of the security of the Government, or security approved by the Government, unless the Government otherwise directs, the person responsible for issuing any security, income of which is classifiable under the head "Interest on securities", shall collect income tax at the rate of ten percent (10%) upfront on interest or discount, receivable on maturity, from the purchaser of the securities: 2. Provided that the provision of sub-section (1) of this section shall not apply to the Treasury bond or Treasury bill issued by the Government. 3. [(2)]Deleted F.A. 2005 4. (3) Nothing in this section shall apply to any payment on account of interest payable on debentures issued by or on behalf of a local authority or a company. Example (Upfront Systems); A person purchase securities of tk. 10,000,000 @ 6% simple interest matured after 3 years. So, interest income after 3 years = tk. (10,000,000*6%*3) = tk. 1,800,000. But TDS @ 10% on tk. 1,800,000 (which is tk. 180,000) should be deducted today.
Section 172(d):
Section 172(d); Relief: His (person) having received in arrears in one income year any portion of his income from interest on securities relatable to more income years than one; the Deputy Commissioner of Taxes may, on an application made to him in this behalf, determine the tax payable as if the salary, payment or interest had been received by the assessee during the income year or years to which it relates and may refund the amount of tax, if any, paid in excess of the tax so determined.
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Introduction:As per Income Tax Ordinance, 1984 house property means any building (including furniture, fixture, fittings etc.) and land appurtenant thereto owned by the assessee and rented for commercial or residential purposes. Property situated outside Bangladesh should also be assessed according to the same provision of section 24 of the Income Tax Ordinance, 1984. Rental income derived from vacant plots of land will not be treated as house property income rather it will be treated as income from other sources u/s 33.If an assessee let out his machinery, plant or furniture along with building and the letting out building is inseparable from the letting of machinery, plant or furniture, the income must necessarily be assessed as income from other sources and in such a case there is no room for disintegrating the rent or assessing a part of the rent as income from house property.
Assessment of Co-owner:As per section 24(2), where property is owned by two or more persons and their respective shares are definite and ascertainable, the co-owners should not be assessed in respect of their income from such property as an association of persons (AOP), but each co-owner must be assessed individually in respect of his share of house property income. Though the property may be possessed jointly by co-heirs under the Muslim law, the shares of co-heirs under that law are definite and ascertainable, and therefore each of the heirs must be separately assessed u/s 24 in respect of his share of house property income. For example, Mr. A having been a building at Motijhel C/A received rent @ tk. 1,000,000 per month. But after his death the property is divided among his 4 sons (B, C, D and E) and they received tk. 250,000 each from this building. But according to income tax law they cannot be assessed for tk. 1,000,000 aggregately as an AOP, rather portion of their receipt will be added up with their individual income and they will assessed individually.
Self occupied property:In respect of house property, no tax is payable if the owner occupies the property for his own residence or for the purpose of his business or profession the profits of which are assessable to tax u/s 28. Moreover, interest on maximum loan amount Tk.20, 00,000/- will be treated as allowable deduction from total income if the loan has been taken to acquire, construct, renew or reconstruct the self occupied property.
ASIF AHMED (KPMG) Page 23 of 74
2.
5%
3.
5%
For Example, P Bank let a house @ tk. 50,000 per month with advance of tk. 500,000 which is adjustable with rent @ tk. 10,000 per month, so TDS on rent = tk. (50,000*5%) = tk. 2,500 Payment in each month = tk. (50,000 10,000, - 2,500) = tk. 37,500 Annual Value = tk. (50,000*12) = tk. 600,000 TDS on tk. 500,000 (at the time of payment) = 0
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Allowable deductions from annual value to derive income from house property (Section 25):In computing house property income the following allowances are deductible from the annual value:(1) Repairs and maintenance:The following expenditure relating to repairs, maintenance and provision of basic services is granted as a deduction even if no evidence for such expenditure is produced. Where the property is let out for residential purposes the allowable deduction is 1/4th of the annual value and where it is let out for commercial purpose the allowable deduction is 30% of the annual value: (a) (b) (c) (d) (e) (f) Repairs; Expenditure relating to collection of rent; Water and sewerage; Common electricity; Salary of darwan, security guard, pump-man, lift-man, caretaker All other expenditure related to maintenance and provision of basic services.
(2) Land development tax*; (3) Municipal tax*; (4) Ground rent*; (5) Insurance Premium*, (6) Vacancy allowance (if the property remain vacant during a part of the year); (7) Where the let out property is acquired, constructed, repaired, renewed or reconstructed with loan then the interest payable for the year on such loan*; (8) Where the let out property has been constructed with borrowed capital and there was no house property income during the period of construction, the interest payable during the period of construction will be allowable in 3 equal installments from first 3 years of letting out*; (9) Irrecoverable rent:Relief in respect of irrecoverable rent has been granted through S.R.O. No:-454-L/80 dated 31-12-1980 if the following conditions are fulfilled:(a) The tenancy is bona-fide; (b) The defaulting tenant has vacated, or steps have been taken to compel him to vacate the property; (c) The defaulting tenet is not in occupation of any other property of the assessee; (d) The assessee has taken all reasonable steps to institute legal proceedings for the recovery of the unpaid rent or satisfies the Deputy Commissioner of Taxes that legal proceedings would be useless and;
ASIF AHMED (KPMG) Page 25 of 74
(e) The annual Value of the property to which the unpaid rent relates has been included in the assessed income of the year during which that rent was due and income tax has been duly paid on such assessed income; The concession given here appears to be an exemption but it is actually a deduction as that part of rent which will be irrecoverable and which has already been charged in the preceding year will be deducted from the total income in the subsequent year. *If the full house is not rented (partly used by owner or his dependent) than all of these deduction shall be made proportionately.
Problem 1: Mr. Alam a retired govt. officer owns a two-stored house in Dhanmondi, Dhaka. He along with his family occupies the ground floor while the first floor has been let out October 1, 2011 for a monthly rental of tk. 60,000 and before than it was vacant for about 3 months. He has constructed the house with a loan of tk. 25 lac from National Bank Limited and paid interest of tk. 321,000 during the construction period from January 2010 to June 2010. During the financial year 2009-10 he has paid tk. 5 lac to the bank. His other expense relation to the property for 2011-12 FY are Repair and maintenance tk. 50,000 Insurance premium tk. 5,000 Municipal tax tk. 20,000 Bank interest tk. 50,000 Salary of security guard tk. 10,000 Municipal value of the property tk. 300,000 Compute the house property income for Mr. Alam for the assessment year 2012-13.
Solution: Mr. Alam Calculation of House Property Income AY: 2012-13 Description Annual Value (AV)* Less: Repair and Maintenance Municipal Tax Insurance Bank interest Vacancy allowances Interest at construction stage Net House Property Income Workings 60,000*12 1/4 of AV 1/2 1/2 1/2 60,000*3 1/2 of 1/3 Amount (BDT) 7,20,000 (1,80,000) (10,000) (2,500) (25,000) (1,80,000) (53,500) 2,69,000
*As no reasonable rent is given, total rent is assumed as annual value. ** Assumed that house was rented for residential purpose.
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Problem 2: Mr. Azim owns a house the municipal value of which is tk. 220,000. Half of the house has been let out at tk. 25,000 per month. The rest of the house is used by his son in law who pays nothing for the use. Following were the expenses for the house in FY 2011-12; White wash and repair Insurance premium Municipal tax Water and sewerage charges Interest on mortgage Service charges Land revenue tax Cost of alteration tk. 6,000 tk. 4,000 tk. 5,000 tk. 7,000 tk. 4,000 tk. 6,000 tk. 2,000 tk. 15,000
He has a residential house situated at Uttara, Dhaka. The city corporation for tax purpose valued its annual value at tk. 200,000. He spent tk. 6,000 for its repair and paid city corporation tax at tk. 5,000. He also paid interest on a loan taken from Agrani bank for alteration and expansion of the house for which interest payable was tk. 20,000 per year. Compute the house property income for Mr. Azim for the assessment year 2012-13.
Solution: Mr. Azim Calculation of House Property Income AY: 2012-13 Description Annual Value (AV)* Less: Repair and Maintenance Municipal Tax Insurance Land revenue tax Interest on mortgage Net House Property Income Workings 25,000*12 1/4 of AV 1/2 1/2 1/2 1/2 Amount (BDT) 3,00,000 (75,000) (2,500) (2,000) (1,000) (2,000) 2,17,500
*As no reasonable rent is given, total rent is assumed as annual value. * Assumed that house was rented for residential purpose. * white wash and repair, water and sewerage and service charges are within 1/4 statutory deduction of repair and maintenance. * Cost of alteration is capital expenditure which is not cover u/s 25. so it is not considered in computing HP income. * As the full house was not let out and annual value is determined on 50% of the property, so all related expenditure allowed proportionately.
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Agricultural Income:
Study References: Section; 2(1), 26, 27, 35, 19(17), 19(19) Rule: 31 and 32 Third Schedule Sixth Schedule (Part A); Para 27, Para 29 and Para 45
Section 2(1): Agricultural income means (a) any income derived from any land in Bangladesh and used for agricultural purposes 1. (i) by means of agriculture; or 2. (ii) by the performance of any process ordinarily employed by a cultivator to render marketable the produce of such land; or 3. (iii) by the sale of the produce of the land raised by the cultivator in respect of which no process, other than that to render the produce marketable, has been performed; or 4. (iv) by granting a right to any person to use the land for any period; or (b) any income derived from any building which 5. (i) is occupied by the cultivator of any such land as is referred to in sub-clause (a) in which any process is carried on to render marketable any such produce as aforesaid; 6. (ii) is on, or in the immediate vicinity of such land; and 7. (iii) is required by the cultivator as the dwelling house or store-house or other out-house by reason of his connection with such land;
Section 26; Agricultural income: (1) The following income of an assessee shall be classified and computed under the head "Agricultural income", namely:1. (a) any income derived by the assessee which comes within the meaning of "agricultural income" as defined in section 2(1); 2. (b) the excess amount referred to in section 19(17); 3. (c) the excess amount referred to in section 19(19). (2) Agricultural income derived from the sale of tea grown and manufactured by the assessee shall be computed in the prescribed manner. (3) Where the Board, by notification in the official Gazette, so directs, agricultural income from the sale of rubber, tobacco, sugar or any other produce grown and manufactured by the assessee may be computed in the manner prescribed for the purpose.
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For example, an agricultural machinery Cost price Tk. 100 Less: Depreciation (30) WDV Tk. 70 Now, if machine is destroyed and insurance claim and sale of scrap generate tk. 78 or tk. 68 or tk. 114 treatment of such gain will be as follows; Case 1: Tk. 8 is agricultural income Case 2: Tk. 2 is agricultural loss Case 3: Tk. 30 is agricultural income and tk. 14 is capital gain
Para - 45: Any income derived from corn, mize, sugarbeet are exempted upto fifty (50) percent.
Asif Ahmed Articled Student KPMG (Bangladesh) Rahman Rahman Huq asif.ahmed0001@yahoo.com 01922939126
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Lecture # 05 17.06.2012
Capital Gain:
Study References: Section; 2(15), Capital Asset 31, Capital Gain 32, Manner of computing capital gain; read with rule - 42 Second Schedule; Tax rate on capital gain Sixth Schedule (Part A), Para 18, Para 43 Share Market: SRO No. 289; date 01/07/2010.
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2.
If capital gain is from gifted property: Capital gain = Sales price Acquisition price of the person gifted the property. If that person, who gifted the property, also received the property as gift, than the fair market value at the time of his receipt. For example, Mr. A gifted a land by Mr. X, which have a fair market value to Tk. 10 lac. Few years later Mr. A gifted it to Mr. B. B sales the land for tk. 25 lac. Than capital gain for B is, Capital gain = tk. 10 lac tk. 25 lac = tk. 15 lac.
3.
If capital gain is from inherited property: Capital gain = Sales price Acquisition price. Acquisition price = fair market value when the seller received the land. For example, Mr. A has some land. Few years later Mr. A became dead and all of his land goes to his son Mr. B, which has a fair market value of tk. 20 lac at that moment. 2 years later B sales the land for tk. 25 lac. Than capital gain for B is, Capital gain = tk. 20 lac tk. 25 lac = tk. 5 lac.
TDS: Tax shall be deducted at 2% on the sale price and this deduction is final for tax settlement of capital gain. Capital gain on sale of property of business and profession is tax free if another property is purchased within one (1) year. For example, A Capital machinery with cost of tk. 1,000 Sales price (1,600) Capital Gain tk. 600 Purchase another building within one year (before or after) by this capital gain than this tk. 600 is tax free. But, Sl 1 2 3 Situation If purchase price is tk. 600 If purchase price is tk. 500 If purchase price is tk. 900 Consequences No gain tax and tax depreciation is not allowable for that property. Gain tax on tk. 100 and tax depreciation is not allowable for that property. No gain tax, but tax tax depreciation is allowable for tk. 300.
In case of non-resident no-Bangladeshi shareholders, if this gain is tax free in his country, than it will also tax free in Bangladesh. If property is sold (and capital gain is also happened) in exchange of share (not in cash) than this gain is totally tax free. For example, Mr. X sold his land @ tk. 1 crore to ABC Co. which has a cost price of tk. 60 lac. But he receives share of tk. 1 crore from the company instead of cash. Than his capital gain of tk. 40 lac is tax free.
Asif Ahmed Articled Student KPMG (Bangladesh) Rahman Rahman Huq asif.ahmed0001@yahoo.com 01922939126
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Definitions
Deemed Income
Main Section
Sixth Schedule (Part A), Para 1A, Para 33, Para 35, Para 37, Para 39, Para42, Para 44, Para 45. Third Schedule; tax depreciation SRO; CSR Rule 30, 31, 32
Definitions:
Section 2(34); Income: Income includes(a) any income, profits or gains, from whatever source derived, chargeable to tax under any provision of this Ordinance under any head specified in section 20; (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 income accruing or arising or received, or deemed to accrue or arise or be received in Bangladesh under any provision of this Ordinance: []Deleted F.A. 1993 Provided that the amount representing the face value of any bonus share or the amount of any bonus declared, issued or paid by any company registered in Bangladesh under , 1994 (1994 18 ) to its shareholders with a view to increase its paid-up share capital shall not be included as income of that share holder; Section 2(14); Business: Business includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture.
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Section 2(49); Profession: Profession includes a vocation Section 2(61); Speculative Business: Speculation-business means business in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scripts, but does not include business in which (a) a contract in respect of raw materials or merchandise is entered into by a person in the course of his manufacturing or mercantile business to guard against loss through future price fluctuations for the purpose of fulfilling his other contracts for the actual delivery of the goods to be manufactured or the merchandise to be sold by him; (b) a contract in respect of stocks and shares is entered into by a dealer or investor therein to guard against loss in his holdings of stocks and share through price fluctuations; and (c) a contract is entered into by a member of a forward market or a stock exchange in the course of any transaction in the nature of jobbing or arbitrage to guard against loss which may arise in the ordinary course of his business as such member;
Rules:
Rule 30; Determination of income from business when such income is also partially agricultural: In the case of income which is partially "agricultural income" and partially income from "business", in determining that part of income which is from "business", the market value of any agricultural produce which has been raised by the assessee or received by him in kind and which has been utilised as raw material in such business or the sale proceeds of which are included in the accounts of the business shall be deducted, and no further deduction shall be made in respect of any expenditure incurred by the assessee as a cultivator or receiver of the produce in kind. Rule 31; Computation of income derived from the sale of tea: 1. Income derived from the sale of tea grown and manufactured by the seller in Bangladesh shall be computed as if 40% of such income was derived from business and 60% of such income was derived from agriculture: Provided that in computing, such income from business, an allowance shall be made in respect of the cost of planting bushes in replacement of bushes that have died or become permanently useless in an area already planted, unless such area has previously been abandoned: Provided further that in computing such income an allowance shall be made in respect of the expenditure incurred in the income year by the asssssee in connection with the development of the new areas for bringing them under tea cultivation
2.
3.
Rule 32; Computation of income derived from the sale of rubber: 1. Income derived from the sale of rubber grown and manufactured by the seller in Bangladesh shall be computed as if 40% of such income was derived from business and 60% of such income was derived from agriculture. 2. Provided that in computing such income an allowance shall be made in respect of the expenditure incurred in the income year by the assessee in connection with the development of the new areas for bringing them under rubber cultivation.
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Deemed Income:
Section 19(15); Deemed Income: Where, for the purpose of computation of income of an assessee under section 28, any deduction has been made for any year in respect of any loss, bad debt, expenditure or trading liability incurred by the assessee, and-1. (a) subsequently, during any income year, the assessee has received, except as provided in clause (aa) whether in cash or in any other manner whatsoever, any amount in respect of such loss, bad debt, or expenditure, the amount so received shall be deemed to be his income from business or profession during that income year (example -1); 2. (aa) such amount on account of any interest which was to have been paid to any commercial bank or the Bangladesh Shilpa Bank or the Bangladesh Shilpa Rin Sangstha or on account of any share of profit which was to have been paid to any bank run on Islamic principles and which was allowed as a deduction in respect of such expenditure though such interest or share of profit was not paid by reason of the assessee having maintained his accounts on mercantile basis, within three years after expiry of the income year in which it was allowed, shall, to such extent as it remains unpaid, be deemed to be income of the assessee from business or profession during the income year immediately following the expiry of the said three years (example -2); 3. (b) the assessee has derived, during any income year, some benefit in respect of such trading liability (discount), the value of such benefit, if it has not already been treated as income under clause (c), shall be deemed to be his income from business or profession during that income year; 4. (c) such trading liability or portion thereof as has not been paid within three years of the expiration of the income year in which deduction was made in respect of the liability, such liability or portion, as the case may be, shall be deemed to be the income of the assessee from business or profession during the income year immediately following the expiry of the said three years; and the business or profession in respect of which such allowance or deduction was made shall, for the purposes of section 28, be deemed to be carried on by the assessee in that year: 5. Provided that where any interest or share of profit referred to in clause (aa) or a trading liability referred to in clause (c) is paid in a subsequent year, the amount so paid shall be deducted in computing the income in respect of that year
Example 1: Salary charged in the Income Statement and allowed by the tax authority in AY 2011-12. But subsequently the salary was not withdrawn by the employee. Than this expenditure will be treated as income in AY 2012-13. Example 2: Interest on loan was incurred (but not paid) in IY 2011. But if it is not paid in the subsequent 3 years than it will be treated as income in the following year (IY 2015). But if the interest paid subsequently in 2016 it will deducted from the income of 2016. Section 19(15)(c) is like Section 19(15)(aa) but for trading liability.
Section 19(16): Where any building, machinery or plant having been used by an assessee for purpose of any business or profession carried on by him is disposed of during any income year and the sale proceeds thereof exceeds the written down value, so much of the excess as does not exceed the difference between the original cost and the written down value shall be deemed to be the income of the assessee for that income year classifiable under the head "Income from business or profession (see below example).
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Now, if machine is sold @ tk. 78 or tk. 68 or tk. 114 treatment of gain will be as follows; Case 1: Tk. 8 is Business income Case 2: Tk. 2 is Business loss Case 3: Tk. 30 is Business income and tk. 14 is capital gain Section 19(18): Where any insurance, salvage or compensation moneys are received in any income year in respect of any building, machinery or plant which having been used by the assessee for the purpose of business or profession is discarded, demolished or destroyed and the amount of such moneys exceed the written down value of such building, machinery or plant, so much of the excess as does not exceed the difference between the original cost and the written down value less the scrap value shall be deemed to be the income of the assessee for that income year classifiable under the head "Income from business or profession (see below example). For example, a machinery Cost price Less: Depreciation WDV
Now, if machine is destroyed and insurance claim and sale of scrap generate tk. 78 or tk. 68 or tk. 114 treatment of such gain will be as follows; Case 1: Tk. 8 is business income Case 2: Tk. 2 is business loss Case 3: Tk. 30 is business income and tk. 14 is capital gain
Section 19(20): Where an asset representing expenditure of a capital nature on scientific research within the meaning of section 29 (1) (xx) is disposed of during any income year, so much of the sale proceeds as does not exceed the amount of the expenditure allowed under the said clause shall be deemed to be the income of the assessee for that income year classifiable under the head "Income from business or profession.
Section 19(23): Where during any income year an assessee, being an exporter of garments, transfers to any person, the export quota or any part thereof allotted to him by the Government, such portion of the export value of the garments exportable against the quota so transferred as may be prescribed for this purpose shall be deemed to be the income of the assessee for that income year, classifiable under the head "Income from business or profession".
4. 5. 6.
7.
Para 37; Income of any private Agricultural College or private Agricultural University derived from agricultural educational activities. Para 39; Income derived from any Small and Medium Enterprise (SME) engaged in production of any goods and having an annual turnover of not more than taka forty lakh: Para 42; Any income from poultry farming for the period from the first day of July , 2011 to the thirtieth day of June, 2013 subject to the following conditions : a. if such income exceeds taka 1,50,000/- an amount not less than 10% of the said income shall be invested in the purchase of bond or securities issued by the Government within six months from the end of the income year; b. the person shall file return of his income in accordance with the provisions of clause (c) of subsection (2) of section 75 of this Ordinance; and c. no such income shall be transferred by way of gift or loan within five years from the end of the income year. Para 44; Cinema Hall or Cineplex has been given exemption facility up to 2015 a. Dhaka and Chittagong areas for five years b. Other than Dhaka and Chittagong areas for seven years For 2 Years For 5 Years For 2 Years For 1 Year Exemption For 3 Years For 7 Years For 3 Years For 1 Years 100% tax-free 50% tax-free 25% tax free 100% tax-free 50% tax-free 25% tax free
8.
Para 45; Exemption facility for Production of rice bran oil has been given up to 2015 a. Dhaka and Chittagong areas for five years b. Other than Dhaka and Chittagong areas for seven years For 2 Years For 5 Years For 2 Years For 1 Year Exemption For 3 Years For 7 Years For 3 Years For 1 Years 100% tax-free 50% tax-free 25% tax free 100% tax-free 50% tax-free 25% tax free
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2.
For tax holiday purpose a entity has to fulfill some conditions and apply with prescribed from. Details of these are found at IT ordinance 1984 in section 46B and 46C.
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2.
Holidaying & Recreation: of the actual expenditure or 3 months basic salary of the employee (who enjoyed the opportunities) whichever is lower is allowable. For example, Mr. X is an employee of ABC ltd. the company given him an holiday opportunity of tk. 100,000 which was also his actual expenditures. His basic salary is tk. 20,000 per month. So allowable expenditure will be of actual expenditure (tk. 75,000) or basic salary of 3 months (tk. 60,000) lower one, which is tk. 60,000 other tk. 40,000 will add back with the companys profit. However, the company has to fulfill the following conditions a. If expense is more than tk. 10,000, it should be given in crossed cheque or through bank transfer. b. Same employee cannot be provided with foreign holidaying opportunity for subsequent year. If the company did not fulfill the above condition full expense will disallowed.
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30(g); Headquarter expenditures of foreign companies are allowable up to 10% of assessed profit (or actual, lower one). Expenses allowable on assessed profit 1. Entertainment 2. Head office expenses 3. Technical know how fee 30(h); Royalty and technical knowhow fee is allowable up to 8% of assessed profit (or actual, lower one). 30(i); monthly gross salary over tk. 15,000 shall be given in cheque or bank transfer. 30(j); incentive bonus allowable up to 10% of disclosed net profit before tax. 30(k); overseas travelling allowable up to 1% of disclosed turnover. 30(l); no brokerage / commission is allowable to shareholder directors (FA 2012). 30(m); any payment over tk. 50,000 should be in cheque or bank transfer, but not applicable in salary, raw material purchase and payment to government (FA 2012).
For example, Car price tk. 3,000,000. After 2 years sold at tk. 2,400,000. Compute gain. Notional cost price Less: Depreciation (Y 1) WDV after Y 1 Less: Depreciation (Y 2) WDV after Y 2 tk. 2,000,000 (400,000) tk. 1,600,000 (320,000) tk. 1,280,000
Proportionate sales price = (Notional cost price / actual price) * actual sales price = (2,000,000 / 3,000,000) * 2,400,000 = tk. 1,600,000 Gain (business income) = (tk. 1,600,000 tk. 1,280,000) = tk. 320,000
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2.
Accelerated Depreciation: Only applicable for plant and machinery used for the first time in Bangladesh. But this opportunity cannot be taken if the company is in the tax holiday or vice versa. Rate of depreciation: 1st year 50% of cost nd 2 year 30% of cost 3rd year 20% of cost Application to the DCT for applying this depreciation should be made within the 6 months of starting production. Initial Depreciation: Only applicable for Building and Plant & machinery. But the property should be new and given only in the first year of addition along with normal depreciation. Rate of depreciation: Building 10% Plant and machinery 25% For example, a machinery coats tk. 100 lac. In first year depreciation allowance is Initial depreciation (25%) tk. 25 lac Normal depreciation (20%) tk. 20 lac Depreciation allowance (year 1) tk. 45 lac WDV after 1st year tk. 55 lac.
3.
4. 5.
Extra depreciation Special depreciation Last two depreciation policy is not applicable now.
Hand Outs to be attached: 1. Tax Holiday 2. Case laws 3. Company tax assessment 4. CSR
Asif Ahmed Articled Student KPMG (Bangladesh) Rahman Rahman Huq asif.ahmed0001@yahoo.com 01922939126
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Lecture # 08 03.07.2012
Income from other sources:
Study References: Section; 2(26) Dividend; read with rule 19(7) 2(56) Royalty 2(31) Fees for technical services Section; 33, 34, 35, 36 Section; 19(1) 19(5) 19(8) 19(13) 19(21), 19(21B), 19(24), 19(26), 19(27), 19(28)
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(a) the income year in which it is received and the immediately preceding income year if the time taken in making such work exceeds twelve months but does not exceed twenty-four months ; and (b) the income year in which it is received and the two immediately preceding income years if the time taken in making such work exceeds twenty-four months, and shall be allocated in equal proportions to each such income year and the income of the assessee in respect of an income year shall be computed accordingly. Explanation.- For the purposes of this section, the expression "author" includes a joint author and the expression "lump sum" in regard to royalties or copyright fees includes an advance payment on account of such royalties or copyright fees which is not returnable.
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any person, such amount shall be deemed to be the income of such assessee for that income year classifiable under the head "Income from other sources". (11) Where any benefit or advantage, whether convertible into money or not, is derived by an assessee during any income year on account of cancellation of indebtedness []Deleted F.A. 1999, the money value of such advantage or benefit shall be deemed to be his income for that income year classifiable under the head "Income from other sources": Provided that the provisions of this sub-section shall not apply in case of a loan or interest waived in respect of an assessee by a commercial bank including Bangladesh Krishi Bank, Rajshahi Krishi Unnyan Bank, Bangladesh Shilpa Bank or Bangladesh Shilpa Rin Sangstha or a leasing company or a financial institution registered under
, 1993 (1993 27 )
(12) Any managing agency commission including compensation received during any income year by an assessee for termination of agencies or any modification of the terms and conditions relating thereto shall be deemed to be his income for that income year classifiable under the head "Income from other sources". (13) Any amount received by an assessee during any income year by way of winnings from lotteries, crossword puzzles, card games and other games of any sort or from gambling or betting in any form or of any nature whatsoever shall be deemed to be his income for that income year classifiable under the head "Income from other sources". (21) Where any sum, or aggregate of sums exceeding taka fifty thousand is claimed or shown to have been received as loan by an assessee during any income year from any person, not being a banking company or a financial institution, otherwise than by a crossed cheque drawn on a bank, and has not been paid back in full within three years from the end of the income year in which it is claimed or shown to have been received, the said sum or part thereof which has not been paid back, shall be deemed to be the income of the assessee for the income year immediately following the expiry of the said three years and be classifiable under the head "Income from other sources": Provided that where the loan referred to in this sub-section is paid back in a subsequent income year, the amount so paid shall be deducted in computing the income in respect of that subsequent year. [(21B) Where any sum, shown as initial capital of business or profession in return of income filed under section 82BB, is transferred by a person partly or fully within the period of limitation stipulated in the said section, the sum so transferred shall be deemed to be his income of the year in which such sum was transferred and shall be classifiable under the head "Income from other sources".] Added F.A. 2011 [(24) Where an assessee, being a private limited company or a public limited company not listed with a stock exchange, increases its paid up capital by issuing shares in an income year, the amount so received as increased paid up capital, not being received by crossed cheque or bank transfer, shall be deemed to be the income of such assessee for that income year classifiable under the head "Income from other sources.] Subs. F.A. 2010 [(25)]Deleted F.A. 2007 [(26)Where an assessee, being a company, receives any amount as loan from any other company otherwise than by a crossed cheque or by bank transfer, the amount so received shall be deemed to be the income of such assessee for that income year in which such loan was taken and shall be classifiable under the head "Income from other sources".] Added
F.A. 2011
[(27)Where an assessee, being a company, purchases directly or on hire one or more motor car or jeep and value of any motor car or jeep exceeds ten percent of its paid up capital, then fifty percent of the amount that exceeds such ten percent of the paid up capital shall be deemed to be the income of such assessee for that income year classifiable under the head "Income from other sources".]Added F.A. 2011
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Solutions of Problem:
ABC Company Limited Calculation of Total Income For the year ended 31st December 2012 AY: 2012-13 Description a) Income from business: Net profit as per P/L accounts Less: Income of other head Dividend income Interest on bank deposits Profit on sale of machineries Interest on govt. securities Sundry income Refund on income tax (neither an income nor an expenditure) Add: Expenditure for consideration as per tax afterworks Entertainment Depreciation Add: Inadmissible expenditure i) Salary and allowances Salary without TDS Excess perquisite Salary paid in cash (4,250,000-1,050,000-370,000-542,700) ii) Excess payment of incentives (600,000-573,000*.10) iii) Interest on loan from sister concern iv) charity (as it is private) v) Income tax paid in advance vi) Fine vii) Profit on sale of machineries sales price (42,000+30,000) Less: WDV Capital gain Less: Tax depreciation Less: Entertainment (as per rule 65) on first 10,00,000 @ 4% on next 41,51,600 @ 2% or the actual expenditure (lower one) b) Interest on Securities: Interest on Govt. securities Capital gain: Sale of machineries Workings Amount (BDT) 5,73,000 16,000 14,400 30,000 10,000 5,000 30,000
(1,05,400) 4,67,600
54,000 1,80,000
2,34,000 7,01,600
10,50,000 3,70,000 22,87,300 5,42,700 35,000 10,000 2,00,000 20,000 72,000 (12,000) (10,000) 45,65,000 52,66,600 (1,15,000) 51,51,600
c)
d)
Income from other sources: Loan to sister concern (deemed inc. u/s 19(26)) Dividend income (16,000/.80) Interest on bank deposit (14,400/.90) Sundry income Total Income
ASIF AHMED (KPMG)
3,91,000 55,08,600
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Calculation of gross tax liability: Total income Less: Capital gain Dividend income Total income for 37.5% Tax liability at 37.5% Tax on capital gain (15%) Tax on dividend income (20%) Gross tax liability
Calculation of minimum tax liability: Sales Dividend Interest Sale of machineries Interest on govt. securities Sundry income Gross receipt Minimum tax @ 0.50% on gross receipt So minimum tax of ABC Company Limited will be
Calculation of net tax liability: Gross tax liability Less: TDS on dividend TDS on bank deposit Advance tax (assuming it is paid for AY 2012-13) Net Tax Liability of ABC Company Limited
Asif Ahmed Articled Student KPMG (Bangladesh) Rahman Rahman Huq asif.ahmed0001@yahoo.com 01922939126
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Lecture # 09 14.07.2012
Set Off and Carry Forward Losses:
Study References: Section; 37: carry forward losses. Section; 38 read with section 46B and 3rd schedule 39 40 41 42
Section - 46B: Exemption from tax of newly established industrial undertakings set up between the period of July 2011 and June 2013, etc. in certain cases.1. (1) Subject to the provisions of this Ordinance, income, profits and gains under section 28 from an industrial undertaking (hereinafter referred to as the said undertaking) set-up in Bangladesh between the first day of July, 2011 and the thirtieth day of June, 2013 (both days inclusive) shall be exempted from the tax payable under this Ordinance for the period, and at the rate, specified below: if the said undertaking is set-up in1. (i) Dhaka and Chittagong divisions, excluding Dhaka, Narayanganj, Gazipur, Chittagong, Rangamati, Bandarban and Khagrachari districts, for a period of five years beginning with the month of commencement of commercial production of the said undertaking: 2. Period of Exemption For the first two years (first and second year) For the next two years (third and fourth year) For the last one year (fifth year) 3. Rate of Exemption 100% of income 50% of income 25% of income
2.
(ii) Rajshahi, Khulna, Sylhet and Barisal divisions and Rangamati, Bandarban and Khagrachari districts, for a period of seven years beginning with the month of commencement of commercial production of the said undertaking: Rate of Exemption 100% of income 50% of income 25% of income
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4. Period of Exemption For the first three years (first, second and third year) For the next three years (fourth, fifth and sixth year) For the last one year (seventh year)
ASIF AHMED (KPMG)
Lecture # 11 20.07.2012
Deduction and collection of tax at source (TDS):
Detail Sheet to be attached
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Lecture # 10 16.07.2012
Assessment of Partnership Firm:
Study References: Section 30(b); 43(3) 85 Sixth Schedule (Part A) Para 18 Sixth Schedule (Part B) Para 16
2.
Asif Ahmed Articled Student KPMG (Bangladesh) Rahman Rahman Huq asif.ahmed0001@yahoo.com 01922939126
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Salary to Partner A Commission to Partner C Office Rent Interest on Capital B Interest on Capital C Provision for Bad debts Net Profit
Assessment of Pirtnership firm ABC Limited P/L Account 150,000 Gross profit 200,000 Capital gain 300,000 125,000 175,000 400,000 1,650,000 3,000,000
2,000,000 1,000,000
3,000,000
Requirements: 1. Compute the total income of ABC firm 2. Tax payable by the firm 3. Allocate profit among the partners 4. Compute total income of Mr. B 5. Tax payable by Mr. B Solution: 1. Total income of ABC firm Computation of total income for ABC firm for the year ended 30 June 2012 (Assessment year 2012-2013) Net Profit as per P/L acc Less: Capital gain for separate consideration Business income Add: Ibadmissibe expenses Provision for bad debt sec 30(b) Salary to partner A sec 30(b) Commission to partner B sec 30(b) Intarest on capital (B+C) sec 30(b) Income from business Capital gain Total income
2. TAX PAYABLE Capital gain is within five years (A): On the first On the next On the next On the next On the balance
Tk Tk Tk Tk Tk
Capital gain is after five years (B): On the first On the next On the next On the next On the balance capital gain tax on Tk. 1,000,000 @ 15%
Tk Tk Tk Tk Tk
Tax payable lower of A and B 3. Allocation of profit among partners: Profit from the firm(1/3) Salalry Commission Interest A 350,000 150,000 B 350,000 C 350,000 200,000 175,000 725,000
500,000 Total income Less: Capital gain Less: Salary, Commission and interest
125,000 475,000
Total 1,050,000 150,000 200,000 300,000 1,700,000 2,700,000 1,000,000 1,700,000 650,000 1,050,000
4. Total income of Mr. B i) House property income: Annual value (Reasonable rent) Less: Repair and maintance 30% ii) Income from partnership firm
200,000 300,000 @ 10% 185,000 @ 15% 685,000 Less: Tax at average rate on share of partnership firm income=(57,750*475,000)/685,000
Tk Tk Tk
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showing at least 20% higher income than the income assessed or shown in the immediate preceding assessment year. But to keep himself out of audit, an assessee will have to fulfill the following conditions: Such return does not show any tax free income; Such return does not show any receipt of gift; Such return does not show any receipt of loan except bank loan; Such return does not show any wealth accretion which is not covered by income; If the return is selected for audit, then DCT will proceed to make fresh assessment by issuing notice under section 83(1) for hearing and he will make assessment within 2 years from the end of the assessment year. Otherwise it will be barred by time limitation. Assessment can be done under section 83(2) or under section 84 as the situation permits. Re-open the universal self assessment under section 93: If any concealment has been detected in the return submitted by the assessee under universal self assessment scheme within 5 years from the end of the assessment year then the DCT may re-open the case and proceed to assess further. 4. FINAL SETTLEMENT OF TAX LIABILITY (SEC. 82C): Any tax deducted /collected at source from the following heads shall be deemed to be the final discharge of tax liability: 1. 2. 3. 4. 5. 6. 7. 8. 9. Contractors and suppliers (Section 52+Rule 16) Royalty and Technical know-how fee (Section 52A(2) C&F Agency commission (Section 52AAA) Handmade cigarette (Section 52B) Compensation against property acquisition (Section 52C) Import [other than raw-material import] (Section 53+Rule 17A) Shipping Agency Commission(Section 53AA) Manpower export(Section 53B+Rule 17C) Export of (a) knit-wear (b) Woven garments (c) Terry towel (d) Carton (e) Garments accessories (Section-53BB) (f) Jute goods (g) Frozen foods (h) Vegetables (i) Leather goods and (j) Packed foods 10. Member of Stock Exchange (Section-53BBB) 11. Public Auction (Section 53C+Rule 17D) 12. Non-resident Courier (Section 53CC) 13. Salary of foreign technicians serving in a diamond cutting industry (Section-52 O) 14. Real Estate and Land Development Business (Section-53FF) 15. Insurance Commission (Section 53G) 16. Surveyor of General Insurance (Section-53GG) 17. Sale of property (Section-53H) 18. Share Premium (Section-53L) 19. Capital Gain from transfer of shares by sponsor shareholders (Section 53M) 20. Income from Lottery (Section 55) 21. Amount received by rental power company u/s 52N 22. Amount received by international gateway service provider companies u/s 52S 23. Amount received as export cash subsidy u/s 53DDD
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Section 82C has been re-drafted through Finance Act, 2011 keeping area of final tax liability unchanged but changing the way of calculating income which will suffer more taxes. Some new conditions are as follows: (1) Income to be determined through back calculation (2) Such income will not set off with loss under any other head or loss of earlier year or years. (3) Though it is final settlement of tax liability but tax is to be paid again in the following situations: If shown income is in excess of the amount determined under back calculation, then tax is to be paid again at the applicable rate on excess income shown. Tax at applicable rate will also be payable on disallowances under sec. 30 Assessee shall have to pay surcharge if net wealth exceeds Tk.2 crore. 5. SPOT ASSESSMENT (SEC.82D): Where an assessee, not being a company, who has not previously been assessed but carrying on business or profession in any shopping centre or commercial market or having a small establishment, the D.C.T may fix tax payable by him at the rate prescribed at Rule-38B and the receipt obtained for payment of such tax shall be deemed to be an assessment order. 6. ASSESSMENT AFTER HEARING (SEC.83): When the D.C.T. is not satisfied without requiring the physical presence of the assessee who filed the return or the production of evidences then he will issue notice u/s 83(1) fixing a date and time for hearing. After hearing and considering the evidences produced and if necessary considering such other evidences by issuing another notice u/s 83(2) the D.C.T. will make assessment u/s 83(2) within 30 days from the last hearing and communicate the assessment order within another 30 days from the date of assessment. Thus section 83(1) deals with notice of hearing and section 83(2) deals with both requisition notice and assessment. 7. ASSESSMENT ON THE BASIS OF REPORT OF NBR APPOINTED CHARTERED ACCOUNTANT (SEC.83AAA): When NBR has reasonable cause to believe that a return submitted by any company assessee is incorrect or incomplete, then the Board may appoint a chartered accountant to examine the books of accounts of that company. He will then exercise the powers and functions of a DCT only relating to section 79 and other than clause (f) of section 113.After examination of the books of accounts he will submit report to the Board and the Board will then forward the report to the DCT for consideration. After receiving the report DCT will proceed to assess the income of the company by issuing notice u/s 83(1) 8. BEST JUDGMENT ASSESSMENT (SEC. 84): Where any assessee fails to file return required by a notice u/s 77/93 and has not filed a return or revised return u/s 78 or to comply with the requirements of notices u/s 79, 80 or 83(I), the D.C.T. shall assess income to the best of his judgment.
9. ASSESSMENT OF BUS, TRUCK, MINIBUS ETC.: Deviating from the normal assessment procedure, owner of bus/mini bus, truck/truck Lorries, coaster, taxi cab etc. will pay tax on at the fixed rate prescribed at SRO No 267-law/2010 dated 01/07/2010. 10. ASSESSMENT OF PARTNERSHIP FIRM (SEC.85): Like other category of assessee, DCT will assess the income of the partnership firm and determine the tax payable thereon by the firm. He will also apportion the total income of the firm (arrived before tax) between the partners. 11. ASSESSMENT IN CASE OF CHANGE IN THE CONSTITUTION OF THE FIRM (SEC.86): If DCT found at the time of assessment of a firm that a change has occurred in the constitution of the firm, the assessment shall be made on the re-constituted firm but the conditions are: (1) Income will be apportioned between those partners who were partners during the income year. (2) When tax assessed on any partner is not recoverable from him it will be recovered from the reconstituted firm.
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12. ASSESSMENT IN CASE OF CONSTITUTION OF A NEW SUCCESSOR FIRM (SEC.87): If it is found at the time of assessment of a firm that a new firm has been constituted to succeed the previous firm DCT will make 2 assessments one for the predecessor firm and the other for the successor firm. 13. ASSESSMENT IN CASE OF SUCCESSION TO BUSINESS OTHERWISE THAN ON DEATH (SEC.88): Where any person carrying on business or profession has been succeeded otherwise than by death by another person the predecessor shall be assessed for the period up to the date of succession and the successor shall be assessed for the period after the date of succession. Provided that(1) Where the predecessor can not be found the assessment shall be made on the successor (2) Where tax is not recoverable from the predecessor it is to be recovered from the successor who shall be entitled to recover it from the predecessor. 14. ASSESSMENT IN CASE OF DISCONTINUED BUSINESS (SEC.89): When any business or profession is discontinued, a notice of such discontinuance must be given to the D.C.T. within 15 days of such discontinuance of the business or profession accompanied by a return of total income for the broken period. If the person discontinuing such business or profession fails to give such notice, the D.C.T. may impose penalty a sum not exceeding the amount of tax subsequently assessed on him. 15. ASSESSMENT IN CASE OF PERSONS LEAVING BANGLADESH (SEC. 91): Whenever any person is leaving Bangladesh and has no intention to come back, the D.C.T. may proceed to assess him for all the completed income years for which his assessments remain pending as well as for the broken period up to the probable date of his departure from Bangladesh. Here is deviation from the usual practice as the assessment of the broken period may be completed before the commencement of the relevant assessment year. One important thing to note here is that, the assessee is entitled under the law to get at least seven days time to file his return and statements of income. 16. ASSESSMENT OF A DECEASED PERSON (SEC. 92): Whenever any person dies, his executor, administrator or other legal representative is liable under the law to pay out of the estate of the deceased any tax which was payable by him and any other tax liability which might be payable in consequence of any assessment made after his death. Liability of the legal representative is limited to the extent to which decreased estate is capable of meeting the liability. Legal representative shall be deemed to be an assessee for this purpose, provided a notice is given to him as per section 92(2). 17. ESCAPED ASSESSMENT (SEC. 93): A fresh assessment can be made by the D.C.T. in case of i) Escaped assessment; ii) Under assessment; iii) Assessment at too low a rate; iv) Assessment results excessive relief or refund. Preconditions: i) Action under section 93 cannot be initiated unless definite information has come into the possession of the D.C.T. ii) Before initiating the proceeding under section 93 previous approval in writing from the IJCT is to be taken, except in a case where a return has not been filed u/s 75/77 iii) Notice under section 93 can be issued within 5 years from the end of the assessment year in case it is escaped assessment or under assessment and within 2 years from the end of the assessment year in case it is assessed at too low a rate or has been subject to excessive relief or refund. 18. ASSESSMENT IN THE CASE OF MINORS, LUNATICS, IDIOTS, BENEFICIARIES OF ANY TRUST. (SEC. 95): Minors, lunatics and idiots are assessable to tax as beneficiaries through their guardians and trustees in the same way and to the same extent as it would have been livable and recoverable from such beneficiaries of full age or sound mind in direct receipt of any income profits and gains. In the like manner, the beneficiaries
ASIF AHMED (KPMG) Page 55 of 74
of any property managed by a Trust, Court of Words, receiver or manager will be brought to tax through the Trustees, Court of Words, receivers or manager. 19. ASSESSMENT OF SHIPPING BUSINESS (SEC. 102): If any Ship calls on any port in Bangladesh, the aggregate of the receipt arising from the carriage of passenger, livestock, mail or goods shipped at the port since the last arrival of the ship or at any port outside Bangladesh for which amount is received or deemed to be received in Bangladesh shall be treated as income received in Bangladesh and in this case tax rate will be 8% (usually tax rate is 4% in case where there is a double taxation avoidance agreement with the country the ship is originated). 20. ASSESSMENT OF AIR TRANSPORT BUSINESS (SEC. 103A): If any Aircraft calls on any airport in Bangladesh, the aggregate of the receipts arising from the carriage of passengers, livestock, mail or goods loaded at the said airport into that aircraft shall be deemed to be income received in Bangladesh and in this case tax rate will be 3% (usually no tax in case where there is a double taxation avoidance agreement with the country the aircraft is originated).
Penalty:
There are provisions for imposition of penalties on fraudulent assessee at chapter XV (section 123-133) of the Income Tax Ordinance, 1984. The penalty is the additional amount of income tax though as per definition of tax at section 2 (62), tax includes penalty. The power to impose penalty is given mainly to the Deputy Commissioner of taxes (DCT) and in case of concealment of income the power to impose penalty is also given to the Commissioner of Taxes (Appeal), Appellate Joint Commissioner of Taxes and Taxes Appellate Tribunal. The power to impose penalty is subject to the prior approval of the Inspecting Joint Commissioner of taxes (IJCT) except in the case of imposing penalty for failure to file return u/s 124. Penal proceedings can be initiated by the DCT only in the course of any proceedings in connection with the regular assessment and no such proceedings can be started after completion of the assessment order. If the penalty proceedings are not finalized but the assessment is completed there is nothing to bar the DCT to impose penalty. There is another restriction that assessee has been heard or has been given a reasonable opportunity of being heard before imposing penalty. Penal Provisions The penal provisions are tabulated below: Sl. 1. Grounds of Penalty Penalty for not maintaining accounts in the prescribed manner Section 123 (Read with section 35 and Rule-8) Amount of Penalty (a) 1.5 times of the amount of tax payable (Maximum) (b) Tk.100 where the total income does not exceed the threshold limit (Maximum) Pre-conditions/ Comments 1) Penalty cannot be imposed unless the assessee has been heard or has been given a reasonable opportunity of being heard. 2) DCT shall not impose the penalty without the previous approval of the IJCT. 2. a) Penalty for failure to file return 124(1) 10% of the last assessed tax or Tk. 1,000/- whichever is higher plus Tk. 50/- per day during which the default continues. Penalty cannot be imposed unless the assessee has been heard or has been given a reasonable opportunity of being heard.
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Sl.
Grounds of Penalty b) Penalty for failure to furnish certificate, statement, accounts, information etc. required u/s 58, 108, 109, 110 and 184C c) Penalty for failure to furnish information required u/s 113
Section 124(2)
Amount of Penalty Tk 500/- plus 250 per month during which the default continues.
Pre-conditions/ Comments
-Do-
124(2) Proviso
Tk.25,000/- plus 500/- per day during which the default continues.
-Do-
124A
Tk.20,000/( maximum)
1) Penalty cannot be imposed unless the assessee has been heard or has been given a reasonable opportunity of being heard. 2) DCT shall not impose the penalty without the previous approval of the IJCT 1) Penalty cannot be imposed unless the assessee has been heard or has been given a reasonable opportunity of being heard. 2) DCT shall not impose the penalty without the previous approval of the IJCT.
125
4.
Penalty for noncompliance with notice u/s 79, 80, 83(1) and 83(2)
126
of tax assessed
-Do-
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Sl. 5
Section 127
Amount of Penalty If tax paid u/s 74 is less than 80% of the payable amount then 25% of the short fall (maximum). If 80% is covered then no penalty. 10% of the tax evasion. If the tax evasion is detected after one year or more, then the amount of penalty will increase by additional 10% for each earlier assessment year The amount of arrear tax (maximum)
Pre-conditions/ Comments
-Do-
6.
128
-Do-
7.
137
Failure to deduct/collect tax at source or having deducted/collected fails to deposit into national exchequer.
57
If the amount of tax on which penalty was imposed has been fully reduced by the order of any Appeal/ Tribunal/ Supreme court, the penalty shall automatically be cancelled and if any penalty paid shall be refunded. (1)The deducting authority will also be treated as an assessee in default. (2)Expenditure will be disallowed as per section 30(a) and 30(aa) No pre-condition.
89(3)
of tax assessed
The above-mentioned sections prescribe the maximum penalty (except section 124 and section 57 where penalty is fixed). But the fact is that the ceiling of penalty does not mean that penalty must necessarily be imposed in every case. The discretion of the DCT to levy or not to levy a penalty is still preserved by the penalty sections mentioned above.
Penalty for not maintaining accounts in the prescribed manner (section 123).
As per provision of section 35 income shall be computed in accordance with the method of accounting regularly employed by the assessee in case of the following heads of income: 1. Income from business or profession. 2. Agricultural Income 3. Income from other sources. Medical practitioners known as doctors, surgeons, physicians, dentists, psychiatrists, homeopaths, veterinary surgeons other than medical practitioners, who do not make any separate charge for consultation but make a charge for the
Page 58 of 74
medicines supplied by them and legal practitioners (including income-tax practitioners) accountant and auditors, architects and engineers, are to maintain accounts in the manner prescribed in rule-8.
Asif Ahmed Articled Student KPMG (Bangladesh) Rahman Rahman Huq asif.ahmed0001@yahoo.com 01922939126
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Lecture # 15 02.08.2012
Appeal:
An appeal lies to the Appellate Joint Commissioner of Taxes (AJCT) or to the Commissioner (Appeals), as the case may be, against the order of the Deputy Commissioner of Taxes (DCT). Section 153 gives the right of appeal only to the tax payer and not to the department. Therefore, income tax department cannot appeal against any order of the DCT. But the Inspecting Joint/Additional Commissioner of Taxes (IJCT/IACT) has the power U/S 120 to revise any order passed by the DCT if it is erroneous and prejudicial to the interest of the revenue. Commissioner of Taxes working in the territorial zone can also exercise his revisional power U/S 121A and pass such order not being an order prejudicial to the interest of the assessee. Therefore, no appeal would lie if a right of appeal is not given at our tax law because appeal is not an inherent right. The sequence of appeal is given below through a flow chart:
4 2
1st Appeal to the AJCT (other than company cases and its directors)
1st Appeal to the AACT (For company cases and its directors)
2nd appeal to the Taxes Appellate Tribunal (both assessee and income tax department can go)
END
Reference application to High Court Division of the Supreme Court (Only at question of law point)
9
Appeal to the Appellate Division of the Supreme Court against the judgment of the H/C division (if the H/C division certifies to be fit case for appeal to the Appellate Division)
END
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1.
Only assessee can file 1st appeal to the Appellate Joint Commissioner of Taxes (AJCT) or Appellate Additional Commissioner of Taxes (AACT) or Commissioner (Appeals) as per jurisdiction. The jurisdiction is usually mentioned at the bottom of the demand notice issued by the DCT. Normally, AACT and Commissioner (Appeals) deal with company cases along with the directors of the company and the AJCT deals with other individual cases. Appeal to the Commissioner (Appeals) also lies against the order made by the IJCT U/S 10 or U/S 120.It is to be noted here that the right of appeal is given to the assessee. Where an assessment is made on the representative or on the agent of a non-resident, the person beneficially entitled to the income is nevertheless an assessee within the meaning of section 153 and has therefore a right to appeal. (a) When 1st appeal can be filed Appeal can be filed by the assessee against the following order of the DCT: (i) (ii) (iii) (iv) Assessment Order (except assessment U/S 81, 82 and 82BB) Determination of tax liability to pay. Tax Computation (including an order imposing simple interest U/S 73) Set-off of losses U/S 37 (If the assessee has any objection as to the computation of loss or set-off of loss). (v) Penalty U/S 124, 125, 126,127, 128 and 137.( There is no provision to file appeal against the order of charging additional amount @2% per month for non deduction/ collection of tax at source). (vi) Refusal to allow a claim of refund. (vii) Determination to the actual amount of refund. (viii) Disallowing the claim of foreign tax credit (7th Schedule(para-7) Appeal can also be filed to the Commissioner (Appeals) against the following order of the IJCT/IACT: (i) (ii) Assessment Order U/S 10. Order to revise the order of the DCT U/S 120.
(b)
Procedure to file 1st Appeal The following procedure should be followed to file 1st appeal: (i) Appeal shall be filed at the form prescribed at Rule -27 and Rule-27A with duly signed and verified. (ii) Appeal fee of TK. 200/- is to be paid before submission of appeal. (iii) Tax as per return is to be paid if it is not paid at the time of filing return or afterwards. (iv) Appeal shall have to be filed within 45 days from the date of service of demand notice except in case of appeal against the disallowances of the foreign tax credit as per 7 th schedule Para-7. However appeal authorities can entertain an appeal after condoning the delay if he is convinced that assessee has sufficient reason for failure of file appeal in time. Demand notice should be served properly otherwise assessee will get unlimited time. The power to condone such delay is discretionary. Provision for time limitation of 45 days will not attract if demand notice was not served with assessment order (I.T. 88) and Tax computation form (I.T. 30), in which case assessee will get unlimited time for filing appeal. So without I.T.88 and I.T.30 the service of demand notice is not complete. In computing the 45 days, the time required for obtaining a certified copy of such order should be excluded. Where the 45 days expires on day which is a holiday, the appeal may be made on the day next following such holiday.
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(c) Disposal of appeal cases by the appeal authority The following procedure should be followed by the appeal authority to dispose of an appeal: (i) (ii) (iii) (iv) Notice of hearing is to be given to both appellant and the concerned DCT. Appeal authority can make enquiry and call for such particulars as he may require before disposing of an appeal. He can also give instruction to the DCT for further enquiry. Appeal authority can allow new or additional ground of appeal if he is satisfied that the omission of that ground was not willful or unreasonable. Appeal authority will not admit any documentary evidence which was not produced before the DCT unless he is satisfied that appellant was prevented by sufficient cause from producing such evidence before DCT. Appeal authority in his judgment can give following decision when an appeal filed against assessment order: a. b. c. d. e. confirm reduce Enhance Set aside with the direction to make fresh assessment. (only on the ground that notice was not served properly) Annul
(v)
Enhancement of assessment means increase in the amount of total income or tax. It can be done only after giving the assessee a reasonable opportunity of being heard. If the AJCT or Commissioner (Appeals) does not enhance the total income but by means of reduction under one head and an increase under another head allows the assessment to remain the same or reduces it, it can not be said to have enhanced merely because income under one head has been increased Where the assessees income h as been assessed under more than one head, even if the assessees appeal is confined to the income assessed under only one of the heads, the AJCT or Commissioner (Appeals) may enhance the assessment by increasing the amount assessed under another head of income in respect of which the assessee has not appealed. The reason is that income tax is only one tax and when the assessee goes in appeal then exposes the assessment as a whole. But appeal authority has no power to enhance the assessment by assessing entirely new sources of income outside the subject matter of the assessment appealed against. He has no jurisdiction to travel beyond the subject matter of the assessment and his power of enhancement relates only to that income which has been subjected to the process of assessment. On the other hand it is not open to the assessee who has preferred an appeal to withdraw it so as to prevent the Appellate Joint Commissioner of Taxes (AJCT) or Commissioner (Appeals) from enhancing the assessment.
(d) Appeal authority in his judgment can give the following decisions when an appeal filed against penalty order: (i) confirm (ii) set-aside (only an the ground that notice was not served properly) (iii) cancel (iv) reduce (v) enhance (only after giving reasonable opportunity of being heard) (e) In any other case, appeal authority can pass such order as they think fit. But the AJCT or Commissioner has no power to review his own order in any case but he is empowered U/S 173 to rectify any mistake apparent from record.
ASIF AHMED (KPMG) Page 62 of 74
(f) Appeal shall be disposed of by the appeal authority with 150 days from the end of the month of which the appeal was filed and such order shall be communicated to the appellant, DCT and Commissioner of Taxes within 30 days. If the appeal is not disposed of within the period of limitation the appeal so filed shall be deemed to have been allowed.
2.
Procedure to file 2nd appeal to the Taxes Appellate Tribunal (a) Both assessee and DCT (with prior approval of his Commissioner) can prefer 2 nd appeal against the 1st appeal order (Including an order imposing penalty u/s 128 by the AJCT or Commissioner (Appeals). An order of the AJCT or Commissioner (Appeals) refusing to condone delay ( if there is any application for condo nation) and refusing to admit, or rejecting after hearing, an appeal as time barred, will be treated as an order passed in the appeal and a 2nd appeal would lie to the tribunal. Appeal shall be filed at the form prescribed at Rule-28 with duly signed and verified by the appellant. Tribunal fee of TK.1000/- is to be paid before submission of 2nd appeal (this fee is not applicable when appeal is filed by the DCT). Assessee has to pay tax @ 10% of the difference between the tax as per appeal order and tax as per section 74. However, authority to reduce such tax has been given to the Commissioner of Taxes if assessee applies for this. Appeal shall be filed to the Taxes Appellate Tribunal within 60 days from the date of receiving 1 st appeal order.
(e)
3.
Disposal of appeal by the Taxes Appellate Tribunal The following procedure should be followed by the Taxes Appellate Tribunal to dispose of an appeal: (a) Notice of hearing is to be given to both appellant and the department. Even if the appellant does not appear on the day fixed for hearing, the Tribunal is bound to decide the appeal on merit and cannot dismiss the appeal for default. (b) Tribunal may call for such particulars as they may require or can give instruction to the DCT for further inquiry. (c) Tribunal will give judgment as they think fit. The power to pass such order as the Tribunal thinks fit can be exercised only in relation to the matters that arise in the appeal. It is not open to the Tribunal to adjudicate or give a finding on a question which is not in dispute and which does not form the subject matter of the appeal. The Tribunal would be entitled to enhance the assessment as it stands after the appeal order in case of appeal by the department or in case of cross appeal. But when the appeal is filed by the assessee and there is no cross appeal by the department, it is not open to the Tribunal to give a finding adverse to the assessee. (d) Since a reference application to the High Court division lies only on a question of law, the Tribunal is the final fact finding authority. (e) Appeal shall be disposed of by the Appellate Tribunal within 6 months from the end of the month of filing appeal; otherwise appeal so filed shall be deemed to have been allowed. Such order should be communicated within 30 days for the date of order. (f) Tribunal has no power to review its own order but they are empowered by section 173 to rectify any mistake apparent from record. (g) Tribunal has power to permit an appeal to be withdrawn. (h) Decision shall be given in accordance with the opinion of the majority of its members. It is the duty of the members of the Tribunal who heard the appeal in the first instance to formulate clearly the point on which they differ and it is only thereafter that a reference can be made to a third member. After the decision of the third member on the point referred to him the case should go back to the original Bench, since the third member has not given the jurisdiction to decide and dispose of the appeal. In this way decision will be based on the opinion of the majority of the members.
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4.
Procedure to file reference application to High Court Division of the Supreme Court (a) Both assessee and the Commissioner of Taxes (with prior permission from NBR) can file reference application to High Court Division of the Supreme Court only against any question of law arising from the order( including an order under section 173) of the Taxes Appellate Tribunal. An order of the Tribunal dismissing an appeal as time barred or refusing to condone delay is obviously an order of the Tribunal and consequently a reference lies against it. Where assessee is the applicant the Commissioner of Taxes will be the respondent and where the Commissioner of Taxes is the applicant, the assessee will be the respondent. Application shall be filed within 90 days from the date of receipt of the Tribunal order at the form prescribed at Rule-29 with duly signed and verified. Fee of Tk. 2,000 is to be paid before submission of application. However no fee is needed if application is made by the Commissioner of Taxes. Where the assessee is the applicant then 25% or 50% of the difference between the tax as per return and the tax as per tribunal order is to be paid followingly. Particulars Rate Rate to be applied i. If tax demand is below Tk. 1,000,000 25% On the difference between the tax as per Tribunal order and ii. If tax demand is more than Tk. 1,000,000 50% tax as per return. However NBR has the power to waive or modify the requirement of such payment (e) Application shall be in triplicate and accompanied by the following document: Certified copy of Tribunal Order Certified copy of Appeal Order Certified copy of Assessment Order Any other document relevant to the question of law which was submitted to the DCT or to the AJCT or to the Tribunal. After getting hearing notice from the High Court Division, the respondent shall have to submit the reply in writing at least 7 days before the date of hearing. Tax as per Tribunal order shall be payable notwithstanding the pendency of a reference in the High Court Division. The High Court Division may in a proper case stay of recovery proceedings till the disposal of the reference. (i) (ii) (iii) (iv)
(b) (c)
(d)
(f) (g)
5.
Disposal of reference application by the High Court Division (a) A division bench of not less than 2 Judges will hear the case as per section 98 of the Code of Civil Procedure, 1908.If the judges are equally divided the question on which there is the difference of judicial opinion may be referred to another judge or to a larger Bench and the decision of the majority of the judges would prevail. The High Court Division will decide the question of law and deliver its judgment containing the grounds on which the decision is founded. The judgment of the High Court Division as a whole is binding between the parties in the particular case. If the judgment expounds a wrong construction of the Ordinance, an appeal against it is open and there is no other procedure by which it can be corrected. The cost of the reference shall be in the discretion of the Court.
(b)
(c)
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6.
Procedure to file appeal to the Appellate Division of the Supreme Court An appeal shall lie to the Appellate Division against the judgment of the High Court Division provided the High Court Division certifies the case to be a fit one for appeal to the Appellate Division of the Supreme Court. The High Court Division would certify the case as a fit one for appeal and grant leave to appeal to the Appellate Division if a substantial question of law is involved or if the question is otherwise of great public or private importance. If the High Court Division refuses to certify a case to be a fit one for appeal to the Appellate Division, an application may be made to the Appellate Division for special leave to appeal against the decision of the High Court Division in special circumstances.
7.
Disposal of appeal by the Appellate Division of the Supreme Court The appellate division will hear and dispose of the appeal as per provision of Code of Civil Procedure, 1908
8.
Revisional Power of Commissioner of Taxes under section 121A While section 120 empowers the Inspecting Joint Commissioner of Taxes and Inspecting Additional Commissioner of Taxes to exercise revisional power in favour of revenue, section 121A empowers the Commissioner of Taxes of the territorial zone to exercise revisional power in favour of the assessee. The following procedure should be followed to file a review application to the Commissioner of Taxes: (i) Application shall be made in a plain paper as there is no prescribed form. (ii) Review fee of TK. 200/- is to be paid before submission of application. (iii) Tax as per return is to be paid if the application is filed against the order of the DCT and undisputed portion of tax as per 1st appeal order is to be paid if the application is filed against the AJCT or AACT. (iv) Application shall have to be submitted within 60 days from the date the date of receiving order. However Commissioner of Taxes can entertain an application after condoning the delay if he is convinced that assessee has sufficient reason for failure of submit application in time. However the power to condone such delay is discretionary. If it is made against the order of the DCT, it is to be made either after the time of appeal (45 days) is over or with an affidavit waiving the right of appeal and if it is made against the order of the AJCT or AACT it is to be made either after the time of 2nd appeal (60 days) is over or with an affidavit waiving the right of filing Tribunal.
9.
Disposal of revisional application by the Commissioner of Taxes (1) Commissioner of Taxes will hear a case which is passed by any authority subordinate to him. DCT is directly the subordinate to the Commissioner of Taxes. Though AJCT and AACT are not subordinate to the Commissioner but for the purpose of section 121A, they will be deemed to be the subordinate to the Commissioner so that their order can be revised by the Commissioner of Taxes. (2) Commissioner of Taxes will pass order within 60 days from the date of receiving application failing which application will be deemed to have been allowed fully. (3) Commissioner of Taxes can make enquiry and can also give instruction to the DCT for further enquiry. (4) Commissioner of Taxes shall not pass any order which is prejudicial to the assessee. A prejudicial order is that order which places the assessee in a different and worse position than before. But an order declining to interfere shall not be deemed to be an order prejudicial to the assessee. Commissioners revisional power is of an administrative nature and therefore he is not bound to hear the assessee before passing his order. (5) An order passed by the Commissioner of Taxes under section 121A is not appeal able to the Taxes Appellate Tribunal and no reference will lie against such order.
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Lecture # 16 03.08.2012
Individual Tax Assessment Problem. Salient Features of Finance Act, 2012.
Asif Ahmed Articled Student KPMG (Bangladesh) Rahman Rahman Huq asif.ahmed0001@yahoo.com 01922939126
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Lecture # 17 05.08.2012
Alternate Dispute Resolutions:
Finance Act 2011 introduces new chapter titled Alternate Dispute Resolution in IT Ordinance 1984 to resolve any dispute of an assessee lying with any income tax authority, Taxes Appellate Tribunal, or Court. This is done to simplify and speed up dispute resolution process. The whole process is summarized in following figure:
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An assessee may apply for resolution of the dispute through the ADR process if aggrieved by an order of an income tax authority or if a dispute is pending before any income-tax authority, tribunal or court. In case of any pending dispute, the assessee is required to get permission from the authority where it is pending in writing before applying for ADR and if approval is received and assessee applies for ADR, the matter shall remain stayed during ADR negotiation process. To resolve dispute in an alternative way, the Board may select or appoint Facilitator and determine his duties and responsibilities. The assessee shall be allowed to negotiate himself personally or along with an authorized representative, with the Commissioner's Representative for the concerned dispute under the facilitation and supervision of such Facilitator. Upon receiving the application of ADR, the Facilitator shall forward a copy of the application to the respective Deputy Commissioner of Taxes and also call for his opinion on the grounds of the application. If the Deputy Commissioner of Taxes fails to give his opinion regarding fulfillment of the conditions, the Facilitator may notify in writing the applicant and the Commissioner of Taxes or the Commissioner's Representative to attend the meetings for settlement of disputes on a date mentioned in the notice. Where an agreement is reached, either wholly or in part, between the assessee and the Commissioner's Representative, the Facilitator shall record, in writing, the details of the agreement, sign and shall communicate the same to the assessee and the concerned Deputy Commissioner of Taxes. However, where no agreement is reached or the dispute resolution is ended in disagreement between the assessee and the concerned Commissioner's Representative for noncooperation of either of the parties, the Facilitator shall communicate it within fifteen days from the date of disagreement, to the applicant and the Board, the concerned court, Tribunal, appellate authority and income tax authority, as the case may be, about such unsuccessful dispute resolution. Where an agreement is reached, it shall be binding on both the parties and it cannot be challenged in any authority, Tribunal or court either by the assessee or any other income tax authority. Where an agreement is not reached, the assessee may prefer an appeal in following manner: Dispute Arises out of an order of Deputy Commissioner of Taxes Appeal to Appellate Joint Commissioner of Taxes OR Appellate Additional Commissioner of Taxes OR Commissioner of Taxes (Appeals)
Appellate Joint Commissioner of Taxes OR Appellate Additional Commissioner of Taxes OR Commissioner of Taxes (Appeals)
The assessee-applicant may also appeal to the respective appellate authority or court from where he has got permission to apply for ADR.
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Resident Vs Non-Resident:
Not only the rate of tax depends upon the residential status of the assessee but also the category of income to be included in computing total income depends upon the residential status of the assessee. So in income tax viewpoint firstly the residential status of the assessee is to be determined. As per section 2(55) a person will be resident if he fulfils the following conditions:Sl. No 1. Category of person Individual (Bangladeshi or foreigner) Condition for being resident Stay in Bangladesh for at least 182 days in aggregate during the income year. OR Stay in Bangladesh for at least 90 days in aggregate during the income year + An aggregate stay of at least 365 days in Bangladesh in the course of 4 years preceding the income year. The control and management of its affairs is situated wholly or partly in Bangladesh during the income year. Analysis The test of residence here are alternative not cumulative. Each of the 2 tests requires the personal presence of the assessee in Bangladesh during the income year. If the assessee is continuously out of Bangladesh during the whole year, he must be treated as non-resident in that year. If the 1st criteria of 182 days has fulfilled he is to be regarded as resident irrespective of any other consideration. If anybody resides here for less than 90 days then obviously he is non-resident. Thus a man may be resident in 2 different countries in the same year, although he can have only one domicile. If the control and management is situated wholly outside Bangladesh only then an HUF, firm or other AOP can be treated as non-resident. Since partial control is sufficient for the purpose of residence, a firm may have 2 places of residence; The residence of partners or an individual member of HUF is immaterial for the purpose of determining the residence of a firm or family. The place of control may be different from the place where the actual trading is carried on. Control of a business does not necessarily mean the carrying on of the business and therefore the place where trading activities or physical operations are carried on is not necessarily the place of control and management. Control and management signifies the controlling and directive power and situated implies the functioning of such power at a particular place with some degree of performance. Control and management means de facto control and management and not merely the right or power to control and manage. The absence of the karta from Bangladesh throughout the year does not by itself lead to the conclusion that the family is non-resident in that year, since the business of the family, though it is normally controlled by the karta, may at a particular point of time be controlled by some one else. The same principle applies equally to cases of firms and other association of persons.
2.
(i) Hindu Undivided Family (HUF) (ii) Partnership firm (iii) Association of Persons (AOP)
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Sl. No 3.
Condition for being resident The control and management of its affairs is situated wholly in Bangladesh during the income year.
Analysis A company whether a Bangladeshi company or a foreign company whether it is registered at Registrar of Joint Stock Companies of Bangladesh or not is resident here in Bangladesh if the control and management of its affairs is situated fully in Bangladesh during the income year. In the classical word, a company can not eat or sleep but it can keep house and do business and for the purpose of income tax a company resides where it really keeps house and does business, i.e. where the central management and control actually abides. While the location of control and management is the sole test of residence for HUF, Firm and AOP, it is also a test for companies. Here controls mean de facto control not merely de jure control. The control and management, the head and brain, does not reside where there is some ultimate power of control such as the power to alter the articles of associations by a special resolution or the power to interfere with fundamental finance. A company may be resident in Bangladesh even though its entire trading operations are carried on abroad. If the management and control is situated here, the company is resident here and it does not in the least matter where the actual selling and buying of the goods takes place.
Incidence of taxation on the basis of residential status: Section 16 is the charging section where it was clearly mentioned that income tax is to be charged on the total income of the assessee. The liability to tax arises by virtue of the charging section. The assessment order only quantifies the liability which is finally created by the charging section. Here total income as per section 2(65) means total amount of income as referred to in section 17 and includes any other income which is to be included in the total income of the assessee as per provision of The Income Tax Ordinance, 1984. The principle underlying section 17 is to make the chargeability of income depending upon the locality of receipt or accrual. Section 43 also deals with the computation of total income by inclusion, in some cases, of other person's income. Assesses can be divided into 2 categories:(i) Resident; and (ii) Non-resident. The basic difference between resident and non-resident is tabulated below:Sl. No 1. Area Income point of view Resident The entire income accruing or arising in any part of the world, irrespective of whether it is received in Non-resident The income accruing or arising in Bangladesh only is taxable. Analysis (a) A non-resident, unlike a resident, is not chargeable in respect of income accruing or arising outside Bangladesh and not received in Bangladesh. (b) If an income is taxed on the ground
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2.
rate
is
of accrual or deemed accrual, it can not be taxed again on the ground of receipt either in the same year or in a different year. (c) As per S.R.O. No. 216-Law/ Income tax/2004 dated 13/07/2004 foreign income of a Bangladeshi national, irrespective of resident or non-resident, is exempt from payment of tax if it comes through official channel. (a) The only exception is non-resident Bangladeshi where general tax rate is applicable. (b) If any resident assessee proves to the satisfaction of the DCT that, he has paid tax at foreign country by deduction or otherwise on any income which has accrued or arisen to him outside Bangladesh with which there is no reciprocal tax treaty, the DCT may deduct from the tax payable by the assessee a sum equal to the tax calculation on such doubly taxed income at the average rate of tax of Bangladesh or the average rate of tax of the foreign country whichever is less. The only exception is non-resident Bangladeshi where investment tax credit facility is applicable like resident.
Thus the incidence of tax depends upon and is determined by the question whether the assessee is resident in Bangladesh. A non-resident entitles partial exemption from chargeability to which resident is not entitled to. Generally speaking, the incidence of tax is higher in the case of persons who are resident and lower in the case of persons who are non-resident.
Avoidance of tax through transactions with non-residents (Sec.104 read with rule-34 and 35) Business may be carried on between a resident and a non resident and owing to the close connection between them, the course of business may be so arranged that the resident makes either no profit or less than the ordinary profit in that business. Such an arrangement might deprive Bangladesh Govt. from tax which would otherwise be payable by the resident. In such cases the resident may be charged in respect of the profits which he has not in fact made but which he might reasonably be expected to have made had he done the business on ordinary commercial terms. Rule-35 read with rule-34 prescribes the method of determining the amount of notional income in respect of which the resident may be charged under section 104.
Double Taxation Avoidance Agreement (Sec. 144 read with 7th Schedule): Double taxation avoidance agreement is usually an agreement between 2 countries seeking to avoid double taxation by defining the taxing rights of each country with regard to cross, border flows of income and providing tax credits or exemptions to eliminate double taxation. The Govt. of Bangladesh also may enter into an agreement with the Govt. of
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other countries for the avoidance of double taxation and the prevention of fiscal evasion. Income tax policy wing of the National Board of Revenue (NBR) is entrusted to negotiate the double taxation treaty with foreign countries to promote foreign direct investment in Bangladesh. Such agreement will come into force through notification in the official Gazette. It will be treated as an international law and accordingly its legislative position would be over and above our Bangladesh tax law. The objectives of such agreement are:1. To provide relief from Bangladesh tax. 2. To determine income accruing or arising to non-residents from sources within Bangladesh. 3. To determine income of a non-resident carrying on business from within and outside Bangladesh. 4. To determine the income of a resident person having special relation with non-resident. 5. To recover tax. 6. To exchange the information for avoidance of double taxation and the prevention of fiscal evasion.
The Bangladesh model of Agreement on Avoidance of Double Taxation consists of 29 Articles that are as follows: Article 1 : Persons Covered Article 2 : Taxes Covered Article 3 : General Definitions Article 4 : Resident Article 5 : Permanent Establishment Article 6 : Income from Immovable Property Article 7 : Business Profits Article 8 : Shipping and Air Transport Article 9 : Associated Enterprises Article 10 : Dividends Article 11 : Interest Article 12 : Royalties Article 13 : Fees for Technical Services Article 14 : Independent Personal Services Article 15 : Dependent Personal Services Article 16 : Director's Fees Article 17 : Artists and Sportsmen Article 18 : Pensions Article 19 : Government Service Article 20 : Students and Trainees Article 21 : Lecturers and Researchers Article 22 : Other Income Article 23 : Elimination of Double Taxation Article 24 : Non-Discrimination Article 25 : Mutual Agreement Procedure Article 26 : Exchange of Information Article 27 : Diplomatic Agents and Consular Officers Article 28 : Entry into Force Article 29 : Termination Like many others developed as well as developing countries of the world, Bangladesh too cannot absolve herself from the need to facilitate her trade and investments with the outside world through international tax treaty network with other countries. The increased pace of industrialization coupled with increased foreign direct investment in the country necessitated tax treaty arrangements with other countries to provide investors with certainty and guarantees in the area of taxation. As on March, 2011, the status of Bangladesh on Avoidance of Double Taxation Agreements is as follows:
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Name of the countries with which Agreement on Avoidance of Double Taxation is in force. Sl. No Name of the Country No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29 30 31 32 U.K Singapore Sweden Korea Canada Pakistan Romania Sri Lanka France Malaysia Japan India Germany Netherlands Italy Denmark China Belgium Thailand Poland Philippines Vietnam Turkey Norway Indonesia USA Switzerland Oman (only business) Myanmar Mauritius Saudi Arabia UAE 227-L/80 124-L/82 382-L/83 433-L/84 247-L/85 221-L/88 348-L/88 365-L/88 2-L/89 67-L/90 235-L/91 45-L/93 1-L/94 267-L/94 63-L/97 72-L/97 114-L/97 11-L/98 222-L/98 39/L/99 56/L/2004 301-L/2004 308/L/2004 20-L/2006 60-L/2007 71-L/2007 52-L/2010 on airlines SRO Date 08/07/1980 21/04/1982 19/10/1983 02/10/1984 06/06/1985 11/07/1988 23/11/1988 10/12/1988 04/01/1989 15/02/1990 06/08/1991 27/02/1993 01/01/1994 14/09/1994 12/03/1997 17/03/1997 13/05/1997 14/01/1998 07/09/1998 03/03/1999 04/03/2004 18/10/2004 31/10/2005 12/02/2006 20/04/2007 10/05/2007 23/02/2010 10/5/2008 07/10/2008 21/12/2009 04/01/2011 (date of signing) 17/01/2011 (date of signing) Date of effect in Bangladesh (assessment year commencing on or after) 01/07/1978 01/01/1980 01/07/1984 01/07/1984 01/07/1982 01/01/1980 01/07/1989 01/07/1989 01/07/1989 01/01/1982 01/07/1992 01/07/1993 01/01/1990 01/07/1995 01/07/1980 01/07/1997 01/07/1998 01/07/1998 01/07/1999 01/07/2000 01/07/2004 01/07/2005 01/07/2004 01/07/2006 01/07/2007 01/07/2007 13/12/2009
Gazette not yet published Gazette not yet published Gazette not yet published Gazette not yet published
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Comparative Rates in Double Taxation Avoidance Agreement Sl. No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. Name of the Country U.K Singapore Sweden Korea Canada Pakistan Romania Sri Lanka France Malaysia Japan India Germany Netherlands Italy Denmark China Belgium Thailand Poland Philippines Vietnam Turkey Norway Indonesia USA Permanent Establishment 183 days 183 days 183 days 183 days 183 days 183 days 183 days 183 days 183 days 183 days 6 months 183 days 183 days 6 months 183 days 183 days 6 months 183 days 183 days 183 days 6 months 6 months 12 months 6 months 183 days 183 days Maximum tax rate for dividend 10%/15% 15% 10%/15% 10%/15% 15% 15% 10%/15% 15% 10%/15% 15% 10%/15% 10%/15% 15% 10%/15% 10%/15% 10%/15% 10% 15% 10%/15% 10%/15% 10%/15% 15% 10% 10%/15% 10%/15% 10%/15% Maximum tax rate for Interest 7.5%/10% 10% 10% 10% 10% 15% 10% 15% 10% 15% 10% 10% 10% 10% 10%/15% 10% 10% 15% 10%/15% 10% 15% 15% 10% 10% 10% 10% Maximum tax rate for Royalties 10% 10% 10% 10% 10% 15% 10% 15% 10% 15% 10% 10% 10% 10% 10%/15% 10% 10% 10% 15% 10% 15% 15% 10% 10% 10% 10%
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