Taxation Some Basic Rules

Elementary of Salary and Explanations

Basic Salary: Basic salary is the amount paid or payable by the employer or his
representative the employee on a monthly basis. Basic is the most important
element of salary because some allowances contribution to various funds are
determined on the basis of this.
Explanation: If Mr. Habib has withdrawn monthly salary of Tk. 7,000 on July 2015
in the scale of Tk. 6,000-200-10,000 and his date of yearly salary increment falls
on March 1; his basic salary for the income year 2015-2016 will be computed in
the following way:
From 1 July 2015 to 28 February 2016 for 8 months @ Tk. 7,000*8 56,000
From 1 March to 30 June 2016 for four months @Tk. (7,000+200)*4 28,800
84,800

Special Allowance: According to part A, sixth schedule of the ITO, 1984, any
special allowance totally exempted.

Medical Allowance: Any amount receivable or received exceeds 10% of the basic
salary or 1,20,000 annually, which ever is less, shall be included in his income.
Explanation: If Mr. Mahedi is given Tk. 12,000 as medical allowance in a year, His
annual basic salary is Tk. 1,09,000. Taxable medical allowance will be calculated in
the following way:
Medical Allowance Tk. 12,000
Less: exemption:
1,20,000 Or 10% of BS Tk.10,900 Tk. 10,900
(which ever is lower) Tk. 1,100

Entertainment allowance: The total amount of entertainment allowance will be

include the head salary income.
Fees & commission: Fees and commission is received from employer the total
amount will be taxable.
Pension: The total amount of pension is fully exempt.
Gratuity: Excess of 2.5 crore of gratuity is taxable.
Employer's contribution to Recognized provident fund: Only the employer's
contribution will be added with salary.
Interest on Recognized Provident Fund: Interest excluding 14.5% rate or 1/3 of
BS (which ever is lower) will be added with salary.
Explanation: Mr. Evan is paid monthly Tk. 5,000as basic salary and he has also
received Tk. 7200 as 18% interest on RPF. We will calculate this following way:
Interest @18% on R.P.F. 7,200
Less: exemption
Lower of interest @14.5% Tk. 5,800
Or 1/3 of BS Tk. 20,000 5,800 1,400
Calculation of 14.5% interest =(interest ÷ actual rate of interest) * 14.5%
=(7,200 ÷ 18) * 14.5% = 5,800
Wages: The full amount is taxable.
Lunch/Tiffin allowance: If any employee receives any extra cash allowance for
lunch/tiffin, the full amount will taxable. But if free lunch is provided in the office,
it will be fully exempted.
Special/Professional: The full amount of professional allowance will be taxable.
Overtime: The full amount of overtime is taxable.