How to Calculate Income Tax on Salary in Bangladesh?

Calculating income tax for an individual taxpayer can be a complex task. However, determining tax liability on income derived from salary or employment is comparatively straightforward. In this article, I have made an effort to present the concepts in a clear and simplified manner for the benefit of readers.

While the primary focus is on salary income, I have also included income from rental sources and financial assets in the example calculations, as many taxpayers who earn salaries often have income from these additional heads. It is important to note that I have not covered all possible scenarios, as individual circumstances may involve other factors and considerations.

For personalized guidance tailored to your specific situation, you are welcome to contact me via email. This article is intended solely to provide a general understanding of how to calculate income tax on salary in Bangladesh.

In Bangladesh, the National Board of Revenue (NBR) determines the income tax rates and slabs for each fiscal year.

For the assessment year 2025-2026, the income tax rates for individual male taxpayers are as follows:

– Up to BDT 350,000: No tax

– Next BDT 100,000: Tax rate is 5%.

– Next BDT 400,000: Tax rate is 10%.

– Next BDT 500,000: Tax rate is 15%.

– Next BDT 500,000: Tax rate is 20%.

– Next BDT 2,000,000: Tax rate is 25%.

– Rest of the income: Tax rate is 30%.

For the assessment year 2025-2026 in Bangladesh, the tax-exempted income ceiling varies depending on the taxpayer’s category:

– For female taxpayers and senior citizens aged 65 or above, the tax-exempt income ceiling is set at BDT 400,000.

– For third gender taxpayers and handicapped/disabled persons, the tax-exempt income ceiling is BDT 475,000.

– For gazetted war-wounded freedom fighters, the tax-exempt income ceiling is BDT 500,000.

– For parents or legal guardians of a disabled person, the tax-exempt income ceiling is increased by BDT 50,000. This benefit can only be availed by one parent if both parents are taxpayers.

Taxpayers who fall into one of these categories can benefit from higher exempted income ceilings, helping them reduce their tax liabilities.

In Bangladesh, the Income Tax Act, 2023 provides a broad definition of “salary” that covers different types of payments and benefits received by an employee from their employment. Here’s a simplified breakdown of what is considered salary under the law:

 What Counts as Salary:

1. Salary, Wages, and Remuneration: Regular payments you receive from your job, such as your monthly or weekly wages.

2. Allowances and Bonuses: Additional payments for things like travel, holidays, leave encashment, or performance bonuses.

3. Advance Salary: Payments you might receive in advance, such as getting paid before a holiday or for other reasons.

4. Gratuity, Annuities, and Pensions: Payments you receive after leaving a job, such as retirement pensions or gratuity.

5. Perquisites: Extra benefits your employer might provide, such as housing, transportation, or other non-cash benefits.

6. Receipts in Lieu of Salary or Wages: Payments received in situations like the termination of employment, remaining balances in funds like provident funds, or other forms of compensation beyond your regular salary.

 What’s Excluded from Perquisites:

The law also specifies what is not considered a perquisite (extra benefits) for tax purposes:

– Basic salary and other payments like arrears (back pay), advance salary, festival bonuses, leave encashment, and overtime pay.

– Contributions made to recognized funds like provident funds, pension funds, gratuity funds, and superannuation funds.

This definition helps ensure that all types of income and benefits you receive from your employment are properly accounted for when calculating your taxable income.

The Income Tax Act, 2023 in Bangladesh provides rules for calculating the monetary value of non-cash perquisites, allowances, and benefits that employees receive from their employers. Here’s how it works:

How to Calculate the Value of Perquisites, Allowances, and Benefits:

1. Accommodation:

    – Employer-Paid Rent or Provided Accommodation: If the employer pays the full rent or provides accommodation, the annual value of the accommodation is added to the employee’s income from employment.

    – Concessional Rate: If the employer provides accommodation at a reduced or concessional rate, the difference between the rent paid by the employee and the annual value of the accommodation is added to the employee’s income from employment.

2. Car Benefit:

    – Motor Car Up to 2,500 CC: If the employer provides a car with engine capacity up to 2,500 CC, BDT 10,000 per month is added to the employee’s income from employment.

    – Motor Car Exceeding 2,500 CC: If the employer provides a car with engine capacity over 2,500 CC, BDT 25,000 per month is added to the employee’s income from employment.

3. Other Perquisites, Allowances, or Benefits:

    – For other types of non-cash perquisites, allowances, or benefits, the monetary value or fair market value is added to the employee’s income from employment.

This ensures that employees’ non-cash benefits, such as accommodation or car allowances, are properly valued and included in their taxable income. This helps maintain a fair and consistent tax system.

The Income Tax Act, 2023 in Bangladesh outlines certain types of income related to employment that are not subject to income tax. These are known as non-assessable incomes. Here’s a summary of the types of income that are not taxed under the head “Income from Employment”:

Types of Non-Taxed Income from Employment:

1. Standard Deduction: A deduction of one-third of your employment income or BDT 500,000 (whichever is lower) can be taken from your total income from employment.

2. Employees of International Organizations: If you work for an intergovernmental or international organization and your income is exempt from tax under any agreement with the government, your income is not taxable.

3. Diplomatic Staff: If you are employed by the government as an ambassador, high commissioner, envoy, minister, consular officer, or other diplomatic role, your income from these positions is not taxable.

4. Foreign Trade Commissioners: If you are a trade commissioner or an official representative from another country and your country offers similar exemptions to Bangladeshi representatives, your salary in Bangladesh is not taxable.

5. Staff of International Officials: If you work as a staff member for an official mentioned in points 2 or 3, and you are not a Bangladeshi citizen and are not involved in other work in Bangladesh, your income may be tax-free if similar exemptions are offered in your home country.

6. Pensions from the Government: Any pension you receive from the government is tax-exempt.

7. Gratuity: Gratuity up to BDT 2.5 crore received from the Approved Gratuity Fund is tax-exempt.

8. Income from Recognized Funds: Contributions from recognized provident funds, approved superannuation funds, pension funds, and approved gratuity funds are tax-exempt.

9. Income from Provident Fund: Income from a provident fund established under the Provident Fund Act, 1925 is tax-exempt.

10. Voluntary Retirement Payments: Amounts received from a government, local authority, autonomous, or semi-autonomous body on voluntary retirement under a government-approved scheme are not taxed.

Additionally, there are specific exemptions provided through special government orders (SROs):

– SRO 182-law/99: If your employer pays your salary tax, you do not have to pay tax on the amount your employer paid.

– SRO 298/2015: Foreign employees with technical skills working for companies in Economic Zones receive a 50% income tax exemption for three years from the date of appointment.

These non-taxable income categories provide some relief to employees in specific situations and help ensure fair taxation for different types of employment income.

Investment Tax Rebate:

In Bangladesh, under the Income Tax Act, 2023, resident individuals and non-resident Bangladeshis are eligible for a tax rebate on certain investments. The tax rebate amount is calculated as the lowest of three different figures:

1. 0.03 times your total computed income (excluding tax-exempt income, income subject to a reduced tax rate, inome from partnership business and income subject to final settlement).

2. 0.15 times your total investment and expenditure as specified in Part 3 of the Sixth Schedule of the Income Tax Act.

3. BDT 1,000,000 (1 million taka).

Salary-Related Items Included in Investment Allowance:

The Income Tax Act also allows for certain deductions from your basic salary to be included as part of the investment allowance, qualifying for a tax rebate. These deductions are as follows:

1. Deferred Annuity or Provisions for Family: Any amount deducted from your salary to fund a deferred annuity or to provide for your spouse or children. The amount deducted cannot exceed one-fifth of your salary.

2. Employee’s Contribution to General Provident Fund (GPF): Your contributions to a General Provident Fund.

3. Employee’s and Employer’s Contribution to Recognized Provident Fund (RPF): Both your and your employer’s contributions to a Recognized Provident Fund.

4. Annual Contribution to Approved Superannuation Fund: Your ordinary annual contributions to an approved superannuation fund.

5. Employee’s Contribution to Benevolent Fund or Group Insurance Scheme: Your contributions to a benevolent fund or group insurance scheme.

These deductions can help reduce your taxable income and, consequently, your tax liability, as they are considered part of your investment allowance and are eligible for a tax rebate.

Here is a table summarizing the computation of taxable income from salary, outlining the items that are fully taxable, partially taxable, or tax-exempt, according to the Income Tax Act, 2023 in Bangladesh:

This table provides a clear overview of how different salary-related items are treated for tax purposes, including which are fully taxable, partially taxable, or tax-exempt.

How to calculate income tax on salary?

Example:

Mr. Sunny, a senior executive in a multinational company in Bangladesh, has the following sources of income for the income year ended June 30, 2025. You are required to calculate Mr. Sunny’s total income and tax payable.

Income Details:

(a) Basic pay of Tk. 120,000 per month sent directly to his bank account.

(b) Rent-free accommodation provided by the company with an annual value of Tk. 500,000.

(c) Full-time company car (2,500 CC) for his use.

(d) Company pays Tk. 80,000 per month for his two school-going children, which is paid directly to the school.

(e) He received two festival bonuses equivalent to his basic pay, which he used partly for his family and partly for charitable purposes.

(f) The driver’s salary was Tk. 12,000 per month paid to his bank account.

(g) The company reimbursed Tk. 200,000 for various utility bills for his house during the year.

(h) Medical allowance of Tk. 6,000 per month. His actual expense was higher.

(i) He was paid Tk. 800,000 for his overseas business travel, from which he saved 20%.

(j) The company paid Tk. 250,000 for his international club memberships.

(k) He received interest on securities amounting to Tk. 150,000.

(l) He received Tk. 1,000,000 as rent from letting out a house he owns in Dhaka.

(m) He paid Tk. 200,000 for life insurance premium.

(n) He invested Tk. 1,200,000 in government bonds and primary shares of listed companies.

(o) He received a cash dividend (net of TDS) of Tk. 180,000 during the year.

(p) His employer deducted tax (TDS) of Tk. 650,000.

 Solution:

Mr. Sunny

Assessment Year: 2025-26 

Accounting Year Ended: June 30, 2025

Computation of Total Income and Tax Liability

Income from Employment: 

– Basic Salary (Tk. 120,000 per month) 

  Tk. 120,000 × 12 = 1,440,000

– Free Accommodation (Annual Value) 

  500,000

– Car Benefit (2,500 CC car) 

  Tk. 10,000 × 12 = 120,000

– Fee to School-Going Children 

  Tk. 80,000 × 12 = 960,000

– Festival Bonus 

  Tk. 120,000 × 2 = 240,000

– Reimbursement of Utility Bills 

  Tk. 200,000

–  Medical Allowance

Tk. 60,000 × 12 = 72,000

– Savings from Overseas Travel 

  Tk. 800,000 × 20% = 160,000

– International Club Expenses 

  250,000

Total Income from Employment = 3,942,000 

Less: Exemption (lower of 1/3 of total employment income or 500,000) 

= 3,442,000

Taxable Income from Employment = 3,442,000

Income from Financial Assets:

– Interest on Securities = 150,000

– Cash Dividend Income (Grossed up for TDS) 

  Tk. 180,000 × 100/90 = 200,000

Total Income from Financial Assets = 350,000

Income from House Property:

– Annual Value (Rent Received) 

  Tk. 1,000,000

– Less: Allowable Expenses (Repairs and Maintenance @25%)  assuming he spent 25% in full.

  Tk. 250,000 

– Net Income from House Property = 750,000 

Total Income: = 4,542,000 

Income Tax Liability:

– On the first Tk. 350,000 @ 0% = 0

– On the next Tk. 100,000 @ 5% = 5,000

– On the next Tk. 400,000 @ 10% = 40,000

– On the next Tk. 500,000 @ 15% = 75,000

– On the next Tk. 500,000 @ 20% = 100,000

– On the next Tk. 2,000,000 @ 25% = 500,000

– On the Balance @ 30% = 207,600

Gross Tax Liability: = 927,600

Less: Investment Tax Rebate (Note 1):

– Investment in Government Bonds and Primary Shares = 1,200,000

– Life Insurance Premium = 200,000

– Total Investment = 1,400,000

Investment Tax Rebate 

– Lower of:

  i) 0.03 × Total Income (0.03 × 4,542,000) = 136,260

  ii) 0.15 × Total Investment (0.15 × 1,400,000) = 210,000

  iii) Tk. 1,000,000

Therefore, the tax rebate is 136,260

Tax Liability after Investment Tax Rebate: 

= 927,600 – 136,260

= 791,340

Less: Tax Deducted at Sources 

– From Cash Dividend (10%) = 20,000

– TDS by Employer = 650,000

Net Tax Payable: 

= 791,340 – (20,000 + 650,000) 

= 121,340

Therefore, the net tax payable by Mr. Sunny for the assessment year 2025-26 is Tk. 121,340.