SMART STRATEGIES TO REDUCE INCOME TAX BURDEN
Paying Income tax is the basic responsibility of every citizen of the state. However, it is possible to reduce the burden of taxes in compliance with proper financial plans and tax rebate opportunities. Therefore, it is most important to plan legally in order to avoid the burden of income tax at the end of the year.
1. Invest in tax free investment sectors:
Taxpayers do not have to pay any tax on tax free income. However, all these incomes have to be displayed properly at the right time. Tax free income sectors are described in Sixth Schedule of Income Tax Act, 2023, such as IT Enable Services, Handicrafts Goods Exports and some of the financial instruments like. such as Zero Coupon Bond, Wage Earner Development Bond, US Dollar Premium Bond, US Dollar Investment Bond, Euro Premium Bond, Euro Investment Bond , Pound Sterling Premium Bond, Pound Sterling Investment Bond.
2. Bringing foreign remittances through banking channels:
The taxpayer does not have to pay any taxes on bringing foreign income to Bangladesh through banking channel as a remittance. However, all these incomes have to be displayed properly at the right time. Therefore, you can avoid taxes by bringing your income earned to Bangladesh as a remittance to Bangladesh.
3. Realize capital gains instead of earning cash dividends from listed stock:
The taxpayer has to pay regular taxes on the cash dividend obtained from the listed stock. Which increases the overall tax burden of a taxpayer. However, in the case of capital gains, up to 50 lakh income is tax -free (except sponsor and shareholders director). Therefore, instead of dividends, the capital can be reduced your tax burden.
4. Paying Advance Income Tax at the right time:
If the total income of a taxpayer exceeds 6 lakh in a year, he has to pay advance income tax based on the estimated tax calculation in the quarterly installments within 15th September, 5th December, 15th March, 15th June. Otherwise, he may be fined, and a simple interest may apply. Therefore, in this case, the tax can be reduced by paying advance income tax at the right time.
5. Invest in instrument with the final tax liability:
Tax deducted from the interest on government savings certificates is considered final tax, so the taxpayer does not have to pay any new tax. So to avoid extended taxes, you can invest in government savings instead of fixed deposits.
6. Get Maximum Tax Rebate from Investment in Authorized Instruments or donate to authorized institutions:
If a taxpayer invests 20% of the total taxable income in a year within the permitted limit in the following instruments or donate to authorized institutions, he will be entitled to the maximum tax rebate from the amount of tax payable.
Investment in Authorized Instruments: Such as:
- Life Insurance Premium- Up to 10% of Policy Value
- Contribution of both employer and employee to the recognized provident fund (RPF) — no limit
- Contribute to Superannuation Fund — no limit
- Investment in Government Securities (Shariah-based Securities-Sukuk, Treasury Bill, Bond, Savings Certificate, Debentures)-Up to 5,00,000/-
- Unit Certificate, Mutual Fund, ETF or Joint Investment Project- Up to 5,00,000/-
- Investment in DPS or Monthly Savings Project- Up to 120,000/-
- Stock Exchange listed securities- no limit
Donate your income to get maximum tax rebate: Such as:
- Donation to Bangladesh Thalassemia Foundation
- Donation to Mastul Foundation
- Donation to SOS Children’s Village International in Bangladesh.
- Donation to Rogi Kalyan Samiti
- Donation to Bangladesh National Federation of the Deaf (BNFD)
- Donation to Gonoshasthaya Kendra
- Donation to Dhaka Ahsania Mission
- Donate to Palliative Care Society of Bangladesh (PCSB)
- Donation to Agami Education Foundation
- NBR approved Charity Hospital situated at the outside of City Corporation area
- Donation to an organization established for the welfare of people with disabilities
- Donations to Zakat Fund or charitable funds established under the Zakat Fund Management Act, 2023
- Donations to any welfare fund and group insurance scheme approved by NBR
- Donations to any institution established for public development or education approved by NBR
- Donations to Liberation War Museum
7. Donate your income to reduced your tax liability:
In this case, donations in some cases will assist to reduce your total taxable income, which will lead to reduce your taxes burden directly-such as: Donation to the As-Sunnah Foundation
8. In case of income from house property some rules are to be followed:
If you do not follow some rules regarding house property income, you may face fines and additional taxes, such as:
- If the house property is vacant for some times, then inform the concerned income tax circle through a notice. This will allow you to claim vacancy allowance, which assist you to reduce tax liability.
- If the total monthly rent is more than 25,000 taka, deposit it in any scheduled bank account.
- Maintain the rental agreement with the tenant and the tenant register properly.
Therefore, in this case, additional fines and tax liability can be reduced by maintaining proper planning and necessary documents.
9. Avoid cash transactions in some cases:
Any loan or deposit of more than 5,00,000 taka from anyone other than spouse, parents, children or siblings, other than crossed cheques or bank transfers, is considered as income. Therefore, in this case, the tax liability can be reduced by following the correct rules.
10. Debts related to the purchase of building/construction materials:
Any debt related to the purchase of building materials is considered as income if it is not settled within two years of the end of the financial year. Therefore, in this case, the tax liability can be reduced by following the correct rules.
11. Showing assets, expenses and liabilities in the return at the right time:
According to the Income Tax Act, if any undisclosed investments, expenses, donations, loans and debts are discovered, they will be considered as income. Therefore, in this case, tax liability can be reduced by following the correct rules.
12. Filing Income Tax Returns on Time:
Filing income tax returns beyond the time limit will increase your tax liability due to cancelation of investment tax rebate & impose penalties & Simple interest. Therefore, tax liability can be reduced by proper planning and timely filing of income tax returns.
13. Consult a professional accountant or income tax lawyer:
Income tax law is a complex subject for general people and it is always changing. Incorrect returns, providing false information, concealing income, expenses, assets and liabilities can increase your fines and tax liability as well as increase legal complications. Therefore, it is possible to save extra tax by taking proper financial and tax planning with the help of a professional accountant or income tax lawyer who is in regular practice and filing income tax returns accurately on time.
✍️ Author: Gias Uddin CAP, ITP
🛡 Professional Accountant, Income Tax Lawyer