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BASICS OF TAXATION (Income Tax Ordinance, 1984) Updated till Finance Act. 2013 by Prof. Mahbubur Rahman

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BASICS OF TAXATION (Income Tax Ordinance, 1984) Updated till Finance Act. 2013 by Prof. Mahbubur Rahman
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  BASICS OF TAXATION (Income Tax Ordinance, 1984):   Updated till Finance Act. 2013     by Prof. Mahbubur Rahman  Of all the direct taxes, Income Tax ranks foremost. By nature and heritage, many of us tend to be just “free riders” in the society. We are little emotional and sometimes unreasonable in demanding more and more state services without the mentality to yield our due share to the cost of the exchequer. Tax laws and personnel connected therewith are many often thought to be inimical by the taxpayers. But it’s a reality that to safeguard our existence and interest in the society, every one of us must pay tax according to our abilities to keep the statecraft running. Taxation is not only a major means of public finance but also it plays a crucial role in ensuring a social and economic justice. The incidence of direct taxes Viz. Income-Tax, gift-tax cannot be shifted on others and it has to be borne by the person on whom it is levied. My efforts today will be to enlighten the participants of this course on the different aspects of the direct taxes. We shall confine ourselves to the contents only without going into the details of relevant sections of the laws which can be had from the IT. Ordinance, 1984 as amended from time to time through annual Finance Act. Income-Tax:   Income Tax is a dynamic but mostly a practical subject. It is indeed a difficult task to acquire within this short time at least a working knowledge of income tax especially when the laws of it srcinate frommore than one source , such as:   1.   Income-Tax Ordinance, 1984 as amended from time to time through annual Finance Act - Part I 2.   Income-Tax manual - Part II 3.   Supplementary Regulatory Order (SRO), Circulars, Notifications etc. 4.   Precedents of decided Case laws. Classification of Taxpayers: Corporate and Non-Corporate    For the purpose of socio-economic stabilization, taxpayers have been classified either as corporate or non-corporate. Companies, banks, corporations and other statutory   bodies have been taken as corporate and the rest e.g. Individuals, firms, H.U.F, A.O.P are designated as non-corporate. Tax rates, residential status, tax exemptions, rebates etc. and in many other areas, the two groups of taxpayers also differ. Tax is levied on income. But what is income? The term “income” is easy to understand but difficult to define in view of the complexities of tax laws. For our discussion today, we shall confine it to any sort of receipts in the form of money or   money’s worth chargeable to tax under any provision of the “IT.   Ordinance.”  Otherwise, anything that comes in except those which are excluded   by tax laws, are included in income. [Income: Any sort of receipts either in cash   or in kinds unless exempted by Law]     Sec. 2(34): Income includes-    Any income, profits or gains, from whatever source derived, chargeable to tax under IT Ordinance; 84;    Any loss of such income, profits or gains;    The profits and gains of any business of insurance carried on by a mutual insurance association computed in accordance with the IT Ordinance; 84:    Any sum deemed to be income, or any income arising or received or deemed to accrue or arise or be received in Bangladesh.  New provision; 2002: Provided however, that Bonus or Bonus Shares issued/ declared  by a company shall not be included as income of the recipient shareholder. Income may be “assessable” or “non - assessable”. Non -assessable are totally ignored  by tax laws Viz. pension income, receipts of accumulated balance from recognized  provident fund etc. as have been declared as non-assessable income by the Govt. from time to time. Assessable income is again divided into taxable and non-taxable income.  Non-taxable income is taken into total income for taxation rate purpose but no tax is to be paid on this part of income, rather, a proportionate rebate is allowed on this income as is included in the total income. Non-taxable income like share income of  partnership firm, share income from Hindu Undivided Family etc. (Salary income of Govt. servant was deemed to have been tax paid till 30.06.2010 but it has been made taxable by Finance Act. 2011) are included in the total income of the tax payers only to raise the income ceiling and the tax rates as and when applicable. For example,  a tax payer with an income of Tk.220,000/- would not be at all taxable (below taxable ceiling) but it shall be taxable due to inclusion of his share income of a firm (already taxed at firm’s stage), say another Tk.180,000/ -. But with the inclusion of his non-  taxable income (taxed share income), the total income works out Tk.4000,000/- and the tax as per Finance Act., 20013 is Tk.18,000/-. But he has not to pay Tk.18,000/-rather, a proportionate rebate for this inclusion of the said non-taxable income (18,000/4000,000) X 1,80,000/=8 ,100/ - is to be deducted from the tax payable i.e. net tax Tk.(18,000-8,100)=9,900 remains to be payable instead of Tk.18,000/- as calculated above on his total income of Tk.400,000/-. The inclusion of Non-Taxable income into the total income may give rise to higher income ceiling with higher taxes or it may give rise to higher rates of taxes of the existing tax payers. Who is to pay tax? Residential Status Sec. 2(55)      Taxability of a person is determined on the basis of his residential status. Anyone staying in the taxable territory for 182 days or more in the income year or 365 days at a time or consecutively within 04 years immediately before the income year just  preceding the assessment year plus a minimum of 90 days in the income year, shall be deemed to be resident. Otherwise, a non-resident .   Non-resident except a Bangladeshi non-resident  has to pay tax at the maximum rate of 25% irrespective of total income. Moreover, a Non-Resident shall not be entitled to any sort of tax rebate like investment tax rebates etc. Companies and other statutory bodies shall be resident if their control and management is wholly situated in Bangladesh. HUF, firms or other Association of Persons shall be resident in Bangladesh if its control and management is situated wholly or partly in Bangladesh in that year. Assessment year  means the Govt. financial year just following the income year when   the assessment is to be made. Who and when to submit return & where?   Any assessee being taxed at any time within the last 03 years and assesses having got taxable income for the current year shall have to submit I.T. return. Admitted tax has to be deposited along with return (Sec. 74). A person owing a building of more than one story and with a plinth area of more than 1600 sft. Or a motor car or having an ISD telephone connections, contesting the elections of local bodies or of the Parliament or being a member of a club registered under VAT ACT, 1991 , has also to submit IT return (Sec.75 (1)/(75)(1A).  In the case of an individual, such returns including the returns under Universal Self  Assessment, shall be accompanied by particulars of his personal and family expenditures as per the prescribed form  –   IT-10BB. Penalty for non-submission of return (Sec.124):      Any person failing to file the return within time may have to pay a penalty of 10% of the last assessed tax but in no case it shall be lesser than Tk.1000 /- plus in cases of continuous defaults, a further sum of  Tk.50 /- per day till the default continues. For assesses other than companies and statutory bodies, the last date fixed by law for submission of return is 30th September each year. The companies, banks and other statutory bodies like TCB, BCIC, Grameen Bank etc. have to submit their returns within 06 months from the end of its income year or within the next 15th July, whichever is later. Non submission of returns within due date unless extended by the  NBR or by the Dy. Commissioner of Taxes in individual cases for a maximum  periods of six months, shall entail a mandatory penalty as stated before and in addition, a summary assessment by the Deputy Commissioner of Taxes (DCT) may  be made u/s 84 ex-parte to the best of his judgment. However, the DCT shall not extend any time in case of a return under Universal Self Assessment u/s 82BB. The return has to be submitted to the income tax circle concerned. The whole of the taxable territories have been divided into Zones, Ranges and Circles. For example, Dhaka Zones 1 to 8, Chittagong Zones 1 to 3, Rajshahi & Khulna Zones etc. Zones and Ranges are headed by Commissioners and Addl./Joint commissioners and the Circles by Deputy/ Asst. Commissioners on the basis of its revenue importance. An assessee has to file the return to the concerned income tax circle under whose  jurisdiction the assessee falls as per order of the Tax Authorities. Total Income and its Sources (Sec.43)      Any income subjected to tax must fall within a definite source as defined U/S 20 of IT Ordinance, 84. These are income from salaries, profession or vocation, interest on securities, house property income, agriculture, capital gains and income from other sources. Except the last two heads, all others are more or less self-explanatory. An income from other sources is one, which cannot be attributed to any of the defined sources as above. For example, income from gambling, lotteries, dividends, royalties or any income deemed to be as such for reasons of investments and expenses not  being adequately explained. Trading Liabilities and personal loans/gifts over Tk.500,000 unless received through a crossed cheque or bank transfer, shall be deemed to be income of the assessee on the 4th year if it is not paid off within three years from the end of the income year when it was accrued/received (Sec.19(21).
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