Classification of Income

Classification based on Assessment

Assessable income Non Assessable Income

Tax Credit
Tax Free Income Tax Payable Income
Income
 Assessable Income
Assessable income are those incomes,
which are included in computation of
total income of an assessee.
Example:
-Bonus to an Employee
-Perquisites of an employee etc.
It is the income which may come from
the 7th sources of income.
 Types of Assessable income
1.Tax free income:
Tax free incomes are those incomes, which are included in the
determination of total income to get total taxable income
and applicable tax rates. However, tax relief or rebate is
allowed on average rate on such income
ITO 1984 section 44(2)(a)para 15 and 16th of the sixth
schedule has stated these two sources are considered as
tax free income as rebate is allowed on such income at an
average rate
a) Income from partnership if the tax has been paid by the
firm.
b) Income from association of persons on which tax has
already been paid by the association.
 Computation of Average rate
• Average tax rate=Total tax/total incomeX100.
Rebate on tax free income
=Total tax free income X Average tax rate
Or
Rebate on Tax free income
=Total tax/Total income X Total Tax free income
Example

• Income from employment 200,000

• Income from partnership 100,000
• Total income 300,000
• Personal Allowance (250,000)
• Taxable income 50,000
Tax on income 50,000X10%=5,000
Tax rebate on partnership 5,000/300000X100=1.66%
So,Total tax 5,000
Rebate 100,000X1.66% (1667)
Tax payable 3333
2.Tax credit income

• It is also income which are added on income to

get total income.
• Investment allowance is given as tax rebate
Example of investment:
Contribution to Recognized provident fund
Life insurance premium
Buy listed company shares
Buy company debentures
Buy computer up to Tk. 100,000 etc.
10% tax rebate is allowable on investment.
3.Tax payable income

• This is the amount ultimately for which an

assessee pays the tax. This amount helps to
determine the tax payable amount of the
assessee.
• This is the amount after deduction of tax free
allowance i.e 250,000.
Non Assessable income
• The income which are not included in the computation of
total income of an assessee that are called non assessable
income
Example:
Income from property held under trust
Income from micro credit operation
Voluntary contribution received by religious organization
Income of employees of foreign mission.
Income from pension,
Income from savings certificate
Income from wage earners development bond
Income from prize bond etc.
Effects of Classification of income on Assessment

Classification of Income Effect on Total Income Effect on Tax liablility/Tax

rate
Assessable income Included Increases
-Tax free income Included which increases Increase the tax liability &
total income Allows rebate at an
average rate
-Tax Credit Income Increases total income Decrease tax burden
through rebate
-Tax Payable income Included Actual Tax liability depends
on it.
Classification of Income Based on Locality p.103
The income which is earned within the boundary of
Bangladesh Taxable Territory is termed as Domestic
Income. Conversely, The income which is earned
outside Bangladesh Taxable Territory is called Foreign
Income. The Classification of income based on
locality is portrayed below:

1.Income Received In Bangladesh

2.Income deemed to be received in Bangladesh
3.Income accrues or arise in Bangladesh
Domestic Income 4.Income deemed to accrue or Arise in
Bangladesh
5.Other deemed income

Foreign Income Income accrues or arise outside of Bangladesh

1.Income Received In Bangladesh
• These are the income earned and received in
Bangladesh in an income year.
• Income received in other country and
subsequently remitted to Bangladesh is a
foreign Income
• Both residents and non resident assessee
could be charged on their income received in
Bangladesh.
 2.Income deemed to be received in
Bangladesh
• These are the incomes which are not actually
received by the assessee but the law treats
them as income received for income tax
purposes.
• Example: Any dividend declared and
distributed by a company within the meaning
of sec19(7) shall be deemed to be the income
of the income year in which it is received
 3.Income Accrues or arises in
Bangladesh
• Income is said to accrue when an enforceable
right to receive it comes to vest/in rights with
the assessee
Scope of Total Income
1.Income from employment[Section-21]
2.Income from interest on securities[Section-22]
3.Income from house property[Section-24]
4.Agricultural income[Section-26]
5.Income from business or profession[Section-28]
6.Capital Gain[Section-31]
7.Other income[Section-33]
-Share of profit in a firm
-income of the spouse or minor child
-Foreign income etc.
 Residential Status of An Assessee
• Residential status refers to either to the period of stay
of an assessee in Bangladesh or degree of control or
management affairs of an assessee during the income
year.
• In Bangladesh the ITO 1984 section 2(55) or 2(42)
states that an assessee may be resident or non resident
• It is not comparable with the citizenship of a person.
• A person may be the citizen of a country but he may
not be the resident of income tax purposes if the
conditions of the provisions of the ordinance are not
satisfied.

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 Classification of Assessee on the basis
of residential status
1.Resident
An individual will be resident in any income year if he
fulfills any of the conditions stated in Section 2(55) of
the ITO 1984.Such as he should stay for a period of 182
days or more in that income year.
2.Non Resident
An individual will be declared a non resident as per
section2(42) in any income year if he does not fulfill
the conditions section2(55) of the ITO 1984.As per
citizenship a non resident can also be divided into
;a)Non resident Bangladeshi ,b)Non resident foreigner.

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 Effects of Residential Status

• According to Section 17 of ITO 1984 the incidents of taxation

depends on the residential status and the nature of income

Nature of Income Resident Non Resident

Income received or deemed to be Taxable Taxable
received in Bangladesh
Income accrued or arouse or Taxable Taxable
deemed to accrue or arise in
Bangladesh
Income accrued or arose outside Taxable Non Taxable
Bangladesh

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 An Analysis of the above provisions

a)Any income which is either received in Bangladesh or

deemed to be received in Bangladesh is taxable in
Bangladesh, irrespective of residential status.
b)Any income which is either earned in Bangladesh or is
deemed to be earned in Bangladesh is taxable,
irrespective of residential status.
c)For a resident in Bangladesh all global income(Local
+Foreign),where ever earned or received is taxable.
d)For a non resident , an income is taxable only if it is
either earned in Bangladesh or it is received in
Bangladesh.

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 Incidence of Tax on Non Resident

a) A person who is a non resident is liable to tax on the

income, profits or gains which are received or
deemed to be received in Bangladesh.
b) A non resident assessee is not entitled to any sort of
allowance and relief as are admissible to a resident
assessee for the purpose of tax rebate.
c) A non resident assessee (other than Bangladeshi non
resident/foreigner)is liable to pay tax on his total
income @30%
d) A Bangladeshi non resident is subject to tax at normal
rate, as applicable for a resident assessee.

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 Effects of residential status in
determining tax liability
1.To determine the amount of total income
2.To determine minimum limit of taxable income
3.Tax rate
4.Income tax rebate
5.Tax liability

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 Methods of Determining Residential Status

1.An Individual
The tests of residence for individual assessee are given in Sec.2(55) of
the ITO 1984.To be resident of an assessee, an individual must fulfill
one of the following conditions:
a) If he stays in the country for a period of at least 182 days or more
during the income year , or
b) If he stays in the country for at least 90 days during the income
year and also had been in the country for a period at least 365
days during four year preceding the income year.
It is to be mentioned here that residential status of an assessee is to be
determined separately for each income year. It is not related to
assessment year. It is also to be remembered that the duration of
stay may not be continuous or permanent resident in Bangladesh.

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 Example
• Mr. Ogden is a UK citizen has been living in Bangladesh
since 1st January 2008.He left Bangladesh on 16th July
2011 on a Visit to UK and returned on1st January
2012.What would be his residential status in the
income year 2011-2012.
• Solution:
He stayed in Bangladesh in the income year 2011-12 :
July-2011=16days+January-2012,31 days+Feb-
12,28days+Mar-12,31 days+Apr.12,30days+May-12,31
days+ June-12,30 days=197 days.
The rule is 182 days or more . So, He is resident tax payer
of Bangladesh

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If Mr.Ogden returned on 1st March,2012 what would be
his residential status?
• Ist test:Is he stayed 182 days or more during the income year 2011-2012.
July 2011 =16 days
March-12 =31days
April-12 =30 days
May-12 =31 days
June-12 =30 days
Total =138 days <182 days so, we need to do 2nd test.
2007-2008 =181
2008-2009 =365
2009-2010 =365
2010-2011 =365
Total 1277 days
So,He is resident tax payer of Bangladesh

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 2.Residential status of HUF(Hindu Undivided
Family , firm or AUP(Association of Persons
• These assesses will be treated as residents in
Bangladesh if any part of the control and
management affairs is situated in the country.
• On the other hand, if the control and
management of these assesses are from
outside Bangladesh, they will be treated as
non resident.

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 3.Residential Status of a Company
To be resident, a company should fulfill one of the
following conditions:
A)It should be a company registered in Bangladesh under
Companies Act 1913 or 1994 or a body corporate
established or constituted by or under any law for the
time being in force in Bangladesh having in either case
its registered office in Bangladesh.
So, a Bangladeshi company will always be treated as
resident.
B)In the case of other companies, they will be resident if
the controls and management (Meeting of
Directors)are situated wholly in Bangladesh.

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