Taxation: Types of Income

Different sources of income are taxed differently. There are:

1. Assessable Income (Non-taxable Income, Taxable Income) and 2.     Non-Assessable Income.

1. Assessable income:

Assessable Incomes are those incomes, which are included in the determination of total income of a taxpayer.

a. Taxable Income:

Taxable Incomes are those incomes that the tax isto be paid on those incomes.

Taxable income refers to the base upon which an income tax system imposes tax. Generally, it includes some or all items of income and is reduced by expenses and other deductions. The amounts included as income, expenses, and other deductions vary by country or system. Many systems provide that some types of income are not taxable and some expenditures not deductible in computing tax. Some systems base tax on taxable income of the current period, and some on prior periods. Taxable income may refer to the income of any taxpayer, including individuals and corporations, as well as entities that themselves do not pay tax, such as partnerships.

b. 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.

Most types of income are taxable, but some are not. Income can include money, property or services that you receive. Here are some examples of income that are usually not taxable:

Child support payments;

Gifts, bequests and inheritances;

Welfare benefits;

Damage awards for physical injury or sickness;

Cash rebates from a dealer or manufacturer for an item you buy; and

Reimbursements for qualified adoption expenses.

Some income is not taxable except under certain conditions. Examples include:

Life insurance proceeds paid to you because of an insured person’s death are usually not taxable. However, if you redeem a life insurance policy for cash, any amount that is more than the cost of the policy is taxable.

Income you get from a qualified scholarship is normally not taxable. Amounts you use for certain costs, such as tuition and required course books, are not taxable. However, amounts used for room and board are taxable.

All income, such as wages and tips, is taxable unless the law specifically excludes it. This includes non-cash income from bartering - the exchange of property or services. Both parties must include the fair market value of goods or services received as income on their tax return.

  2. Non- assessable Income:

 Non- assessable incomes are those incomes which are not included in the determination of total income of a taxpayer.

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Taxability by resident status in Bangladesh

Who is to pay tax? [Residential Status Sec. 2(55)]

Taxability of a person is determined on the basis of his residential status. Anyone is 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.

Income year is the year when the income is earned. Different tax payers may have different income year but each tax payer must fall within a particular assessment year. Income year is otherwise the year just preceding the assessment year.    

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Taxation- in Bangladesh context

Taxation: 
Taxation is one of the major sources of public revenue to meet a country's revenue and development expenditures with a view to accomplishing some economic and social objectives, such as redistribution of income, price stabilization and discouraging harmful consumption. It supplements other sources of public finance such as issuance of currency notes and coins, charging for public goods and services and borrowings. The term “Tax” has been derived from the French word “Taxe” and etymologically, the Latin word “Taxare” is related to the term 'tax', which means 'to charge'. Tax is 'a contribution exacted by the state'. It is a non-penal but compulsory and unrequited transfer of resources from the private to the public sector, levied based on predetermined criteria.

Among direct taxes, income tax is one of the main sources of revenue. In Bangladesh Income tax is imposed on the basis of ability to pay. The more a taxpayer earns the more he should pay - is the basic principle of charging income tax. It aims at ensuring equity and social justice.

All individuals and companies in the country need to pay income tax if their annual income excess certain limit determined by the Government. There are some conditions for paying Income Tax which are controlled by Tax Laws and Amendments in Bangladesh.

Income Tax Return is a structured form where the Tax Payer mentions his/her income and expenditure, resources and credit information to submit them to the Income Tax Office. The form is different for the individual and companies. Tax payers need the Tax Identification Number as well as some endorsed documents (the description of salary, security money, housing property, business, partnership basis income, profit on capital, income tax pay order etc.) to submit the Tax Return Form. All individual or company can have their Taxpayers Identification Number from respective income tax office. Each class of tax payer has to submit their return form to the selected income tax circle.

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 originate from more than one source, such as:

ü  Income-Tax Ordinance, 1984 as amended from time to time through annual Finance Act - Part I

ü  Income-Tax manual - Part II

ü  Supplementary Regulatory Order (SRO), Circulars, Notifications etc.

ü  Precedents of decided Case laws.

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