Will income tax burden rise more than threefold?

The government has raised the tax-free income limit to Tk 3.5 lakh from the existing Tk 3 lakh for individuals in the proposed FY24 budget, but taxpayers fear they will have to pay over three times as much in the upcoming financial year as in FY23.

As the National Board of Revenue (NBR) has withdrawn admissible allowances by amending the Income-tax Ordinance 1984, all income from allowances, including housing, medical, conveyance, and Leave Fare Assistance (LFA), will be included in taxable income. The NBR issued a statutory regulatory order (SRO) in this regard on Thursday.

Experts say the new income tax act 2023 draft is going to be presented in parliament soon. Two-thirds of the gross salary or Tk 4.5 lakh, whichever is lower, will be considered allowable deduction from salary, according to the draft.

Both provisions cannot exist for the same deduction, experts pointed out.

Currently, taxpayers enjoy a tax-free house rent allowance of up to 50 per cent of the basic salary or Tk 25,000 per month, whichever is lower. Income from medical allowance of up to Tk 1.2 lakh per annum or 10 per cent of the basic salary, whichever is lower, is exempted from tax.

Besides, taxpayers do not pay income tax on conveyance allowance of up to Tk 30,000 per annum.

But if the new law is not passed before FY24 or after FY24 starts, taxpayers will have to pay taxes as per the Thursday’s SRO.

At present, a salaried person earning a basic salary of Tk 6 lakh per annum, house rent allowance of Tk 3 lakh per annum, medical allowance of Tk 60,000 per annum, conveyance of Tk 30,000 per annum, and LFA of Tk 1.2 lakh per annum has to pay income tax on only the basic salary while other earnings are exempted.

So, for them, the tax rate is zero per cent for up to Tk 3 lakh, 5 per cent for the next Tk 1 lakh, and 10 per cent for the remaining Tk 2 lakh, meaning the total gross tax is Tk 25,000.

However, as per the new SRO, taxpayers will have to pay taxes on Tk 11.1 lakh, including basic salary as well as allowances for house rent, medical, conveyance and LFA.

In that case, they will enjoy tax-free income for up to Tk 3.5 lakh and have to pay 5 per cent for the next Tk 1 lakh, 10 per cent for the next Tk 3 lakh, and 15 per cent for the remaining Tk 3.6 lakh. The total gross tax will thus be Tk 89,000, up 256 per cent than the previous figure.