Income Tax Act 2023

The enactment of the Income Tax Act 2023 marked a historic shift in the fiscal landscape of Bangladesh. Replacing the nearly four-decade-old Income Tax Ordinance of 1984, this new legislation was designed to modernize the tax system, broaden the tax net, and simplify compliance through digitization.

As we navigate through 2025, several amendments via the Finance Ordinance 2025 have further refined these rules. This guide provides a comprehensive breakdown of the Income Tax Act 2023, the latest tax slabs for 2024–2026, and the essential compliance steps every taxpayer needs to know.

1. Overview of the Income Tax Act 2023

The primary objective of the Income Tax Act 2023 is to transition from a "discretion-based" system to a "formula-based" system. This reduces the interaction between taxpayers and tax officials, minimizing the scope for harassment and corruption.

Key Objectives:

    Simplification: Using plain language (Bangla) in the original text to make it accessible.

    Digitization: Promoting online return filing (e-Return) as the primary method.

    Wider Tax Net: Introducing the requirement of Proof of Submission of Return (PSR) for various essential services.

    Investment Friendly: Providing a clearer structure for corporate taxes and investment rebates.

2. Individual Income Tax Rates (AY 2025–26)

The tax structure in Bangladesh is progressive, meaning higher income earners pay a higher percentage. For the Assessment Year 2025–26, the tax-free limit has been increased to provide relief to lower-income groups.

Tax-Free Thresholds                                             

Note: Parents of disabled children receive an additional BDT 50,000 exemption per child.

Income Tax Slabs

Once the tax-free limit is crossed, the following slabs apply:

3. Corporate Tax Rates in Bangladesh

Corporate taxation depends on whether a company is publicly traded and its level of compliance with "cashless" transaction requirements (bank transfers).

    Publicly Traded Companies: 20% to 22.5%

    Non-Publicly Traded Companies: 25% to 27.5%

    One Person Companies (OPC): 20% to 22.5%

    Banks & Financial Institutions: 37.5% to 42.5%

    Tobacco Companies: 45% + 2.5% Surcharge

4. Mandatory Online Filing (e-Return)

Starting in 2025, the NBR has made online filing mandatory for most individual taxpayers, especially those in City Corporations and government employees.

Steps to File Online:

     Registration: Visit etaxnbr.gov.bd and register using your e-TIN and a bio metric-verified mobile number.

    Data Entry: Input your income from various sources (Salary, House Property, Business, etc.).

    Deductions & Rebates: Claim your investment rebates (e.g., Sanchayapatra, Life Insurance).

    Verification: The system automatically calculates your tax. Review the draft carefully.

    Submission: Submit the return and download the Acknowledgment Slip and Certificate.

5. Investment Tax Rebates and Deductions

Taxpayers can reduce their tax liability by investing in approved sectors. The rebate is generally 15% of the eligible investment.

Eligible Investments Include:

Life Insurance premiums.

Government Savings Certificates (Sanchayapatra).

Listed Stocks and Mutual Funds.

Contribution to Provident Fund (RPF) or

DPS (up to BDT 1,20,000).

Calculation Rule: The allowable investment is the lowest of:

15% of Actual investment made.

3% of total taxable income.

BDT 10,00,000 ( Ten Lac).

Which is lower

6. Surcharge and Minimum Tax Wealth Surcharge

Wealthy individuals with net assets exceeding BDT 40 million (4 Crore) must pay a surcharge on their total tax. Rates range from 10% to 35% based on total net worth.

Minimum Tax

Even if the calculated tax is zero, a minimum tax is applicable for anyone living in specific areas:

Dhaka & Chattogram City Corporations: BDT 5,000

Other City Corporations: BDT 4,000

Other Areas: BDT 3,000

7. Environmental Surcharge

In Bangladesh, the Environmental Surcharge (often colloquially called the "Carbon Tax") was introduced under the Income Tax Act 2023. It specifically targets individual taxpayers who own more than one motor vehicle to discourage carbon emissions and promote environmental sustainability.

The surcharge is collected by the National Board of Revenue (NBR) during the registration or fitness renewal of the vehicle.

a. Who Must Pay?

The surcharge applies only to natural individual assesses who own more than one motor vehicle (specifically private cars, SUVs, or Jeeps).

Exempted Vehicles: It does not apply to motorcycles, auto rickshaws, buses, trucks, or other commercial vehicles.

Rule of Application: For a person with multiple cars, the surcharge is applicable to each vehicle after the first one. Usually, the vehicle with the lowest engine capacity is considered the "first" car to minimize the burden.

b. Surcharge Rates (AY 2025–26)

The amount is fixed based on the engine capacity (CC) or electric motor power (kW) of the vehicle:                                                 

c. Key Rules to Remember

Non-Adjustable: This surcharge is an "advance" payment but it cannot be adjusted against your regular income tax liability nor can it be refunded.

Surcharge vs. Wealth Surcharge: This is separate from the Wealth Surcharge (which is 10%–35% of your total tax if your net wealth exceeds BDT 4 core). However, simply owning more than one car automatically triggers a minimum 10% Wealth Surcharge on your total tax, regardless of whether your wealth is below BDT 4 core.

Electric Vehicles (EVs): While currently included based on kW ratings, recent proposals in the Finance Ordinance 2025 suggest potential exemptions for pure electric vehicles in upcoming years to encourage green energy.

8. Advance Income Tax (AIT) on motor vehicles

In Bangladesh, Advance Income Tax (AIT) on motor vehicles is a mandatory payment collected by the BRTA (Bangladesh Road Transport Authority) during the registration or annual fitness renewal of a vehicle.

This tax is considered an "advance" payment toward your total annual income tax liability. However, for most private car owners, it is non-refundable and cannot be adjusted if your calculated tax is lower than the AIT paid.

8.1. AIT Rates for Private Cars & Jeeps (AY 2025–2026)

The rates are determined primarily by the engine capacity (CC) or electric motor power (kW) of the vehicle.

8.2. Advance Tax for Commercial Vehicles

Under the Finance Ordinance 2025, advance tax rates for commercial vehicles have been updated to reflect current economic conditions.

8.3. Important Rules for Multiple Car Owners

If you own more than one motor vehicle, the tax burden increases significantly:

    50% Higher AIT: For every additional car after the first one, you must pay 50% more than the standard AIT rate. For example, if the second car is 1500cc, you will pay BDT 37,500 (25,000+50%) instead of BDT 25,000.

    Environmental Surcharge: As discussed previously, you will also have to pay a separate Environmental Surcharge (Carbon Tax) starting from BDT 25,000 on the second vehicle.

    Mandatory Surcharge: Owning a second car automatically triggers a 10% Wealth Surcharge on your total income tax, regardless of your total net assets.

9. Penalties for Non-Compliance

In Bangladesh, failing to file your income tax return by Tax Day—which is typically November 30 for individuals—carries significant financial and legal consequences under the Income Tax Act 2023.

PENALTY as per clause

Clause-266. Penalty for failure to file return, etc.—(1) Where any person has, without reasonable cause, failed to file a return of income required by or under sections 166, 172, 191, 193 or 212, the Deputy Commissioner of Taxes may impose upon such person a penalty amounting to 10% (ten percent) of tax imposed on last assessed income which shall be a minimum of Taka 1 (one) thousand, and in the case of a continuing default, a further penalty of Taka 50 (fifty) for every day during which the default continues: Provided that such penalty shall not exceed—

(a) in case of a assessee, being an individual, whose income was not assessed previously, Taka 5 (five) thousand;

(b) in case of a assessee, being an individual, whose income was assessed previously, 50% (fifty percent) of the tax payable on the last assessed income or Taka 1 (one) thousand, whichever is higher.

(2) Where any person has, without reasonable cause,—

(a) failed to file or furnish any return, or information required under section 177, the Deputy Commissioner of Taxes may impose a penalty amounting to 10% (ten percent) of tax imposed on last assessed income or Taka 5 (five) thousand, whichever is higher, and in the case of a continuing default, a further penalty of Taka 1 (one) thousand for every month or fraction thereof during which the default continues;

(b) failed to furnish any certificate required under section 145, the Deputy Commissioner of Taxes may impose a penalty amounting up to Taka 5 (five) thousand, and in the case of a continuing default, a further penalty of Taka 1 (one) thousand for every month or fraction thereof during which the default continues;

(c) fails to file or furnish any information as required under section 200, in which case the Income-tax authority requiring the information under section 200, may impose a penalty amounting up to Taka 50 (fifty) thousand, and in the case of a continuing default, a further penalty of Taka 500 (five hundred) for every day during which the default continues. 

Clause-267. Penalty for not maintaining accounts in the prescribed manner.— (1) Where any person, not having income from tangible property, has, without reasonable cause, failed to comply with the provisions of any order or rule made in pursuance of, or for the purposes of sub-section (3) of section 72, the Deputy

Commissioner of Taxes, may impose upon him a penalty in the following manner, namely:—

(a) an amount not exceeding one and a half times the amount of tax payable by him; and

(b) Taka 5 (five) thousand where the total income of such person does not exceed the tax free limit.

(2) Where any person, having income from tangible property, has, without reasonable cause, failed to comply with the provisions of any order or rule made in pursuance of, or for the purposes of sub-section (3) of section 72, the Deputy Commissioner of Taxes, may impose upon him a penalty of 50% (fifty percent) of taxes payable on tangible property income or 5 (five) thousand Taka, whichever is higher.

Clause-268. Penalty for using fake Tax-payer's Identification Number (TIN).—

Where a person has, without reasonable cause, used Taxpayer's Identification Number (TIN) of another person or used fake TIN on a return of income or any other documents where TIN is required under this Act, the Deputy Commissioner of Taxes may impose a penalty not exceeding Taka 20 (twenty) thousand on that person.

Clause-269. Penalty for failure to pay advance tax, etc.—Where, in the course of any proceeding in connection with the assessment of tax under Part 10, the

Deputy Commissioner of Taxes is satisfied that any person has—

(a) without reasonable cause, failed to pay advance tax as required by section 154; or

(b) furnished under section 155 any estimate of tax payable by him which he knew, or had reason to believe, to be untrue, then he may impose upon such a person a penalty of a sum not exceeding the amount by which the tax actually paid by him falls short of the amount that should have been paid.

Clause-270. Penalty for non-compliance with notice.— Where any person has, without reasonable cause, failed to comply with any notice issued under sections

167, 168, 179, 181 or [, 183 or 212], the Deputy Commissioner of Taxes may impose upon him a penalty not exceeding the amount of tax chargeable on the total income of such person.

Clause-271. Failure to pay tax on the basis of return.— Where, in the course of any proceeding under this Act, the Deputy Commissioner of Taxes is satisfied that any person has not paid [admitted tax liability], he may impose upon such person a penalty of a sum not exceeding 25% (twenty-five) percent of the whole of the tax or, as the case may be, of such portion of the tax as has not been paid.

Clause-272. Penalty for concealment of income.—(1) Where, in the course of any proceeding under this Act, the proceeding conducting Authority is satisfied that any person has, either in the said proceeding or in any earlier proceeding relating to an assessment in respect of the same income year, has evaded tax payable under this Act by misrepresenting particulars of income, assets, liabilities, expenses or other important information relating to the payable tax of the assessee, the proceedings conducting authority shall impose on the said person a penalty equal to A + B, where—

A= amount of tax evaded x 15%,

B= amount of tax evaded x 10% x C,

C= the total number of years from the assessment year in which the evasion occurred to the assessment year in which the evasion was discovered.

(2) For the purposes of this section,—

(a) “Proceeding conducting Authority” means—

(i) Income tax authority not below the rank of Deputy

Commissioner of Taxes; and

(ii) Taxes Appellate Tribunal;

(b) “amount of tax evaded" means— C-D in any assessment year,

 Where—

C= taxes and other amount payable in any assessment year, if income, assets, liabilities, expenses or any other important information were not misrepresented,

D= amount actually paid in the relevant assessment year.

Clause-273. Penalty for incorrect or false audit report by chartered accountant.— Where, in the course of any proceeding under this Act, the Deputy Commissioner of Taxes, the Additional Commissioner of Taxes (Appeals), the Commissioner of Taxes (Appeals) or the Appellate Tribunal is satisfied beyond reasonable doubt that the audit report—

 (a) is not certified by a chartered accountant to the effect that the accounts are maintained and the statements are prepared and reported in accordance with the International Accounting Standards

(IAS) and the International Financial Reporting Standards (IFRS) and are audited in accordance with the International Standards on

Auditing (ISA), or

(b) is false or incorrect, in such cases, he shall impose upon such chartered accountant a penalty of a sum not less than Taka 50 (fifty) thousand but not more than Taka 2 (two) lakh.

Clause-274. Penalty for furnishing fake audit report.—Where, in the course of any proceeding under this Act, the Deputy Commissioner of Taxes, the Additional Commissioner of Taxes (Appeals), the Commissioner (Appeals) or the Appellate Tribunal is satisfied beyond reasonable doubt that any audit report furnished by an assessee along with the return of income or thereafter for any income year is not signed by a chartered accountant or is believed to be false, such authority or the Tribunal, as the case may be, shall impose upon such assessee a penalty of a sum of Taka 1 (one) lakh for that income year.

Clause-275. Penalty for default in payment of tax.— Where an assesse defaults in payment of tax or is deemed to be in default, the Deputy Commissioner of Taxes may direct to collect as penalty such an amount, in addition to the unpaid tax, shall not be exceeded the said unpaid tax.

Clause-276. Penalty for failure to comply with the provision under section

235.— Where any person fails to comply with the notice or requisition under section 235 of this Act, the Deputy Commissioner of Taxes may impose upon such person a penalty not exceeding 1% (one percent) of the value of each international transaction entered into by such person.

Clause-277. Penalty for failure to comply with the provision under section

237.—Where any person fails to keep, maintain or furnish any information or documents or records as required by section 237 of this Act, without prejudice to the provisions of Part 19 of this Act, the Deputy Commissioner of Taxes may impose upon such person a penalty not exceeding 1% (one percent) of the value of each international transaction entered into by such person.

Clause-278. Penalty for failure to comply with the provision under section

238.— Where any person fails to comply with the provisions of section 238 of this Act, the Deputy Commissioner of Taxes may impose upon such person a penalty not exceeding 2% (two percent) of the value of each international transaction entered into by such person 

Clause-279. Penalty for failure to comply with the provision under section

239.— Where any person fails to furnish a report as required by section 239 of this Act, the Deputy Commissioner of Taxes may impose upon such person a penalty of a sum not exceeding Taka 3 (three) lakh.

Clause-280. Bar to imposition of penalty without hearing.—No order imposing a penalty under this Part shall be made on any person unless such person has been heard or has been given a reasonable opportunity of being heard.

Clause-281. Previous approval of Inspecting Additional Commissioner of Taxes for imposing penalty.—The Deputy Commissioner of Taxes shall not impose any penalty under this Part without the previous approval of the Inspecting Additional Commissioner of Taxes except in the cases referred to in sections 266, 275, 276, 277, 278 and 279.

Clause-282. Orders of penalty to be sent to Deputy Commissioner of Taxes.— The Appellate Tribunal or any income tax authority, not being the Deputy Commissioner of Taxes himself, making an order imposing any penalty under this Act shall forthwith send a copy of the order to the Deputy Commissioner of Taxes, and thereupon all the provisions of this Act relating to the recovery of penalty shall apply as if such order were made by the Deputy Commissioner of Taxes.

Clause-283. Penalty to be without prejudice to other liability.— The imposition on any person of any penalty under this Part shall be without prejudice to any other liability which such person may incur, or may have incurred, under this Act or under any other law for the time being in force.

Clause-284. Revision of penalty based on the revised amount of income.—(1) Where a penalty imposed under this Part is directly related to the amount of income assessed under the provision of this Act and the amount of income is revised subsequently by an order made under this Act, the Deputy Commissioner of Taxes shall pass an order revising the order of penalty at the time of revising the income.

(2) No order of enhancement of penalty shall be made unless the parties affected thereby have been given a reasonable opportunity of being heard.

(3) Where, in the case mentioned in sub-section (1), an order of the revision of penalty is not issued despite the fact that the relevant assessment order has been revised, the person affected may make an application to the Deputy Commissioner of Taxes requesting the revision of the amount of penalty and if no order has been made by within 180 (one hundred eighty) days from the receipt of such application, the amount of penalty shall be deemed to have been revised according to the revised amount of income and all the provisions of this Act shall have effect accordingly

 9.1. Financial Penalties at a glance

Missing the deadline triggers two types of financial hits: a one-time/daily penalty and monthly interest.

    Fixed Penalty (Section 266): * If you have been assessed before, the penalty is 10% of the last assessed tax (minimum BDT 1,000).

        If you are a first-time filer, the penalty is BDT 5,000.

        In both cases, a further penalty of BDT 50 per day applies for every day the default continues.

    Delay Interest (Section 174): * You must pay "Delay Interest" at a rate of 2% per month on the difference between the tax payable and any tax already paid (AIT/TDS). This interest is calculated from the day after Tax Day for up to 12 months.

9.2. Loss of Investment Tax Rebate

This is often the most expensive consequence for salaried employees.

    Standard Rebate: If you file on time, you are eligible for a tax rebate of 15% on your allowable investments (e.g., DPS, Savings Certificates, Life Insurance).

    Late Filing Penalty: If you file after Tax Day, your rebate rate is slashed to 7.5%. This effectively doubles your tax liability on the portion that would have been covered by the full rebate.

9.3. Compliance and Legal Restrictions

Modern tax laws in Bangladesh link tax filing to everyday civic and business services via the Proof of Submission of Return (PSR).

    Service Disruptions: Without a valid PSR for the current year, you may face difficulties in:

        Renewing trade licenses or car registrations.

        Applying for bank loans or credit cards.

        Getting gas or electricity connections in certain areas.

        Participating in government tenders.

    Disallowance of Exemptions: Under the 2023 Act, certain tax exemptions or reduced tax rates (e.g., on house property or business income) may be disallowed if the return is not filed by the deadline.

9.4. Mandatory Online Filing

As of 2024–2025, the NBR has made e-filing mandatory for specific groups, including:

    Government employees in city corporations.

    Employees of all scheduled banks and mobile network operators.

    Employees of certain large multinational and local companies. Failing to file online when required can lead to your return being considered "invalid" or "not filed," even if you submit a paper copy.

9.5. Pro-Tip: How to Get an Extension

Usually the government extends the time by 2 months.

If you cannot file by the deadline, you can apply for a Time Extension if govt. not extended. 

Process: Submit a written application or an online request to your Deputy Commissioner of Taxes (DCT) before the deadline.

Benefit: An approved extension saves you from the fixed penalty (10% + BDT 50/day), though you will still usually have to pay the 2% monthly interest on the tax amount.

10. The "Tax Day" Deadline

The deadline for individual tax return submission is typically November 30 (known as Tax Day). For the 2025–26 Assessment Year, taxpayers were required to file by this date unless a general extension was granted by the NBR. Filing after the deadline incurs a penalty and delay interest of 2% per month on the tax payable.

Conclusion

The Income Tax Act 2023 is a step toward a more transparent and "Smart Bangladesh." While the transition from the old ordinance has brought about challenges—specifically regarding the consolidation of salary exemptions and mandatory online filing—it ultimately aims to make the tax process more predictable and fair.

Staying compliant is no longer just about avoiding fines; with the PSR requirement, a tax return receipt is now essential for obtaining trade licenses, buying property, and even getting a credit card.

 

Editing by-

Rajan Kumer Debnath

Income Tax and VAT Adviser 

Member: Dhaka Taxes Bar Association