Classification of Income p.

113

Classification based on Assessment

Assessable income Non Assessable Income

Tax Credit
Tax Free Income Tax Payable Income
Income
Assessable Income p.114
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 P.113
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=1.67%
So,Total tax 5,000
Rebate 100,000X1.67% (1670)
Tax payable 3,330
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 220,000.
Non Assessable income P.118
• 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 liability/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 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.