How to maximise tax benefits?
When Finance Minister AHM Mustafa Kamal unveiled his plans for the next fiscal year, many had expectations that the minister would offer some relief to individual taxpayers and enable them to have higher disposable incomes to tide over the pandemic days.
The cost of living has gone up due to the rising price of food and other expenses amid the ongoing coronavirus crisis while the second wave of infections has only added pressure on everyone's wallets.
But expectations remained unfulfilled.
The finance minister had offered no relief, making taxpayers like Kazi Md Anisur Rahman, a banker, feel a bit upset for not having any cushion against the ongoing pandemic.
Kamal made no move to leave the disposable incomes of individual tax payers' intact so that they could increase precautionary savings to overcome the tumultuous situation.
His tax liability will not reduce, although his expenditure for living, transport and hygiene increased over the last one year. He sees his disposable income is going to decline. However, being a banker and a finance graduate, Rahman has perfectly planned to invest part of his income to reap the full benefit of tax rebates on investment.
For the next fiscal year, when the taxpayers will have to submit returns of their income and asset in the current income year 2020-21, a taxpayer can invest 25 per cent or up to Tk 1 crore of his or her annual income to claim a tax rebate, according to the tax measures proposed by the National Board of Revenue (NBR).
The maximum ceiling on investment to claim a tax rebate was Tk 1.5 crore or 25 per cent of taxable income in the outgoing fiscal year. The reduction is going to increase tax liability of high income individuals.
Rahman is not going to be affected for the reduction in investment limit. He has planned and invested part of his income to claim tax rebates in order to ensure maximum disposable income by complying with tax rules.
He has invested a portion of his income in state sponsored savings certificates to avail the tax rebate apart from increasing his wealth.
But he also mentioned that one can invest in other areas such as stocks to claim the tax rebate during submission of his or her tax returns.
"If anyone wants to take benefit of investment rebates, this is the time," Rahman said.
But one has to invest or keep money in areas where tax authority offers tax rebate. Investing anywhere such as land will not help reduce tax liability.
The tax authority provides tax rebate in 21 areas that include life insurance premium, depository pension scheme (DPS) in any bank or non-bank financial institution, investment in savings certificates, stocks, mutual fund and debenture.
In also includes contributions to the government provident fund, welfare fund and group insurance, investment in treasury bonds and donations to various organisations engaged in social welfare activities.
In case of investment in DPS, one can claim rebates on investment of up to Tk 60,000 annually.
Jasim Uddin Rasel, a tax consultant, said tax rebate on investment allowance is the option to reduce tax burden legally by investing in specified areas as per tax law which are considered for investment allowance.
"If any taxpayer wants to claim tax rebate in his or her next income tax return, he or she should invest in the specified areas within 30th June this year," he said.
Rasel, who runs a blog on tax matters, said a majority of taxpayers' tax calculation will not be affected as per the proposed measures. However, some changes will increase the tax burden on high-income earners and wealthy people.
As the tax-free threshold and slab wise tax rates for individual taxpayers remain unchanged, there will be no change in tax calculation, he said.
Rasel said public transport services have been suspended during lockdown but employees continued their office paying high fare.
"And after a long time, public transport is allowed to operate within cities with 50 per cent passengers, which also increases the transport cost. Medical expenses also increased during this pandemic. But the ceiling of tax exemptions remains same for the salaried taxpayers," said Rasel.
Considering the Covid-19 situation, the government may increase the limit of tax exemption to reduce the tax burden," he added.
A tax official, seeking to remain unnamed, said disposable income of taxpayers will reduce because of no-change in the tax rate and tax-free income threshold.
"Under this circumstance, smart tax planning is necessary. Investment in approved securities or areas could be an option," he said.
Snehasish Barua, partner of Snehasish Mahmud & Co, a chartered accountancy firm, said the government should increase allowable expense for health in view of increased cost for hygiene and medical expenses, particularly for cost related treatment of coronavirus infection.
"The government could allow expenditure for coronavirus as allowable expense. It would help reduce tax liability," Barua added.