Taxation Institute of Chartered Accountants Bangladesh Md. Shakhawat Hossain Articled Student Howladar Yunus & Co.

Reference Meaning of Business and Profession Scope of Income under the head ‘Income from Business and Profession’ Some Specific Guidelines Allowable Deductions Deduction not Admissible Capital and Revenue Expenditure Illustrations for practice Income from Business & Profession Topic List

Definition: 2(34), 2(14), 2(49), 2(61) Deemed Income: 19(15)- a,aa,b,c; 19(16), 19(18), 19(20), 19(23) read with rule-30A. Main Section: 28, 29, 30 read with rule-65, 35, 46(B), 46(C) 6 th schedule Part A Para 1A,33, 35, 37, 39, 42 3 rd schedule SRO-CSR Rule-30, 31, 32 Income from Business & Profession Reference

S-2(14) "business" includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture; According to Oxford Advanced learner’s Dictionary, business means the activity of making, buying, selling or supplying goods or services for money. S-2(49)"profession" includes a vocation; Characteristics of profession – mastering of particular intellectual skill acquired through rigorous education and training; – adherence to common code of conduct or professional ethics; – acceptance of a social duty of due care and service. Income from Business & Profession Meaning of Business and Profession

Section 28(1)(a) Profits and gains of any business or profession carried on by the assessee Section 28(1)(b) income derived from any trade or professional association or other association of like nature Section 28(1)(c) value of any benefit or perquisite arising from business or the exercise of a profession Section 28(1)(d) & 19(15) receipt of any loss, bad debt or expenditure already charged; unpaid amount of interest or share of profit to certain banks after three years of charge; benefit derived in respect of trading liability that remains unpaid for three years Income from Business & Profession Scope of Income under above head Fully Income from Business or Profession

Section 28(1)(e) & &19(16) income from the disposal of any building, machinery or plant used for purpose of any business or profession carried on by him Section 28(1)(f) & 19(18) income from any insurance, salvage or compensation moneys received in respect of any building, machinery or plant used for the purpose of business or profession Section 28(1)(g) & 19(20) Income from the disposal of an asset representing expenditure of a capital nature on scientific research Section 28(1)(h), 19(23) & Rule 30A Income from the transfer of export quota by an assessee being an exporter of garments- 3% Income from Business & Profession Scope of Income under above head Fully Income from Business or Profession

Income from Business & Profession Scope of Income under above head Partly Income from Business or Profession Section 26(2) & Rule 31 Income from the sale of Tea 40% Section 26(3) & Rule 32 Income from the sale of Rubber /Tobacco / Sugar / Other similar products

Fourth Schedule The profits and gains from insurance business and the tax payable thereon Fifth Schedule – Part A The profits and gains from the exploration and production of petroleum (including natural gas) and the tax payable thereon Fifth Schedule – Part B The profits and gains of any business which consists of or includes the exploration and extraction of such mineral deposits of wasting nature, not being petroleum and natural gas, as may be specified Income from Business & Profession Some Specific Guidelines In line with section 28(2) (a) (b) (c)

The amount of interest which is not brought in the profit and loss account and kept in suspense account relating to classified bad and doubtful debts of Bangladesh Shilpa Bank, Bangladesh Shilpa Rin Sangstha, Investment Corporation of Bangladesh and any commercial bank including the Bangladesh Krishi Bank and the Rajshahi Krishi Unnayan bank shall be chargeable to tax in the income year in which it is credited to the profit and loss account for that year or as the case may be, it is actually received, whichever is earlier [Section 28(3)]. Income from Business & Profession Some Specific Guidelines

Rent for the premises used for the purpose of business or profession [Section 29(1) (i)]. Provided that if a substantial part of the premises is used by the assessee as a dwelling house, the amount shall be a proportionate part of the rent having regard to the proportionate annual value of the part so used. Repairs to hired business premises is the assessee bears the expense [Section 29(1) (ii)]. Provided that if a substantial part of the premises is used by the assessee as a dwelling house, the amount shall be a proportionate part of the sum paid for such repair having regard to the proportionate annual value of the part so used. Income from Business & Profession Allowable Deductions

Bank interest paid or any profit shared with a bank run on Islamic principles in respect of capital borrowed of the purpose of business or profession [Section 29(1) (iii)]. Provided that if any part of such capital relates to replenishing the cash or to any other asset transferred to any other entity, when lending of money is not the business of transferor, the amount shall be proportionate part of the interest so paid or the profit so shared having regard to the proportion of such capital so used. Share of profit paid by a bank run on Islamic principles [Section 29(1) (iv)]. Income from Business & Profession Allowable Deductions

An amount not exceeding 5% of the profit transferred to Special Reserve by banks and financial institutions approved by the Government [Section 29(1) (v)]. Repairs to own buildings, plants, machinery, furniture or other fixed assets [Section 29(1) (vi)]. Insurance premium for insurance against risk of damage etc. of buildings, plant furniture or other fixed assets used in business or profession [Section 29(1) (vii)]. Depreciation of building, machinery, plant or furniture being owned by the assessee and used for business or profession as per Third Schedule [Section 29(1) (viii)]. Income from Business & Profession Allowable Deductions

Investment allowance for a passenger vessel or a fishing trawler which is entitled to special depreciation is allowable at 20% of the original cost subject to stipulated conditions [Section 29(1) (ix)]. Where any building, machinery or plant which, after having been used by the assessee for the purpose of his business, has been discarded, demolished or destroyed in any income year or any such asset has been sold, transferred by way of exchange or compulsorily acquired by a legally competent authority or exported outside Bangladesh in any income year, an obsolescence allowance to the extent and computed in the manner specified in paragraph 10 of the Third Schedule [Section 29(1) (xi)]. Obsolescence allowance and allowance on account of death or useless animals used for the purpose of business or profession otherwise than as stock in trade [Section 29(1) (xii)]. Income from Business & Profession Allowable Deductions

Land development tax or rent, local rate or municipal tax [Section 29(1) (xiii)]. Bonus paid to employees including festival bonus [Section 29(1) (xiv)]. The amount of bad debt which is established to have become irrecoverable, under the stated circumstances [Section 29(1) (xv)]. The amount of bad debt written off as irrecoverable but deduction not allowed on the ground that it was not then irrecoverable, the amount which was established to be irrecoverable [Section 29(1) (xvi)]. The amount of bad debt having been irrecoverable in an earlier year is allowable for the earlier year under certain circumstances and with the consent of the assessee [Section 29(1) (xvii)]. Income from Business & Profession Allowable Deductions

In respect of provision for bad and doubtful debt made by Bangladesh Shilpa Bank or Bangladesh Shilpa Rin Songstha for overdue loan, a sum equal to five percent of such overdue loan or the amount of actual provision for such bad or doubtful debt in the books of the assessee, whichever is the less [Section 29(1) (xviiia)]. Provision for bad and doubtful debt and interest thereon made by a commercial bank including the Bangladesh Krishi Bank and the Rajshahi Krishi Unnayan Bank of a sum equal to 1% of the outstanding loan including interest thereon or the amount of actual provision, whichever is less, subject to the specified conditions [Section 29(1)(xviiiaa)]. Any expenditure, not being capital expenditure, laid out or expended on scientific research related to the business [Section 29(1) (xix)]. Income from Business & Profession Allowable Deductions

Any expenditure of a capital nature laid out or expended on scientific research related to the business subject to the stipulated conditions [Section 29(1) (xx)]. Any sum paid to scientific research institute or other specified bodies carrying out scientific research approved by the Board subject to the stipulated conditions [Section 29(1) (xxi)]. Any sum, not being of capital nature laid out or expended on any educational institute or hospital established for the benefit of employees subject to the stipulated condition [Section 29(1) (xxii)]. Expenditure (including capital expenditure incurred on any educational institution or hospital for the benefit of employees and their dependents is deductible provided no charge is made for the services rendered by such hospital or institution. Expenditure incurred on the construction, maintenance or running of any institute for the training of industrial workers will be similarly deductible [Section 29(1) (xxiii)]. Income from Business & Profession Allowable Deductions

Any expenditure laid out or expended on the training of citizens of Bangladesh in connection with a scheme approved by the National Board of Revenue [Section 29(1) (xxiv)]. Expenses incurred in connection with visits abroad in a Trade Delegation sponsored by Government [Section 29(1) (xxv)]. Subscriptions paid to registered trade organizations annual membership subscription paid to registered trade organization or to a recognized professional institution is allowable expenditure for the purpose of computation of income from business [Section 29(1) (xxvi)]. Any expenditure, not being in the nature of capital expenditure or personal expenses of the assessee laid out or expended wholly and exclusively for the purpose of the business or profession of the assessee [Section 29(1)(xxvii)]. Income from Business & Profession Allowable Deductions

Allowable Deductions Proportionately Where any premises, building, machinery, plant or furniture is not wholly used for business or profession, any deduction allowable under section 29(2) will be allowed proportionately. Income from Business & Profession Allowable Deductions

Payment of salaries if tax is not deducted at the time of payment and paid thereon in accordance with section 50 of Chapter VII [Section 30(a)]. Payment to a provident or other fund unless effective arrangement has been made for deduction of tax at source while making the payments from the fund which are taxable under the head “Salaries” [Section 30(d)]. Payment of interest, salary, commission or remuneration by a firm or an association of persons to any partner of the firm or any member of the association, as the case may be [Section 30(b)]. Brokerage or commission paid to a non-resident if tax has not been deducted there from under section 56 [Section 30(c)]. Income from Business & Profession Deduction not Admissible

Any payment made by an assessee to any person if tax thereon has not been deducted and credited in accordance with the Chapter-VII and Vat thereon has not been collected or deducted and credited in accordance with the VAT Ordinance 1991[Section 30(aa)]. Amount of perquisites or other benefits paid to any employee in excess of Tk. 250,000 [Section 30(e)]. Income from Business & Profession Deduction not Admissible

‘perquisite’ means - Any payment made to an employee by an employer in the form of cash or in any other form excluding basic salary, festival bonus, arrear salary, advance salary, leave encashment or leave fare assistance and over time, and Any benefit, called by whatever name, provided to an employee by an employer, whether convertible into money or not but other than contribution to- (a) recognized provident fund; (b) approved pension fund; (c) approved gratuity fund; (d) approved superannuation fund. Income from Business & Profession Deduction not Admissible

Any expenditure in respect of the following as is in excess of the amount or rate prescribed in this behalf and as is not, in the cases of sales and services liable to excise duty, supported by excise stamp or seal, namely: – entertainment; (R-65) – foreign travels of employees and their dependents for holidaying and recreation; (R-65A) – publicity and advertisement; and – distribution of free samples. (R-65C) Income from Business & Profession Deduction not Admissible

Any expenditure exceeding ten percent of the profit under the head of Head Office expenses by a company not incorporated in Bangladesh under Company Act, 1994; Any payment by way of royalty, technical services fee, technical know-how fee or technical assistance fee exceeding eight percent of the profit; Any payment by way of salary or remuneration made otherwise than by crossed check or bank transfer by a person to any employee having gross monthly salary of taka fifteen thousand or more; Any expenditure by way of incentive bonus exceeding ten per cent of the disclosed net profit; Any expenditure by way of overseas traveling exceeding one percent of the disclosed turnover. Income from Business & Profession Deduction not Admissible

Some confusing Capital Expenditure – Cost of constructing a factory or installing machinery – For raising money for capital purposes, e.g. brokerage and commission paid for procuring loans; – For improvement and extension of fixed assets, cost of making additions to building, machinery, plant and furniture etc. and other improvements of assets; – For increasing in any way the profit earning capacity of a business, e.g. the cost of shifting the business to better and more suitable premises; Income from Business & Profession Capital and Revenue Expenditure

Some confusing Capital Expenditure – Expenditure incurred on improvements to property, as distinguished from mere repairs; – Expenses incurred in connection with the creation of buildings and plants; – Expenditure incurred in respect of reconstruction of business premises or converting the same from one type to another; – Price paid for the purchases of copyright or patent right. Income from Business & Profession Capital and Revenue Expenditure

Revenue Expenditure – For purchasing assets with a view to re-selling them at profit or manufacturing them in a saleable condition, e.g. goods, raw materials and stores; – For maintaining capital assets in good working order, e.g. repairs and renewals of buildings; – For meeting day-to-day expenses of carrying on a business, e.g. salaries, wages, rents etc. Income from Business & Profession Capital and Revenue Expenditure

Income from Business & Profession Illustrations for practice Study Manual_Taxation-I (ICAB)- Page: Study Manual_Taxation-II (ICAB)- Page: Bangladesh Income Tax_ Nikhil Chandra Shil- Chapter -10_Page: Previous Questions of ICAB_ Professional Stage KL

Thanks Md. Shakhawat Hossain Articled Student Howladar Yunus & Co. Taxation & Legal Compliance Department