Where to invest to get tax rebate

Do you want to reduce the amount of tax you pay? Well, there are some legal tricks to do that. For this you need to invest a portion of your disposable income. The National Board of Revenue (NBR) has this policy to encourage people into such investments. Again, even if you donate some of your income throughout the year, the amount of tax will be rebated.

Earlier, up to Tk1.5 crore investment was needed per year in order to have tax rebate. But it has been reduced to Tk1 crore for the current financial year.

According to the policy, you will get tax exemption if you invest in any of nine sectors. Investing in savings certificates is the easiest option for ordinary taxpayers to get tax rebates. In addition, tax exemption is also available for those who spend money on the stock market. 

Even if you buy shares of stock market listed companies, tax officials will consider it an investment. Investing in mutual funds will also provide the same benefit.

Many people go for deposit pension schemes or DPS. DPS up to Tk5,000 per month i.e. up to Tk60,000 per annum is considered for tax concession. This means that DPS is also considered a kind of investment. 

There are also six other sectors where you will get tax exemption for investment. These sectors are- life insurance premiums, donations to provident funds of government officials, subscription of employer and officer-employee to recognised provident fund, donations to welfare funds and group insurance funds, investment in government approved treasury bonds and donations to super annuity funds.

So you cannot just donate anywhere and expect tax exemption. Donating a hefty sum to 13 sectors will augur tax concessions. These are national level institutions dedicated to the memory of the Father of the Nation, Zakat Fund, National Board of Revenue (NBR) approved charitable hospitals, institutions set up for the welfare of the disabled, Liberation War Museum, Aga Khan Development Network, Ahsania Cancer Hospital, Dhaka Ahsania Cancer Hospital, Asiatic Society, icddr,b, Centre for the Rehabilitation of the Paralysed (CRP), national level institutions and government-approved public welfare or educational institutions engaged in memory of the liberation war.

Caption: Illustration: TBS

In these sectors, a taxpayer can invest or donate up to 25% of the total per annum income to get tax concessions. If you donate more than that, you will not get the extra tax concession. If your annual income is less than Tk15 lakh, you will get 15% tax exemption of total investment and donation. Tax exemption at the rate of 10% will be available if it exceeds Tk 15 lakh. And to avail such rebate, you will need to fill a 24D schedule form along with a return form.

Let me provide an example. Suppose you earned Tk8 lakh from July 2020 to June 2021. According to the tax policy you do not have to pay tax for the first three lakh of your taxable income. 

So you have Tk5 lakh that you will have to pay tax for. Now for the first Tk1 lakh you have to pay at a rate of 5%, which comes to Tk5,000. For the next three lakh you pay at the rate of 10%, which comes to 30,000. Finally, you Tk15,000, at the rate of 15%, for the last one lakh. So your total tax payable is Tk50,000.

Now, suppose you decide to invest Tk2 lakh in any of the sectors mentioned above, since 25% of your total income can be invested in savings. And your income is also within Tk15 lakh. Therefore, you will get 15% concession on the Tk2 lakh invested, or Tk30,000. Since your taxable income is Tk50,000, you only have to pay Tk20,000.

Nuzhat Rifa Ehsan is a lawyer.

Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinions and views of The Business Standard.