Under which category does your income fall? Tax return error could lead to complications

You may be earning an income without knowing which category is subject to income tax. When filing your tax return, you must disclose every source of income you earned during the tax year.

Many taxpayers assume it is sufficient to report all income as a single amount, but that is not the case.

Under the Income Tax Act 2023, the law recognises seven categories of taxable income. If you earn income from any of these categories, you are liable to pay tax, subject to applicable exemptions.

However, annual income of up to Tk 400,000 is now exempt from income tax.

The following are the seven categories of income that determine a taxpayer's total taxable income:

Any salary, allowances, bonuses, incentives or other forms of remuneration received from employment with a government, private or any other organisation are treated as employment income.

Many property owners earn a significant portion of their income from rent. Annual income generated from renting out a house, apartment, shop or any other property falls under this category.

Commercial farming has become increasingly common. Income earned from agricultural land, crops, fruits, vegetables, livestock farming or any other agricultural activity is included under this category.

Income derived from a sole proprietorship or professional activities, such as those of a physician, lawyer or consultant, should be reported under this category.

Income earned from the use of capital assets, including profits, rent, royalties, interest or other returns on capital, falls within this category.

This category includes interest or profit earned from bank deposits, dividends, returns from savings certificates, treasury bonds and other securities.

Any income that does not fall under the above categories should be reported as income from other sources.

Each category of income may be subject to different tax rules, and taxpayers should take these into account. Certain types of income may qualify for tax exemptions, while others may attract higher tax rates.

Reporting income under the wrong category may result in additional tax liabilities, penalties or complications during tax assessment.

Taxpayers should therefore identify the correct income category, plan their tax affairs accordingly and submit an accurate tax return to minimise the risk of complications if their tax file is selected for audit.