BD I Tx for economy in modern era txch07.ppt

Rationale in tax collection

1. Bangladesh Income Tax: Theory and Practice
Shil, Masud & Alam
ACT 311

2. Chapter 7
Income from Interest on Securities
•Scope of the head “Interest on Securities”
•Basis of taxation on interest on securities
•Conditions of taxation on interest on
securities
•Classification of securities
•Grossing up of interest
•Admissible / Allowable expenses
•Tax exemption on Interest on Securities

3. Scope of the head “Interest on
Securities”
As per Section 22, the following incomes of
an assessee shall be classified and
computed under the head “Interest on
Securities”-
1.Interest receivable from government
securities
2.Interest receivable from debentures or
other commercial securities.

4. Basis of taxation on interest on
securities
Theoretically, interest on securities
will be taxable in the period when it
is earned, whether it has been
received or not. But, in practice
interest on securities will be taxed in
the year of actual receipt.

5. Conditions of taxation on interest on
securities
According to Section 22, the following conditions
should be met in order to be termed as an
income under the head “Income from Interest
on Securities”:
1.Income must be received as interest
2.The income must be from govt. securities.
3.Other than the govt. securities, income must be
received from debentures or securities issued
by local authorities and companies.

6. Classification of securities
1.Government securities:
(i) Tax-free govt. securities
(ii) Less-tax govt. securities
2.Commercial securities:
(i) Debentures
(a) approved debentures
(b) unapproved debentures
(ii) Zero-coupon bond

7. Grossing up of interests
Interest income taxable under this head must be
the gross amount, not the net amount. As 10%
tax is deducted at source from interest on less
tax government securities, interest received is
net amount and to be grossed up by using the
following formula:
Gross interest = Net interest × 100
100 – TDS rate

8. Admissible expenses under “Income
from Interest on Securities”
1.Bank commission / charges for
collecting interest
2.Interest on borrowed capital for
investment in securities.
[Admissible expenses will not be considered
in case of interest on tax-free govt
securities & zero-coupon bond, as they
are fully exempted from tax]

9. Tax exemption on Interest on
Securities
1.Interest on Tax Free Govt. Sec. – Full
2.Interest on Zero Coupon Bond - Full

10. General format to calculate taxable
income from interest on securities
Interest on securities(Gross)****
Les: Allowable expenses
[Bank charge & Int. on loan(***)
****
Less: Exemption (If any)(***)
****