Banks and Financial Institutions under the Bangladesh Income Tax Act 2023

Banks and financial institutions play a critical role in Bangladesh's economy, acting as the backbone of commerce, investment, and financial inclusion. Recognizing their importance, the Income Tax Act 2023 of Bangladesh provides specific guidelines regarding their taxation, obligations, and compliance requirements.

Definition and Scope

Under the Income Tax Act 2023, banks include all scheduled banks operating under the Bank Company Act 1991, while financial institutions refer to non-bank financial institutions (NBFIs) licensed by Bangladesh Bank under the Financial Institutions Act 1993.

Institutions covered include:

  • Commercial banks (public and private)
  • Islamic banks
  • Leasing companies
  • Investment banks
  • Development financial institutions
  • Microfinance organizations (where applicable)

Tax Rate for Banks and Financial Institutions

  • Standard corporate tax rate: 40% for banks, insurance companies, and financial institutions
  • Listed institutions: 37.5% (subject to compliance conditions)

This preferential rate for listed companies is subject to compliance with certain conditions, including maintaining the required percentage of shares in the stock exchange and ensuring proper reporting and transparency.

Withholding Tax Obligations

Banks and financial institutions have heavy withholding tax (TDS) responsibilities under the Act. They are required to deduct tax at source on:

  • Interest on deposits, savings certificates, and bonds
  • Commission payments to agents
  • Payments to contractors and suppliers
  • Professional service payments

Failure to deduct and deposit TDS properly can result in penalties, fines, and even disallowance of expenses during tax assessments.

Filing and Compliance Requirements

Banks and financial institutions must:

  • File annual income tax returns in prescribed formats
  • Submit audited financial statements
  • Provide detailed disclosures of financial activities
  • Maintain TDS certificates and deposits

Special Provisions

Provision for classified loans

Specific deductions allowed for bad or classified loans, subject to conditions and ceilings.

Tax incentives

Financial institutions investing in green financing or rural banking may enjoy tax credits or reduced rates.

Conclusion

The Income Tax Act 2023 brings more clarity, discipline, and transparency to the taxation of banks and financial institutions in Bangladesh. As financial intermediaries, they must comply strictly with these obligations to avoid legal complications and maintain public trust. A robust tax compliance framework not only enhances their reputation but also contributes significantly to national revenue and sustainable economic growth.

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