NBR clears confusion about tax deduction

The National Board of Revenue (NBR) has issued a clarification related to the deductions of withholding tax on interest earning deposits that companies keep in banks and other financial institutions.

The tax authority has imposed 20 per cent tax at source on the interest generated by deposits maintained by companies in banks for the current fiscal year.

It also slapped 10 per cent withholding tax on entities other than companies such as public universities and educational institutions whose teachers get salaries under monthly payment orders, and professional institutes established under any law.

In addition, the NBR imposed 5 per cent tax at source on the interest income from deposits kept in the name of a provident fund recognised by the revenue authority, approved gratuity fund, approved superannuation fund or pension fund.

After the new provision came into effect in July this year, bankers found it difficult to differentiate between companies, firms, and other entities while deducting tax on the interest on deposits of taxpayers other than individuals.

Officials said bankers fell in a dilemma over whether they, at the time of crediting interest to the accounts of depositors after deducting the source tax on behalf of the state, would follow the definition of a company given in the company law or the definition provided in the income tax law.

As per the clarification issued on October 20, state agencies, semi-government organisations, state corporations, and state-banks such as the Bangladesh Power Development Board, Export Promotion Bureau, Rajdhani Unnayan Corporation, and regional development authorities, NGOs, and trade bodies will be treated as companies.

The official said the clarification will be helpful for bankers to deduct tax on interest earnings of deposits of companies.

"This will also be helpful for our field office and taxpayers who want to open Taxpayer Identification Numbers," he added.