Date:

The Managing Director

………………………
………………………
………………………

Dear Sir,

Subject: Guideline on avoidance of tax on account of statutory disallowance of the

expenditure for the company under the prevailing provision of the Income
Tax Act (ITA) 2023.

We are pleased to provide the guideline hereunder on Statutory disallowable expenditure for
charging income tax under prevailing provision of the Income Tax Act, 2023, which will be helpful
for your company to reduce the extra burden of income tax as well as to ensure proper
compliance of your company:

As per the Income Tax Act 2023, there are some conditions for allowable expenditure in
case of certain expenses.

It may be worthy to mention here that any amount disallowed under section 55 of the
ITA, 2023 shall be treated separately as “Income from special business ” and tax shall be
payable at the regular rate. As per section 56 of ITA 2023, Loss, set off and carry forward
of loss and allowance under third schedule shall not be considered while determining tax
liability of the assessee on disallowed amount under section 55.

For smooth compliance to the statute, we are pleased to summarize the head of expenditure
on which these are certain limitations and conditions imposed by the statute:

Deduction of expense not admissible Page Ref

Issue related to Employees ................................................................................................... 2
Payment on account of expense without deduction of withholding tax .................................. 3
Expenditure Cap related to Disclosed Turnover .................................................................... 4
Expenditure Cap related to Disclosed Net Profit.................................................................... 5
Payment made through Non-Banking Channel ..................................................................... 5
Issue related to Proof of submission of Return of income. ..................................................... 6
Expenditure cap related to Entertainment. ............................................................................ 7
Issue related to Nonbusiness expenditure............................................................................. 8
Payment to any fund not being approved by National Board of Revenue (NBR) ................... 8
Non verifiable expenditure where prescribed Method of Accounting were not followed. ........ 8
Related to payment to Shareholder Director ......................................................................... 9
Related to unascertained liability. .......................................................................................... 9
Impairment loss of fictitious assets ........................................................................................ 9

Page 1 of 10
Issue related to Employees
Expenditure
Disallowable condition Recommended Action
Head Section/Rule
Ensure efficient compliance to the provisions
for Deduction of income tax at Source (TDS)
and:
Expenditure will be disallowed if :- ❖ Make deduction of tax at applicable rate
1. Proper deduction of income tax is not for the specified payments unless waiver
made, or certificate is presented.
2. TDS deducted but not deposited to the ❖ Preserve waiver certificate (if presented
Payment of salary which Govt. treasury, or to the company) for reference.
attracts deduction of income Section- 55(ka) 3. Amount of TDS not deposited within the ❖ Deposit of TDS to the Government
tax at source stipulated time. Treasury in a correct manner.
4. If salary paid without receiving proof of ❖ Deposit of TDS to the Government
submission of return of income . Treasury within stipulated time.
❖ Issue certificate of TDS in the prescribed
form and time.
❖ Should collect Proof of submission of
return.
Expenditure will be disallowed if perquisite
While framing the payroll/structure of salary,
Payment made to an amount exceeds Tk. 10,00,000 (Ten Lakh) Per
special care should be taken to keep the
employee in the form of Section- 55(Gha) person per year.
perquisite within allowable limit (i.e., Tk.
perquisite.
10,00,000 in respective cases)
Expenditure will be disallowed if payment of an
Payment by way of salary to employee is made other than banking channel. Employee payment must be made by
Section- 55(Ta)
the employee banking channel

Page 2 of 10
 Expenditure
Disallowable condition Recommended Action
Head Section/Rule
Expenditure will be disallowed if payment to a
beneficiary is made without deducting Trustee should deduct 10% TDS at the time
Payment of WPPF Section- 55(Ka)
withholding tax. of making payment.

Employee means in relation to a company, includes the managing director, or any ocher director or other person. who irrespective of his
designation. performs. any duties or functions in connection with !he management of the affairs of the company.

Perquisite means, any payment or benefit made to an employee by an employer including incentive bonus, however, following payment shall
not be included in
(i) Basic salary , arrear salary , advance salary , festival bonus , leave encashment or overtime,
(ii) Contribution by an employer in recognized provident fund, approved pension fund, approved gratuity fund and approved
superannuation fund.
Payment on account of expense without deduction of withholding tax
Expenditure
Disallowable condition Recommended Action
Head Section/Rule
Ensure efficient compliance to the provisions for
Deduction of income tax at Source (TDS) and:
Expenditure will be disallowed if :- ❖ Make deduction of tax at applicable rate for the
specified payments unless waiver certificate is
1. Proper deduction of income tax is not made, presented.
or
Expenditure which ❖ Preserve waiver certificate (if presented to the
2. TDS deducted but not deposited to the Govt. company) for reference.
attracts deduction Section-
treasury, or
of income tax at 55(ka) ❖ Deposit of TDS to the Government Treasury in a
source 3. Amount of TDS not deposited within the correct manner.
stipulated time.
❖ Deposit of TDS to the Government Treasury within
stipulated time.
❖ Issue certificate of TDS in the prescribed form and
time.

Page 3 of 10
Expenditure Cap related to Disclosed Turnover

Expenditure
Disallowable condition Recommended Action
Head Section/Rule
Expenditure will be disallowed if exceeding the limit i.e., 0.50%
of the disclosed turnover. * Take care to about the limit of
Section- allowable expenditure.
Overseas traveling Expenses Note 01: Limit will not be applicable if payment is made for
55(Chha) foreign travel for assisting to service to the Govt. * Attempt to be made for efficient
Note 02: Limit will not be applicable if excess amount verified charging of expenditure
by the documents and logically expended for the business
Expenditure will be disallowed if exceeding the following limit:
Rate in respect of expenditure on distribution of free samples are
as follows:
Industry ❖ Steps to be taken for
Pharmac food, Other Maintenance of the limit
Section- Turnover/Sales
Distributions of free samples eutical cosmetics (Budgetary control)
55)Jha)
and toiletries ❖ Efficient accounting to be
Up to 5 crore 2% 1% 0.50% followed
Excess of Tk. 5 crore but upto 1% 0.5% 0.25%
Tk. 10 crore
Excess of Tk. 10 crore 0.50% 0.25% 0.10%
Promotional Expense Limit
* Take care about the limit of
Expenditure will be disallowed if exceeding the limit i.e. allowable expenditure.
Promotional Expense means: Section
0.50% of the disclosed business turnover.
any expense incurred by way of 55(Nia) * Attempt to be made for efficient
giving goods or money any charging of expenditure.
benefit except advertisement .

Page 4 of 10
Expenditure Cap related to Disclosed Net Profit
Expenditure
Disallowable condition Recommended Action
Head Section/Rule
Expenditure will be disallowed if exceeding the limit
Royalty, License fees, technical @ 10% of the net profit disclosed in the statement of
service fee, technical know-how accounts of the company.
Section- 55(Umma)) Take care to maintain the limit
fee, technical assistance fee or
intangible asset usage fee;

Expenditure will be disallowed if exceeding the limit

Head office or intra-group
Section – 55(Cha) i.e.,10% of the net profit disclosed in the statement of Take care to maintain the limit.
expense
accounts.

Payment made through Non-Banking Channel

Expenditure
Disallowable condition Recommended Action
Head Section/Rule
Any payment for the purchase
of raw materials exceeding
taka 5(five lac) or more, Purchase of raw materials exceeding taka 5(five lac) Relevant payment must be paid
Section- 55(Da)
otherwise than by banking or more, otherwise than by banking channel - through the banking channel.
channel -

Expenditure will be disallowed if exceeding the limit

Payment exceeding taka i.e., payment for Tk. 50,000 is made other than
50(fifty thousand) or more, banking channel excluding -
Relevant payment exceeding Tk.
otherwise than by a banking Section- 55(Dha) i) Payment for salary
50,000 or more must be paid
channel. ii) payment for the purchase of raw materials;
through banking
iii) Payment for Rent

Page 5 of 10
 Expenditure
Disallowable condition Recommended Action
Head Section/Rule
Payment by way of salary to Expenditure will be disallowed if payment of an Officers must be paid by banking
Section- 55(Ta)
the employee officer is made other than banking channel. channel
Any payment by way of any rent of any property, Payment of rent must be paid
Payment of rent Section- 55(Tha) other than banking channel. through banking channel.

Bank Transfer means mean transfer of fund from one bank account to another bank account through crossed cheque, MFS or any other means
approved by Bangladesh Bank.

Issue related to Proof of submission of Return of income.

Expenditure
Disallowable condition Recommended Action
Head Section/Rule
Expenditure will be disallowed if failure to submit proof of return of income
. In following cases:
i. Payment made for participating in a shared economic activity by
providing motor vehicle, space, accommodation or any other assets -
section 264(25)
Payment made ii. Payment which is an income of the payee classifiable under the head
certain cases "Salaries" by any person employed in the management or administrative
Section- function or in any supervisory position in the production function - section Ensure receipt of proof of return of
despite failure to
55(Na) 264(26) income before making payment
submit proof of
return of income .
iii. Payment for any commission, fee or other sum in relation to money
transfer through mobile banking or other electronic means or in relation to
the recharge of mobile phone account- section 264(28).

Page 6 of 10
 Expenditure
Disallowable condition Recommended Action
Head Section/Rule
iv. Any payment to a resident by a company on account of
- any advisory or consultancy service,
- catering service,
- event management service,
- supply of manpower or
- providing security service- section 264(29)
v. Payment to a resident for the purpose of supply of goods, execution of a
contract or rendering a service- section 264(36)

vi. Payment for any supply of goods and services by company or

firm. – section 264(37).
vii. Payment of house rent or lease of owner of house property in the City
corporation- section 264(42)
vii. Payment to supplier of goods and services by specified person
for receiving of any goods or service. section 264(43)

Expenditure cap related to Entertainment.

Expenditure
Disallowable condition Recommended Action
Head Section/Rule
Expenditure will be disallowed if exceeding the following limit :
Profit before charging such Allowable amount
allowance
Entertainment First BDT 10 Lakh 4% Take effective care about the limit
Section 55(Ja)
Remaining balance 2% of allowable expenditure.

(Note: Computed income before making any allowance in respect

of expenditure on entertainment)

Page 7 of 10
Issue related to Nonbusiness expenditure.
Expenditure
Disallowable condition Recommended Action
Head Section/Rule
Extra care to taken to charge any
Capital expenditure & If any capital expenditure or personal expenses
Section- 55(tha) expenditure in profit and loss
personal expenses charged in profit and loss account
account
Expenses not related to
Special Care for expenses charge
business. Section- 55(Dha) Non-business expense
in profit or loss account

Payment to any fund not being approved by National Board of Revenue (NBR)
Expenditure
Disallowable condition Recommended Action
Head Section/Rule
Before making payment to any fund
Payment to Unapproved fund (PF, GF, Pension (PF, GF, trust fund and Pension
Payment to un-approved fund Section- 55(Pa)
fund, trust fund etc.) will not be allowed fund) approval shall be taken from
NBR

Non verifiable expenditure where prescribed Method of Accounting were not followed.
Expenditure
Disallowable condition Recommended Action
Head Section/Rule

Non verifiable Expenses if Proper accounting system is to be

Non maintenance of definite accounting system
definite system of accounting Section- 55(Pha) maintained and proper documents
and non-verifiable expense
were not maintained shall have to be maintained.

Page 8 of 10
Related to payment to Shareholder Director
Expenditure
Disallowable condition Recommended Action
Head Section/Rule
❖ Special care should be
Expenditure will be disallowed if payment of any
Commission or discount paid given to avoid such
Section- 55(ga) amount is made to Shareholder Director as
to Shareholder Director payment .
Commission or discount.

Related to unascertained liability.

Expenditure
Disallowable condition Recommended Action
Head Section/Rule
Special Care should be given to
Any liability which is not
Section- 55(Thha) Liability not specifically ascertained ensure genuineness of liability in
specifically ascertained
the financial statements.

Impairment loss of fictitious assets

Expenditure
Disallowable condition Recommended Action
Head Section/Rule
Impairment loss for fictitious Any Impairment loss not allowed,
asset Section- 55(Nha) Impairment loss for fictitious assets so extra care to be taken to charge
this type of loss.

Page 9 of 10
Special attention for Employment of foreign citizens:

• Consequence of employment of unauthorized foreign citizens:

Imposition of additional tax under section 19 of IT Act 2023

If any person employs or allows, without prior approval of the appropriate authority of the
Government, any individual not being a Bangladeshi citizen to work at his business or
profession at any time during the income year, shall be charged additional tax @ 50 % of tax
payable on his income or Taka 5 lakh whichever is higher.

We are highly expecting that you will take the necessary steps for smooth compliance of the
above legal provision to avoid additional tax burden for the company.

If you need any further assistance to comply with the above issue, feel free to communicate
with us.

Thanking you,

Sincerely yours,

_____________________
Mashuque Ahmed FCA
Senior Partner & CEO

Page 10 of 10