To question

I work in the human resources department of a reputable multinational company. I am not very sure about the bonus program and the associated tax benefits, as I hear different opinions from my peer group. We would appreciate it if you could enlighten us on the subject.

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Jafrul Islam, Dhaka

Reply

Thank you for your request. The gratuity is a discretionary monetary benefit plan offered by an employer at the end of an employee’s service. For each type of termination, the employee is entitled to an amount in the form of “compensation” or “tip” (if applicable), whichever is greater, as specified in the relevant provisions of the law. Bangladesh Labor Law, 2006 (hereinafter referred to as “BLA”). If an organization does not have a bonus plan, the employer is required to pay compensation – in accordance with the BLA – upon separation. Payment of a bonus or compensation will be in addition to any payment of wages in lieu of notice due to the termination of an employee’s service for various reasons.

An employee will only be entitled to the bonus if he has been in uninterrupted service for more than one year within the organization. The definition of gratuity set out in Article 2 (10) of the BLA under which more than six months is considered a full year. It should be noted that the completion of more than six months of service will be considered as one year from the second year.

The tip amount depends on the length of service. The amount of the bonus increases with the employee’s seniority. The bonus is calculated at the rate mentioned in accordance with Article 2 (10) of the BLA on the basis of the employees’ last basic salary received for each full year of service ”. Withholding of payment of the gratuity is only permitted in the event of dismissal of an employee for misconduct under Articles 23 (4) (b) and 23 (4) (g) of the BLA and not otherwise.

It should be noted that by adopting a bonus system within an organization, an organization can claim a tax refund on the bonus fund and the employee also does not have to pay tax on the bonus fund. income on the amount. It may also be mentioned that under the Income Tax Ordinance 1984 (hereinafter referred to as “ITO”), the amount of the bonus up to BDT 2,50,00,000.00 (Taka Two Crore and Fifty Lac) is not taxable.

However, in order to benefit from such a tax benefit, in accordance with ITO Section 2 (5A), the bonus scheme must be recognized by the National Board of Revenue (NBR) in accordance with the provisions of Part C of the first annex of ITO. . For such recognition, the organization must create a separate bonus fund, managed by a board of directors. To do this, the organization must first form a trust and a request must be made in writing by the trustees to the BNR according to a prescribed procedure, with the copy of the deed (i.e. the trust deed and rules) and other necessary documents as specified in the schedule. The Board, subject to compliance with the conditions, approves the bonus fund within three months of receiving this request. The auditor must annually audit the fund account in accordance with the fund rules. The fund will be treated as completely separate from the organization fund. Therefore, in accordance with the provisions of the Annex, income from investments or deposits of an approved bonus fund and all capital gains resulting from the transfer of fixed assets from this fund will be exempt from the payment of income tax. returned.


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