Payroll in Bangladesh carries a duty that sits with the employer, not the employee. Every month, the person responsible for paying salary must work out what tax the employee will owe across the whole year, take a slice of it from that month’s pay, and hand it to the treasury on time. Get the arithmetic wrong and the shortfall is the employer’s to make good. Get the deposit late and interest runs. Miss the paperwork and the salary bill itself can be disallowed.
This guide sets out what the obligation actually involves, in the order a payroll team meets it.
What the law asks of employers
Tax deduction at source on salary sits in section 86 of the Income Tax Act 2023. The rule is short and it is unusual. The employer deducts at the average rate of tax applicable to the employee’s estimated total income from employment for the income year — not at the slab rate that happens to apply to this month’s pay.
That single word, average, is what makes salary different from every other withholding category. A contractor payment attracts a fixed percentage. A salary payment attracts whatever proportion of the employee’s annual tax bill this month represents. The deduction is made at the time of payment.
Bangladesh’s income year runs from 1 July to 30 June, so the estimate is built in July and revisited whenever the facts change.
The short version Estimate the year. Calculate the annual tax. Convert it to an average rate. Deduct monthly. Deposit within the window. File quarterly. Keep the statements. |
The slabs that drive the calculation
The Finance Act 2026 took effect on 1 July 2026 and set the general tax-free threshold at BDT 400,000. The 5 per cent band that used to sit above the threshold has been removed, so the first taka of taxable income now attracts 10 per cent.
Slice of total income | Rate |
First BDT 400,000 | Nil |
Next BDT 300,000 | 10% |
Next BDT 400,000 | 15% |
Next BDT 500,000 | 20% |
Next BDT 2,000,000 | 25% |
Balance | 30% |
Higher tax-free thresholds apply to women taxpayers and taxpayers aged 65 or above, to persons with disabilities, to third-gender taxpayers, and to gazetted war-wounded freedom fighters and gazetted July fighters. A parent or legal guardian of a person with a disability receives an additional BDT 50,000.
Payroll teams should confirm the exact figure for each category against the gazetted Act and the relevant NBR circular before configuring the payroll, because the published figures for these categories have moved more than once in the current cycle.
The threshold ladder is now set out in advance: BDT 400,000 for the current cycle, rising in later years. That predictability is useful for multi-year workforce planning, and it removes an annual reconfiguration scramble.
Turning annual tax into a monthly deduction
With annual tax established, the average rate is simply annual tax divided by estimated income from employment. Apply that rate to each month’s pay and the deduction lands where it should.
The mechanism is self-correcting only if payroll keeps re-forecasting. A mid-year promotion, a festival bonus, a car allocated in December, an employee who joins in February — each one changes the annual estimate and therefore the average rate for the remaining months. Payroll systems that recalculate the average rate on every change, rather than only at year start, are the ones that avoid a March scramble.
Two things the employer does not do: the employer does not apply the individual minimum tax, and the employer does not settle the employee’s final position. Tax deducted at source is a collection mechanism. Employees still file their own returns and claim credit for what has been deducted.
Depositing what you deduct
Deduction and deposit are separate acts, and the deposit window is tight.
For tax deducted in any month from July to May, the amount must reach the government treasury within two weeks of the end of that month. June is compressed deliberately, so that the revenue lands inside the same financial year: deductions made in the first twenty days of June fall due within seven days, and deductions later in the month must be deposited the next day, or on the same day at the very end of June.
Deposit is made by challan through an authorised bank or electronically. The challan receipt is the evidence trail — it supports the quarterly return, the employee’s salary certificate and any subsequent audit. Deducted tax must not sit in a general ledger or suspense account beyond the deadline; Bangladesh Bank has had to remind scheduled banks of exactly this point.
The returns and statements employers owe
Since the move away from monthly filing, the return of tax deducted or collected at source under section 177 is filed quarterly.
Return due by | Covering |
25 October | July, August, September |
25 January | October, November, December |
25 April | January, February, March |
25 July | April, May, June |
Depositing the tax does not satisfy the filing requirement. They are two obligations, on two calendars, and the most common failure is an organisation that has paid everything correctly and filed nothing.
Two employer-specific statements ride alongside these returns. A statement of the yearly salary paid to each employee, including the tax deducted, is furnished with the October quarter return. Detailed information on employees’ own income tax returns is furnished with the April quarter return. Both are prescribed-format schedules, and both should be treated as payroll deliverables with an owner and a date, not as an afterthought for the finance team.
The proof-of-return trap
This is the provision that turns a paperwork lapse into a tax charge. Employees in management or administrative functions, and those in supervisory positions in production functions, are required to furnish proof of submission of return. Where an employer fails to provide the mandatory information about an employee’s return filing, the salary expense for that employee is not deductible when computing the employer’s own income.
The exposure is not the individual’s tax. It is the employer’s corporate tax base. A payroll of several hundred managers with incomplete proof of submission of return records is a material disallowance waiting to be assessed. Collecting the acknowledgement slip at onboarding, and refreshing it each filing season, costs almost nothing by comparison.
What non-compliance costs
People analytics programmes fail more often from over-scoping than from under-investment. A sequence that works:
- Days 1–30: pick three questions. Not 30. Three questions whose answers would change a decision someone is going to make this quarter. Write down what you would do differently depending on the answer. If nothing changes, pick a different question.
- Days 1–30, in parallel: settle governance. Confirm your DPO position, breach notification process, access model and retention rules before data starts moving. Retrofitting governance onto a live analytics layer is expensive and occasionally public.
- Days 31–60: consolidate and clean. Join payroll, attendance and HR records into one structure. Expect to find duplicate employee records, inconsistent cost-centre codes and at least one site whose data was never migrated properly. This stage is unglamorous and it is where the programme is actually won.
- Days 61–90: answer the three questions and act on one. One visible decision traced back to workforce data does more for programme funding than any number of dashboards nobody opens.
The question behind the question
The consequences stack, and they are cumulative rather than alternative:
- The tax itself. Where tax is not deducted, is under-deducted or is deducted and not deposited, the responsible person is liable for the amount.
- Simple interest at 2 per cent a month applies on the amount short-deposited or deposited late, subject to a ceiling of 24 months.
- Expenditure incurred without complying with the withholding provisions may be disallowed and treated as business income, taxable at the applicable corporate rate regardless of any tax holiday, reduced rate or other incentive the company enjoys.
- An additional charge on short deduction. The Finance Act 2026 tightened the consequences of failing to deduct or collect, adding a further charge on top of the tax short-deducted.
- Penalty for non-filing. Failure to file the quarterly return can attract a penalty of the higher of 10 per cent of the last assessed tax liability or BDT 5,000, and the Deputy Commissioner of Taxes may select a withholding return for audit.
- Personal exposure. Failure to deposit tax deducted at source can expose the defaulting entity to imprisonment of up to one year.
Set against that list, the cost of running the calculation properly is trivial. The risk in Bangladesh payroll is rarely a deliberate decision. It is a bonus paid in March that nobody fed back into the annual estimate.
A monthly rhythm that holds
- Build each employee’s annual estimate at the start of the income year, including expected bonuses and the value of any perquisite.
- Recalculate the average rate on every change of pay, benefit or headcount — not annually.
- Deduct at the time of payment, and reconcile the deducted total to the payroll register before the run is closed.
- Deposit within the window, and file the challan against the employee record immediately.
- File the quarterly return by the 25th, and treat the October and April schedules as scheduled payroll deliverables.
- Collect proof of submission of return from every employee in scope, and store it where an auditor can find it.
Most of this is arithmetic that should never be done by hand. Payroll systems configured for Bangladesh apply the current slabs, hold the exemption cap, value perquisites, recompute the average rate when circumstances change and produce the deduction records the quarterly return needs.
That is what MiHCM’s payroll is built to do across its Asian markets — the statutory logic sits in the system, so the payroll team spends its time on exceptions rather than on spreadsheets.
Câu hỏi thường gặp
At what rate must an employer deduct tax from salary in Bangladesh?
At the average rate of tax applicable to the employee’s estimated income from employment for the income year, under section 86 of the Income Tax Act 2023 — not at a flat slab rate.
When must deducted tax be deposited?
For deductions made between July and May, within two weeks of the end of the month of deduction. June deductions run to accelerated deadlines so the revenue reaches the treasury inside the same financial year.
How often is the withholding tax return filed?
Quarterly, under section 177, by 25 October, 25 January, 25 April and 25 July. Filing the return is a separate obligation from depositing the tax.
What is the tax-free threshold for the current income year?
BDT 400,000 for general taxpayers under the Finance Act 2026, with higher thresholds for women taxpayers and taxpayers aged 65 or above, persons with disabilities, third-gender taxpayers, and gazetted war-wounded freedom fighters and gazetted July fighters.
Does deduction at source settle the employee’s tax?
No. It is a collection mechanism. Employees file their own returns and claim credit for the tax deducted, and their final liability may be higher or lower.
What happens if the employer gets it wrong?
The employer is liable for the tax, plus simple interest at 2 per cent a month for up to 24 months on amounts short-deposited or deposited late. Non-compliant salary expenditure may also be disallowed and taxed as business income.
This article is general information for payroll and HR teams, not tax advice. Statutory figures change with each Finance Act; confirm the position for your organisation with a qualified adviser or against the current National Board of Revenue publications.
