Tax Deducted at Source (TDS) is a system of collecting tax by the government in Bangladesh, where the payer deducts the tax when making a payment to the recipient. In Bangladesh, TDS is governed by the provisions of the Income Tax Ordinance 1984 and the rules made thereunder.
Under the TDS system, the payer is responsible for deducting a certain percentage of tax on behalf of the government from the payment being made to the recipient. The deductible amount is deposited with the government and is considered a pre-payment of the recipient’s tax liability.
Do you want to know about TDS calculation and calculation rules? Today’s discussion is about this. Here you will get answers to all questions related to TDS, how to pay TDS, how to calculate TDS, and how much TDS to calculate on total income in today’s discussion. So follow the discussion till the last to understand clearly about it.
What Is TDS?
TDS applies to various types of income, such as salary, commission, rent, interest, professional fees, etc. The rate of TDS varies depending on the type of income and payment amount. The TDS certificates, also known as Form 26, are issued to the payee, which they can use to claim a credit against their tax liability while filing their tax returns.
The whole meaning of TDS is Tax Deduction at Source which means you have to pay tax at a specific rate at source. This is a government order. According to Bangladesh tax law, you must pay 15% VAT and 10% TDS on any source.
In case of the supply of any goods, you must first deduct the VAT and then pay TDS.
TDS Calculation Rules
Now let’s know about how TDS is calculated. When you purchase a product from a company yourself, the calculation of TDS will be the same, and if you supply a product to a company on your behalf, the calculation of how to deduct TDS will be different. Let us know these two types of TDS calculation in detail.
Method of Calculation of TDS on Purchase of Goods From Any Company
Suppose you purchase a product worth 650,000 TK from a company. Then the company will automatically deduct TDS on your purchased goods at the time of purchase.
If you want to buy any product, the company will calculate the VAT first. TDS should be calculated on the amount remaining in the total value after excluding the VAT amount after calculating the VAT.
We know that VAT is 15% and TDS is 10% on any product.
Then the company will first deduct 15% VAT on those supplied goods. Then the value of 15% VAT on 650,000 is (650,000 x 15%) = 97,500 TK.
Then after deducting the tax of Tk 97,500 from the total price, the remaining is (650,000 – 97,500) = Tk 552,500. Then TDS will be calculated above this 552,500 TK.
As we know, the TDS deduction is 10%. Then the value of 10% TDS on 552,500 is (552,500 x 10%) = Tk 55,250.
So when you buy a product from a company, they will pre-calculate the tax on your purchased product, calculate the total amount, and show you the total amount.
Method of calculation of TDS to Serve any Goods to a Company
The above shows how your TDS and VAT will be deducted if you purchase any product from any company. But now the question is, how do you calculate TDS if you supply goods to a company? Let’s find out.
Suppose you have a product whose original price is Tk 500,000. Now you want to take a profit of Tk 50,000 on it. Then the actual price of your product is Tk 550,000.
Now if you supply the product to any company, you must first calculate TDS on the total price, including your profit.
So if you calculate 10% TDS on your total value of Tk 550,000, including profit, the value is (550,000 x 10%) = Tk 55,000
Then if the total price, including profit, is 550,000 and TDS 55,000 is added, the total amount is (550,000 + 55,000) = 605,000.
Now on this 605,000, you have to calculate 15% tax. If you do not calculate this tax, the government will deduct the tax from you after you sell this product. Then you will face loss instead of profit.
So before delivery of any product, you need to show an invoice including the tax on it.
Therefore the total price, including the product price, profit, and TDS, comes to Tk 605,000. The value of 15% VAT on this 605,000 is (605,000 x 15%) = Tk 90,750.
Then the total price, including the product’s actual price, profit, TDS, and tax, is (500,000 + 50,000 + 55,000 + 90,750) = Tk 695,750.
Then you have to show a total account of 695,750 Tk. And this is the TDS and VAT calculation method.
This is how to calculate TDS and VAT. I hope you have learned about TDS and VAT calculation rules from today’s discussion.
It is important to note that TDS is not a final tax but a means of collecting tax in advance. The recipient must still file their tax returns and pay any additional tax due.
In conclusion, TDS in Bangladesh is a system for collecting tax on behalf of the government at the time of payment, which helps to ensure timely payment of tax and reduce the burden of tax compliance on the recipient.
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