What is a tax rebate?
A tax rebate means taking money directly off the total tax you have worked out. In Bangladesh it applies when you put money into certain areas listed in section 78 and Part 3 of the Sixth Schedule of the Income Tax Act 2023, such as DPS, government securities including sanchayapatra, life insurance premiums, provident fund contributions or approved donations.
The rebate is not the whole amount invested, only a small percentage of it. And it has three limits: a percentage of your taxable income, a percentage of your eligible investment, and a fixed maximum in taka. The rebate is whichever of the three is lowest.
Say Mitu puts Tk 1,00,000 a year into an eligible investment. She thinks, “Tk 1 lakh will come off my taxable income.” In fact nothing comes off her income; instead a percentage of the investment, say Tk 10,000, comes off the tax she owes, as long as the other two limits are not lower. The story and numbers are only an example.
Why it matters to an investor
- To see the full gain: the real gain on an eligible investment is not just its interest or profit; the tax saved in the first year adds to it.
- To avoid false expectations: without knowing the limits, you may think the more you invest, the bigger the rebate. In fact, beyond a point, extra investment earns no further rebate.
- To time your planning: spreading eligible saving across the year, rather than rushing at the end, makes both your budget and your tax easier.
- To keep investing and tax separate: whether an investment suits your goals comes first; the rebate comes second.
The three-limit rule
After the Income Tax Act 2023 came in, the rebate was the lowest of three: 3% of taxable income, 15% of eligible investment, or Tk 10 lakh. The Finance Bill 2026 proposed cutting the investment share from 15% to 10% and the cap from Tk 10 lakh to Tk 7.5 lakh; PwC’s July 2026 summary shows these new figures (3%, 10%, Tk 7.5 lakh).
These percentages and limits can change in almost every budget, and some income (such as tax-free income or income taxed as final) is left out when working out “taxable income” for this purpose. Before filing, check the Finance Act or NBR guidance for the year concerned.
What counts, and each item’s own limit
The Sixth Schedule lists around 14 items, and many have their own limit too. A few of them, as of April 2026:
- DPS: deposits count up to Tk 1,20,000 a year.
- Government securities including sanchayapatra: up to Tk 5,00,000.
- Life insurance premiums: on policies for yourself, your spouse or minor children, up to 10% of the sum assured.
- Contributions to a recognised provident fund and to the universal pension scheme, listed shares and mutual funds, and approved donations (such as a zakat fund or specified hospitals).
- The Finance Bill 2026 also proposed extra tax, pro rata, if an eligible investment is withdrawn early.
Worked example
- Say taxable income is Tk 9,00,000 and the tax worked out is Tk 60,000. During the year, eligible investments were: DPS Tk 60,000 + life insurance premium Tk 20,000 + sanchayapatra Tk 1,00,000 = Tk 1,80,000.
- Limit 1: 3% of taxable income = Tk 27,000. Limit 2: 10% of the investment = Tk 18,000. Limit 3: Tk 7,50,000.
- The lowest limit is Tk 18,000, so the rebate is Tk 18,000. Tax payable becomes Tk 60,000 − Tk 18,000 = Tk 42,000.
Result: investing Tk 1,80,000 cut tax by Tk 18,000. Investing more here would raise the rebate only up to Tk 27,000 (3% of income), and no further. The rates and limits are assumed for the example and can change each year.
Common mistakes
- Thinking the whole amount invested comes off your income or tax. Only a small percentage comes off, and only within the limits.
- Putting money into something only for the rebate, when it doesn’t match your goals, time frame or risk.
- Working it out with last year’s rates and limits. They often change in the budget.
- Not keeping proof of the investment (certificates, bank statements, premium receipts).
The rebate is the smallest of three limits, and it comes off the tax you owe: first ask whether the investment fits your goals, and only then think about the rebate.