Investment tax rebate is a strategic provision designed to reduce an individual taxpayer’s burden by encouraging investments or donations to approved areas. To benefit effectively from this incentive, it’s essential to understand the concept of the investment allowance and its implications under the Income Tax Act 2023. Moreover, you also have to understand how much of the income should be invested to get tax rebate.
It is important to note that not all investments qualify for tax rebates. Only specific investments and donations listed in the 6th Schedule of the Act are eligible. Hence, careful planning is necessary—not just to decide where to invest, but more critically, how much to invest for optimal tax benefit.
Understanding Investment Tax Rebate
An investment tax rebate refers to the reduction of an individual’s income tax liability by making eligible investments or donations in approved institutions, as set by the Income Tax Act 2023.
The rebate is granted against the taxpayer’s total tax payable, provided that the investments are aligned with the provisions outlined in the law. This effectively means that compliant taxpayers can legally lower their tax dues by investing in approved instruments or causes.
Where to invest to get the Investment Tax Rebate
It is quite common for individual taxpayers to seek lawful avenues for minimizing their tax liabilities. One of the most effective strategies available is the investment tax rebate, as outlined in Section 78 of the Income Tax Act 2023. To take advantage of this benefit, taxpayers must invest their funds into approved investment instruments specified in the Act. Moreover, making eligible donations to recognized institutions also qualifies for the investment tax rebate, offering an additional route to reduce one’s tax burden. To explore the eligible investment and donation avenues under the Income Tax Act 2023, please click on the below link:
Smart Ways to Reduce Tax through Investments in Bangladesh 2025
How Much Should You Invest to Maximize Tax Rebate?
Section 78 of the Act provides a formula to determine the maximum allowable rebate, making it necessary to work backward to calculate the corresponding investment amount.
Section 78: Investment Tax Rebate Formula
According to Section 78 of the Income Tax Act 2023, the amount of investment tax rebate will be the lowest of the following three:
- 3% of “A“
- 15% of “B“
- Tk. 1,000,000
Where:
A = Total taxable income excluding exempted income, reduced-rate applicable income, and income subject to minimum tax
B = Total eligible investments and expenditures as mentioned in Part 3 of the 6th Schedule of Income Tax Act 2023
In practical terms, this means a taxpayer’s rebate will never exceed 3% of their eligible taxable income, and the maximum rebate cap is Tk. 10 lakh.
Step-by-Step Guide to Determine How much of the income should be invested to get tax rebate.
Process 1
To calculate the optimal investment amount to secure the maximum tax rebate, follow these two steps:
Step 1: Identify the Maximum Possible Rebate
Start by calculating 3% of your eligible taxable income (i.e., figure “A” above). This represents the ceiling of your rebate, irrespective of how much you invest.
Step 2: Work Backward to Find Required Investment
Once the maximum rebate is known, divide that figure by 15% (as per clause (ii) of Section 78). This gives you the minimum investment amount required to secure the maximum tax rebate.
Formula:
> Required Investment = (Maximum Rebate Amount) ÷ 15%
This calculation ensures your investment aligns perfectly with the rebate threshold allowed by law—no over- or under-investment.
Process 2
Alternatively, rather than following the two-step method outlined above, you may simply calculate 20% of your total income. This approach will effectively yield the same investment amount as derived under Process 1.
Please watch the video below to understand more on this:-
Common Area of Misinterpretation – Tax-Exempt Income, Reduced Rate Income, and Income Subject to Minimum Tax
Based on my professional experience, a frequent area of confusion among taxpayers lies in correctly determining the component referred to as “A” of Section 78 of the Income Tax Act 2023 when calculating the required investment amount. It is essential to understand that before applying 3% (as per Process 1) or 20% (as per Process 2), you must first exclude the following three categories of income from your total income:
- Tax-exempt income
- Income subject to a reduced tax rate
- Income on which minimum tax is applicable
Properly excluding these income types ensures accuracy in your calculation and positions you in the right direction for claiming the appropriate tax rebate.
To gain a clearer understanding of how to calculate the required investment, you are encouraged to watch the instructional videos provided below.
Optimal Investment – When a Lower Investment May Be Sufficient
In Bangladesh, a minimum tax of Tk. 5,000, Tk. 4,000, or Tk. 3,000 is applicable depending on the taxpayer’s geographical location. If you fall under this minimum tax regime, you may not need to invest the full amount calculated under Process 1 or Process 2 as mentioned above. In such cases, a reduced investment may still be sufficient to meet your tax obligations.
To gain a deeper understanding of this concept and how it affects your required investment amount, you are encouraged to watch the video provided below.
Conclusion - How much of the income should be invested to get tax rebate?
Understanding how much of the income should be invested to get tax rebate is crucial for effective tax planning. By applying any method outlined above, taxpayers can clearly determine the optimal investment amount to claim the maximum allowable rebate under the Income Tax Act 2023.
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