VAT Deduction Rate 2025-26 in Bangladesh – VAT Deduction at Source (VDS) remains one of the most common and routine compliance responsibilities under the VAT & SD Act 2012. This obligation applies not only to VAT-registered entities but also, in some situations, to unregistered ones. Government bodies, autonomous organizations, and NGOs are also required to comply with VDS provisions whenever applicable.
Given its wide application across sectors, it is important for businesses, accountants, and finance professionals to clearly understand the current VDS rates and how they apply in daily transactions. In this post, we aim to provide a clear summary of the VDS rates applicable for the financial year 2025–2026 and help you stay compliant with the latest requirements.
What is VDS (VAT Deduction at Source) ?
VDS, or VAT Deduction at Source, refers to the process of deducting VAT at the time of making payments for goods or services. As per Section 49 of the VAT & SD Act, 2012, any withholding entity is required to deduct VAT before making payments to suppliers.
Let’s understand this with a practical example – suppose ABC Limited has taken security services from XYZ Security Limited. The service provider issues an invoice totaling Tk. 345,000, which includes Tk. 45,000 as VAT. At the time of payment, ABC Limited will deduct the VAT amount of Tk. 45,000 from the total and pay only the net amount of Tk. 300,000 to XYZ Security Limited.
This withheld VAT amount of Tk. 45,000 is then deposited to the government treasury on behalf of the supplier. This deduction process is what we call VDS.
When should VAT be Deducted ?
VAT Deduction at Source (VDS) becomes applicable only at the time of making payment, not when the invoice is recorded. Under the VAT laws in Bangladesh, particularly as per the VAT & SD Act 2012, VDS is triggered at the payment stage, not when the invoice is first entered into the accounts.
This means that even if you have already recorded the supplier’s invoice as payable, you are not required to deduct VAT until you actually make the payment to the supplier.
Who Has to Deduct VAT ?
As per Rule 2 of the VDS Rules 2025, certain entities are legally required to deduct VAT at source when making payments for goods or services. These entities, commonly known as withholding entities, include the following:
- The Government or any of its ministries, departments, or offices
- Semi-government or autonomous organizations
- State-owned enterprises
- Local authorities, Parishads, or similar bodies
- Non-governmental organizations (NGOs) approved by the NGO Affairs Bureau or the Directorate General of Social Welfare
- Banks, insurance companies, and other financial institutions
- Educational institutions above the secondary level or equivalent
- Limited companies
- Any entity or organization with an annual turnover exceeding Tk. 10 crore
Only the above-mentioned entities are responsible for deducting VAT at the applicable rate from vendor payments. Before proceeding with any payment, it is important to check whether your organization falls under the list of withholding entities mentioned above. If your entity is included in that list, you are obligated to deduct VAT at source. However, if your entity does not fall within those categories, then you are not required to deduct VAT at source.
Legal Reference for VAT Deduction at Source (VDS)
The legal foundation for VAT Deduction at Source (VDS) is outlined in SRO No. 182-Law/2025/310-VAT, dated 27 May 2025, issued by the National Board of Revenue (NBR). This SRO provides the detailed guidelines on VDS rates, as well as the circumstances under which VAT must be deducted.
A clear understanding of this SRO is crucial to ensure compliance with the correct deduction rates and procedures. Please note that the NBR may revise or update this SRO from time to time. You can access the complete SRO, including any recent amendments, from the following link:
In addition to the SRO, the following sections of the VAT & SD Act, 2012 and the corresponding rules of the VAT & SD Rules, 2016 are also relevant for understanding VDS:
- Section 49 – Tax withheld at source and increasing adjustment by withholding entity;
- Section 50 – Decreasing adjustment by the supplier after the tax withheld at source;
- Rule 37 – Payment of VAT deducted at source by the unregistered recipient of supply;
- Rule 38 – VAT deduction at source and payment by accounts officer on behalf of unregistered recipient of supply;
- Rule 39 – Decreasing adjustment by the supplier following deduction at source;
VDS Rate for Products
(a) When Products are Supplied by the Manufacturer
If a manufacturer supplies any product that is subject to VAT at the standard rate of 15% or a reduced rate or a specific tax, through VAT Form-6.3 (Mushak 6.3 – VAT Invoice), then there is no requirement to deduct VAT at source (VDS) in such cases.
In other words, if you purchase goods directly from a manufacturer and that manufacturer properly issues a VAT Form-6.3 invoice, then regardless of the applicable VAT rate on the product, there is no obligation to deduct VAT at source. That is, in this case, VAT deduction at source is not required.
The conditions and guidelines under which VAT deduction at source is not applicable for purchases made directly from a manufacturer are presented in detail in the table below:
| Types of Supply | Types of Supplier | VAT Rate as per Invoice | Issued VAT 6.3 | VDS Requirement |
| Products | Manufacturer | 15% | Yes | No |
| Products | Manufacturer | 15% | No | Yes |
| Products | Manufacturer | 10% | Yes | No |
| Products | Manufacturer | 10% | No | Yes |
| Products | Manufacturer | 7.5% | Yes | No |
| Products | Manufacturer | 7.5% | No | Yes |
| Products | Manufacturer | 5% | Yes | No |
| Products | Manufacturer | 5% | No | Yes |
| Products | Manufacturer | Specific VAT Amount | Yes | No |
| Products | Manufacturer | Specific VAT Amount | No | Yes |
(b) When Products are Supplied by Other than the Manufacturer
(i) Purchase of Goods Subject to 15% VAT
If you purchase goods subject to 15% VAT from a supplier who is not a manufacturer, then VAT at source (VDS) is not required if the following two conditions are met:
- The supplier issues a VAT Form-6.3 (VAT Invoice) for the supply of goods; and
- The supplier submits a VAT Honor Card or VAT Certificate to you.
That is, if you purchase goods from a non-manufacturer supplier, and they supply the goods with 15% VAT using Mushak Form 6.3 and also provide the VAT Honor Card, then you will be exempted from the obligation to deduct VAT at source. However, if these conditions are not met, or in any other circumstances, deduction of VAT at source will be mandatory.
Details on the rate and applicability of VAT deduction at source for purchasing goods at 15% VAT from suppliers other than manufacturers are provided in the table below:
| Types of Supply | Types of Supplier | VAT Rate as per Invoice | Issued VAT 6.3 | VAT Honor Card/ VAT Certificate | VDS Requirement |
| Products | Other than Manufacturer | 15% | Yes | Yes | No |
| Products | Other than Manufacturer | 15% | Yes | No | Yes |
| Products | Other than Manufacturer | 15% | No | No | Yes |
(ii) Purchase of Goods at VAT Rates Other Than 15%
If you purchase goods at VAT rates other than 15% (i.e., 2%, 2.5%, 4.5%, 5%, 7.5%, 10%, or specific tax) from a supplier who is not a manufacturer, then you are required to deduct VAT at source.
Details on the rate and applicability of VAT deduction at source for purchasing goods from suppliers other than manufacturers at VAT rates other than 15% are provided in the table below:
| Types of Supply | Types of Supplier | VAT Rate as per Invoice | Issued VAT 6.3 | VAT Honor Card/ VAT Certificate | VDS Requirement | Remarks |
| Products | Other than Manufacturer | 10% | Yes or No | Yes or No | Yes | No impact of VAT 6.3 or VAT honour card/ certificate to determine VDS requirement |
| Products | Other than Manufacturer | 7.5% | Yes or No | Yes or No | Yes | |
| Products | Other than Manufacturer | 5% | Yes or No | Yes or No | Yes | |
| Products | Other than Manufacturer | Specific VAT Amount | Yes or No | Yes or No | Yes |
VAT Deduction at Source for Services
(a) Mandatory VAT Deduction at Source for 44 Specified Services
According to Rule 3 of the VDS Rules 2025, VAT must be deducted at source at the time of payment for 44 specified services. It is particularly important to note that for these 44 services, VAT deduction is mandatory regardless of whether the supplier issues a VAT Form-6.3 (VAT Invoice) or not. In other words, for these specified services, the issuance of a VAT invoice is not a determining factor—there is no scope for exemption from VAT deduction at source.
Additionally, for these 44 specified services, VAT must be deducted at source even if the supply is made through a tender, contract, work order, or by any other means, whether or not a VAT invoice (Mushak 6.3) has been issued. Here is the list of 44 Services:-
VAT Deduction Rate 2025-26 in Bangladesh
| SL | Service Code | Service Description | VDS Rate | |
| 1 | S001.10 | AC Hotel | 15% | |
| S001.10 | Non-AC Hotel | 10% | ||
| S001.20 | Restaurant (excluding those located in residential hotels rated three stars or above as listed by the Ministry of Civil Aviation and Tourism, restaurants located in hotels with licensed bars, and restaurants that have licensed bars) | 5% | ||
| 2 | S002.00 | Decorators and Caterers | 15% | |
| 3 | S003.10 | Motor Garage and Workshop | 10% | |
| 4 | S003.20 | Dockyard | 15% | |
| 5 | S004.00 | Construction Firm | 10% | |
| 6 | S007.00 | Advertising Agency (see note) | 15% | |
| 7 | S008.10 | Printing Press | 15% | |
| 8 | S009.00 | Auction Firm | 15% | |
| 9 | S010.10 | Land Development Organization | 2% | |
| 10 | S010.20 | Building Construction Organization | A. 1-1600 square feet | 2% |
| B. 1601 square feet and above | 4.5% | |||
| C. Re-registration (any size) | 2% | |||
| 11 | S014.00 | Indenting Organization | 15% | |
| 12 | S015.10 | Freight Forwarders | 15% | |
| 13 | S017.00 | Community Center | 15% | |
| 14 | S020.00 | Survey Agency | 15% | |
| 15 | S021.00 | Plant or Capital Machinery Rental Agency | 15% | |
| 16 | S024.00 | Furniture (see note) | Furniture Manufacturer (VAT shall be @ 15%, If manufacturer directly sells to customer) | 7.5% |
| Furniture Sales Centre (Subject to having challan for VAT paid@ 7.5% at the manufacturing stage, otherwise VAT shall be @ 15%) | 7.5% | |||
| 17 | S028.00 | Courier and Express Mall Service Provider | 15% | |
| 18 | S031.00 | Individuals, Organizations, or Agency Engaged in the Repairing or Servicing of Taxable Goods In Exchange for Consideration | 15% | |
| 19 | S032.00 | Consultancy and Supervisory Firm | 15% | |
| 20 | S033.00 | Izaradar (Lessor) | 15% | |
| 21 | S034.00 | Audit and Accounting Firm | 15% | |
| 22 | S037.00 | Procurement Provider | 10% | |
| 23 | S040.00 | Security Service | 15% | |
| 24 | S043.00 | Television and Online Broadcasting Media Program Supplier (see note) | 15% | |
| 25 | S045.00 | Legal Advisor | 15% | |
| 26 | S048.00 | Transport Contractor: | A. Petroleum Goods | 5% |
| B. Except Petroleum Goods | 15% | |||
| 27 | S049.00 | Rent-a-Car Provider | 15% | |
| 28 | S050.10 | Architect, Interior Designer or Interior Decorator | 15% | |
| 29 | S050.20 | Graphic Designer | 15% | |
| 30 | S051.00 | Engineering Firm | 15% | |
| 31 | S052.00 | Sound and Lighting Equipment Rent Provider | 15% | |
| 32 | S053.00 | Participant in Board Meetings | 15% | |
| 33 | S054.00 | Advertisements In Satellite Channel Programs | 15% | |
| 34 | S058.00 | Chartered Aeroplan or Helicopter Rent Provider | 15% | |
| 35 | S060.00 | Purchaser of Auction Goods | 15% | |
| 36 | S065.00 | Building, Floor and premises Cleaning or Maintenance Agency | 15% | |
| 37 | S066.00 | Lottery Ticket Seller | 15% | |
| 38 | S067.00 | Immigration Advisor | 15% | |
| 39 | S071.00 | Event Management | 15% | |
| 40 | S072.00 | Man Power Supply or Management Organization | 15% | |
| 41 | S099.10 | Information Technology Enabled Services | 5% | |
| 42 | S099.20 | Other Miscellaneous Services | 15% | |
| 43 | S099.30 | Sponsorship Services | 15% | |
| 44 | S099.50 | Credit Rating Agency | 15% | |
Note: If the service provider shared VAT invoice (Mushak 6.3) certified by the Revenue Officer (RO) or Assistant Revenue Officer (ARO) then no VDS. Please read below para for details.
(b) VAT Deduction at Source Not Applicable for Services Other Than the 44 Specified Services
Except for the 44 services mentioned above, there is no obligation to deduct VAT at source for other services. In other words, VAT deduction at source is generally not applicable for any service outside of the list of those 44 specified services.
However, it is important to note that for above 44 specified services, VAT at source will not be required only if the service is supplied through a Mushak Form 6.3 (VAT Invoice). If the service is not supplied using Mushak-6.3, then VAT deduction at source must be made.
Some common examples of services where VAT deduction at source is not applicable—provided that they are invoiced using Mushak-6.3—are presented below:
| SL | Service Code | Service Description | VDS Rate | VDS Requirement |
| 1 | S012.14 | Internet Service Provider | 5% | No |
| 2 | S026.00 | Goldsmith, silversmith and gold and silver shopkeepers and gold repairer | 5% | No |
| 3 | S057.00 | Electricity Distributor | 5% | No |
| 4 | S069.00 | English Medium School | 5% | No |
| 5 | S080.00 | Ride Sharing | 5% | No |
| 6 | S064.20 | Picnic Spots, Shooting Spots, and Tourist Sites or Establishments | 7.5% | No |
| 7 | S078.00 | Marketing of readymade garments under own brand and without brand | 7.5% | No |
| 8 | S036.20 | AC or heat-friendly water vessel service | 15% | No |
| 9 | S013.00 | Mechanical laundry | 15% | No |
| 10 | S018.00 | Movie studio | 15% | No |
| 11 | S023.10 | Movie exhibitor (Theater/Cinema) | 15% | No |
| 12 | S023.20 | Movie distributor | 15% | No |
| 13 | S042.00 | Automatic or Machine-driven sawmill | 15% | No |
| 14 | S047.00 | Sports organizer | 15% | No |
| 15 | S063.00 | Tailoring shop & tailors | 15% | No |
| 16 | S076.00 | Social and sporting club | 10% | No |
| 17 | S012.20 | SIM card or e-SIM supplier | Tk. 300/ SIM | No |
| 18 | S099.60 | Goods sale online | 15% | No |
(c) VAT Deduction at Source in Case of Mushak-6.3 Certified by a VAT Officer
According to clauses (Cha) and (Ja) of Rule 5 of VDS Rules 2025, VAT deduction at source is not required for certain services if the Mushak-6.3 (VAT Invoice) is duly certified by a Revenue Officer (RO) or Assistant Revenue Officer (ARO).
The following three services fall under this provision. If a properly certified VAT invoice is submitted for any of these, there will be no obligation to deduct VAT at source:
- Advertising agencies (Service Code – S007.00)
- Service providers offering program content to television and online broadcasting platforms (Service Code – S043.00)
- Furniture manufacturers — subject to VAT at the rate of 15% (Service Code – S024.00)
(d) VAT Deduction at Source in Case of Utility Service Bills
According to clause (Gha) of Rule 5 of VDS Rules 2025, VAT deduction at source is not required when paying bills for the following utility services:
- Fuel oil
- Gas
- Water (WASA)
- Electricity
- Telephone
- Mobile phone services
(e) VAT Deduction at Source in Case of EFD / SDC / PKI / POS Receipts
VAT deduction at source is not required if the VAT invoice (fiscal receipt) is issued using Electronic Fiscal Device (EFD) or Sales Data Controller (SDC) or Public Key Infrastructure (PKI) or Point of Sales (POS) system provided that the name and BIN number of supply receiver are mentioned on the receipt.
VAT Deduction at Source in Case of Medicine Purchase
According to clause (Chha) of Rule 5 of VDS Rules 2025, VAT deduction at source is not required when purchasing locally manufactured medicines from a trader.
VAT Deduction at Source for Exempted Goods or Services
VAT-exempted goods and services are mentioned in the 1st Schedule of the VAT & SD Act 2012. Additionally, the National Board of Revenue (NBR) issues separate SROs each year to grant VAT exemptions for specific goods or services.
VAT exemption means no VAT is applicable, so there will be no VAT deduction. According to clause (ঙ) of Rule 5 of VDS Rules 2025, no VAT deduction at source is required for the supply of goods, services, or both that are mentioned in the First Schedule of the VAT & SD Act 2012.
Additionally, zero-rated supplies are also not subject to VAT deduction at source.
VAT Deduction at Source in Case of Sub-Contractor Bills
According to Section 49(5) of the VAT & SD Act, 2012, if the VAT payable on a service under a project is deducted at source and deposited into the government treasury by the service recipient or, as applicable, by the person making the payment for the service or commission at the time of payment, then:
If the primary service provider engages a sub-contractor, agent, or any other service provider to deliver part of that service, VAT at source will not be required again from the sub-contractor, agent, or other engaged party—provided that evidence of VAT deduction and deposit on the original (first-stage) service is submitted.
However, this exemption applies only to the supply of services by the first sub-contractor involved in delivering the same service. And this provision does not apply to the purchase of goods under the project.
Conclusion - VAT Deduction Rate 2025-26 in Bangladesh
When purchasing goods, if you buy directly from a manufacturer with a Mushak-6.3 (VAT invoice), then VAT deduction at source (VDS) is not required for that transaction. However, if the supplier is not a manufacturer, then—except for certain specific exceptions—VDS is generally applicable.
On the other hand, for services, according to VDS Rules 2025, VDS is mandatory for 44 specified services. However, VAT deduction is not applicable for utility services.
VAT Deduction Rate 2025-26 in Bangladesh - Source/ Reference:
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