The government has proposed raising the tax-free income ceiling for individual taxpayers to Tk 3.75 lakh in the national budget for fiscal year 2026-27, up from the existing threshold of Tk 3.5 lakh.

Finance Minister Amir Khosru Mahmud Chowdhury made the proposal while unveiling the budget in Parliament on Thursday, affirming that the revised limit will remain in effect for the next two consecutive fiscal years, extending through FY2027-28.

The adjustment builds upon the previous decision by the former interim government's finance adviser Dr Salehuddin Ahmed, who had initially increased the ceiling. The newly elected government has decided to maintain and advance this trajectory, a move analysts believe will provide much-needed breathing room for low-income and middle-class families hit hard by inflation.

Special Categorised Exemptions Expanded:

Following past conventions, the proposed budget offers higher tax-free thresholds for several specific categories of taxpayers.

The threshold for women and senior citizens (65+) has been fixed at Tk 4.25 lakh,

third gender and physically challenged taxpayers at Tk 5 lakh, gazetted freedom fighters and injured July uprising warriors Tk 5.25 lakh, and parents/legal guardians of persons with disabilities an additional Tk 50,000 exemption per child or dependent over their applicable personal threshold.

Currently, Bangladesh has approximately 1.28 crore Taxpayer Identification Number (TIN) holders, out of whom only 40 lakh to 42 lakh individuals file income tax returns annually.

New Tax Slabs: 5% Rate Abolished

In a significant structural overhaul, the government has eliminated the lowest 5 percent tax bracket entirely, a move that may increase the tax burden on mid-to-high-income earners.

Under the new layout, once the initial Tk 3.75 lakh tax-free buffer is crossed, the remaining income will be taxed under the following reconfigured slabs:

Next Tk 3 Lakh: 10 percent

Next Tk 4 Lakh: 15 percent

Next Tk 5 Lakh: 20 percent

Next Tk 20 Lakh: 25 percent

Remaining Income: 30 percent

Starting from the upcoming fiscal year, taxpayers will be allowed to submit their income tax returns throughout the entire year, moving away from rigid deadlines.

However, the system introduces a tiered reward-and-penalty mechanism based on timing:

Submission Period | Fiscal Benefit / Penalty:

First Quarter (July-September)- Rebate: 5 percent of payable tax or Tk 25,000 (whichever is less).

Second Quarter (October-December)-Standard: Regular tax applies; no incentives or penalties.

Third Quarter (January-March) Penalty: Additional 2 percent of payable tax or Tk 3,000 (whichever is higher).

Fourth Quarter (April-June) Penalty: Additional 5 percent of payable tax or Tk 5,000 (whichever is higher). |

Erosion of Real Income and Persistent Inflation:

The tax-exempt ceiling was last raised from Tk 3 lakh to Tk 3.5 lakh in the 2023 budget. Over the subsequent three years, the threshold remained stagnant despite persistent economic headwinds.

Bangladesh has experienced a gruelling average inflation rate of around 10 percent annually over this period. According to the latest data from the Bangladesh Bureau of Statistics (BBS), inflation in May hit 9.42 percent, marking a 16-month high.

Economists point out that this prolonged inflationary pressure has severely diminished the real purchasing power of citizens, leaving those sitting just above the tax-free line struggling to balance escalating living costs with their statutory tax obligations.