Central bank authorities in Bangladesh have issued a firm directive to all scheduled commercial banks nationwide, commanding strict adherence to statutory tax deduction rules on deposit interest and profits, alongside the prompt remittance of withheld revenue to the national treasury.

The order was formally communicated on Monday, 10 August, via a circular distributed by the Banking Regulation and Policy Department-1 of Bangladesh Bank. Addressed directly to the chief executive officers and managing directors of all scheduled banks, the regulatory action follows the discovery of widespread errors, omissions, and compliance oversights regarding tax deduction at source under the Income Tax Act, 2023.

Financial regulators noted that irregular calculation rates applied by commercial banks have generated significant accounting discrepancies during formal tax audits and reconciliation procedures. More fundamentally, improper deductions and delayed transfers have deprived the exchequer of substantial public revenue.

Core Provisions Under the Income Tax Act, 2023

To eliminate recurring operational oversights, Bangladesh Bank underscored specific legal duties established under Section 102 of the Income Tax Act, 2023. The provision obliges banking institutions to deduct tax at source at prescribed rates across all interest and profit disbursements arising from savings accounts, fixed deposits, term schemes, or related financial products, adjusted to the specific tax status of the recipient.

Furthermore, the regulator highlighted Section 142 of the Act, which enforces a mandatory financial penalty on account holders who fail to submit valid proof of annual tax return submission. In such cases, banks are legally bound to raise the standard tax deduction rate by 50 per cent.

“Tax deducted at source by banks can under no circumstances be retained in general ledgers or intermediate accounts beyond the statutory limits. Banks must ensure accurate record-keeping, maintain proper documentation, and submit required statements alongside treasury chalan copies to the relevant authorities.”

— Bangladesh Bank Directive

Treasury Remittance Schedule for Tax Revenue

Pursuant to Rule 8 of the Income Tax Rules, 2023, the central bank reiterated explicit, mandatory timelines governing the transfer of collected funds to the government treasury, preventing commercial entities from retaining public money:

• July to May Deductions: Taxes collected from July through May within a given fiscal year must be deposited into the national treasury within two weeks following the end of the respective month.

• Early June Deductions: Revenue withheld between 1 June and 20 June must be transferred within seven days of the deduction date.

• Late June Deductions: Taxes collected during the final ten days of June must be remitted to the treasury on the immediate next working day.

Central bank officials reiterated that withheld funds must never be parked within general ledgers or internal suspense accounts past these clear deadlines. Invoking statutory authority under Section 45 of the Bank Company Act, 1991, Bangladesh Bank cautioned that non-compliance will lead to direct administrative enforcement and regulatory penalties.