Proposed budget doubles tax on savings certificates, cuts investment tax rebates

The government is set to tighten tax benefits on savings instruments in the proposed 2026-27 fiscal year's national budget by doubling the tax on savings certificate earnings and reducing investment-related tax rebate facilities, according to budget proposals to be placed in parliament on Thursday (June 11).

Finance Minister Amir Khasru Mahmud Chowdhury is expected to unveil the measures as part of a broader effort to increase revenue collection and streamline tax expenditures.

Under the proposed changes, the tax rate on interest income from savings certificates worth up to Tk 10 lakh will increase from 5 per cent to 10 per cent. Currently, a 5 per cent withholding tax is deducted from profits on savings certificates up to Tk 10 lakh, while investments above that threshold are subject to a 10 per cent tax.

A major change in the proposed budget is the withdrawal of the existing provision under which tax deducted from savings certificate profits is treated as the final tax liability. If approved, interest income from savings certificates will now be added to a taxpayer’s total annual income and taxed according to the applicable income tax slab. Previously deducted withholding tax will be adjusted as advance tax during return submission.

Tax officials say the change could significantly increase the tax burden on middle-income investors. For example, a person holding Tk 5,00,000 in savings certificates earns around Tk 56,145 annually in interest. Under the current system, the deducted withholding tax serves as the final tax payment. Under the new rules, however, taxpayers whose annual income falls into higher tax brackets may face tax rates of 10 to 15 per cent on that income, potentially doubling their effective tax liability.

The proposed budget also seeks to reduce investment-related tax rebate benefits. Tax relief available on investments in savings certificates, deposit pension schemes (DPS), life insurance premiums and several other approved sectors will be scaled back.

At present, taxpayers can claim a rebate equivalent to 15 percent of eligible investments, subject to a maximum investment ceiling of Tk 10 lakh. The new proposal lowers the rebate rate to 10 per cent and reduces the maximum eligible investment limit to Tk 7,50,000.

As a result, taxpayers will receive less tax relief on qualifying investments than under the current framework.

However, the government plans to retain tax rebate facilities on deposits of up to Tk 10,000 per month in banks or financial institutions and annual DPS contributions of up to Tk 120,000.

The proposed budget also introduces changes to the income tax return submission system. Taxpayers who file returns between July 1 and September 30 will receive a 5 per cent tax incentive, capped at Tk 25,000.

No incentives or penalties will apply to returns submitted between October 1 and December 31. Returns filed between January and March will incur a 2 per cent penalty, while submissions between April and June will face a 5 per cent penalty.

Officials said the measures are aimed at encouraging timely tax compliance while broadening the government's revenue base under the new fiscal framework.