Withholding Tax (TDS) in Bangladesh 2026: Rates and Obligations

Withholding tax Bangladesh: how tax deducted at source works in 2026

Withholding tax Bangladesh rules turn almost every business into a tax collector for the state. Under the Income Tax Act 2023, the person who pays salary, contract fees, service charges, rent, interest, dividends or remittances abroad must deduct tax at the moment of payment, deposit it on time, issue a certificate and report it in a withholding return. Get any step wrong and the payer, not the payee, carries the tax, the penalty and, in serious cases, personal criminal exposure for the officers who approved the payment.

The Finance Act 2026 has changed the rules of the game. Most of the minimum tax regime has been replaced by a turnover tax framework, several withholding taxes are no longer final, failure to withhold no longer disallows the expense but triggers a structured additional tax, and the withholding return now travels with the income tax return. This guide sets out the sections that matter, the current tax deducted at source rates, deposit deadlines, returns, penalties and treaty relief.

Summary: Part 7 of the Income Tax Act 2023 requires specified payers to deduct or collect tax at source on salaries, supplies, contracts, services, rent, interest, dividends, imports, exports and payments to non-residents. Tax must be deposited within strict monthly deadlines, certified to the payee and reported in a quarterly withholding tax return. The Finance Act 2026 revised several rates, replaced expense disallowance with additional tax and made the withholding return a condition of a complete income tax return.

Key point: From 2026-27, a business that fails to withhold or deposit tax on payments connected with its business or profession no longer loses the deduction for the expense. Instead it pays the shortfall plus an additional amount, described by PwC as additional tax of 150% of the default, and an income tax return filed without the acknowledgement of the withholding return is treated as incomplete.

At a glance

Swipe or scroll →

Table of Contents

What withholding tax means under the Income Tax Act 2023

Bangladesh collects a large share of its income tax not through annual assessments but at the point of payment. Firms describe this as tax deducted at source (TDS), advance income tax (AIT) or simply source tax. The legal basis is Part 7 of the Income Tax Act 2023, titled "Payment of Tax", which the National Board of Revenue published in an authentic English text by SRO No. 404-Law/2025 dated 8 October 2025.[1] Part 7 is divided into chapters: deduction of tax from residents, deduction from non-residents, collection of tax at source and general matters, followed by advance tax and the provisions on how source tax is credited.[1]

Each section from 86 onwards identifies a payment, who must deduct or collect, when, and either a fixed rate or a ceiling with the rate set by rules. Collection at source applies where the tax authority uses a gatekeeper, such as customs on imports or a registering officer on property transfers. Tax deducted or collected is treated as paid by the payee and credited against its final liability, unless the law makes it final.[1] [3]

Who must deduct: specified persons and withholding agents

Most sections impose the obligation on a "specified person". Section 140 defines that term to include any company, firm, association of persons, trust or fund; a public-private partnership; any foreign contractor, foreign enterprise or organisation established outside Bangladesh; hospitals, clinics and diagnostic centres; e-commerce platforms with turnover above Tk 1 crore a year; hotels, resorts, motels, restaurants, convention centres, community centres and transport agencies with turnover above Tk 1 crore; and non-farmer producers and suppliers of tobacco products.[1] The Finance Act 2026 adds individuals with business turnover above Tk 100 million.[2]

The "person responsible for payment" is the employer for salary, the issuer for financial assets and, for everything else, the payer itself, including its principal officer where the payer is a company or other body.[1] "Payment" includes a transfer, credit, adjustment or payment order, so a book entry crediting a supplier's account can trigger the duty even before cash moves.[1]

Withholder identification

Section 263 requires every person liable to deduct or collect under Part 7 to obtain a withholder identification number (WIN), and a person who fails to do so is issued a temporary number; the absence of a WIN does not shield anyone from personal liability.[1] The Finance Act 2026 allows the taxpayer's identification number to serve as the WIN, except for persons not required to obtain a TIN.[2]

Withholding tax Bangladesh rates for 2026: payments to residents

Rates come from two layers. Some are fixed in the Act itself; others, notably those for contractors, suppliers and services, are set by rules within statutory ceilings. The Finance Act 2026 revised several rates, and PwC reports that the Tax Deducted at Source Rules 2026 were issued alongside it, prescribing changes in rates and compliance forms.[2] The figures below follow PwC's summary reviewed on 31 July 2026; check the rule or SRO in force on the payment date before relying on any rate.[4]

Salary: section 86

An employer must deduct tax from employment income at the average rate applicable to the employee's estimated total income for the year, adjusting over- or under-deductions through later payments. The Deputy Commissioner of Taxes may certify nil or lower deduction for the rest of the year where the liability is already met.[1] For 2026-27 the general tax-free threshold is Tk 4 lakh, with bands of 10% to 30% above it.[2] [11] Salary paid to a non-resident is subject to withholding at 30%.[4]

Contractors and suppliers: section 89

Section 89 applies when a specified person pays a resident for a contract (other than a service contract covered elsewhere), supply of goods, manufacture, processing or conversion, or printing, packaging or binding. The rate is prescribed up to a ceiling of 10% and applies to the "base value": the highest of the contract value, the invoice amount and the payment.[1]

Manufacturing, processing, construction and engineering work attracts 5%, as does any supply not specifically listed. Agricultural commodities and gold supplies sit at 0.5%, yarn at 1%, cement and iron products other than MS billets at 2%, industrial raw and packing materials at 3% and tobacco products at 10%.[4] Classifying a supply wrongly is one of the most common causes of under-deduction.

Services: section 90

Section 90 covers payments by a specified person to a resident for any service, with a statutory ceiling of 20%.[1] Advisory, consultancy and professional services, including legal services, attract 15% when paid to an individual and 7.5% when paid to an entity; technical service fees 15% and 10%; meeting fees and honoraria 20%; catering, event management and courier services 2% of the gross bill; internet services 5%; and any unlisted service 10%. Manpower supply, security, cleaning and freight forwarding are taxed on the higher of a rate on the commission or a lower rate on the gross bill.[4]

Intangibles, media and distributors: sections 91 to 94

Royalty, licence and other intellectual property payments under section 91 currently attract 10%. Advertising payments to media attract 5% under section 92, payments for films and to actors 10% under section 93, and commissions, discounts and incentives to distributors 10% under section 94.[1] [4]

Interest and deposits: sections 102 to 105

Banks, insurers, finance companies, co-operatives and mobile financial services must deduct tax on deposit interest under section 102 when it is credited or paid, whichever is earlier: 20% for companies, trusts and associations of persons and 10% for others.[1] [4] In August 2026 Bangladesh Bank warned banks that some had deducted at the wrong rate or delayed deposits.[6] Commentators have also questioned how the 20% rate applies to non-profits.[7]

Section 104 applies 10% to interest paid by a specified person to anyone other than a bank or finance company, and section 105 applies 10% to profit on savings certificates.[1] From 2026-27, withholding on savings certificate profit is no longer final tax.[2]

Rent: sections 109 and 110

Section 109 requires a specified person renting house property, a hotel, vacant premises, plant or machinery, or a non-government water body to deduct tax when paying rent, defined broadly to include any lease or tenancy payment.[1] The current rate is 10%, and the Finance Act 2026 extends the charge to godown rent.[2] [4] Hire of convention halls, community centres and restaurants under section 110 also attracts 10%.[4]

Dividends: section 117

A company's principal officer must deduct tax when paying a dividend to a resident or non-resident Bangladeshi shareholder.[1] After the Finance Act 2026 the rate is a flat 15% for individuals and 20% for other shareholders, including distributions to unit holders.[3] [4] Dividends to foreign shareholders fall under section 119.

Other resident payments

Export cash subsidies now attract 5%, down from 10%; electricity purchases 3%, down from 4%; and lottery and online game winnings 25%, up from 20%.[2] [8] Developers paying signing money to landowners deduct 15% under section 115.[1] New for 2026-27 are 0.5% on purchases of gold and jewellery, 10% on club membership fees and a 0.2% advance tax collected on goods sold to retailers.[2] [3]

Withholding tax Bangladesh rules for non-residents: section 119

Section 119 matters most to foreign-invested businesses. Any specified person or other payer making a payment to a non-resident that is taxable in Bangladesh must deduct or collect tax at a specified rate not exceeding 30%, unless the payer is itself liable as the non-resident's agent.[1] It also blocks a non-resident's share transfer until tax on the gain is paid.[1]

Current non-resident rates

Under the current schedule, advisory, consultancy and professional services attract 20% for individuals and 10% for entities, and legal services 20%. Technical services and know-how fees attract 20% for individuals and 10% for others; royalties and licence fees 20%; commission 15%; interest 10%; contractors, sub-contractors and suppliers 6%; machinery rental 7.5%; capital gains 15%; dividends 20% for companies, funds and trusts and 25% for other shareholders; salary 30%; and any other payment 20%.[4] The Finance Act 2026 moved several of these away from a flat 20%.[3]

Section 119 does not apply to arbitration fees, money remitted for Hajj or priority pass payments.[1] Security deposits, professional subscriptions and certain liaison office and tuition payments are also excluded, subject to conditions.[4]

Final tax and no-return relief for non-residents

The Act treats tax deducted under section 119 as the payee's minimum tax liability.[1] The Finance Act 2026 goes further: tax withheld from a non-resident with no permanent establishment in Bangladesh is final, and a non-resident individual without a permanent establishment no longer needs to file a Bangladesh return.[2] [3] The same Act widens the permanent establishment concept to cover a significant digital presence of 100,000 or more customers or subscribers, so foreign platforms should check whether that relief still applies to them.[2]

Gross-up when the contract is "net of tax"

Cross-border contracts often promise the foreign party a fixed amount free of Bangladesh tax. Section 141 then requires the payer to deduct tax on the grossed-up amount, calculated as 100 multiplied by the net payment divided by 100 minus the applicable rate.[1] A Tk 1,000,000 net fee for professional services to a foreign company at 10% therefore requires withholding on about Tk 1,111,111.

Treaty relief certificates and reduced rates

Bangladesh's double taxation agreements typically cap withholding on dividends, interest and royalties. Examples from PwC's July 2026 table: the United Kingdom 10% or 15% on dividends, 7.5% or 10% on interest and 10% on royalties; the United States 10% or 15%, 10% and 10%; Singapore 15%, 10% and 10%; India 10% or 15%, 10% and 10%; China 10% across all three; and the United Arab Emirates 5% or 10% on dividends, 10% on interest, royalties and technical fees.[4] Lower dividend rates depend on minimum shareholdings.

The section 119(2) certificate

Under withholding tax Bangladesh rules, treaty rates are not self-executing at the payment stage. Under section 119(2) the Board may, on an application with the required documents, issue a certificate within 30 days that the non-resident is to be paid without deduction or at a reduced rate because of a tax treaty or another reason.[1] Rahman Rahman Huq advises payers not to apply a treaty rate or exemption on their own initiative without that certificate.[3] In our experience the application should be supported by the contract, the payee's tax residency certificate and evidence of the nature of the payment.

Plan the application before the first invoice falls due. If payment is made at the treaty rate without a certificate, the payer becomes an assessee-in-default for the shortfall. Residency and permanent establishment for persons from treaty countries are now determined under the treaty, with domestic law applying only where there is none.[2] For profit and dividend flows, read this alongside our guide to capital repatriation from Bangladesh.

Certificates for residents

Residents have their own routes: certificates for employees whose liability is covered, for interest recipients under section 104(2), for landlords under section 109(3) and for exempt power producers under section 114(2).[1] Keep each certificate on the vendor file and diarise its expiry.

Collection at source: imports, exports, property and licences

Chapter III of Part 7 shifts the duty onto gatekeepers. Customs collects tax on imports under section 120 at rates from 0% to 20% depending on the HS code. Banks collect on export proceeds under section 123 and deduct from inward remittances for services under section 124, now at 5% rather than 7.5%.[1] [3] [4] Registering officers collect on property transfers under section 125, municipalities on trade licence renewals under section 131, and section 134 imposes 15% on share transfers.[1] [4]

Collection at source on property transfers matters for sellers because, from 2026-27, tax collected on capital gains from transferring property or on compensation for its acquisition is no longer final tax.[2] The seller must reflect the gain in the return and pay any balance.

Higher rates for missing proof of return or cash payment

Section 142 adds two surcharges. If the payee cannot produce evidence of filing a return, the rate is 50% higher, except for non-residents under section 119. The rate is also 50% higher if the payee is not paid through bank transfer.[1] The proof of return surcharge does not apply to persons exempt from filing.[4]

These rules drive vendor onboarding. A supplier of construction work at 5% who cannot produce proof of submission of return attracts 7.5%. Collect the payee's TIN and proof of return before the first payment, refresh them each tax year and pay through banking channels. The Finance Act 2026 also requires the latest proof of return to be displayed, which makes verification easier.[2]

Depositing tax deducted at source on time

Section 146 requires all sums deducted or collected to be deposited to the government within the prescribed time or as the Board directs, and prohibits anyone from withholding money as tax except under the Act.[1] The deadlines are set by rule 8 of the Income Tax Rules 2023, as Bangladesh Bank reminded banks in its August 2026 circular.[6]

• July to May: within two weeks from the end of the month in which tax was deducted or collected.
• 1 to 20 June: within seven days of deduction.
• 21 to 29 June: on the following day.
• 30 June: on the same day.

These timelines appear in both the Bangladesh Bank circular and the Rahman Rahman Huq (KPMG) 2026 guide.[3] [6] Under withholding tax Bangladesh practice, holding deducted tax in a suspense account beyond the deadline is itself a default. Finance teams should run a deduction-to-deposit reconciliation every month, matching challans to the withholding ledger and to the certificates issued.

Certificates of deduction

Section 145 requires the deductor to furnish a certificate to the payee stating the payee's name and TIN, the amount, the section under which tax was deducted and the particulars of deposit; the Board may require certificates to be generated electronically.[1] For the payee, the certificate is the evidence that converts a deduction into a tax credit. Issuing a certificate without actually depositing the tax makes the issuer personally liable under section 144 and can be a criminal offence under section 314.[1]

Filing the withholding tax return

Withholding tax Bangladesh reporting centres on section 177, which requires a withholding tax return from companies (other than local authorities, government bodies and certain public schools and MPO institutions), firms, associations of persons, private hospitals, clinics and diagnostic centres.[1] The list now also extends to public-private partnerships, non-farmer tobacco businesses, e-commerce, hospitality and transport businesses above Tk 10 million turnover and individuals with business turnover above Tk 100 million.[2] [3]

Quarterly timing

The statutory text sets the filing date by reference to the 25th of the month, moving to the next working day if that falls on a holiday.[1] Current practice is quarterly: each withholding tax return is due by the 25th of the month following the end of the quarter, with no opportunity for extension.[3] [4] Quarterly filing does not relax the monthly deposit deadlines.

Link to the income tax return

The Finance Act 2026 makes an income tax return incomplete unless it is accompanied by the acknowledgement copy of the withholding tax return.[2] Treat the four quarterly filings as a precondition of the annual corporate return.

Audit of withholding returns

Under section 186, the Deputy Commissioner may, with the Commissioner's approval, select withholding returns for audit and check whether tax was deducted at the right rate, deposited on time and properly certified. No return may be selected after four years from the end of the year in which it was filed.[1] Separately, verification of deduction at source is now limited to the current income year and the two preceding years, and the government has said it wants selection for verification to be transparent and automated.[2] [10]

Penalties and personal liability for withholding defaults

Enforcement is built around the "assessee-in-default". Under section 143, a person who fails to deduct or collect, deducts too little, fails to deposit or under-deposits, or fails to comply with any other requirement of Part 7 is treated as an assessee-in-default.[1]

Tax, additional amount and monetary penalties

• The tax itself: the amount not deducted, the shortfall or the amount deducted but not deposited, and up to Tk 10 lakh for failure to comply with other provisions.[1]
• Additional amount: 2% per month on the unpaid sum, from the date deduction was due to the date of deposit, capped at 24 months.[1]
• Return failures: under section 266, the higher of 10% of tax on the last assessed income or Tk 5,000, plus Tk 1,000 a month while the default continues.[1]
• Certificate failures: up to Tk 5,000, plus Tk 1,000 per month of continuing default.[1]

The 2026 shift from disallowance to additional tax

Under section 55(a), expenditure on which Part 7 was not complied with was inadmissible as a business deduction.[1] The 2026-27 budget, presented on 11 June 2026, proposed scrapping that rule.[10] The Finance Act 2026 replaces disallowance with additional tax of 150% of the default for business, professional and agricultural payments and for payments to acquire business capital assets.[2] Rahman Rahman Huq describes it as payment of the shortfall with a 50% penalty.[3] [5] For most companies the new rule is cheaper.

Personal liability and prosecution

Section 143 makes the individuals who approve or allow a payment jointly and severally liable with the organisation, whether the payer is a private company or a government body.[1] Under section 315, failure to deduct or collect and pay tax without reasonable cause is punishable with rigorous imprisonment of up to one year, a fine or both. It does not apply where the tax involved is Tk 25,000 or less, and no case may be brought where the person deducts voluntarily before being identified.[1] A knowingly false certificate carries imprisonment of three months to one year.[1] Self-correction before the tax office finds the error is therefore worth real money.

Credit, final tax and refunds after the Finance Act 2026

For the payee, tax deducted at source is normally a credit against the year's liability, taken only in the income year in which deduction occurs.[3] Section 163 of the Act had turned deductions under a long list of sections, including those for contractors, services, interest on deposits and dividends, into minimum tax that could not be refunded even when the regular computation was lower.[1]

The Finance Act 2026 withdraws most of that minimum tax regime and introduces a turnover tax framework. Excess tax deducted, collected or deposited over the regular liability is now eligible for refund or adjustment against prior or later years, while excess turnover tax can be carried forward.[2] [3] KPMG describes this as replacing minimum tax withholding with a refundable advance tax system.[9]

For suppliers, every certificate now has potential cash value, so reconcile certificates to receivables quarterly and chase missing ones.

Withholding tax Bangladesh and VAT deduction at source

Income tax withholding runs in parallel with VAT deduction at source under the VAT and Supplementary Duty Act 2012. The same invoice may require both, under different statutes and deposit rules, so keep separate ledgers. Our guides to VAT in Bangladesh and VAT deduction at source explain the VAT side. For the overall structure of the income tax system, start with our hub on tax law in Bangladesh, and for rates on the company's own profits see corporate income tax in Bangladesh.

Step-by-step: building a withholding compliance process

The sequence below reflects how we review and rebuild withholding tax Bangladesh compliance for clients.

Swipe or scroll →

Two habits make the biggest difference: deduct at the point the payment is approved, not when the bank transfer is released, and reconcile deposits to the ledger every month rather than at year end.

Key rates at a glance

The table summarises the main 2026-27 rates for common business payments. On a phone, scroll it sideways.

Rates for residents assume the payee has produced proof of submission of return and is paid through a bank. Without either, the rate rises by 50%.[1]

How a withholding tax Bangladesh lawyer helps

Most withholding problems come not from rates but from contracts that ignore tax, vendors classified under the wrong section, treaty rates applied without certificates and returns that do not match the ledger. A lawyer adds value at four points.

• Contracts: tax, gross-up and invoice clauses that settle who bears withholding.
• Cross-border payments: taxability, treaty analysis and section 119(2) applications.
• Health checks: reviewing past deductions within the verification window and correcting them voluntarily.
• Disputes: answering section 143 demands and audit findings, and taking appeals or ADR.

The Finance Act 2026 lowered pre-deposit requirements for appeals to 1% before the Commissioner (Appeals), 3% before the Tribunal and 10% before the High Court Division, and removed the power to waive them.[2] Challenging a wrong demand is now cheaper. Our tax compliance practice handles reviews and returns, and our international tax practice advises on non-resident payments and treaty certificates.

What to watch in 2026 and beyond

Three developments matter. First, the Tax Deducted at Source Rules 2026 and later SROs will keep adjusting rates, with the 2026 budget favouring targeted cuts.[2] [8] Second, the National Board of Revenue is moving to automated monitoring that links TIN, withholding and return data.[2] [12] Third, Bangladesh Bank is now policing withholding by banks.[6]

If you want an independent view of your withholding position, or need a treaty certificate before a cross-border payment, contact TRW.

Frequently asked questions

What is withholding tax in Bangladesh?

It is income tax that a payer deducts or collects when making specified payments, such as salary, fees, rent, interest and dividends, and deposits to the government. The rules are in Part 7 of the Income Tax Act 2023.[1]

Is TDS the same as AIT in Bangladesh?

The terms overlap. TDS usually means tax deducted by a payer; AIT, or advance income tax, is common for tax collected at source, such as on imports. Both are generally credited against final liability.[3]

Who is required to deduct tax at source?

Mainly "specified persons" under section 140, such as companies, firms, trusts, funds, PPPs, foreign enterprises and hospitals, plus, from 2026-27, individuals with business turnover above Tk 100 million.[1] [2]

When must tax deducted at source be deposited?

For deductions from July to May, within two weeks after the end of the month. In June the windows shrink: seven days for 1 to 20 June, the next day for 21 to 29 June and the same day for 30 June.[3] [6]

How often is the withholding tax return filed?

Quarterly, by the 25th of the month following the end of each quarter, with no extension. From 2026-27 the income tax return is incomplete without the withholding return acknowledgement.[2] [3]

What is the withholding rate on payments for professional services?

For residents, 15% if paid to an individual and 7.5% if paid to an entity. For non-residents, 20% for individuals and 10% for entities, with legal services at 20%, unless a treaty certificate reduces it.[4]

What happens if the payee has no proof of tax return?

The rate increases by 50% under section 142, unless the payee is exempt from filing or non-resident. The same uplift applies to payments not made by bank transfer.[1] [4]

How do foreign payees claim treaty rates?

The payer needs a certificate from the Board under section 119(2), which is to be issued within 30 days of an application with the required documents. Payers should not apply a treaty rate without it.[1] [3]

Is an expense still disallowed if tax was not withheld?

From 2026-27, generally no. The Finance Act 2026 replaces disallowance with additional tax on the default for business, professional and agricultural payments, alongside the assessee-in-default rules in section 143.[2] [3]

Can company officers be personally liable for withholding failures?

Yes. Individuals who approve or allow a payment are jointly and severally liable with the organisation under section 143, and wilful failures above Tk 25,000 can be prosecuted under section 315.[1]