Deduction from Payment on Account of Local Letter of Credit, etc. under Section 97 of the Bangladesh Income Tax Act, 2023—explaining tax deduction at source, payer obligations, and compliance requirements.

 

Deduction from payment on account of local letter of credit, etc under Section 97 | Bangladesh Income Tax Act -2023

As per section-97(ITA-2023), 

Deduction of Tax from Payments under Local Letters of Credit and Other Financing Arrangements

(1) Purchase of Goods under Local Letter of Credit or Other Financing

Where a bank or finance company provides a credit facility under a local letter of credit or any other financing agreement (other than a financing arrangement referred to in sub-section (2)) for the purchase of goods within Bangladesh by a person (hereinafter referred to as "Person A") from another person (hereinafter referred to as "Person B") for the purpose of trading or resale after processing or conversion, the bank or finance company shall, at the time of making payment or crediting the amount to Person B, deduct tax at the rate of 3% (three percent) of the amount so paid or credited.

(2) Financing Arrangement for Distributors

Where a bank or finance company provides a credit facility to a distributor under a financing arrangement in which a person (hereinafter referred to as "Person C") receives payment from the bank or finance company against invoices or sales of goods made to its distributor (hereinafter referred to as "Person D"), the bank or finance company shall, at the time of making payment or crediting the amount to Person C, deduct tax at the rate of 1% (one percent) of the amount so paid or credited in respect of the goods invoiced to Person D.

(3) Purchase or Procurement of Fruits and Computers

Where a bank or finance company opens or provides a local letter of credit or any other financing agreement for the purchase or procurement of all kinds of fruits, computers, or computer accessories, it shall deduct tax at the rate of 2% (two percent) of the amount of the payment or the amount of the local letter of credit.

(4): Purchase or Procurement of Specified Essential Goods

Where a bank or finance company opens or provides a local letter of credit or any other financing agreement for the purchase or procurement of rice, wheat, potato, onion, garlic, peas, chickpeas, lentils, ginger, turmeric, dried chillies, pulses, maize, coarse flour, flour, salt, edible oil, sugar, black pepper, cinnamon, cardamom, clove, bay leaf, jute, or yarn, it shall deduct tax at the rate of 1% (one percent) of the amount of the payment or the amount of the local letter of credit.

Explanation.—For the purposes of this section, "distributor" means a person who supplies finished goods produced by another person to the end customer, either directly or through one or more intermediaries.

"(5) In the case of opening a local letter of credit or any other financing agreement for the purchase of paddy, rice bran, rice, fortified rice kernel, wheat, potato, livestock, livestock bones, poultry, fish, shrimp, meat, onion, garlic, peas, chickpeas, lentils, ginger, turmeric, dry chili, pulses, maize, flour (atta), refined flour (maida), salt, iodine, edible oil, sugar, seeds, jute, jute stick, mustard, sesame, raw tea leaves, black pepper, cardamom, cinnamon, cloves, bay leaf, egg, vegetables, lemon, green chili, liquid milk, sawmill sawdust, poultry feed, pelleted poultry feed, mushroom, honey, jaggery, leaves and bark of trees other than tobacco, molasses, oil cake, soybean meal, DORB (De-oiled Rice Bran), cotton, raw hide, organic fertilizer, bio-pesticide, or handicrafts products, the bank or finance company shall deduct tax at the rate of 0.5% (zero point five percent) on the amount paid or credited by the bank or finance company;";

"(5A) In the case of opening a local letter of credit or any other financing agreement for the sale of cement, iron or iron products, ferro alloy products, excluding MS billets, the bank or finance company shall deduct tax at the rate of 2% (two percent) on the amount paid or credited through the bank or finance company.".

You may learn more-

Charge of additional tax under Section 19 | Bangladesh Income Tax Act -2023

Computation of special income from rent under Section 39 | Bangladesh Income Tax Act -2023

Frequently Asked Question (FAQ):

1. What is deduction from payment on account of local letter of credit under Section 97?

Section 97 of the Bangladesh Income Tax Act 2023 requires tax deduction at source from payments made through a local letter of credit (L/C) and certain other specified payment methods according to the applicable tax rules.

2. Who is responsible for deducting tax under Section 97?

The person, bank, financial institution, or entity making the payment through a local letter of credit or other prescribed methods is generally responsible for deducting and depositing the applicable tax.

3. What payments are covered under Section 97 of the Income Tax Act 2023?

Section 97 applies to payments made through local letters of credit and other specified payment mechanisms as prescribed under the Bangladesh Income Tax Act 2023 and related tax rules.

4. What happens if tax is not deducted under Section 97?

Failure to deduct or deposit tax under Section 97 may result in penalties, interest, or other legal consequences under the Bangladesh Income Tax Act 2023.