• Personal IncomeTax


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Personal IncomeTax
Guide Book
Frequently Asked Questions
RRCO Thimphu Ph 323076 / 323609 Fax 324783
For more information
RRCO Phuentsholing Ph 252356 / 252237 Fax 252224
RRCO Paro Ph 272831 / 272832 Fax 272833
RRCO Samdrup Jongkhar Ph 251015 / 251314 Fax 251167
RRCO Gelephu Ph 251074 / 251078 Fax 251030 Salary
RRCO Samtse Ph 365317 / 365318 Fax 365356 Rental
PIS/ DRC, HQ Ph 333771 / 322319 Fax 323608 Interest
WEB SITE: www.mof.gov.bt/drc Dividend
Cash Crop
The information in this booklet is for guidance only and reflects the tax
Other
position at the time of printing. For more details refer to the Income Tax Sources
Act of the Kingdom of Bhutan 2001 and the Rules on the Income Tax Act
of the Kingdom of Bhutan 2001.
Revenue & Customs
Department of
Ministry of Finance
Royal Government of Bhutan
ISBN 99936-606-2-0 This pamphlet contains general tax information
Taxpayer Series 2005/DRC/PIS/PIT/02
Personal Income Tax QA
& FrequentlyOF INCOME Questions
SOURCES Asked Amount(Nu.) Per annum
1. Income from Salary & Consultancy Services (non-licensed)
Monthly Salary 50,000
Contents Add: Allowances/Bonus(/ Fees/Commission/Benefits(per annum) 0
Adjusted Gross Salary Income (Annual) 600,000
Background 1 2. Rental Income from Real Property
I. General Questions 2 Gross Rental Income 900,000
II. Salary Income 5 Less:Specific Deductions
Interest paid (250,000)
III. Real Property Income 6 Repair and Maintenance (20% of GRI) (180,000)
IV. Interest Income 8 Municipal and Urban House Taxes (Actual) (25,000)
Insurance Premium (30,000)
V. Dividend Income 9 Adjusted Gross Rental Income 415,000
VI. Cash Crop Income [from apple, orange, cardamom orchards] 11 3. Dividend Income from Shareholdings
VII. Income From Other Sources [hire of plant/machinery/intellectual property rights] 13 Gross Dividend Income 200,000
Less:Specific Deductions/Exemption
VIII. Income From All Sources 13 Exemption (fixed) (10,000)
Interest paid (50,000)
Adjusted Gross Dividend Income 140,000
Personal Income Tax in Bhutan 4. Interest Income from Fixed Deposits
Gross Interest Income 50,000
Less:Specific Deductions/Exemption
Background Exemption(fixed) (10,000)
Adjusted Gross Interest Income 40,000
The Income Tax Act of the Kingdom of Bhutan was enacted during the 79th session of 5. Income from Cash Crop
Gross Cash Crop Income 900,000
the National Assembly and came into force on 1st January 2002. A major component Less:Specific Deductions/Exemption
of the new act was the introduction of personal income tax (PIT). Deduction (30% of Gross Cash Crop Income) (270,000)
Adjusted Gross Cash Crop Income 630,000
6 Income from Other Sources ( hiring of pvt. veh., P&M, & Intellectual Property)
PIT was developed on the premise of ensuring social equity and the principle that tax Gross Income Other Sources 500,000
Less:Specific Deductions/Exemption
should be levied based on the person's ability to pay. PIT is a progressive tax, meaning Deduction (30% of Gross Income from Other Sources) (150,000)
Adjusted Gross Income from Other Sources 350,000
that the tax rate increases as an individual's taxable income increases. In order to
TOTAL ADJUSTED GROSS INCOME 2,175,000
ensure that the tax is not burdensome on rural people and those with lower incomes
Less: General Deductions
in urban areas, a certain level of income has been exempted from PIT by providing a Annual Life Insurance Premium 0
Donations (upto max 5% of Total Adjusted Gross Income) 0
basic exemption of Nu.100,000. In addition, there are specific exemptions/deductions Education Allowance (upto max. Nu. 50,000 per child p.a) (100,000)
allowed depending on the type of income. NET TAXABLE INCOME 2,075,000
Income Slabs Rate Tax Amount
Wherever possible, taxes will be deducted at source (TDS) and adjusted against the
0 - Nu.100,000 0% 0
final tax liability at the time of filing annual tax returns. TDS has been designed to Nu. 100,001 - Nu. 250,000 6% 9,000
Nu. 250,001 - Nu. 500,000 9% 22,500
spread the burden of tax over the year for the taxpayer and to ensure timely collection Nu. 500,001 - Nu.1,000,000 12% 60,000
of government revenue. Nu. 1,000,001 & above 15% 161,250
TAX AMOUNT 252,750
Taxes Deducted at Source (TDS) from:
Objectives of PIT 1. Salary (See annex III of the income tax rules) (43,500)
The introduction of PIT in Bhutan is aimed at achieving the following objectives: 2. Rental Income
3. Dividend Income (20,000)
To broaden the tax base by bringing all types of income under the tax net. 4. Interest Income (2,500)
6. Income from Other Sources (25,000)
To mobilise internal revenue. TOTAL TDS (91,000)
To reduce emerging disparities in income and wealth.
BALANCE TAX PAYABLE/REFUNDABLE [TO BE PAID BY YOU] 161,750
To guide savings and investment activities in accordance with economic policy.
GROSS INCOME (i.e., before specific deductions) 3,150,000
EFFECTIVE TAX RATE 8%
NOTE: TDS from rental income not reflected, as the landlord might not be having such arrangements with
1 tenants (The above calculation was done using the PIT calculation model available on DRC website 14
www.mof.gov.bt/drc).
Personal Income Tax QA
& Frequently Asked Questions
VII. Income From Other Sources I. General Questions
a. What are the sources of income included under Income from Other Sources? a. What is Personal Income Tax (PIT)?
Income from other sources includes: PIT is a tax levied on personal income mentioned under I.d. If you earn or re-
i. Income earned from hire of privately owned plant and machinery ceive income over Nu.100,000 in an income year - which runs from 1st January
ii. Income earned from hire of privately owned vehicles to 31st December - you are required to pay income tax.
iii. Income earned from Intellectual property rights i.e. copyright, patent, trademarks
etc. b. Who is liable to pay PIT?
Bhutanese citizens, residents and any other persons having taxable income from
b. How should PIT on Income from Other Sources be collected?
sources or for work performed in Bhutan exceeding the basic exemption of
Any agency/organisation hiring your vehicle, plant or machinery will be responsible
Nu.100,000 a year will be liable for PIT. Income earned abroad will not be sub-
for withholding at source 5% of the hire charges at the time of payment - which
ject to PIT.
must be deposited with the concerned Regional Revenue & Customs Office by the
10th of the following month. The tax withheld is a provisional tax which will be
c. Who is exempt from paying PIT?
adjusted against the final tax liability when you file in your annual tax returns.
A religious institution or organisation, charitable institution, trust or a body of
persons shall be exempt from PIT provided the following conditions are met:
c. Are there any allowable deductions under this source of income?
Such organisations are approved by the government and established in the
Yes. 30% specific deduction is allowed from the gross income earned to cover
Kingdom of Bhutan.
expenses incurred to earn your income.
Is not operated or conducted for profit.
Is established exclusively for religious worship or advancement of religion or
d. In case of hiring of vehicles, plant or machinery, is depreciation allowed
for charitable purposes and is in the interest of the general public.
under PIT?
Management and control is done through a board consisting of minimum three
No. Depreciation is not allowed because tax is charged on the income you have
members.
earned from hire and not on the value of the asset (vehicle or machinery).
Proper books of accounts are maintained.
VIII. Income From All Sources Organisations are registered with the Department of Revenue and Customs.
e. If a taxpayer has income from all six sources how is his PIT calculated? d. What are the sources of personal income covered under PIT?
Assume that Mr. Taxpayer has all six sources of income and liabilities in an
The sources of personal income covered under PIT are:
income year as shown below:
1. Salary Income Nu.600,000 i. Salary income from regular or part time work including bonus, perquisites,
2. Real Property Income Nu.900,000 allowances etc.
Building Loan Interest (from recognised financial institution) (Nu.250,000)
ii. Rental income from land, buildings and houses - after specific deductions.
Insurance Premium (Nu.30,000)
Local Taxes (Nu.25,000) iii. Interest income from fixed deposits exceeding Nu.10,000 per annum.
3. Dividend Income Nu.200,000 iv. Dividend income from shares in companies exceeding Nu.10,000 per an-
Loan interest for buying shares (from recognised financial institution ) (Nu.50,000)
num.
4. Interest Income Nu.50,000
5. Cash Crop Income Nu.900,000 v. Cash crop income from apple, orange and cardamom - after specific deduc-
6. Income from other Sources Nu.500,000 tions.
General deductions -
vi. Income from hire of plant and machinery, intellectual property rights - after
Educational expense (for two children) (Nu.100,000)
Gross Income Nu. 3,150,000 specific deductions.
13 2
Personal Income Tax QA
& Frequently Asked Questions
e. Do I have to pay tax on everything I earn?
g. How is PIT on my cash crop income calculated?
No. Everyone is entitled to receive a certain amount of relief that is, basic ex-
Assuming that you have only one source of taxable income, i.e. cash crop income
emption. For example, a person is allowed to upto Nu.100,000 in an income year
- PIT is calculated as given in the following example.
as basic exemption, any income above that amount is taxable.
Let us take the cash crop income of three categories Mr. Low, Mr. Middle and Mr.
f. How is my tax worked out?
High. We assume that the taxpayers (orchard owners) have only a single source of
Identify your source(s) of income from income sources mentioned in I.d. Then de-
income i.e. cash crop, for the income year.
duct specific deductions/exemptions allowed under each source of income to
i) Mr. Low earns income from orange orchard Nu.130,000
arrive at adjusted gross income (AGI). Add all the AGIs to arrive at the total AGIs.
ii) Mr. Middle earns income from apple orchard Nu. 500,000
Then deduct general deductions to arrive at your net taxable income.
iii) Mr. High earns income from apple, orange and cardamom orchard Nu. 1,000,000
On the net taxable income apply the PIT tax rate to arrive at the tax amount pay- PER ANNUM (In Ngultrum) MR. L Mr. M Mr. H
able by you. From the tax amount minus the taxes deducted at source (TDS) e.g. Gross Cash Crop Income 130,000 500,000 1,000,000
from salary/house rent/interest/dividend. Where the tax amount is more than the Deduction
TDS, you must pay the difference when you file in your tax return. In the event the 30% of Gross Cash Crop Income (39,000) (150,000) (300,000)
TDS amount is more than the tax amount, the excess will be refunded to you. See
Net Cash Crop Income 91,000 350,000 700,000
VIII (Income From All Sources) for actual computation. Please note, to claim
Income Slab Rate Tax due Tax due Tax due
TDS adjustments/deductions relevant documents must be produced.
0 to 100,000 (basic exemption) 0 0 0
g. What are general deductions?
100,001to 250,000 6% 0 9,000 9,000
General deductions are:
Education allowance of a maximum of Nu.50,000 per child, per annum. 250,001to 500,000 9% 0 9,000 22,500
Donation made to a government approved relief fund for; National Calamities, 500,001 to 1,000,000 12% 0 0 24,000
Preservation/Promotion of Religion and Culture, and for the Promotion of Sports, 1,000,001 and above 15% 0 0 0
Educational and Science upto 5% of taxable net income.
Total PIT due Nil 18,000 55,500
Premium on Life Insurance Scheme with an insurance company in Bhutan.
Tax deducted at source (TDS) 0 0 0
Contributions to Provident Fund and Group Insurance Scheme.
Tax refund claim 0 0 0
The above deductions are subject to production of relevant support documents.
Additional tax payable 0 18,000 55,500
h. In the case of divorced parents, who is allowed to claim education
allowance deduction? Is it the parent with whom the child is staying or the
parent who is bearing the expenses as per the court verdict?
If you have other sources
The parent actually bearing the educational expenses shall be eligible for education of taxable income - it must be
allowance deduction, provided the relevant documents are produced, such as re- consolidated to arrive at the
final tax amount due when you
ceipts.
file in your tax returns.
i. What is Gross Income and Net Taxable Income? LOOK AT VIII, `INCOME FROM
Gross Income is the total income before any deductions. ALL SOURCES'.
Net Taxable Income is the total income after specific deductions/exemptions and
3 general deductions. 12
Personal Income Tax QA
& Frequently Asked Questions
VI. Cash Crop Income j. Where do I register to file my personal income tax return?
You must register as a taxpayer in one of the six Regional Revenue & Customs
Offices (RRCOs) using FORM PIT I (husband and wife must register in the same
RRCO). You will be issued with a unique taxpayer no. (TPN) which must be used
in all correspondence with the department.
All PIT correspondences, tax returns and payments pertaining to you will be dealt
by the RRCO where you have registered as a taxpayer, regardless of the geographical
location from where you earn your income. For example if you have rental income
from property owned in Phuentsholing, Gelephu, Thimphu and you are
registered with Thimphu regional office. You must file your tax returns with details
of your rental income to the Thimphu regional office only - as that is where you
a. Why is cash crop income included under PIT? are registered.
PIT ensures that the taxation system is applied to all types of income in a fair,
equitable and just manner. Cash crop is included under PIT to ensure uniformity in In the event you need to change the region of registration, you may do so with
the treatment of income. prior approval from that RRCO.
b. Are all income earned from agriculture produce subject to PIT? k. How do I file my personal income tax return?
No. You have to pay PIT only on income earned from apple, orange and Obtain a tax return FORM PIT 2 from any RRCO, fill it in and return it to the regional
cardamom orchards. office where you have registered as a taxpayer. The form can also be downloaded
from our web site www.mof.gov.bt/drc
c. When do I pay PIT on my cash crop income?
PIT on your cash crop income must be paid when you submit your annual tax l. How many types of forms are there under PIT?
returns. The following are the PIT forms which are available in all the Regional Revenue
and Customs Offices and may also be downloaded from DRC web site
d. Are there any allowable deductions? www.mof.gov.bt/drc
Yes. 30% fixed deduction is allowed from the gross cash crop income.
FORM PIT I - PIT Registration Form
FORM PIT 2 - PIT Return Form
e. Where property is registered as dry land but is earning income from cash
FORM IT 1 - Monthly Salary Schedule
crop - is this income accountable as income from cash crop? FORM IT 2 - Income from Real Property
Yes. Any income received from cash crops is accountable under PIT irrespective FORM IT 3 - Income from Dividend
of the type of land. FORM IT 4 - Income from Interest
FORM IT 5 - Income from Other Sources
f. If I had income from my orchard last year but due to unavoidable FORM IT 7 (B) - Schedule of TDS Remittance from Contractors
circumstances this year, I have no income what will I have to do? FORM IT 8 (A) - Information on Real Property (individual owners)
FORM IT 8 (B) - Information on Real Property (to be furnished by the registering authority)
You will have to inform in writing to the Regional Director where you have
FORM IT 9 - Information on Income from Other Sources
registered of your status. After cross verification with other
FORM IT 10 (A) - Information on Orchard Owners (individual/owners)
concerned agencies your case will be decided accordingly.
FORM IT 10 (B) - Information on Orchard Owners (to be furnished by the registering authority)
11 4
Personal Income Tax QA
& Frequently Asked Questions
II. Salary Income h. How do I calculate my dividend Income?
a. What is Salary Income? Using the following example, let us take the dividend income of four categories to
Salary means gross salary income which is a total of pay, wages, allowances, calculate the amount you might have to pay. Assume that the taxpayers have only
remuneration, bonus, commission, consultancy fees and benefits received a single source of income i.e. dividend.
free or at a concessional rate. It does not include contributions to government i) Mr. Low - income of Nu.10,000 a year
approved pension funds, TA/DA, LTC, transfer grants, transportation benefits, ii) Mr. Middle - income of Nu.30,000 a year
stipend, living allowance received by volunteers, retirement benefits paid in lump iii) Mr. High - income of Nu.100,000 a year
sum at the time of retirement, foreign allowance and representational grants. iv) Mr. Loan - income of Nu.250,000 a year. He has availed loan amount of
Nu.100,000 from a recognised financial institution at interest rate of
The income from salary is taxed on an accrual basis (meaning when it is earned 14 % per annum.
rather than when it is received). For example, your employer will usually deduct
the tax direct from your earnings each time you are paid. When you file in your PER ANNUM MR. Low Mr. Mid Mr. High Mr. Loan
PIT returns, your tax deducted at source from your earnings will be adjusted. Gross Dividend Income 10,000 30,000 100,000 250,000
Loans 0 0 0 100,000 @14%
b. How do I work out my PIT if I have income only from salary? Less Deductions
Example: Income of three categories - Mr. L represents low income earning Nu. Actual interest against loan 0 0 0 (14,000)
Exemption for dividends (10,000) (10,000) (10,000) (10,000)
5000 per month, Mr. M represents middle income earning Nu.12,000 per month
and Mr. H earning Nu.30,000 a month represents high income. We assume that Net dividend Income 0 20,000 90,000 226,000
all three categories have salary as the only source of income.
Income Slab Rate tax due tax due tax due tax due
PER ANNUM (In Ngultrum) MR. L Mr. M Mr. H 0 to 100,000 basic exemption 0 0 0 0
100,001 to 250,000 6% 0 0 0 7,560
Gross Salary Income 60,000 144,000 360,000 250,001 to 500,000 9% - - - -
Deductions Nil Nil Nil 500,001 to 1,000,000 12% - - - -
education allowance 50,000 30,000 1,000,001 and above 15% - - - -
Net Income 60,000 94,000 330,000
Total PIT Nil Nil Nil 7,560
Income Slab Rates tax due tax due tax du


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