Rules On The Income Tax Act Of The Kingdom Of Bhutan
Rules on theIncome Tax Act of theKingdom of Bhutan2001R evenue &CDepartment ofRoyal Government of BhutanDepartment of Revenue & CustomsMinistry of FinancePhone# : PABX 322319/333509/335337/335338/325602Fax #: 323608ISBN 99936-606-4-7ustomsMinistry of FinanceRoyal Government of BhutanFourth Edition January 2017
ROYAL GOVERNMENT OF BHUTANMINISTRY OF FINANCETASHICHHODZONGForewordThe Ministry of Finance is pleased to bring out 4th edition of the Rules on the IncomeTax Act of the Kingdom of Bhutan, 2001. This revision was necessary to reflect recentchanges mandated by the National Assembly to the Income Tax Act, 2001 as well asto keep pace with changing business and economic conditions that have taken placeafter implementation of the Income Tax Act in 2001.The revised Rules supersede all previous circulars, notifications and rules governingCorporate Income Tax, Business Income Tax and Personal Income Tax. The Rules mustbe read together with the Act, as it follows the same section sequence of the Act foreasy cross-reference by the users. Attempts have been made, wherever possible, tokeep these Rules simple, easy to understand, and practicable for administrative easeand taxpayers’ convenience.The revised Rules also define the legal responsibilities of the taxpayers as well as thetax authorities. It is the legal responsibility of every taxpayer to make correct andtimely payment of taxes, while the legal responsibility of the tax authorities is toassess and collect taxes in a fair, effective, and transparent manner.The Ministry of Finance hopes that these updated Rules will facilitate betterunderstanding of all procedural and technical aspects concerning Corporate IncomeTax, Business Income Tax and Personal Income Tax, to both the taxpayers and the taxadministrators, and ensure smooth implementation of the Income Tax Act of theKingdom of Bhutan, 2001 in the Kingdom.(Namgay Dorji)Finance MinisterRules on the Income Tax Act of the Kingdom of Bhutan, 2001Page i
Part I Corporate Income Tax1.TAX HOLIDAYS AND INCENTIVES . 12.ALLOWABLE DEDUCTIONS . 12.1 GENERAL PRINCIPLE . 12.2 DIRECT COSTS . 22.3 EMPLOYMENT EXPENSES . 22.3.1Salary . 22.3.2Wages . 22.3.3Benefits . 32.3.4Bonus . 42.3.5Contribution to Provident Fund and Gratuity Fund. 42.3.6Staff Welfare Expenses . 42.3.7Medical Expenses . 52.3.8Human Resource Development Expenses . 52.4 OVERHEAD EXPENSES . 52.4.1Preliminary Expenses . 52.4.2Research & Development . 52.4.3General Office Expenditure . 52.4.4Insurance Premium . 62.4.5Maintenance & Repair Costs . 62.4.6Hire of Plant, Machinery & Vehicles . 62.4.7Rent of Land & Buildings . 72.4.8Municipal and Motor Vehicle Tax. 72.4.9Licence Registration & Renewal Fees . 72.4.10Legal & Professional Fees/Expenses . 72.4.11Annual Membership Fees & Subscriptions. 72.4.12Interest on Loans. 72.5 SALES & MARKETING EXPENSES . 82.5.1Commission. 82.5.2Entertainment . 82.5.3Publicity & Advertisement. 82.6 BAD DEBTS . 82.6.1Bad debts up to Nu. 25,000 per Debtor . 82.6.2Bad debts exceeding Nu. 25,000 per Debtor. 92.7 MISCELLANEOUS AND GENERAL EXPENSES . 92.7.1Accidental Loss. 92.7.2Stock Obsolescence . 92.7.3Stock Shortages . 92.7.4Bhutan Sales Tax (BST)/Customs Duty . 92.7.5Carriage & Freight Charges . 102.7.6Donations . 102.8 CARRY FORWARD AND OFFSET OF LOSSES . 102.9 ASSETS ACQUIRED THROUGH GRANT . 102.10IMMOVABLE LEASED ASSETS . 112.11LEASE RENT . 122.12DEDUCTIONS NOT ALLOWED FOR TAX PURPOSES . 123.DEDUCTIONS AND CARRY FORWARD OF LOSS BY THE DEBTORWHEN THE DEBT IS FORGIVEN . 124.DEPRECIATION . 124.14.24.34.4DEPRECIATION OF FIXED ASSETS . 12MAINTENANCE & REPAIR OF FIXED ASSETS . 14FIXED ASSET ADDITIONS . 14FIXED ASSET DISPOSALS . 14Rules on the Income Tax Act of the Kingdom of Bhutan, 2001Page ii
4.54.64.75.APPRECIATION OF FIXED ASSETS . 14LOSS OF FIXED ASSETS DUE TO THEFT, FIRE AND NATURAL CALAMITIES . 14DEPRECIATION RATES . 14RATES & CALCULATION OF INCOME TAX . 145.15.25.35.45.56.FULL TAX LIABILITY . 14LIMITED TAX LIABILITY . 15TIME LIMIT FOR PAYMENTS . 15ADJUSTMENT OF PROVISIONAL TAXES . 15INTEREST ON OUTSTANDING TAX . 15REGISTRATION OF TAXPAYERS AND FILING OF TAX RETURN . 156.16.2TAX REGISTRATION . 15CHANGE OF REGISTRATION FROM ONE RRCO TO ANOTHER . 167.FILING OF INCOME TAX RETURN . 168.CORRECTION OF TAX RETURN . 178.1POSTPONEMENT OF FILING. 17PART II BUSINESS INCOME TAX1.BUSINESS UNDER THE SAME OWNERSHIP. 182.RATES & CALCULATION OF INCOME TAX . 182.12.22.32.42.53.FULL TAX LIABILITY . 18LIMITED TAX LIABILITY . 18TIME LIMIT FOR PAYMENTS . 19ADJUSTMENT OF PROVISIONAL TAXES . 19INTEREST ON OUTSTANDING TAX . 19TAX REGISTRATION . 193.13.2REGISTRATION . 19CHANGE OF REGISTRATION FROM ONE RRCO TO ANOTHER . 204.FILING OF INCOME TAX RETURN . 205.CORRECTION OF TAX RETURN . 215.1POSTPONEMENT OF FILING. 21PART III PERSONAL INCOME TAX1.TAX LIABILITY . 221.1 LIABILITY TO TAX . 221.2 CITIZEN . 221.3 RESIDENT . 221.4 ANY OTHER PERSON HAVING PERSONAL INCOME FROM SOURCES IN BHUTAN . 221.5 TAXATION IN THE CASE OF INCOME OF A DECEASED PERSON, MARRIED COUPLES AND MINORS . 231.5.1Income of Deceased Persons . 231.5.2Married Couples . 231.5.3Minor . 231.6 MEMBERS OF DIPLOMATIC MISSION AND CONSULAR POSTS. 241.7 EXEMPTION FROM TAX . 24Rules on the Income Tax Act of the Kingdom of Bhutan, 2001Page iii
2.INCOME LIABLE TO TAX. 242.1 SALARY INCOME FROM EMPLOYMENT . 242.1.1Specific Deductions . 252.1.2Payment of Tax . 252.2 RENTAL INCOME FROM REAL PROPERTY IN BHUTAN . 262.2.1Specific Deductions/Exemption(s) . 262.2.2Exemption from Tax . 262.2.3Payment of Tax . 272.3 DIVIDEND INCOME . 272.3.1Specific Deductions . 272.3.2Specific Exemption . 282.3.3Payment of Tax . 282.4 INCOME FROM CASH CROP . 282.4.1Specific Deductions . 282.4.2Payment of Tax . 282.5 INCOME FROM OTHER SOURCES . 282.5.1Specific Deduction . 292.5.2Payment of Tax . 293.GENERAL DEDUCTIONS . 293.13.23.3INSURANCE PREMIUM . 29DONATIONS . 30EDUCATION EXPENSE . 304.NET TAXABLE INCOME . 315.TAX RATES . 316.SET OFF AND CARRY FORWARD. 326.16.26.37.ADJUSTMENT OF TDS AND TAXES PAID QUARTERLY . 32SET OFF . 32CARRY FORWARD OF LOSSES . 32REGISTRATION OF TAXPAYERS AND FILING OF TAX RETURN . 327.17.27.37.57.67.77.8TAX REGISTRATION . 32CHANGE OF REGISTRATION FROM ONE RRCO TO ANOTHER . 33CANCELLATION OF PIT REGISTRATION . 33PERSONS OTHER THAN CITIZENS OR RESIDENTS . 34CORRECTION OF TAX RETURN . 34POSTPONEMENT OF FILING. 34PAYMENT OF TAX . 34GENERAL PROVISIONSASSESSMENT . 351.1.11.21.31.41.51.61.72.ASSESSMENT AUTHORITY. 35ADVANCE ASSESSMENT . 35DESK ASSESSMENT . 35FIELD ASSESSMENT . 35ESTIMATED ASSESSMENT . 36REASSESSMENT . 37FINES AND PENALTIES . 37TRANSFER AND CLOSURE OF BUSINESS . 37Rules on the Income Tax Act of the Kingdom of Bhutan, 2001Page iv
2.12.2WINDING UP OF COMPANY . 37TRANSFER AND CLOSURE OF BUSINESS . 373.DOUBLE TAXATION RELIEF . 384.COLLECTION . 394.1 COLLECTION AUTHORITY. 394.2 PAYMENT OF TAX . 394.2.1Taxes paid during the income year. 394.2.2TAX DEDUCTED AT SOURCE (TDS) . 404.2.3Tax Paid when Filing Annual Tax Return . 445.INFORMATION, CONTROL AND DOCUMENTATION . 445.15.25.3COMPANIES, LARGE AND MEDIUM BUSINESS UNITS. 44SMALL, COTTAGE/MICRO BUSINESS UNITS . 44INFORMATION FROM THIRD PARTIES . 456.RECOVERY MEASURES. 456.1 GENERAL . 456.1.1Agreement . 456.1.2Restraint on Asset . 456.1.3Executing Bond . 456.1.4DETENTION OF ASSETS. 466.1.5Adjustment of Auction Proceeds against Tax Dues . 466.1.6Suspension and Cancellation of Business License . 467.TAX CLEARANCE CERTIFICATE . 467.1ISSUE OF TAX CLEARANCE CERTIFICATE . 46FORMSFORM CIT-1 CIT REGISTRATION . 47FORM CIT–2 ANNUAL INCOME TAX RETURNS . 49FORM BIT-1BIT REGISTRATION . 50FORM BIT-2ANNUAL BUSINESS INCOME TAX RETURN . 52FORM BIT 2BIT STANDARD ACCOUNTS FORMAT . 53FORM PIT-1PIT REGISTRATION . 64FORM PIT-2PERSONAL INCOME TAX RETURN . 67FORM IT-1MONTHLY SALARY SCHEDULE . 82FORM IT-2INCOME FROM REAL PROPERTY . 84FORM IT-3INCOME FROM DIVIDEND . 86FORM IT-4INCOME FROM INTEREST . 88FORM IT-5INCOME FROM OTHER SOURCES . 90FORM IT-6TDS FROM TOUR INCOME . 92FORM IT-7SCHEDULE OF TDS REMITTANCE FROM CONTRACTORS . 94FORM IT-8RESTRAINING ORDER . 96TRC-1TAX RESIDENCY CERTIFICATE . 98Rules on the Income Tax Act of the Kingdom of Bhutan, 2001Page v
ANNEXURESANNEXURE ICATEGORIZATION . 99ANNEXURE IIDEPRECIATION SCHEDULE . 100ANNEXURE–III TDS SCHEDULE FOR MONTHLY SALARY INCOME . 102Rules on the Income Tax Act of the Kingdom of Bhutan, 2001Page vi
In exercise of powers conferred by the Income Tax Act of the Kingdom of Bhutan, 2001(ACT), the Ministry of Finance (Ministry) hereby frames the following Rules on CorporateIncome Tax (CIT), Business Income Tax (BIT) and Personal Income Tax (PIT).The Rules have been framed only where the Ministry of Finance is empowered by the Act.All references to Parts and Sections in these Rules pertain to the Act and must be readtogether with the Act.These Rules shall supersede all previous Circulars, Notifications, and Rules governingCorporate, Business and Personal Income Tax and shall come into force from 1st January2017 unless otherwise specified.PART ICORPORATE INCOME TAX (CIT)1. Tax Holidays and IncentivesThe Ministry of Finance may announce, from time to time, such tax holidays and taxincentives and prescribe the conditions and procedures thereof, in the interest of the publicand in line with the government policy.2. Allowable Deductions2.1 General PrincipleDeductions shall be allowed for tax purposes if proper books of accounts aremaintained as per the provisions under Rule No. 5 of the General Provisions.In order to qualify as an allowable deduction an expense must be incurred solely andexclusively for the purpose of the business and transactions done on an arm’s lengthbasis1. All expenses must be supported by objective evidences such as purchaseinvoices, money receipts or other legally valid documents.Where only part of an expense has been incurred for the purpose of business orcompany, then only that part of the expenses shall be allowed as a deduction in thecalculation of taxable profit.Any expenses charged in excess of the limits prescribed under these Rules shall beadded back to Net Profit and subject to tax.Allowable deductions are grouped into the following broad categories:Direct CostsEmployment ExpensesOverhead ExpensesSales & Marketing ExpensesBad debtsMiscellaneous/General Expenses.1Arms length’s basis mean transactions at the prevailing market conditions and where there is noconflict of interest.Rules on the Income Tax Act of the Kingdom of Bhutan, 2001Page 1
Fixed Assets & DepreciationInterest Payments2.2 Direct CostsAll direct costs incurred solely for the purpose of the business and associated with theoperation of the enterprise are allowable deductions. Direct costs are those costs,which can be directly attributed to the generation of income. e.g. raw materialspurchased by manufacturing industries.2.3 Employment ExpensesEmployment expenses means salary, wages, labour permit fees and allowances paid inmoney or money’s worth to an employee in relation to his or her employment andincludes pay and any benefits provided free of cost or at a concessional rate by anemployer.2.3.1SalarySalary means pay, allowances and includes benefits provided free of cost orat a concessional rate to an employee who is employed full time in thebusiness.Salary shall be allowed as deductible expense only up to the maximum ceilingprescribed below and on the fulfilment of the following conditions:All information and documentary evidence are available regarding thepayment of salary,The employee is a regular employee of the company or business,The employee is actually working with the company or business andThe employee is actually located at the appropriate place of work.(per 0040,00030,00020,000Note:a. The salary limits shall not apply to incorporated companies with effectfrom the 1st of January 2003.b. The above limits may be enhanced for technical experts and highlyprofessional employees with the prior approval of the Ministry.c. The categorisation of companies and businesses shall be as percategorisation given in Annexure I.2.3.2WagesWages means payments made to an individual who is not a regular employeeof an organisation.Rules on the Income Tax Act of the Kingdom of Bhutan, 2001Page 2
2.3.3BenefitsBenefits means benefits provided by an employer to its employee such aseducation facilities, accommodation, domestic services, holiday trips, tiffinallowances, telephone facilities, medical benefits. Benefits shall be treated astax-deductible expenses provided that it is clubbed under salary and is withinthe prescribed limits. Such benefits shall be valued at the actual costincurred by the employer, or as agreed in the Service Manual of theorganisation or in accordance with the employment contract. If actual costsincurred apply to more than one emplo
Tax, Business Income Tax and Personal Income Tax, to both the taxpayers and the tax administrators, and ensure smooth implementation of the Income Tax Act of the Kingdom of Bhutan, 2001 in the Ki ngdom. (Namgay Dorji) Finance Minister
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