Budget FY27: Tax-free income ceiling likely to be raised to Tk4.5 lakh by FY31

The government is likely to unveil a five-year roadmap for individual income tax thresholds in the upcoming national budget, with the tax-free income ceiling expected to rise to Tk450,000 by the fiscal 2030-31, according to sources at the National Board of Revenue (NBR).

If the proposed budget is approved, the measure would provide taxpayers with a clearer picture of their future tax obligations and mark a shift towards a more predictable tax regime. 

However, tax experts say the proposed thresholds may not adequately reflect the impact of prolonged inflation.

According to NBR sources, the existing tax-free income threshold of Tk375,000 is likely to remain unchanged for the 2026-27 and 2027-28 fiscal years, in line with the framework announced in last year's budget.

The threshold could then be raised to Tk400,000 for the 2028-29 and 2029-30 fiscal years before increasing further to Tk450,000 in the 2030-31 fiscal year, effectively setting out the tax-free income limits for individual taxpayers for the next five years.

A senior NBR official, speaking to The Business Standard on condition of anonymity, said, "The tax-free income threshold may be increased to Tk400,000 from the 2028-29 fiscal year and remain at that level for the following year. It may then rise to Tk450,000 in the 2030-31 fiscal year."

Experts welcome predictability

Tax experts have broadly welcomed the initiative, saying it would improve certainty and help taxpayers plan ahead.

Dr Syed Md Aminul Karim, former member of the NBR's Income Tax Wing, said announcing tax-free income thresholds for several years in advance would be a positive step.

"If tax-free income limits are announced for the next five years, it will be a positive decision. It will make it easier for taxpayers to prepare and plan," he told TBS.

He added, however, that the proposed thresholds may not be sufficient given the pace of inflation.

"The proposed tax-free income limit may not be adequate considering the rate at which inflation has increased. At the same time, the government must also consider protecting revenue collection," he said.

Snehasish Barua, an income tax expert and managing director of SMAC Advisory Limited, also described the proposal as a positive move but cautioned against fixing tax thresholds too far into the future without inflation adjustments.

"While prospective tax rates aid planning, international best practices generally limit this window to two or three years and include automatic inflation adjustments," he said.

"Locking tax brackets until 2031 could push citizens into higher tax thresholds as prices rise, reducing disposable income without increasing real wealth. Moreover, expanding only the tax-free threshold while keeping other slabs unchanged could place an unfair burden on middle-income taxpayers."

He added that long-term certainty should be accompanied by inflation-linked adjustments across all income brackets in line with global practices.

Budget discussions continue

Sources at the revenue authority said NBR Chairman Abdur Rahman Khan held a second round of budget discussions with Prime Minister Tarique Rahman yesterday. Several proposed measures were revised following directives issued by the prime minister during the meeting.

The interim government announced in the previous budget that the tax-free income threshold would be raised from Tk350,000 to Tk375,000. The change is scheduled to take effect from the 2026-27 tax year and will apply to income earned during the current 2025-26 fiscal year.

Under the existing tax structure, individual taxpayers pay 10% tax on the first Tk300,000 of income above the Tk375,000 tax-free threshold. The next Tk400,000 is taxed at 15%, the following Tk500,000 at 20%, and the next Tk20 lakh at 25%. Any remaining income is taxed at 30%.

Senior citizens, women and freedom fighter taxpayers are entitled to additional tax concessions under the current system.