Income Tax Act of Bhutan 2025

The Income Tax Act of Bhutan 2025 is the comprehensive rewrite of Bhutan's direct-tax law passed by Parliament in 2025 and effective from income year 2026, superseding the Income Tax Act of the Kingdom of Bhutan 2001. It was enacted as part of a three-bill tax reform package — alongside the Goods and Services Tax (Amendment) Bill and the Excise Tax Bill — tabled by the Ministry of Finance on 26 May 2025 and timed to take effect with the GST on 1 January 2026.^[1]

The Act cut rates across the board. A Ministry of Finance official described the intent as helping people "deal with inflation from GST" and putting "more money in the hands of people so they can spend or invest" — an explicit acknowledgement that the reform shifts the weight of taxation from income towards consumption.^[1]

Personal Income Tax

The exemption threshold stays at Nu 300,000 (~USD 3,400) of annual income, but the brackets above it were widened substantially, lowering the effective rate at almost every income level. Under the 2001 regime, income above Nu 1.5 million already attracted the top 30 per cent rate; the 2025 Act moves that threshold to Nu 3.5 million (~USD 40,000).^[1]

Annual income (Nu)	Old rate (2001 Act)	New rate (2025 Act)
Up to 300,000	0%	0%
300,001–500,000	10–15%	5%
500,001–750,000	15–20%	10%
750,001–1,200,000	20–25%	15%
1,200,001–2,000,000	25–30%	20%
2,000,001–3,500,000	30%	25%
Above 3,500,000	30%	30%

(Old-regime cells show the range applying across the band, as the 2001 brackets — 10 per cent from Nu 300,001, 15 from 400,001, 20 from 650,001, 25 from 1,000,001 and 30 above 1,500,000 — do not align with the new band boundaries.)^[1]

Corporate and Business Income Tax

Corporate income tax became a uniform 22 per cent, replacing the previous 25 per cent rate for private companies and 30 per cent for state-owned enterprises — a rate chosen to match India's 22 per cent corporate rate. The tax on dividends passing between companies was abolished. Business Income Tax as a separate flat 30 per cent levy on unincorporated businesses was ended: sole proprietors and partnerships now file under the progressive personal brackets, with their deductions. Small businesses with turnover under Nu 5 million (~USD 57,000) may instead use a simplified presumptive-tax regime, though licensed professionals such as doctors and lawyers are excluded from it.^[2]

Taxation of savings and dividends

Two changes moved in the opposite, revenue-raising direction. Dividend income, previously exempt for the first Nu 30,000, is now taxed at a flat 10 per cent on the entire amount. Interest on fixed deposits is taxed at 10 per cent on withdrawal, while interest on savings and current accounts remains untaxed.^[1]

Fiscal context

Direct taxes dominate Bhutan's revenue on the corporate side and barely register on the personal side: in FY 2024-25, corporate income tax supplied 23.7 per cent of total domestic revenue — most of it from a handful of state-owned enterprises — while personal income tax supplied just 6.3 per cent.^[3] The FY 2026-27 budget accordingly projects slower direct-tax growth, citing the reduced corporate rate and the removal of inter-company dividend taxation, with the GST expected to carry the increase in collections.^[4] The Ministry of Finance issued implementing Rules on the Act in early 2026.^[5]

See also

• Goods and Services Tax (Bhutan)
• Excise Tax Act of Bhutan 2025
• Tax System of Bhutan
• Property Tax Act of Bhutan 2022

References

1. How PIT, BIT and CIT reductions in the Income Tax Bill impact you — The Bhutanese, 31 May 2025
2. What changes in 2026: New Income Tax Act brings progressive rates and simpler rules — Business Bhutan
3. National Revenue Report FY 2024-25 — Department of Revenue and Customs, Ministry of Finance
4. Domestic revenue expected to rise nearly 10% next fiscal year — BBS, 23 June 2026
5. Rules on the Income Tax Act of Bhutan 2025 — Ministry of Finance