All civil servants and public servants can expect a higher net take-home pay following the implementation of the Income Tax Act of Bhutan 2025, which comes into force this month. The new rules introduce a progressive individual tax slab system designed to make taxation fairer, more transparent and employee-friendly.
A major feature of the reform is a deduction of 15 per cent from an employee’s gross monthly salary before tax is calculated.
This excludes a portion of income from taxation, resulting in higher net earnings.
Previously, only contributions to the Provident Fund and the Group Insurance Scheme were tax-exempt, amounting to a deduction of about six per cent.
Employees earning up to gross monthly salary of Nu 25,000 will not be subject to tax.
Even those earning slightly more will face only modest deductions.
Officials from the Department of Revenue and Customs explained that an employee earning Nu 50,000 per month will now have around Nu 1,700 deducted, compared to more than Nu 3,300 under the previous system.
For high-income earners, tax is also calculated after a 15 per cent deduction.
In addition, the Income Tax Act of Bhutan 2025 provides that individuals will not be required to pay tax if their total annual taxable income does not exceed Nu 300,000. Those with taxable income between Nu 300,000 and 500,000 will be taxed at five per cent, while income between Nu 500,000 and 750,000 will be taxed at 10 per cent.
Tax rates then increase across five income brackets, reaching a maximum of 30 per cent for annual income exceeding Nu 3.5 M.
According to National Revenue Report 2024-2025, in financial year 2024–2025, Personal Income Tax collections rose to Nu 3.9bn, up from Nu 3.3bn in the previous year. PIT contributed 6.32 per cent to total domestic revenue.
The report stated that the increase was mainly driven by Tax Deducted at Source (TDS) from salaries.