Friday, 04 April 2014 18:19
IT IS that time of the year again when Malaysians find out if they part with a hefty amount as the annual tax returns submission is quick approaching its deadline.
This is also the time when dutiful tax payers scratch their heads over how to reduce the amount to pay for taxes but begin with thoughts if you are even eligible to be taxed?
Taxable income
First, one would have to understand what constitutes a taxable income, also known as chargeable income. This should not be confused with gross salary or actual annual income. Taxable income is derived from subtracting the tax reliefs you are entitled to from your total annual income. (See table above.)
How to calculate your income tax
Taxable income = RM50,000
Payable tax = (0% X RM5,000) + (2% X RM15,000) + (6% X RM15,000) + (11% X RM15,000) = RM2,850
Tax reliefs
If you find your payable tax is a high number, worry not. Breathe! There are reliefs to find solace from comprising the fields of education, medical, child relief and investment and insurance reliefs, among others.
1. Education relief
>> Self-education - Tax relief offered is up to RM5,000 for any course up to tertiary level in law, accounting, Islamic financing, technical, vocational, industrial, scientific or technology skills, as well as any course to acquire Masters or Doctorate degree at institutions recognised/approved by the authorities.
>> Net saving in Skim Simpanan Pendidikan Nasional (SSPN) - If you contribute to SSPN for your child's education, you get tax relief for the amount you've deposited minus the amount you've withdrawn for the year. Tax relief applicable for this is up to RM6,000.
>> Parent's claim entitlement for children's education
- RM1,000 per child aged 18 and above who is unmarried and is a full time student.
- RM6,000 per child aged 18 and above, who isn't married and is pursuing a diploma or above in Malaysia or a bachelor's degree or above outside Malaysia in a programme and institution that is accredited by related government authorities.
>> Education for disabled children - For physically/mentally disabled child over the age of 18, who are receiving full-time education in Malaysia (diploma & above) or outside Malaysia (degree & above) at an institution approved by the authorities. The deductible amount is up to RM6,000.
2. Medical relief
>> Medical expenses for parents - For medical treatment, special needs and care taker expenses certified by medical practitioners. This includes medical care and treatment provided by a nursing home as well as basic, non-cosmetic dental treatment. Deductible amount is up to RM5,000.
>> Medical expenses for serious diseases - Ailments that qualify are AIDS, Parkinson's disease, cancer, renal failure, leukaemia, heart attack, pulmonary hypertension, chronic liver disease, fulminant viral hepatitis, head trauma with neurological deficit, brain tumour or vascular malformation, major burns, major organ transplants and major amputations. Tax relief is provided for taxpayer, spouse and child, with a maximum deductible amount of up to RM5,000.
>> Medical examination - This tax relief is applicable when you, your spouse or your child undergoes a medical examination. Relief is capped at RM500 per person, and should not exceed RM5,000 when added together with tax relief for medical expenses for serious diseases.
>> Basic supporting equipment - This refers to equipment used by a disabled individual, spouse, child or parent for support such as a haemodialysis machine, wheelchair, artificial limbs or hearing aids. The maximum deductible amount is up to RM5,000.
3. Child relief
>> Ordinary child relief - Taxpayers can claim up to RM1,000 per unmarried child under 18 years old.
4. Disability relief
>> Disabled invidual - All disabled persons automatically qualify for this tax relief of up to RM6,000 a year.
>> Disabled spouse - All persons living with a disabled spouse automatically qualify for this. The maximum deductible for this relief is RM3,500.
>> Disabled child - This tax relief is claimable per physically/mentally disabled child. The maximum deductible amount is RM5,000.
5. Insurance and investment relief
>> Insurance and Provident Fund - You'll enjoy this tax relief if you have life insurance for yourself or your spouse, or if you contribute to EPF or any other approved provident funds/pension schemes. The maximum deductible amount is RM6,000.
>> Private Retirement Schemes (PR) and deferred annuity - For those who contribute to a PRS, you'll get a tax relief for your contribution and total payment of deferred annuity. The maximum tax relief is RM3,000.
>> Annuity scheme or additional premium - Premium on new annuity scheme or additional premium paid on existing annuity scheme commencing payment from Jan 1, 2010 (amount exceeding RM1,000 can be claimed together with life insurance premium) - removed from year assessment 2012 until year assessment 2021.
>> Education and medical insurance - If you're paying for education or medical insurance for yourself, your spouse or your child; you'll get to enjoy this tax relief of up to RM3,000.
6. Other reliefs
>> Spousal or alimony payment - As a sole bread winner, you are entitled to claim this tax relief if your spouse does not generate any income and has elected for joint assessment. You are also entitled to this relief for alimony payments made to a former wife under a formal agreement (provided that the total deduction for both spouse and alimony payments do not exceed RM3,000). The maximum deductible amount is RM3,000.
>> Interest on housing loan - If you have a home loan for a property that isn't rented out, you get tax relief for three consecutive years starting from the date in which your interest is first expended. This applies only for residing Malaysian, and is limited to one unit per person as well as for SPAs executed between March 10, 2009 and Dec 31, 2010. Claim up to RM10,000.
>> Computer - Buy a new personal computer and claim tax relief of up to RM3,000. However, you can only claim for this tax relief once every three years.
>> Books, journals, magazines and publications - Best news for all avid readers. This relief of up to RM1,000, applies to both printed and electronic books, journals, magazines and publications. However, it does not include newspaper subscriptions and banned reading materials.
>> Sports equipment - This relief covers sport equipment as well as a full range of sporting activities under the Sports Development Act 1997. Taxpayers can claim up to RM300 a year.
What else can taxpayers get?
>> Individual and dependent relatives - All tax payers enjoy this relief with a deductible amount of up to RM9,000.
>> For Year of Assessment 2014, taxpayers with an aggregate income of up to RM96,000 per annum are entitled for a special relief of up to RM2,000.
>> You can also deduct from your taxable income for gifts of money or contributions you've made including those made to the government and local authorities, approved organisations, approved sport activities/bodies, projects of national interest (as determined by the Finance Ministry), libraries, public facilities for disabled people, healthcare facilities (approved by the Health Ministry) and national or state art galleries.
Tax rebates
Tax rebate refers to the amount you can deduct from the taxes you're obliged to pay (not taxable income). The tax rebates applicable are:
>> If your taxable income is less than RM35,000 per year, you will automatically receive tax rebate of RM400.
>> If your spouse does not have an income and you earning less than RM35,000 per year, you will automatically receive tax rebate of up to RM400, on top of the RM3,000 tax relief under the husband/wife or alimony payment.
>> You'll enjoy tax rebate on the actual amount expended on zakat, fitrah or any other obligatory Islamic religious dues.
With this comprehensive income tax guide for this year, you can enjoy more savings on taxes!
While you apply the reliefs to your assessment, don't forget to hold on to your records and receipts. As in cases of audit, the Income Revenue Board (IRB) may conduct checks on individual tax payers and the statute for the application for reliefs offered is at least seven years.
Iris Lee from financial comparison website iMoney.my (link: www.imoney.my), contributed to this article.