Have you taken advantage of all the personal income tax reliefs for 2020?
This article is dedicated to exploring the various personal income tax reliefs in Malaysia before the year 2020 ends. Some of these items are time-sensitive and if not acted on, the opportunity disappears forever.
2020 has been an exceptional year as the entire world was affected by COVID-19 pandemic. Our lives have been affected one way or another. As such, we may or may not have the required resources to fully take advantage of the personal income tax reliefs before the year ends.
Nevertheless, no harm in reviewing what these personal income tax reliefs are and see if something can still be tweaked to take full advantage of them.
Here are the 6 categories of personal income tax reliefs…
- Parenthood-related expenses
- Education expenses
- Medical expenses
- Lifestyle-related expenses
- Insurance & Investment
- Disabled Person
1) Parenthood-related expenses
There are 3 items under this category, namely child care relief, breastfeeding equipment and net deposit in SSPN.
a) Child Relief
Tax relief per child of:
- RM2,000 if below 18 years old
- RM8,000 if above 18 years old and receiving full-tie instruction of higher education (diploma/degree and above) or serving under articles or indentures in a trade or profession in Malaysia
- RM6,000 if physically or mentally disabled (refer to section 6 below for more details)
b) Child Care Relief
- tax relief increased from RM2,000 to RM3,000
- child aged 6 years or below
- claimable by either parent, not both
- must be cost paid to registered child care centre or kindergarten
c) Breastfeeding Equipment
- tax relief of RM1,000
- child aged 2 years or below
- claimed once every 2 years
- qualified items: breast pump kit & ice pack, breast milk collection & storage equipment, cooler set or bag
d) Net Deposit in SSPN (Skim Simpanan Pendidikan Nasional)
- tax relief of RM8,000 for saving towards your child(ren)’s education
- based on net deposits i.e. total deposits minus total withdrawals for 2020
This one is quite straightforward. It is a tax relief of up to RM7,000 for taking up any course of study for a degree at Masters or doctorate level.
Other than a degree at Masters or doctorate level, it has to be a course undertaken for the purpose of acquiring law, accounting, Islamic financing, technical, vocational, industrial, scientific or technological skills or qualifications.
Note: For year assessment (“YA“) 2021 and 2022, this includes fees for attending up-skilling and self-enhancement courses in any field of skills recognised by the Department of Skills Development, Ministry of Human Resources, limited to RM1,000.
3) Medical Expenses
a) For self, spouse or child
- tax relief of RM6,000 for medical expenses on serious diseases
(note: revised to RM8,000 for YA 2021)
- the limit includes RM500 for a complete medical examination or expense incurred on fertility treatment
(note: revised to include vaccination and limit increased to RM1,000 with effect from YA 2021)
- tax relief of RM3,000 for insurance premium for education or medical benefits
b) For parents
- tax relief of RM5,000 for expenses on medical treatment, special needs or carer expenses for parents (evidenced by medical certification)
(note: revised to RM8,000 for YA 2021)
4) Lifestyle-Related Expenses
a) Tax relief of RM2,500 for any or a combination of the following purchases:
- books, journals, magazines, printed newspaper (including electronic newspapers w.e.f YA 2021) and other similar publications for the purpose of enhancing knowledge;
- personal computer, smartphone or tablet;
- sports equipment and gym memberships; and/or
- internet subscription
(note: including expenses related to cost of purchasing sports equipment, entry/ rental fees for sports facilities and participating fees in sports competitions of RM500 w.e.f. YA 2021)
Note: revised to RM3,000 for YA 2021.
b) Special Tax Relief (under Penjana)
- additional tax relief of RM2,500 (on top of lifestyle relief) for purchase of mobile phone, notebook and tablet
- for purchases made between 1 June 2020 until 31 December 2020
c) Special Tax Relief (under Penjana) for Domestic travelling expenses
- special tax relief of RM1,000 for domestic travelling expenses, including fee for tourist accommodation registered with the Ministry of Tourism, Arts and Culture Malaysia, and fee for entrance to tourist attractions
- for expenses incurred between 1 March 2020 until 31 December 2021
a) Employees’ Provident Fund (“EPF”) Contributions
- tax relief of up to RM4,000 for those contributing EPF
b) Life Insurance
- tax relief of RM3,000 for those working at private sectors
- for public servants under the pension scheme, combined relief up to RM7,000 is given on Takaful contributions or payment for life insurance premium
c) Private Retirement Schemes (“PRS”) Contributions
- tax relief of RM3,000 for PRS contributions and Deferred annuity scheme premium (until YA 2021, extended to YA 2025)
6) Disabled Person
Tax relief of:
- RM6,000 for a disabled individual
- RM3,500 for a disabled spouse
- RM6,000 for each disabled child (unmarried)
- RM5,000 for purchase of supporting equipment for disabled self, spouse, child or parent
There’s also additional tax relief of RM8,000 for each disabled child in higher education (18+ & unmarried).
Besides tax reliefs, there are tax deductions that one can also leverage on in order to reduce your taxable income. These are mainly donations to approved institutions (organisations or funds, sports activities or projects of national interest), up to 10% of aggregate income.
The other approved donations (value of gift unless otherwise stated) are donations to:
- government, state government or local authorities
- artefacts, manuscripts or paintings
- libraries (not more than RM20,000)
- disability facilities in public places
- approved healthcare facilities
- National Art Gallery or state art galleries (paintings)
For Muslim taxpayers, the amount of Zakat (Zakat Fitrah or Zakat Harta) paid during the calendar year can be used to knock off against the amount of income tax owing for that year.
As the tax laws allow for Zakat rebates subject to the maximum of tax charged, it can reduce the amount of income tax tremendously, even down to zero. To read more, please check out this article at RinggitPlus.
Difference between Tax Reliefs/Deductions and Tax Rebates
For those of you who are slightly confused as to the impact of tax reliefs/deductions versus tax rebates, this final section aims to address just that.
Tax Reliefs: allows you to reduce your chargeable income. This chargeable income is then used to calculate the taxable income depending which tax bracket your chargeable income falls under.
Tax Deductions: similar to tax reliefs but listed at a different part of the income tax return form. Technically, it reduces your aggregate rather than chargeable income, although the end effect is basically the same (source: RinggitPlus).
Tax Rebates: this reduces the actual taxable income that one has to pay. This is similar to tax credits in some western countrires.
For residential properties disposed from 1 June 2020 to 31 December 2021, there will be Real Property Gains Tax (“RPGT“) exemptions. However, each individual is only allowed to enjoy this RPGT exemption for up to three units of residential homes disposals.
Personal income tax reliefs are made available by the government of Malaysia for all. Therefore, those who can take full advantage of it will benefit the most.
For those who have not, there is still roughly 1 month for us to do what is necessary to take full advantage of the personal income tax reliefs.
The Malaysian government has also recently announced the budget for 2021 with more tax goodies. Hence, I will be covering that from the personal income tax angle in more details in my next article.
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