Malaysia Income Tax Guide 2015

for full articles please read

http://savemoney.my/malaysia-income-tax-guide-2015

 

What Are Tax Reliefs?

What about a tax relief? It is defined as "an amount that can be deducted from a person's annual income to reduce the amount on which tax is paid".

To describe it in a more clear and concise manner, it is actually a way for you to lessen your chargeable income.

Let's say you took home a monthly paycheck of RM4,000 from your company in 2014 and if there were no tax exemptions or reliefs, your chargeable income will remain the same and your tax for the year would have been in the 10% bracket.

Now say the Government decides that all Residents of Malaysia should get a personal tax relief of up to RM9,000 per year. Your chargeable income will now be RM31,000 which means that your tax would be in the 6% bracket.

These are the following reliefs available for Malaysian Residents:

Included in MTD system	RM
Self and Dependent	9,000
Life insurance and EPF	6,000
Husband/Wife/Alimony Payments	3,000
Ordinary Child relief (per child)	1,000
Total	> 15,000

Not usually included in MTD / PCB system but relevant to most taxpayers	RM
Net saving in SSPN's scheme	6,000
Education Fees (Individual)	5,000
Updated: PRS Voluntary Contribution	3,000
Purchase of personal computer (every 3 years)	3,000
Insurance premium for education or medical benefit	3,000
Special relief for tax payers earning an income of up to RM8,000 a month (RM96,000 anually). Only applicable for the 2013 year of assessment.	2,000
Purchase of books, journals, magazines and publications	1,000
Complete medical examination	500
Purchase of sport equipment for sport activities	300
Total	19,300

Not included in MTD system but relevant to certain taxpayers	RM
Disabled Individual	6,000
Basic supporting equipment (for disabled self, spouse, child or parent)	5,000
Medical expenses for serious diseases	5,000
Disabled child	5,000
Medical expenses for parents	5,000
Child age 18 years old and above, not married and pursuing diplomas or above qualification in Malaysia @ bachelor degree or above outside Malaysia in program and in Higher Education Institute that is accredited by related Government authorities	6,000
Disabled Wife / Husband	3,500
Child age 18 years old and above, not married and receiving full-time tertiary education	1,000
Premium on new annuity scheme or additional premium paid on existing annuity scheme commencing payment from 01/01/2010 (amount exceeding RM1,000 can be claimed together with life insurance premium)	1,000
Total	> 35,500

Tax Deductions vs Tax Reliefs

Most of the time people get confused between Tax Deductions and Tax Reliefs, and its easy to see why. They are for the most part the same thing, as they both allow you to reduce your Chargeable Income (that is, before you even start looking at tax rate tables). In fact most people worldwide use both terms interchangeably, and LHDN goes one step further and classifies Tax Deductions as a reduction in your Chargeable Income as a result of Gifts or Donations.

As a rule of thumb, you can deduct up to 7% of your Taxable Income for gifts to charities and institutions which are approved by the government (not all charities are approved, so be sure to find out before you donate away!), unless you are giving to a few selected government-related bodies, where there is less restrictions on the amount deductible from your income.

For example, if you earned RM60,000 this year, and donated RM5,000 to an approved charity, you may deduct RM4,200 (ie. 7% of RM60,000) off your chargeable income, in addition to all those reliefs above.

What are the Tax Rebates in Malaysia for 2014?

Some people will be having the question of how is a tax rebate different from a tax relief? A tax relief is a reduction in your chargeable income (ie. before you calculate tax) whereas a tax rebate is a reduction in your tax expenseafter you have calculated your tax for the year.

Tax rebates (or also known as "tax refunds" but done automatically rather than actually refunded to you). Simply put, there are income tax rebates for Malaysian taxpaying citizens who are having a chargeable income of less than RM35,000 which is RM400. There is also an additional RM400 rebate for married couples who have a chargeable income of less than RM35,000 per year and are eligible for the RM3,000 wife / husband / alimony relief.

To give a quick calculation example for tax rebates:

Taxable Income: Salary of RM45,000 a year
Chargeable Income: RM45,000 - RM9,000 - RM4,950 EPF relief = RM31,050.
Tax calculated using Income Tax Tables (without counting any rebates): RM863
Tax Payable: RM863 - RM400 rebate = RM463

In the above example, you were eligible for the RM400 tax rebate because your Chargeable Income was less than RM35,000 (it was RM31,050 in that example).

Another type of tax rebate, but which is only applicable for Muslim citizens, is the zakat / fitrah. Zakat is a compulsory payment for charity and considered to be compulsory as it is one of the five pillars in Islam. It can be calculated via the Muslim taxpayer's acquired wealth or income. Zakat Fitrah, on the other hand, can be considered to be a small, compulsory levy that is imposed upon Muslim taxpayers only. It used to be calculated in the olden days using a pack of rice grains (one pack is equivalent to approximately 2.7 kg) but in the modern days, it is calculated based on the equivalent price of this pack rice grains. You can read all about Zakat and the various types that exists in our guide Zakat in Islam.