Click to go to the Main Page
How to reduce your personal income tax
( Panduan Cara mengurangkan cukai
pendapatan)
Part 1
With April around the corner as in every year, it's tax time for individuals and unincorporated small businesses and time running out to prepare last year's returns. If you're one of the many individuals and entrepreneurs who had put off thinking about taxes until the last minute, you're certainly not alone.
With the current online facilities by LDHN ( Lembaga Hasil Dalam Negeri )the availability and the submission of the income tax forms are easier the it has ever been.
The relevant form in printable pdf formats are available for downloads from here. Besides this the e-Filing method of sending the electronic income tax form via the internet can be a time saver. Here are the relevant links.
| For printable income tax form | e-Filing |
The amount of tax to be paid may change significantly as the taxable income bracket moves up or down. Variation of a few dollars (ringgit) in taxable income alone may save a huge of money in the end. These are some perfectly legal ways individuals and entrepreneurs can increase deductions and reduce liability and thus to reduce income tax. in ways permitted by Inland Revenue Board ( IRB /LHDN).
1) Save for your Child’s Education
Since 2007 , any amount that is deposited into a savings account for your child under national Education Savings Scheme ( Skim Simpanan Pendidikan Nasional ) allows you to claim tax deductions.
There is a limit of RM 3000 for this deduction but spouse who file separate tax returns can each claim this amount .
Tax Deduction : RM 3000 per individual
For Mr A : As he falls in the 24% tax bracket , this deduction translates to a tax saving of RM 720 ( RM 3000@24%)
2 ) File Separate tax returns
A separate assessment allow each spouse to claim personal tax relief of RM 8000 while a joint tax return allows one spouse to claim a wife or husband relief of RM 3000
Tax Deduction :
Each spouse earning Taxable income can claim personal tax relief of RM 8000 by filling separate tax returns.
3) Ask your employer to increase your EPF contributions
Contributions to the employees Provident Fund (EPF) by employers are tax-exempt for the employees.
To reduce your taxable income , ask your employer to reduce your EPF monthly salary but increase your EPF contributions by the same amount.
Tax Deduction
:The deductible amount from your taxable income is dependent on the arrangement between you and your employer.
For Mr A
: Mr A agrees to takle monthly pay cut of RM 1000 for an equivalent increase in his EPF contributions by his employer.At the end of the year , he receives an additional RM 12000 in his pension fund but his taxable income is reduced by the same amount.The tax saving that he makes is RM 2880 ( RM12000@24%)
4) Change your cash remuneration to cash reimbursement
Fixed allowances given by your employer each month for entertainment and housing or parking fees are taxable at your tax bracket.
Change this to a “ reimbursement “ based on receipt and you are not taxed on the amount received.
Tax Deduction
:The deductible amount from your taxable income is dependent on the arrangement between you and your employer
For Mr A : By Changing a yearly fixed allowance of RM 6000 to a
reimbursement of the same amount and supported by receipts , Mr A makes
a tax saving of RM1440 ( RM 6000@24%)
5) Ask for a company car
A car given by your employer is regarded as a benefit-in kind ( BIK ) and taxable.
However , a company car is advantageous for taxpayers because the preset tax scale for cars is much lower than the actual cost of buying and maintaining a car.
According to the Public ruling for BIKs , the tax payer must pay RM 3600 in taxes every year, for a car worth RM 75000
If the employer pays for fuel , the tax payer is taxed an additional RM 1200 for this BIK
Tax deduction :
Whether you benefit from a company car depends on the value of the car and your current tax bracket. Do the calculations to ascertain your tax deduction.
6) Make charitable contributions
A gift of money to an approved charitable organisation entitles you to a tax deduction for the amount given.
From 2008 onward , this amount cannot exceed 7% of your aggregate income.
However Charitable donations that were made in 2007 are not subject to this limit.
Tax deduction
:Up to 7% of your aggregate taxable income can be reduced with this deduction.
7) Take Up postgraduate studies
A relief of RM 5000 per year for any course of study at the Master’s or doctorate level , the government announced in 2007 Budget the widening of the scope to all postgraduate studies.
The course does not have to be done full time , but “ must be in an institution or professional body in Malaysia recognised by the government or approved by Minister of Finance
Tax Deduction
:RM 5000 per individual
For Mr A : As he completes his master’s degree . Mr A can enjoy tax saving RM 1200 from his taxable income ( RM 5000@24%)
8) Read , Read , Read
Starting from YA 2007 , taxpayers can claim a personal tax deduction to RM 1000 for purchase of books, journals , magazines and other publications.
To maximise this generous deduction , consider giving books as gifts.
Tax Deduction : RM 1000 per individual
For Mr A : With book purchases of RM 1000 Mr A
saves RM 240 ( RM
1000@24%)
9) Get Sporty
You will get a deduction of RM 300 for each year of assessment for the purchase of sports and exercise equipment for any sports activities defined under the Sport Development Act 1997 “
Tax Deduction
: RM 300 per individualFor Mr A : By buying RM 300 worth of sports equipment , Mr A makes a saving of RM 71 ( RM 300@24%)
10) Buy Life Insurance
The maximum tax relief is RM 6000 a year for premiums paid to an insurance company for life Insurance or deferred annuity plans.
This Limit is shared with your contributions to the EPF, other employer schemes and contributions under any written law relating to widows or orphan pensions
Tax deduction
: RM 6000 per individual ( shared with your EPF contributions )
11) Take out a Medical or Education policy
You can claim deductions of up to RM 3000 a year for education and medical insurance ( combined limit for both )
This includes medical coverage that is part of life insurance policy( the limit for life insurance is in move 10 )
A policy of this kind can be written for you , your spouse or your child.
Tax deduction
:RM 3000 per individual
For Mr A :After acquiring an education policy for his children , Mr A makes a saving of RM 720 ( RM 3000@ 24%)
12) Pay your parents’ medical bills
You are able to claim up to RM 5000 for payments towards your parents’ medical bills.
Tax deduction
:RM 5000 per individual
For Mr A : By paying his parents’ medical bills , Mr A makes a saving of RM 1200 ( RM5000@ 24%)
13) Medical
Claim a deduction of up to RM 500 per tax year for a full medical examination and RM 5000 for medical expenses for yourself, spouse or child for serious disease.
If you have also spent money on full medical in the same year, your claim will be reduce the RM5000 available for serious disease.
A separate tax reduction of up to RM5000 a year is given for necessary basic supporting equipment for disabilities suffered by yourself ,spouse, children or parent
Tax Deduction :
RM 500 per individual for full medical check-up.
RM5000 for serious diseases or basic supporting equipment
For Mr A : He claimed for a full medical check-up .The deduction give him of RM 120 ( RM 500@24%)
14) Pay Zakat
If you are a muslim ,paying any amount in zakat , fitrah or other obligation Islamic dues will entitle you to a tax rebate.
Tax deduction
:The Amount of zakat that you pay
15) Buy a Computer
A deduction of up to RM 3000 can be claimed once every three years for the purchase of computers , printers and bundled software .
The similar incentive given previously in the form of a tax rebate was withdrawn with effect from 2007
Tax deduction : RM 3000 once every three years.
For Mr A : Getting a computer for RM3000 gives him a saving of RM 720 ( RM 3000@24%)