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Maximising Income Tax Refund: A Brief Guide for the Non-tax Savvy in Malaysia

How many of you trying your best to avoid ATM that’s different from your bank card so that you won’t be charged RM1 for a withdrawal? Being Malaysians, we always find a way to pay less or perhaps not paying at all. Then why don’t you do the same with taxes? In Malaysia, there are ways to reduce the amount of payable tax by maximising your income tax refund. Perhaps most of you are already familiar with tax reliefs. But there are also tax deduction, tax exemption and tax rebates which function differently but serve the same purpose which is to lighten your tax burden.

Consider yourself non-tax savvy? Let’s go through each tax incentives mentioned above and get a clearer view of how can you maximise your income tax refund in Malaysia.

Tax Reliefs

Tax relief focuses more on the needs of Malaysians’ daily life. It does not only reduce the tax rate but also encourage specific purchase such as sports equipment, electronic items, insurance and many more. Claiming tax reliefs will reduce your amount of chargeable income. The chargeable income will decide on how much tax rate will be charged to you. Thus, the lower your chargeable income, the lesser the payable tax. Remember to retain the proof of purchase for you to be able to claim the tax reliefs.

Now, let’s assume your taxable income is RM36,000. Thus, the amount of tax you need to pay is RM680 at a rate of 8%. But, if you claim your tax reliefs as follow:

  • A laptop purchase – RM2,000
  • Self relief and dependent – RM9,000
  • Pursuing a Master Degree – RM6,500
  • Parents’ medical expenses – RM4,000

You have claimed a total of RM21,500 for your tax reliefs which reduced the amount of your chargeable income to RM14,500. By then, your tax rate will drop down to 1% which will need you to pay an income tax of RM95 only. Sounds great, isn’t it?

Tax Deductions

How do tax deductions differ from tax relief when they both serve the same purpose? A tax deduction reduces the amount of your aggregated income while tax reliefs reduce the amount of your chargeable income. It functions similarly to tax reliefs which help to reduce the amount of tax you’ll need to pay. However, a tax deduction generally focuses on donations, gifts, charity and contributions which will eventually deduct the amount of your contribution from your aggregated income. But the contribution must be LHDN-approved to be qualified in the tax deduction.

For example, a donation to an approved sports organisation or activity can account for a 7% deduction from your aggregated income.

Tax Exemptions

Most people are not really concerned over tax exemption as it doesn’t deduct or lower your tax rate. It won’t even appear in your tax return form. A tax exemption refers to certain types of income that doesn’t have to be included in your income tax. These incomes usually point to the additional allowances, bonus, commission or any benefits received apart from your monthly salary. These types of income are exempted from tax and won’t be count as your taxable income. You don’t really have to bother thinking about which part of your income is exempted as it has already been displayed in a separate section of your EA form.

Tax Rebates

Most of you must be very familiar with the word ‘rebate’ right? Technically, a tax rebate directly reduces the amount of tax charged to you. When filing your income tax, the tax rebate will be calculated in the last section of the BE form. The first type of tax rebates provided for Malaysians is tax rebates for zakat or fitrah which will be based on the amount withdrawn. Those who have paid zakat are eligible for this rebate as the purpose is to exempt Muslims from making double payments.

Next is tax rebates for those with chargeable income below RM35,000. If your chargeable income after considering all the tax reliefs and deductions does not exceed RM35,000, you are entitled for a tax relief of RM400. This also means you will get an RM400 off from the amount of your net tax payable.

If you’ve reduced the tax rate through tax reliefs and tax deductions, now you’re able to get another RM400 off.

Do not overpay your taxes

After all, we use all these income tax refund incentives in Malaysia to lighten our tax burden. Just make sure you truly understand what these tax reliefs, deductions, exemptions and rebates are before filing your income tax. Be mindful of how much your payable tax is and which part of your income can be reduced to avoid overpaying your taxes. If you’re new to all these things and have never filed your income tax before, you can learn more on how to file income tax here. So my fellow Malaysians, don’t forget to maximise your income tax refund as much as possible!


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