Tax Planning for Individual Income Tax (2024)

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Individual Tax Planning – How to Save More Taxes

Individual Tax Planning can be done before end of any financial year. This is important to estimate your income taxes for the particular year, qualify for the right tax deductions, and ultimately to reduce your taxable income and pay less taxes.

It’s TOO LATE to wait until end of the year. Plan ahead in order to save more taxes. Here are key steps you can take before the end of the year to lower your tax bill.

1. Estimate Your Taxes

Start with estimation of your taxable income for a year, know your effective tax rate and plan for your tax bills for the year.

SME (Company/LLP with paid up capital less than RM2.5 million), the income tax rate will be 17% for the first RM500,000 chargeable income. If your individual’s effective tax rate is higher than 17%, it will be more tax efficient to tax the business income under Company/LLP.

On the other hand, if your individual’s effective tax rate is lower than 17%, you may want to swift the business income to be taxed under individual through payment of directors’ fees, remuneration and etc. (subject to tax deductibility rules under Income Tax Act)

2. Maximization of Tax Deductions

Tax deductions reduce your taxable income. Your total deductions are subtracted from your taxable income in order to determine your total taxable income for the year. Make full use of the available tax reliefs will save you more taxes.

Below are the common tax deductions for resident individual. For more details of personal tax relief, you may refer to Personal Tax Reliefs in Malaysia.

Medical Check-Up RM500

Get a full medical examination for yourself, spouse or child and you will be entitled for a tax relief up to RM500

Lifestyle relief (Reading materials / personal computer, smart phone and tablet / sports equipment including gym membership / internet subscription – RM2,500

• Books would include school textbooks, periodicals, comics whether purchased locally or overseas but exclude any banned reading materials such as morally offensive magazines.
• For the purchase of a personal computer, smart phone or tablet (not being used for the purpose of his own business) for his own use, the use of his/her spouse or his/her child. Additional charge for the warranty is not allowed for deduction.
• for the purchase of sports equipment for any sports activity as defined under the Sports Development Act 1997 which includes the purchase of a bicycle.
• for the payment of monthly bill for internet subscription registered under the individual’s name for his own use, or the use of his/her spouse or his/her child.

EDUCATION FEES (SELF) – RM7,000

any course of study up to tertiary level in any approved institution in Malaysia:
(i) up to tertiary level (other than a degree at Masters or Doctorate level), for the purpose of acquiring law, accounting, Islamic financing, technical, vocational, industrial, scientific or technological skills or qualifications; or
(ii) any course of study for a degree at Masters or Doctorate level.

NET DEPOSIT IN SKIM SIMPANAN PENDIDIKAN NASIONAL (SSPN) – RM8,000

Skim Simpanan Pendidikan Nasional (SSPN-i) is a savings scheme or instrument specially designed by the Perbadanan Tabung Pendidikan Tinggi Nasional (PTPTN) for higher education. Tax relief is given on amount deposited in SSPN by an individual for his children’s education is deductible up to a maximum of RM8,000. The allowable deduction is limited to the net amount deposited in that basis year only.

PRIVATE RETIREMENT SCHEME AND DEFERRED ANNUITY – RM3,000

Private Retirement Scheme (PRS) is a voluntary long-term investment scheme designed to help individuals accumulate savings for retirement.
This relief is applicable from 2012 to 2021.

EDUCATION AND MEDICAL INSURANCE – RM3,000

Insurance premiums in respect of education or medical benefits for an individual, husband, wife, or child.

3. Increase your EPF Contribution

The employer’s portion of EPF will not be subject to personal income tax for the employee (regardless of any % contributed by the employer).

However, from the employer’s perspective, tax deduction can only be claimed up to 19% for the employer’s tax purposes.

Example

A company contributes 25% of employer’s EPF to the employee.

Company’s perspective
The 25% EPF contribution is an expenses of the company. However, the company can only claims 19% as deductible expenses for corporate income tax reporting. The remaining 6% is non-deductible expenses.

Employee’s perspective
No impact on the employee. The employee will still be subjected to personal income tax on his gross salary (exclude the employer’s EPF portion).

Most of the companies in Malaysia that contribute additional EPF to the employee will not contribute more than 19% as there is no tax benefit for the Company.

4. Restructure your Remuneration Package

Housing Accommodation (unfurnished)

– employee or service director – Lower of 30% of cash remuneration * or defined value of accommodation
– directors of controlled companies – Defined value of accommodation

Petrol card/petrol or travel allowances and toll rates

Total amount paid by employer. Exemption up to RM6,000 per annum if the allowances/perquisites are for official duties**

Childcare subsidies /allowances

Total amount paid by employer. Exemption up to RM2,400 per annum**

Parking fees/allowances

Fully exempted**

Meal allowances

Fully exempted**

Interest on loan subsidies

Loans totalling RM300,000 for housing/passenger motor vehicles and education**

** Exemptions are not extended to directors of controlled companies, sole proprietors and partnerships.

5. Keep Documents and Records

All supporting documents and records to your Tax Returns (e.g. insurance premium receipts, parents’ medical bills and dividend vouchers) need to be kept for 7 years.

For receipts or bills that are less inky, do make a photocopy. Alternatively, scan and keep the electronic copy for easy retrieval later.

6. Get Professional Help

Consider hiring a qualified accountant and tax consultant like 3E Accounting to help you plan and prepare taxes effectively. 3E Accounting could help you to lawfully maximize deductions and reliefs that are specific to your situation could bring significant savings in the long run.

Should you have any questions about Individual Tax Planning, please email us atinfo@3ecpa.com.myfor a no-obligation consultation.