Silently, we have entered the year 2021 and the season of submitting income tax forms has started. Let us review our knowledge of income tax so that we are better prepared to furnish our income tax form this year.
Scope of taxation
Income tax in Malaysia is imposed on income accruing in or derived from Malaysia except for income of a resident company carrying on a business of air/sea transport, banking or insurance, which is assessable on a world income scope.
Income attributable to a Labuan business activity of Labuan entities including the branch or subsidiary of a Malaysian bank in Labuan is subject to tax under the Labuan Business Activity Tax Act 1990 instead of the Income Tax Act 1967 (unless the Labuan entities opt to be taxed under Income Tax Act 1967).
In short, any income or gain from employment, business and any commercial activity is subject to tax.
Basis of assessment
All income of persons other than a company, cooperative or trust body are assessed on a calendar year basis.
The year of assessment (YA) is the year coinciding with the calendar year. For instance, YA 2020 is the year ending Dec 31, 2020.
Responsibilities of employees/businesses
Declare yearly income, submit tax return form and pay tax payable within the stipulated period.
Business income: Latest by June 30
Other than business income: Latest by April 30
Married taxpayers may opt for joint or separate assessments to optimise tax reliefs and enjoy tax savings.
Appoint certified accountants and tax agents to assist you in managing your tax affairs.
Keep income, tax relief and business records as well as documents for a period of seven years for audit purposes.
Income tax relief
Income tax relief is a deduction from a total income which an eligible taxpayer can claim for money expended in the assessment year. Income tax reliefs are set by the government and LHDN. Income tax reliefs can help reduce our chargeable income, and thus our tax payable. If planned properly, we can have significant tax savings.
Income tax rebates
Income tax rebates, on the other hand, are a type of deduction which reduces the amount of tax charged. It is given to an individual resident in Malaysia in a basis year for a year of assessment. There are three types of tax rebates, i.e:
A rebate of RM400 is granted to an individual whose chargeable income does not exceed RM35,000. [Subsection 6A(2)(a) of ITA 1967.]
• Husband and wife
A rebate of RM400 is granted to an individual whose chargeable income does not exceed RM35,000 and where he / she has been allowed a deduction of RM4,000 for the spouse. [Subsection 6A(2)(b) / Subsection 6A(2)(c) of ITA 1967.]
• Zakat and fitrah
Payment of obligatory zakat and fitrah in the basis year. [Subsection 6A(3) of ITA 1967.]
Tax reliefs vs tax rebates
The difference between the two is: a tax relief is deduction from the total income to derive your chargeable income, whereas tax rebate is deducted from the income tax charged.
Tax computation for resident individuals:
Apart from declaring income and claiming your tax relief truthfully, submitting the tax return form and paying the tax payable within the stipulated period, taxpayers are also responsible for keeping all tax records in order.
Receipts and supporting documents must be kept for a period of seven years after the end of the year in which the return form is furnished to LHDN, for future reference and inspection if required. Failure to comply with the request may lead to prosecution under section 119A of ITA 1967 and if convicted they can be fined RM300 to RM10,000 or imprisonment for a term not exceeding one year or both.
Records that need to be kept include:
* Record of income
* Record of sales/purchases
* Record of business expenses
* Bank statements
* Payment vouchers
* Business receipts and tax deductions receipts
* Other records relating to income tax
For further details, please logon to www.hasil.gov.my.