With tax filing season just around the corner, all individual taxpayers will have to report their income received from Malaysia that is taxable for the year of assessment (“YA”) 2021, to the Inland Revenue Board of Malaysia (“IRBM”). Those who submit their tax return manually are allowed a deadline of 30 April 2022 but a grace period is granted until 15 May 2022 to those who file their tax return online (“e-BE”). The grace period equally applies to the payment of the balance of tax payable.
There is no denying it – anyone who fails to submit the e-BE on time will be liable to a late filing penalty under subsection 112(3) of the Malaysian Income Tax Act, 1967 (“MITA”). Additionally, if he is late in paying the balance of tax due, he will be subject to a penalty under subsection 103(3) of the MITA on the tax that is paid late.
Taxpayers may recall the government initiatives announced in the last Budget 2022 and take advantage of any tax benefits granted. Concurrently, they should be aware of their rights and responsibilities as taxpayers. Any oversight, whether deliberate or unintentional or whether due to negligence or ignorance of the law, may result in penalties. Taxpayers will need to take the necessary action as prudent and responsible taxpayers.
What are the key points relating to personal tax deductions or reliefs
- Personal relief is allowed as a deduction from the total income of an individual in arriving at chargeable income. This relief is only available to a Malaysian tax resident;
- Generally, an individual is considered a tax resident if he/she is present in Malaysia for 182 days or more in a calendar year. Even if the individual is present in Malaysia for part or parts of a day, he/she is deemed to be present in Malaysia for a day;
- There are two (2) types of tax deductions; one is a fixed amount which is granted automatically by the IRBM and the other is given based on an eligible expense incurred and claimed by the individual but restricted to an allowable amount that is supported by supporting documents required for IRBM’s verification;
- Personal relief can be claimed as long as the taxpayer qualifies for the relief at any time during a basis year for a year of assessment (“YA”). There is no time apportionment in claiming the relief;
- IRBM has issued Public Ruling (“PR”) No.4/2018 dated 13 September 2018 in relation to the personal reliefs under the title of Taxation of a Resident Individual Part 1- Gifts or Contributions and Allowable Deductions, as a guide for individual taxpayers; and
- Maximizing personal reliefs by an individual resident can result in a significant difference to the taxpayer’s taxes. Substantial tax savings are possible depending on their annual income.
Moreover, there are now twenty-six (26) types of tax reliefs that are available for individual residents to claim in their tax returns for YA 2021.
Personal Tax Reliefs Claims – The Issues
We will now discuss the tax payable situation if two individuals claimed the same tax reliefs when submitting their e-BE for a YA. The key difference here is that one individual has been issued with a Notice of Additional Assessment (‘Form JA”) due to no or insufficient supporting documents provided to the IRBM during a desk audit. Now, let’s have a look at the following scenarios: -