|Income and Earnings Exempted from Tax|
Most taxpayers dread to reveal their true income or all sources of income, fearing they will have to pay hefty taxes. However, they should not forget that there are relevant provisions under the Income Tax Act 1967 that allow tax exemptions on many types of income and earnings.
Let’s see what they are. A summary below shows those most relevant to the man on the street.
Compensation for Loss of Employment
Compensation for loss of employment is exempted from tax if ill health is the underlying reason. The same goes for compensation paid for a covenant entered into by an employee restricting his/her right to take up a similar employment in the future. Otherwise, the exemption is calculated at RM10,000 for every completed year of service with the same employer or with companies in the same group. The tax exemption of RM10,000 is applicable for payments made to an individual who ceased employment on or after 1 July 2008.
Interest or Discount on Government Securities or Bonds
Interest or discount paid or credited to any individual in respect to Bon Simpanan Malaysia issued by Bank Negara, or in respect to any saving certificates or security or bond issued or guaranteed by the Government, is also exempted from income tax. Interest accrued in respect to bonds issued under the Bon Simpanan Malaysia Siri Kedua (BSM 2) by Bank Simpanan Nasional is also exempt.
Interest or Discount on Debentures Other Than Convertible Loan Stock
Effective from Year of Assessment (Y/A) 2003, interest income earned by individuals from debentures other than convertible loan stock approved by the Securities Commission is exempted from tax. Effective from Y/A 2006, the exemption is extended to discounts receive, and effective from Y/A 2010 this has been extended to include interest or discounts from Islamic Securities.
A sum received by an individual in the nature of a scholarship or other similar grant or allowance, whether or not it is in connection with an employment of that individual, is exempted from income tax.
Retirement gratuities paid due to ill health or after reaching the retiring age of 55 or any other compulsory retirement age from an employment that lasted 10 years with the same employer or with companies in the same group is also exempted from income tax.
Pension derived by an individual who has reached the age of 55 or compulsory age of retirement or due to ill health is not subject to income tax. However, it must be noted that if a person is paid more than one pension, only the highest pension paid will be exempted. The rest will be subjected to income tax.
Gratuities or Pensions Paid to Senators and Elected Reps
Gratuities or pensions paid to the Senate President or Deputy President, Speaker or Deputy Speaker of the Dewan Rakyat, Speaker of the State Legislative Assembly, Member of the Senate, Members of Parliament or Members of the State Assembly, provided that the person has attained the age of 55 or has ceased to hold office due to ill health, is exempt from tax as well. This exemption applies to the highest drawn pension only in the case that the person draws more than one pension.
Other relevant incomes exempted fully or partially from income tax are those from the employment on board a Malaysian ship; income from translation works and composition of music; prize money received by professional sportsmen and sportswomen; income derived from employment in Labuan; income from offshore companies or trust funds; grants or subsidies received from Federal and State Governments; income earned by drivers and riders from car and motorcycle racing events of international standards; interest from Merdeka Bonds; and those given to employees such as child care allowance up to RM 2,400 a year,; meal allowance, transport allowance from home up to RM2,400 per annum; travel allowance for official work up to RM6,000 per annum; parking fees, gifts and payment of utility bills by employer; and subsidies on car loans, housing loans and education loans.