As we march into the third month of the year, we brace ourselves to fill up tedious forms to be submitted to the Lembaga Hasil Dalam Negeri (LHDN) as it is that time of the year again.
Any individual earning an annual income of RM34,000 (after EPF) deduction has to file for tax.
However, nobody likes seeing a portion of their hard-earned salary being deducted for tax purposes every year. There is no escape, but you could make sure you get the maximum possible refund back. This can be done by identifying all the tax reliefs you are eligible for and claim them when you file your taxes.
What is Tax Refund
Don’t worry if you find yourself overpaying your taxes, as you’ll be able to get back the additional taxes you’ve paid in the form of a tax refund when you file it.
A tax refund occurs when an individual is subjected to a monthly tax deduction (MTD). The monthly deduction does not include additional tax reliefs enlisted by the LHDN.
LHDN sets tax reliefs; as a taxpayer, if you spend money on certain outgoings, the amount you spend can be deducted from your total income, and you will therefore pay less tax. You can claim tax reliefs in addition to any personal tax allowances that you are entitled to.
For example, you will be eligible for maximum tax relief of RM2,500 if you purchase lifestyle equipment (throughout 2020) either for yourself, your spouse, or your children. Example of purchases that are exempted are:
- Reading materials such as books, journals, magazines, printed newspapers, and similar publications.
- Personal computers, smartphones, and tablets.
- Gym membership and purchase of sports equipment.
- Internet subscription
However, multiple tax relief options are available depending on your lifestyle. There are around 17 types of personal income relief that one can apply to. But keep in mind that receipts are crucial while filing income tax as it is the proof of your purchase and allows you to use it for tax relief.
As for the (YA)2020, several new income tax relief additions have been introduced during the national budget and some later on as part of the Covid-19 pandemic relief packages.
For instance, the government has decided to increase the childcare tax relief from RM1,000 to RM3,000, an additional RM2,000. It was introduced to help boost work from a home culture that became a norm during the pandemic.
You could also claim up to RM1,000 in tax reliefs for your stay at hotels. However, this only applies to hotels and accommodation premises that are registered under the Commissioner of Tourism.
What Do You Need To Prepare For A Tax Refund
- Filing your income tax is tedious work, just relax and take a couple of deep breaths before starting.
- Prepare all the needed personal information, such as the latest salary statement (EA/EC forms) and your payslips. Remember to keep all your receipts, so it would be easier to claim all the reliefs and exemptions.
- Get your pin and login details ready. Don’t worry if you can’t seem to remember your login details, and you can always refer back to their website or walk into your nearest LHDN office.
- With all of the above prepared, you are now ready to file your taxes without breaking a sweat!
What to do with them?
After submitting the income tax return forms, the approved tax refunds will be credited into the taxpayer’s bank account within 30 working days. Since you have extra money lying around idly and you’re afraid you’re going to spend it. Here are some options on what you could do with it:
Savings
If stashing the money in a fixed deposit is a little too restrictive, there are plenty of other options, such as Versa being one of them. Versa is a digital cash management platform that provides its users with the flexibility to withdraw their funds deposited anytime while earning fixed deposits like daily returns without a lock-in period.
Create an emergency fund.
In general, Malaysians do not have enough emergency savings in unexpected events. The Covid-19 pandemic has stressed the importance of having an emergency fund. It is a good idea to keep three to six months’ worth of expenses in an emergency fund.
Fund your retirement
Many of us can agree that relying on a government pension or the Employees Provident Fund (EPF) isn’t enough, especially when the cost of living is rising. Putting away some money in a private retirement scheme (PRS) is a good way to start saving for a comfortable retirement.
Pay off debts/loans
If you have an outstanding balance payment on your credit card or student debt, consider using the tax refund money to pay them up. Although your tax refund might not be as much as you expected it to be, it’s still something as you’re able to cover a small portion of the debt and soon be debt-free.