Most people confuse income tax rebate with income tax relief. What is the difference? A tax relief is deduction from the total income to derive your chargeable income. This is separate from a tax rebate that is deducted from the actual taxed amount.
How do you calculate your income tax rebate?
Here’s an example of how Malaysia income tax rebate is calculated:
|Chargeable income after tax reliefs
|As the chargeable income is less than RM35,000, this married taxpayer is eligible for an additional RM400 tax rebate
|Total tax after tax rebate
|= RM880.50 – RM400
Types of tax rebates for Malaysians
There are the types of tax rebates available:
- Individual for chargeable income less until RM35,000 can get a tax rebate of RM400
- Wife/Husband (separate assessment) can each get a tax rebate of RM400 if both have chargeable income of less than RM35,000
- Wife/Husband (joint assessment) can get a tax rebate of RM800 for joint income until RM35,000
- Zakat/Fitrah, which is subject to the maximum of tax charged
Zakat or tithe is a compulsory payment for all Muslim around the world, hence, the zakat is applicable only to Muslim taxpayers. It is a compulsory payment for charity and can be calculated via the Muslim taxpayer’s acquired wealth or income.
Zakat is collected to assist the less fortunate, where the fund will be distributed to different channels and handed to those who need it most.
Muslims in Malaysia could serve jail time or be forced to pay a hefty fine if they are found to skip their zakat payment on purpose (Shariah Criminal Enactment Law).
The zakat tax rebate allows Muslims to not be required to pay two overlapping compulsory payments each year. It is possible to get the entire amount paid out in zakat refunded as tax rebate.
Here’s what LHDN outlined in terms of tax rebates for zakat payments
1. Individual resident in Malaysia who has taxable income is eligible to claim a tax rebate on the payment of zakat, fitrah or others required by Islam to the religious authority established under any written law. The amount of rebate allowed to an individual is limited to the amount of income tax charged for a year of assessment.
2. Zakat is defined on all types of zakat payments made in a calendar year.