Every year the working Malaysians scramble to file their personal income tax by April. Although we have passed the due date months ago, this can be useful to prepare for the assessment year 2017.
What is tax relief?
Tax relief in Malaysia is issued by the Inland Revenue Board of Malaysia (IRBM). It helps taxpayers (like you and me), to reduce a certain amount of money spent on necessities in a particular year —from your total annual income.
The tax reliefs that you can claim ranges from the purchase of books, magazines, journals, sports equipment, education fees, housing loan interests, and much more.
But did you know that you can also enjoy tax relief for your medical insurance premium? Every year, as a resident in Malaysia you can claim up to a maximum of RM 3,000 under the education and medical insurance tax relief quota.
Here are 3 ways you can maximize tax relief with your medical insurance.
1. Claim 60% of your life insurance premium under medical insurance tax relief
In case you didn’t know, there are two types of tax relief that you can take advantage of. They are the EPF and life insurance tax relief, and the education and medical insurance tax relief. Each has different limits.
Individual Tax Relief Limit
- EPF and life Insurance: RM 6,000
- Education and Medical Insurance: RM 3,000
But how and when can you maximize the education and medical insurance quota? Let’s assume a scenario with the amount below:
EPF contribution: RM 6,000
Medical insurance premium: RM 2,500
Life Insurance plus rider premium: RM 1,000
Here as you can see, your EPF contribution has already maxed out the RM 6,000 limit leaving you no room to claim for your life insurance.
But not to worry. 60% of your life insurance premium is claimable under the education and medical insurance limit of RM 3,000.
First, you can include your medical insurance premium (RM 2,500) under education and medical insurance limit. You then take your life insurance premium (60% x RM 1,000 = RM 600).
And in total you would have RM 2,500 + RM 600 = RM 3,100. But since the limit is only RM 3,000, you can only claim up to RM 3,000 instead of RM3,100. This way you are maximising your medical insurance tax relief—fully.
2. Know when to opt for joint assessment and separate assessment
This second point is more relevant to a married couple. According to section 45 of the Income Tax Act 1967, all individuals including a married person is considered as separate individuals— unless they choose otherwise.
Knowing whether to opt for a joint assessment or a separate assessment can affect your medical insurance relief limit.
When is a separate assessment beneficial?
A separate assessment is very beneficial for married couples who both draw high salaries.
Their combined income can result in a higher chargeable income which can be subject to a higher income tax bracket. Therefore claiming tax relief separately including medical insurance tax relief is best for this type of couple.
Scenario 1: Husband and wife opt for separate assessment.
Example: Husband and wife are both earning high salary
If Hakim paid RM3,000 a year for his medical insurance and his wife paid RM 3,000 per year, they each have a limit of up to RM 3,000.
When is a joint assessment beneficial?
It’s a reverse situation for cases of the following type of couple. A joint assessment is beneficial for married couples where for example a husband is the higher income earner and the wife earns lesser to no income at all.
In this case, the husband is allowed to claim for medical insurance spouse relief of up to RM 3,000.
Scenario 2: Husband and wife opt for joint assessment.
Example: Husband earns higher income and wife earns lower or no income
If Ragu pays RM 1,800 a year for his medical insurance and his wife’s medical insurance is RM 1,200, Ragu can maximize his medical insurance tax relief by adding both his premium together with his wife’s.
3. Save More with Your Medical Insurance
If you already have a medical insurance aside from your company’s group medical insurance, that’s great.
The reason behind this is because the group medical insurance provided to you is paid by your company. Therefore it’s not considered as your personal expense. What is considered as your personal expense is when you have to pay for a certain thing yourself.
In this case, having a medical insurance which you have to pay premiums by yourself, is considered a personal expense. Let’s look at how much you can save when you have a personal medical insurance.
Medical Insurance Premium (per year): RM 1000
Tax Rate: 26%*
*example is assuming the highest tax rate, which will depend on your salary range.
In actuality, you stand to pay only RM 740 (RM 1,000 x 26%) a year instead of RM 1,000. You can save RM 260 in medical insurance premium alone.
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