053 Income Tax YA2015 and PRS tax relief

It's May 4 today. Another 11 days for taxpayers to file their BE income tax return, for YA2014, by May 15. For those still filing using BE forms, you should have submitted your forms with the payment done.

Have you used up your tax reliefs, especially the RM3,000 granted under Private Retirement Scheme (PRS)? This tax relief is valid from YA2012 to YA2021. Hopefully, the Government will extend the period.

If you have not contribute in PRS to claim the tax relief, you should seriously consider so. Besides the tax relief, PRS also allows all individuals to save more for retirement years. Money put in PRS, especially in sub-account A, cannot be taken out before reaching age 55. This feature will help contributors to save because one just cannot simply take out.

For YA2015, it makes more sense to contribute to PRS because the tax rate will be lower making you save more. For the tax rate, you may refer to LHDN website (http://www.hasil.gov.my/goindex.php?kump=5&skum=1&posi=2&unit=5000&sequ=11) to view it.

Append below is the comparison for YA2014 and YA2015. The last column shows the savings for each categories. As the chargeable income gets higher, the more the taxpayers saved.

When this lower tax rate coupled with PRS relief, taxpayers will save more. If you can't imagine how much, let's use a hypothetical example. We use an example with RM100,000 gross income; relief claimed restricted Personal Relief and KWSP relief for simplicity sake.

A taxpayer with RM100,000 gross income will have Chargeable Income of RM85,000 or RM82,000, and thus a tax payable of RM10,250 and RM9,530 for with and without PRS relief respectively. With PRS relief, taxpayer saves RM720.

For YA2015, the table will be as below. Tax payable has further reduced to RM8,750 and RM8,120 for scenarios with and without PRS relief.

If we compare the tables, the difference is quite big. The extreme case will the saving between YA2014_w/o_PRS and YA2015_w/_PRS relief. That means RM10,250 - RM8,120 = RM2,130. That's a lot of saving.

PRS is essentially an investment scheme. You may go to PPA website (www.ppa.my) to learn more about the providers, features, etc.

If you are interested to know the performance, please go to link provided in PPA website (http://gllt.morningstar.com/e6qvxuu98r/fundquickrank/default.aspx?LanguageId=en-GB&tab=ShortTerm).

Sample page below is sorted by "Core (Growth)" and ranked by "1 Yr Ansld %". By this you will see the performance for the passed One year for Core Growth funds provided by different fund house. Do not simply choose based on performance alone. You need to know your risk tolerance first.

For me, PRS is, besides KWSP and SSPN, the best tax relief because we get tax saving and we see the money grow right from now till we reach age 55. How wonderful!

Oh yes, mentioned of SSPN, just remind that SSPN tax relief of RM6,000 will carry on till YA2017. If original tax relief was RM3,000. So, if it is not extended, I think it will revert to RM3,000.

For those taxpayers between the age of 20 to 30, please remember to contribute to PRS because Government, through PPA, will top up a one off RM500 once you contribute RM1,000 into a single provider.