5 Commonly Made Mistakes You May Have Made In The Past While Claiming Tax Relief

It’s that time of the year again, year-end. Can’t believe it is already December 2021. Is time to look at your tax relief and see how you can maximize it so that you can save some money from having to pay too much tax. Let me share with you the 5 Commonly Made Mistakes I have seen Malaysians make over the years.

As I look back at the year, I wonder what have I achieved? Because the year flew by so fast, I still remember I started out this year posting videos, writing blogs and now writing emails. What is the one thing you achieved in 2021?

I guess if you take a step back, paying tax was meant to be a noble thing because we are contributing to building our nation together. From building schools, highways and better facilities for all Malaysians. But sadly I feel frustrated too, for not wanting to pay tax, having seen the past 60 years, our monies lost in corruption and wasted through an inefficient government system. It’s really disheartening and painful.

It doesn’t help when more Malaysians are being audited by Lembaga Hasil Dalam Negeri (LHDN). So I wanted to take some time to share with you the 5 commonly made mistakes when taking advantage of the tax relief made available. These steps will optimize what we need to pay by not paying anything ‘extra’.

1. Medical & Education Insurance – RM 3,000 Tax Relief

Medical & Education Insurance – RM 3,000 per year

I’m sure you would have claimed the Medical Insurance tax relief before. But did you know that Medical Insurance typically consists of the Hospitalization plan and Critical Illness (CI) Coverage? If you have been putting in the whole amount of your insurance policy premium, you may want to recheck and put the correct amount this year. Let me share with you what I mean.

If your insurance premium is RM 3,543 and you put the whole amount into medical insurance, you are in hot soup. The right amount to put here is RM 2,619.84. Which leaves only a balance of RM 380.16 in this tax relief category.

If you happen to have another education plan for your daughter below, the correct amount to claim is RM 464.54 – Education Insurance Premium (NOT the whole Education Plan Premium of RM 923.28).

But because the total limit for Education and Medical is RM 3,000, so despite you having RM 464.53 here (RM 2619.84 + RM 464.54 = RM 3084.38 > RM 3,000), you can only claim RM 3,000 maximum. Hope this clarifies it for you.

2. EPF & Life Insurance Tax Relief

EPF & Life Insurance

Did you know ever since YA 2019, LHDN has increased the tax relief from RM 6,000 to RM 7,000 per year for this category? That’s the good news. The bad news is the RM 7,000 per year is further split into RM 3,000 per year for EPF (typically not an issue, you can hit this if you are employed) and RM 4,000 per year for Life Insurance Premium.

For those who rely on their EPF contribution to maximize this and don’t buy too much life insurance, you may want to re-look into your life insurance premium if it is below RM 4,000 per year.

In the example above, the Life Insurance Premium is only RM 923.16 (in Figure 1). Although you already have maxed out the RM 3,000 for EPF, you still have an allocation of RM 3,076.84 (RM 4,000 – RM 923.16). Meaning, if you have another Life Insurance Policy under your name (not your children’s name) you can add it up to max out the RM 3,076.84.

Do take from the correct column. All insurance companies provide this. You can log in to your Insurance Portal to download this statement. Here is an example of an insurance company. Prudential calls it Life Assurance Premium Statement. So do check what your insurance company calls it. This is the summary of income tax preparation all insurance companies provide. (Figure 3)

3. PRS (RM 3,000 per year) and SSPN (RM 8,000 per year)

PRS (RM 3,000 per year) and SSPN (RM 8,000 per year)

Surprisingly, I still get some of the highly tax-savvy individuals not knowing what PRS is about. PRS or Private Retirement Scheme is equivalent to EPF which the government created to solve the problem of Malaysians not being able to retire at their retirement age. Since this is a private initiated scheme (unlike EPF), LHDN gave a tax relief where you can claim up to RM 3,000 per year. This is to incentives us and increase the subscription of PRS

Meaning if your tax bracket is at 30%, by putting in this RM 3,000 savings in any one of the seven approved providers (Previously there were 8 providers, not sure why now 7 only) you will instantly save RM 900. I mean like WOW, where can you find a 30% return in today’s day and age. Imagine if that provider gets you a conservative 4% for the next year, you will end up with a 34% return for 1 year. Isn’t that amazing? You can open the online account HERE. Or if you need help, just leave a COMMENT below, I will see how I can get my team to help you.

As for SSPN, you can only benefit if you are a parent with kids. I have shared how you can set it up fairly if you have more than one kid. I have written a blog HERE before. So read it up. For those of you who don’t have a kid yet, it is ok. Although you can’t benefit from the tax savings, you can put some extra funds in SSPN rather than putting in your FD as the average return SSPN is giving is 4% + a bit of dividend per year. That’s fantastic for me, especially for my low-risk assets.

Another common issue is not being able to prove your SSPN savings. What you should be keeping is a sample statement like this above. A good practice will be keeping the statement after depositing it, in a common folder for all your tax filing. This is to prevent looking up and down for it when suddenly you receive an LHDN ‘love letter’

4. Domestic Travelling

Domestic Travelling
Did you know that the government is giving us RM 1,000 tax relief for vacations? This is for domestic travel only. They want you to spend and revitalize our local Tourism industry by spending on either Accommodation fees or entrance fees like the Zoo or Aquaria KLCC if you are going DIY. OR you can book through your local tour package via licensed travel agents.

So what are you waiting for? You still have another time to utilize this before year end. I’m actually dying to go on a vacation with my family. Been stuck at home for over 2 years now. Let’s go!

5. SOCSO Tax Relief

SOCSO

This is the most straightforward. Since you are already paying for SOCSO (your employer would have deducted it monthly for you), most people do not claim this. If your tax bracket again is 30%, RM 250 will be a savings of RM 75. This can feed a good meal for 2. (I’m thinking of Nandos, yummy). All you need to do, is to follow your EA form you get from your employer. There is a section to refer to. Just put that amount.

There you have it. I hope from this year onwards you can do it right and claim the appropriate tax relief correctly. Hope you have a wonderful 2022. Share with me in the comments when you have benefitted.

P.S All my sharing here is for educational purposes and are my own personal opinion. It should not be confused with tax advice. Do consult a licensed tax consultant for proper tax planning. I am sharing this with you as my best practice. Also, I am not affiliated with any of the brands in any way. I do not receive any affiliate commission from them (whether it is PRS, SSPN or Prudential).