Your Guide to Health & Life Insurance Income Tax Reliefs & Benefits in Malaysia

Health and life insurance are essential in keeping you and your family safe. However, did you know that there are other benefits, such as managing tax?

The Malaysian government offers special tax breaks for those who have insurance policies - there is tax relief for the money you spend on insurance premiums.

Thus, insurance policyholders can make the smart choice to save some money when they file for insurance tax relief.

Nonetheless, filing taxes and claiming tax relief can be complicated and daunting if you don't have the relevant information.

The article aims to provide you with complete information about insurance income tax relief so that you can benefit from these tax savings, all while making sure you and your loved ones are protected.

What is income tax?

Income tax refers to a type of tax governments impose on the income generated by both individuals and businesses. A person's tax obligations are determined via the income tax return filed annually and depend on their gross income or profit. Generally, the more money you make, the more tax you have to pay.

While different countries have different rules and taxation rates, income taxes are a source of revenue for all governments. They are used to fund infrastructure, public services and other government activities.

Who needs to pay income tax in Malaysia?

In Malaysia, individuals who earn more than RM34,000 per year after making EPF payments need to be registered as taxpayers. This is equivalent to a take-home salary of about RM2,833.33 per month.

It’s important to note that the amount shouldn’t just include one’s monthly salary but also business or employment incomes, interests and dividends, rental collections, pensions, annuities, royalties, bonuses, commissions, overtime pay, etc.

Tax exemptions are provided for people who are working and earning outside the country if they are already being taxed in the country where they are working.

How to pay income tax in Malaysia?

Paying income tax in Malaysia is pretty straightforward once you’ve done it before. However, if you’re new to paying income tax, the following steps may help:

1. Check if you’re required to pay income tax.

2. Register for a Tax Identification Number (TIN) with Lembaga Hasil Dalam Negeri (LHDN) or, in English, the Inland Revenue Board (IRB).

3. Complete and submit your annual tax return to LHDN. This can be done online through the IRB e-filing system or at the nearest IRB office.

4. Determine your taxable income. Subtract allowable deductions, exemptions and reliefs from your total assessable income. For instance, life insurance premiums and medical expenses.

5. Once you’ve completed No. 3 and No. 4, pay any tax owed to the LHDN. Payment channels include online banking, ATM, bank counter, or by mail.

6. Keep record of your income, expenses, deductions, and tax payments for references and audit purposes.

7. Seek professional advice if needed.

What is income tax relief?

Income tax relief covers various mechanisms that are designed to lower the amount of income tax that an individual or business needs to pay to the government. These are implemented via deductions, credits, and exemptions.

Tax relief usually provides financial relief, encourages investments in certain areas, and promotes specific economic activities. While tax relief varies across jurisdictions and nations, they generally include elements like:

• Standard deductions.

• Savings for retirement.

• Charitable contributions.

• Educational expenses.

• Healthcare costs.

• Investments incentives.

• Support for dependents.

• Eco-friendly investments.

• Insurance premiums.

 

Income tax relief measures serve many purposes, including stimulating economic growth, encouraging savings and investments, providing support to families and individuals, and promoting charitable giving.

Who can claim income tax relief in Malaysia?

You can claim income tax relief if you’re a tax resident in the country. Tax residents refer to an individual who has been in Malaysia for 182 days or more in a calendar year.

What items can you claim income tax relief on?

In Malaysia, you can claim income tax relief for the following items:

• Life insurance premiums and Takaful contributions.

• Education fees for yourself, your spouse or children.

• Medical expenses for parents.

• Medical expenses for serious diseases.

• EPF and SOCSO contributions.

• Purchase of personal computer, smartphone or tablet.

• Books, journals, magazines or other publications.

• Purchase of sports equipment.

• Net savings for SSPN-i.

 

It’s important to note that there are usually limits and specific conditions for each type of relief. For the latest information, refer to the guidelines provided by Malaysia’s Inland Revenue Board.

Income tax relief for insurance in Malaysia

In Malaysia, income tax relief is available for life, education, medical insurance, and deferred annuity, subject to terms and conditions as described below:

Income tax relief for life insurance

Individuals can claim tax relief for life insurance premiums that are paid. Pensionable public servants are entitled to up to RM7,000 tax relief, while others are entitled to tax relief up to RM3,000 for life insurance and RM4,000 for EPF (Employees Provident Fund).

Income tax relief for education insurance

Tax relief of up to RM3,000 is available for education insurance purchased yourself, your spouse or your child. However, the beneficiary of this insurance policy must be your child. You can claim this tax relief even if the premiums are paid through salary deduction.

Income tax relief for medical insurance

As for medical insurance, tax relief of up to RM3,000 is available. You can apply for 100% of the premium or rider premium for stand-alone policies and riders to life insurance policies. However, you can only claim up to 60% of your premiums for critical illness coverage that is part of your term life or personal accident insurance policy.

Conditions to claim for medical insurance tax relief also include policy coverage having to be 12 months or more. This tax relief is also available for group medical policies if you’re the one paying the premiums.

Deferred annuity

Deferred annuities are contracts where income payments are postponed to a future date. For instance, for a retirement age or another specified time in the future. Tax relief of up to RM3,000 is available for deferred annuity and Personal Retirement Scheme (PRS).

How to file tax reliefs?

Here’s how you can file for tax relief in Malaysia:

1. Understand and familiarise yourself with the various tax reliefs available.

2. Keep documentation: Maintain records and supporting documents for expenses you want to claim as tax reliefs. For example, invoices, receipts, payment vouchers and other proof of expenditures.

3. Complete the tax return form or online submission: Ensure that you report your income accurately and claim any eligible tax reliefs.

4. Enter reliefs in the appropriate sections: Enter the details of each relief you wish to claim, ensuring accuracy and completeness. Provide necessary information, such as the type of relief, amount claimed, and supporting documentation reference numbers, if required.

5. Calculate the total relief amount. Sum up the total amount that can be claimed. Make sure to adhere to the maximum allowable limits of each relief.

6. Review and submit. Carefully check all the information for accuracy to avoid errors. Submit the tax return online or by mail.

7. Retain proof of submission: Keep a copy of the submitted tax return.

Conclusion

Understanding life insurance income tax reliefs can benefit your finances. In addition to safeguarding your health and financial well-being, doing so reduces your overall tax burden. Don't hesitate to reach out to us at Prudential if you need more information on life insurance and its benefits.