We all hate to pay tax. Ironically, the more taxes you pay, the wealthier you are. However, it might not necessarily so. Because a person earns more than you might be paying less tax money with proper tax planning. One of the area that you can get a tax relief is for education purpose.
Education is a liberal concern because it is about empowering people with the skills, knowledge, attitude and aspiration to develop themselves. Some believe that in order to have a brighter future with better earning capability, higher education is a must. In this article, you will find the complete guide for a Malaysian on how to enjoy tax relief or tax deduction for education purposes.
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There are four areas that you can take advantage of tax relief for education purposes:
1. Child education insurance policy – Maximum RM3,000
2. Skim Simpanan Pendidikan Nasional – Maximum RM3,000
3. Post graduate education – Maximum RM5,000
4. Book purchase – - Maximum RM1,000
Child Education Insurance Policy
A child education policy is a life insurance product specially designed as a savings tool to provide a lump sum of money when your child reaches the age for entry into college. If you opt for a payor benefit rider, an education policy provides the assurance that, in the event of an untimely demise of the parents or legal guardian, the child will have access to funds to help finance his/her education expenses. Under a child education policy, the child is the life assured, while the parent/legal guardian is the policy owner.
Types of child education policies available
There are two main types, i.e. an endowment or investment-linked policy. The difference between the two lies in the structure as well as the nature of investments.
1. Endowment Policy
An endowment policy combines a savings component with protection coverage. Endowment policy may be either participating or non-participating . As the name implies, non-participating policy do not participate in the life insurance fund’s profits but all insurance benefits are fully guaranteed. On the other hand, for participating policy, a portion of insurance benefits are guaranteed. However, the ultimate amount of benefits at maturity are not guaranteed as these depend on the performance of the insurance company’s participating life insurance fund.
Example of endowment education policy:
Great Eduplanner: Education Endowment Insurance Plan |Great Eastern Product Reviews
2. Investment-linked policy
An investment-linked policy combines the elements of investment and protection based on your requirement as the policy owner. It offers flexibility as you are able to increase or top-up your monthly premium contribution as your income improves. If you wish to be more aggressive with the instruments of investment, an investment-linked policy will also allow you to choose the types of funds your money will be invested in. However, like any other similar investment, there are higher risks involved and there are no guarantees on the returns, which may be higher or lower than projected.
Tax incentive of RM3,000 for Child Education Policy
One of the benefits of using life insurance as a savings tool for a child’s education policy is the tax advantage. Insurance proceeds are tax-free and you can also obtain an annual tax relief of up to RM3,000 for the payment of premiums for education insurance, subject to approval by the Inland Revenue Board. In order to qualify for tax relief,
- the education plan must be taken up by the parent/legal guardian and it must mature when the child reaches the age of between 13 to 25.
- It is also important that you opt for a payer benefit rider throughout the life of the policy.
- make sure the policy has a the word “education” printed in the policy title
- another method is to purchase an endowment policy that the life assured is the parent, but the beneficiary must be nominated to the child and mature before the child reach 25 years old.
- Remember, if your wife elects for separate assessment, she can also claim the same amount of relief on her life, education and medical insurance premiums but not on the same child.
PTPTN Skim Simpanan Pendidikan Nasional
Perbadanan Tabung Pendidikan Tinggi Nasional (PTPTN) introduced a savings scheme which puts emphasis on ‘Savings Towards Higher Education’. Besides ensuring annual dividend returns, the SSPN also provides special financial incentives in the form of Matching Grants especially for low income depositors. In addition, insurance coverage and payment of death compensation is provided free of charge to all eligible depositors.
How to Open a SSPN Account
To open an account, the application form must be submitted to PTPTN counter and any collection agent along with the following documents:
- A copy of the depositor’s MyKad/Military/Police Identity Card;
- A copy of the child’s MyKid/Birth Certificate/MyKad; and
- Certification of adoption (if the SSPN account is meant for an adopted child).
For a family whose household income does not exceed RM2,000 per month, the latest income statement of the family must be submitted along with the application form and a copy of the spouse’s MyKad/Military/Police Identity Card.
The minimum total deposit for purposes of opening an account and increase of deposit is RM20 for each nominated beneficiary’s account. Deposit increase can be made as soon as the membership card is received.
Eligibility to apply for PTPTN education financing
- For household income exceed RM2,000 per month, a minimum deposit of RM3,000 is required
- For household income does not exceed RM2,000 per month, a minimum deposit of RM500 is required.
- Tax relief on savings up to
RM3,000per year (RM6000 per year starting 2012)
- Free insurance coverage up to RM50,000 (dollar to dollar) for depositors who have an accumulated deposit of a minimum of RM1,000 (Eligibility for insurance/death compensation is only for depositors between 18 and 65 years, whereas death compensation is awarded only to beneficiaries aged 1 to 28 years)
- Matching grant with a maximum endowment of RM10,000 per family (A family whose household income does not exceed RM2,000 per month is eligible for a matching grant when the child is accepted into a higher learning institution)
- Deposit as low as RM20 at any time deemed necessary and government guarantee on savings
- Competitive dividend rate and tax exemption on dividend
- Salary deduction for the staff of government and private sector
- Salary deduction through Biro Perkhidmatan Angkasa
- Auto debit – Bank Pertanian Malaysia and Maybank
- Standing instruction – Bank Simpanan Nasional; or
- Online transaction through e-SSPN – especially for those who have savings accounts in Bank Islam Malaysia Berhad, CIMB Bank, Hong Leong Bank, Public Bank Berhad and Maybank.
- The account statement is prepared and posted to the address of the depositor twice annually
- No savings book is given
- All beneficiaries will be given SSPN membership cards
Withdrawal of savings can only be done after one (1) year of saving in the SSPN. The withdrawal of 10% of the balance in the account or RM500 (whichever is lower) once annually is allowed (after one year of becoming member). Withdrawal of up to 100% of the balance of the account is allowed if the beneficiary fulfills one of the following criteria:
- Is accepted to any government recognised IPT;
- Withdraws voluntarily from the education system or is terminated for specific reasons;
- Chronic illness with no hope of recovery with doctor’s certification;
- Permanent disability; or
Deposit Collection Agents:
The opening of an SSPN account can be done at the PTPTN headquarters and at all deposit collection agents throughout Malaysia.
List of agent:
- CIMB Bank Berhad
- Bank Pertanian Malaysia (BPM)
- Bank Kerjasama Rakyat (BKR)
- Bank Simpanan Nasional (BSN)
- Bank Islam Malaysia Berhad (BIMB)
Post Graduate Education
To promote a culture of lifelong learning among Malaysians, the Government proposes tax relief of up to RM5,000 on education fees be extended to all post-graduate studies (Masters and Doctorate leve), effective from Year of Assessment 2008.
Every individual are eligible to claim a RM5,000 relief each in respective tax returns provided that the post-graduate studies are at institutions or professional bodies in Malaysia that are recognised by the Government or approved by the Minister undertaken for the purpose of acquiring law, accounting, Islamic financing, technical, vocational, industrial, scientific or technological skills or qualifications. Please note that this deduction is effective only from YA 2008 onwards.
To further inculcate the reading habit and in line with life long learning, the Government provides tax relief on the purchase of books up to RM1,000 per year. All the text books for your children, or your own post graduate studies are eligible for tax relief. Even the Harry Porter and magazine you buy from book stores can be used to deduct tax. But you must keep the book purchase receipt for tax audit later, if you are lucky.
- buy books and magazine from chain bookstore, such as Popular, MPH, BORDERS etc. You will notice the receipt provided by Popular have [BK] printed for book items.
- You can even order your book via the internet – Amazon, Barnes and Noble.
- Normally, there won’t be any receipt produced when you buy magazines from local book stall. If you want your expenses to be tax deductible, avoid this.
- 4 Ways to Enjoy Tax Relief for Education Purposes (Infographic)
You might need to "right-click" and "save-link-as" to download the file to your computer.
If you fully utilized the tax relief for the above elaborated 4 areas:
1. Child education insurance policy - Maximum RM3,000
2. Skim Simpanan Pendidikan Nasional - Maximum RM3,000
3. Post graduate education - Maximum RM5,000
4. Book purchase - - Maximum RM1,000
There is a total of RM12,000 tax relief to be claimed. I will definitely use up item no.1, 2, and 4. But for item no.3, there is no clear definition of post graduate study and list of courses that is eligible. It would be nice if colleges and universities can indicate the tax relief eligibility when promoting their courses for working adults.
If your tax bracket is 21%, you will save up to maximum of RM2520 tax payable yearly.
Last but not least, I would urge that you take advantage of them all during year end.
- Purchase your child insurance policy and pay yearly in December - the premium paid will be eligible for tax relief immediately
- Open SSPN account in December, and max it up to RM3,000.
- Consolidate the receipt of book purchase, and use up the RM1,000 if you enjoy reading books. If not, try buy books as gift to others whenever possible. Books are great birthday gift. It is definitely worthier than flowers.
By using this "year-end" strategy, you have kept the money with you for a full year and already reap the full investment return.
Do you have any other tips to share with us? Please comment.
More on personal tax relief, download the guideline from IRB (pdf file)