Income Tax Malaysia: Quick Guide to Tax Deductions for Donations and Gifts

For those who have yet to file and would like yet another tip on how to cut down on the chargeable income, this could help.

Income Tax Malaysia: Quick Guide to Tax Deductions for Donations and Gifts

As you begin to file your taxes this year, armed with receipts of eligible purchases to help you maximise tax reliefs, don’t forget to include your donations, gifts of money, and contributions as well. When donated or given to avenues approved by the Lembaga Hasil Dalam Negeri (LHDN), these contributions can qualify for tax deductions that can lighten your tax burdens.

That said, what constitutes LHDN-approved donations, gifts, and contributions? Is there a limit to how much you can deduct? Here, we answer some basic queries of tax deductions for donations and gifts.

What are the LHDN-approved donations and gifts?

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LHDN has listed as many as nine categories of donations, gifts, and contributions that you can claim as tax deductions:

Categories

Maximum Limit Of
Tax Deduction

Gift of money to the government, state government, or local authorities
Gift of money to approved institutions or organisations Individuals:

(all three categories combined)

7% of aggregate income

 

Businesses:

(all three categories combined)

10% of aggregate income

Gift of money or cost of contribution in kind for any approved sports activity or sports body
Gift of money or cost of contribution in kind for any project of national interest approved by Ministry of Finance
Gift of artifacts, manuscripts, or paintings
Gift of money for provision of library facilities or to libraries (limited to RM20,000) RM20,000
Gift of money or contribution in kind for the provision of facilities in public places for the benefit of disabled persons
Gift of money or medical equipment to any healthcare facility approved by the Ministry of Health (limited to RM20,000) RM20,000
Gift of paintings to the National Art Gallery or any state art gallery

To find out if the institutions, organisations, and bodies that you are donating to are recognised by LHDN, you can visit its website for an extensive list. Naturally, donations to organisations or charity bodies that are not recognised by LHDN will not be allowed for tax deductions.

How do tax deductions for donations, gifts, and contributions work?

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Like tax reliefs, tax deductions will help to reduce the amount you need to pay tax on. However, while tax reliefs are applied to your chargeable income, tax deductions are applied to your aggregate income. Your aggregate income is essentially the total of all your taxable income from employment, rent, royalties, and so on.

Here’s quick scenario to briefly illustrate how the whole thing works. Ahmad has an aggregate income of RM60,000 and makes a donation of RM5,000 to an approved institution in March 2019. Since this donation is limited to 7% of his aggregate income, he can claim RM4,200 (7% x RM60,000) in tax deductions.

Thus, his chargeable income after taking the tax deduction for his donation into account is RM60,000 – RM4,200 = RM55,800 – thus lowering the amount of tax he has to pay.

Is there a minimum amount of donation required to qualify for tax deductions?

LHDN did not set any such figures; you are generally free to donate as much or as little as you like. However, some organisations will inform you that they have a certain level of administrative costs that they need to cover, such as postage and subscriptions. As such, they may require you to donate a set minimum amount if you wish to claim for tax exemptions. WWF Malaysia, for instance, requests for a minimum donation of RM10.

What information is needed for tax exemption receipts from approved institutions?

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Individual donors need to provide the following details to organisations in order to obtain an official tax exemption receipt from them:

  • Donor’s name
  • Identity card number/passport number
  • Complete mailing address

This was highlighted in the revised Guidelines for Application Of Approval Under Subsection 44(6) Of The Income Tax Act 1967 (dated 15 May 2019). According to the document, organisations are requested to issue official tax exemption receipts only for donors who have provided all required particulars.

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With this, we hope that you are able to understand a bit more about tax deductions for donations, gifts, and contributions, and can use it to lighten your tax burdens. If you have any other questions about filing your income tax, do check out our Income Tax page or any of these articles below:

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