Dec 12, 2008

8% or 11% KWSP Deduction




Its about 2 weeks left until you could decide whether you should stay on 11%, or to reduce your contribution for EPF/KWSP to 8%. A lots of people are talking about this. Some says 8% means more income tax to lower income…some says the 3% that we save can be used for investment.


Based on my observation, 8% is worth it for you if your contribution to EPF + Life Insurance is more than 6k per year. Why?…because maximum rebate for EPF+Life insurance is 6k…So if you choose 8%, your income tax charge is still the same as 11%. So it’s better to go for 8%, because you can use the 3%  for better investment.


If your EPF+Insurance is still lower than 6k/year, I recommend you to remain at 11% because your income tax will be increased if you go for 8%. Even though if you select 8%, and invest the 3% in ASB for example, of course you will get good return from ASB, but don’t forget that your income tax has increased too.


Observation only doesn’t prove anything huh… OK, lets make some calculation;




Sample A

*Monthly income = 5000


*Bonus = 5000

*Total annual income = 65000


Contribution to EPF

*for 11% = 7150

*for  8% = 5200


Life insurance = 1200/year (100/mth)


Taxable income

*for 11% = 65000 - 8000(individual rebate) - 6000(EPF+Insurance rebate, max 6k) = 51000


*for  8% = 65000 - 8000(individual rebate) - 6000(EPF+Insurance rebate, max 6k) = 51000


Conclusion => Taxable income is same for both cases. Means income tax charge is also same.


Sample B

*Monthly income = 3000

*Bonus = 3000

*Total annual income = 39000


Contribution to EPF


*for 11% = 4290

*for  8% = 3120


Life insurance = 1200/year (100/mth)


Taxable income

*for 11% = 39000 - 8000(individual rebate) - 5490(EPF+Insurance rebate, max 6k) = 25510

*for  8% = 65000 - 8000(individual rebate) - 4320(EPF+Insurance rebate, max 6k) = 26680


Income tax charge


*for 11% = 475(first 20k) + 386(thereafter)

*for  8% = 475(first 20k) + 468(thereafter)

**For 8%, additional income tax per year is 82


Let say you select 8%, and invest 3% in ASB.

*Dividend return after 2 year = 202

*How much you could make after 2 years = 202 - (82×2) = 38


Conclusion => Better to remain at 11%. No additonal income, and you will get around 5% dividend from EPF.






Source: In DEBT Free

2 comments :

  1. em...tak faham sgt..klau cm sy cmna ek? should i take 8% or 11%? can u calculate for me,pls? well..u know how much rite ;P

    ReplyDelete
  2. thanx abang din for d info.. salammz

    ReplyDelete

Related Posts with Thumbnails