Consumer Mathematics: Taxation
How to Compute income tax payable
Use this to work out the tax payable from an income, using only the rates the question provides.
Before you start
- Finding a percentage of an amount
- Adding and subtracting money
- Reading a tiered rate table band by band
- What a relief and a rebate mean
When to use it
Use this to work out the tax payable from an income, using only the rates the question provides.
The steps
- Start from the total income given in the question.
- Subtract the allowed deductions and reliefs the question states.
- This gives the taxable income.
- Apply the rates from the question to the taxable income.
- Subtract any rebate the question mentions to get the tax payable.
Worked example
A person has a total income of RM55000. The question allows reliefs of RM9000 (individual), RM4000 (EPF) and RM3000 (life insurance).
The tax rates given are: first RM5000 at 0%, next RM15000 at 3%, next RM15000 at 6%, and any amount above RM35000 at 11%. A rebate of RM400 is given.
Find the tax payable.
- Start from the total income given: RM55000.
- Subtract the reliefs the question states: RM9000 + RM4000 + RM3000 = RM16000.
- This gives the taxable income: 55000 − 16000 = RM39000.
- Apply the rates the question gives: 0% on the first RM5000 = RM0; 3% on the next RM15000 = RM450; 6% on the next RM15000 = RM900; 11% on the remaining RM4000 = RM440; total = 450 + 900 + 440 = RM1790.
- Subtract the rebate the question mentions: 1790 − 400 = RM1390.
A second example, with a twist
Two income sources must be added first, one relief is above the cap the question sets (so it is capped), and the rebate no longer applies because the taxable income is over the rebate limit. A person earns employment income of RM60000 and rental income of RM8000.
Reliefs allowed: RM9000 (individual); EPF claimed RM6000 but the question caps EPF relief at RM4000; RM2500 (lifestyle); RM8000 (child). The rates are: first RM5000 at 0%, next RM15000 at 3%, next RM15000 at 6%, above RM35000 at 11%.
A rebate of RM400 is given only if the taxable income is RM35000 or less. Find the tax payable.
- Start by combining the income sources the question gives: RM60000 + RM8000 = RM68000 total income.
- Subtract the reliefs, capping EPF at the RM4000 limit (claimed RM6000 → use RM4000): 9000 + 4000 + 2500 + 8000 = RM23500.
- This gives the taxable income: 68000 − 23500 = RM44500.
- Apply the rates: 0% on the first RM5000 = RM0; 3% on the next RM15000 = RM450; 6% on the next RM15000 = RM900; 11% on the remaining RM9500 = RM1045; total = 450 + 900 + 1045 = RM2395.
- The rebate applies only when taxable income is RM35000 or less; here it is RM44500, so no rebate: tax payable = RM2395.
Practise this in a KBAT problem
Frequently asked questions
What is the difference between a relief and a rebate?
A relief is subtracted from your income before the tax is worked out, so it lowers the taxable income. A rebate is subtracted from the tax itself, right at the end.
Reliefs change the income; rebates change the final tax.
Do I put the whole income into the top rate?
No. In a tiered table each band only taxes the part of the income that falls inside that band.
Only the amount above the last threshold is taxed at the top rate, so you add up the tax from each band.
Where do the tax rates come from in the exam?
The question always gives you the rates, thresholds and rebate. Use only those figures.
Do not use rates you remember from real life, because the exam supplies its own numbers so everyone works from the same information.