In Malaysia, buying a new home can be a daunting task considering steep housing prices. Thus, a big number of Malaysian citizens opt for various home loan schemes as per their requirements and eligibility.
A home loan not only provides an opportunity of owning your dream home but it can also give you exemptions on your annual tax payments. Read below to know how you can get tax benefits over your housing loan.
Tax Process in Malaysia
The tax process in Malaysia needs you to pay the tax on the purchase and selling of any good or service that is declared as taxable. However, there are some ways through which you can lower your payable taxes each year such as donations, spousal support, education, and purchases that entitle you a considerable tax exemption or a total elimination of payable tax.
Tax Benefit on Housing Loans in Malaysia
Having a housing loan is one of the ways through which you can get tax exemption in Malaysia. The interest paid on the home loan tax in Malaysia is applicable for a tax immunity.
The tax exemption is given only at following cases:
- You are a Malaysian citizen or permanent resident.
- When the purchase of the housing property is limited to 1 unit.
- If the Sale and Purchase Agreement is implemented from March 10, 2009 to December 31, 2010.
- Exemption is granted when the purchased residential property is not rented out.
Furthermore, if there is a joint applicant involved in the purchase of a residential property, he/she may also get a tax exemption. However, the tax exemption on the interest of a housing loan is capped at a maximum amount of RM10,000. The deduction is obtained on the paid interest amount for the next three years after acquiring the residential property.
Documents Required for Home Loan Tax Exemption
If you are applying for a tax exemption, the following documents are needed to be produced for a successful application:
- NRIC or MyKad (both sides)
- Details of ownership or purchase of the property
- Completion of construction date (if the property’s construction work is completed)
- Loan related documents from the bank
- Receipts of the taxes paid
- Any other documents as specified
Tax for a Foreigner
If you are a foreigner working in the country, for any stay under 60 days in Malaysia, you will not be charged for any tax. However as an employee in Malaysia, if you are not staying in the country for more than 182 days in a year, you will be qualified as a non-resident. In this case, you will be charged with a tax of flat 28% (with effect from Year Assessment 2016) and you will not enjoy any tax benefits.
Home Loan and Tax Benefit Calculator
Various banks in Malaysia offer a home loan calculator and a tax benefit calculator on their official websites. Through the tool, you can calculate your monthly instalments to be paid, estimated amount for a home loan in Malaysia and the tax benefits that you can acquire after obtaining a home loan facility.
Home Loan Prepayment Tax Benefit
Making a prepayment on your home loan can be beneficial in many ways. A prepayment is helpful when the penalty of a prepayment is less than the interest to be paid on the instalment. Moreover, home loan prepayment charges can be deductible under the income tax need to be paid by you. You can further check the government’s guidelines for the prepayment tax benefits in Malaysia.
Q. Can I get tax benefits on the purchase of my second home loan scheme?
A. Home loan tax benefits are given only on the purchase of one residential property unit in Malaysia.
Q. Can I qualify for a home loan with a tax lien?
A. A tax lien is a penalty taken by the property owners who fail to pay their property tax. You can still qualify for a home loan with an existing tax lien. However, to enjoy better interest rates and great terms, you are requested to pay off the tax lien as soon as possible.
Q. Can we claim HRA and home loan tax benefit together?
A. It is possible that you are staying in a rented home and have given your property on rent. In this case, you can claim tax deduction on the HRA as well as the interest paid on the home loan, depending on the government policies.
Q. Can a home renovation loan give tax exemption benefits?
A. Most of the times, renovation loans are often included in the home loan facility. You can check the guidelines if the there is any tax redemption involved during the procedure.
Q. My spouse is my joint applicant for a home loan scheme. Can she get a tax exemption on the home loan?
A. Yes, as a co-applicant, your spouse will also be entitled to share the benefits of tax exemption.
To get tax benefits on your home loan scheme, you need to follow a proper procedure and it also includes filling all required forms, collecting the necessary documents, etc. With all mandatory documents provided at the time of claiming your tax benefits, your tax exemption application will be processed for that year.