Saturday, April 13, 2013

Time to pay your income taxes again

It is time to pay our income taxes again. Some newer taxpayers may not know how Singapore's income tax works. Singapore's income tax rate is based on a progressive system. The first few "bands" of your income pay lesser taxes, the higher "bands" pay more taxes.

The tax rates for "tax residents" are as follows:

How to read this table
Your income is divided into bands as listed above. Note that "chargeable income" is after deducting all reliefs and CPF deductions. I will provide a few examples to estimate your taxes

Example 1: your annual chargeable income is 25k. The first 20k is taxed at 0%. Yes, you do not need to pay taxes for this first 20k. The next 5k falls into the band of the "next 10k" which is at a 2% tax rate. The income tax for this 5k will be 5000 * 2 / 100 = $100.

Example 2: Your annual chargeable income is 50k. Notice that your chargeable income spans across different bands with the following tax rates: 0%, 2 %, 3.5%, 7%.
Instead of working out the individual bands, you can look at the "First 40k" which has already computed the tax for the first 40k of assessable income. This amount works out to be $550 [10000 * 2 / 100 + 10000 * 3.5/100 ]. You then calculate the final band for the 10k which is 10000*7/100 = $700. Adding the two components, you have $550 + $700 = $1250.

One time tax relief
Earlier this year, there was a Budget 2013 announcement for income taxes.

All resident individual taxpayers will be given a personal income tax rebate for the tax payable for Year of Assessment (YA) 2013. The amount of rebate granted depends on the age of the resident individual as at 31 Dec 2012, subject to a cap of $1,500:
a) 30% for resident individuals aged below 60; and
b) 50% for resident individuals aged 60 and above.

Using example 2 above, the tax payer's taxes was calculated to be $1250. With the 30% rebate, he will only need to pay $875. Note that this relief only applies to YA2013

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