how to reduce income tax singapore

Top 10 Ways to Reduce Your Income Tax in Singapore

The Singapore government has the power to tax and control taxes. By providing legal ways for personal income taxes to be reduced, they also open the chance to boost one’s spending power, as well as savings and investment. With this, peoples’ disposable incomes also increase, leading to economic growth 

In Singapore, income tax depends on one’s chargeable income. Yet, the government has implemented certain tax reliefs to help lower these taxes. Tax reliefs are given based on this chargeable income to recognize your contribution to social objectives like building your retirement nest. 

With this, you need to know the tax reliefs you are eligible for to make the most of your income. To help you understand better, we’ve put together a comprehensive list of tax savings or relief initiatives that you can benefit from Singapore’s tax system.

What Counts as Taxable Income?

In Singapore, a personal income tax applies to all wages, including bonuses and commissions, excluding CPF contributions. All earning individuals must file an income tax return and pay taxes yearly depending on tax rules and residency. 

The income tax rate in Singapore ranges from 0% to 22%, and according to Inland Revenue Authority, the more you earn, the higher your tax rates will be.  

Let’s look further at what is taxable income and what is not.

Taxable Income Non-Taxable Income
Salaries and wages (employed or self-employed) Lottery winnings
Bonuses Capital gains from stocks and shares
Commissions Pensions
Director’s Fee CPF Life Payouts
Rental Income Inheritance

 

To compute your annual income tax, you need to compute your taxable or assessable  income less personal reliefs. 

In short: taxable income – tax reliefs = chargeable income.

As you can see, personal tax reliefs in Singapore help lower this chargeable income and, subsequently, your tax bill. These are tax deductibles and are used by the government to incentivize its workforce. 

Hence, you may want to find out the various tax reliefs you can get to lower the chargeable income. Still, note that claiming tax reliefs are subject to eligibility, and the personal income tax relief cap is at S$80,000.

 

 

10 Ways to Reduce Your Income Tax in Singapore

Singapore’s income tax system is progressive, and the higher your earnings are, so will your taxes be too! For this reason, many taxpayers find ways to reduce their income tax payable. There are a lot of strategies to reduce your income tax. But for this context, we highlight ten relevant and legal ways to do this. 

Also, check out our guide on how to pay income tax in Singapore.

1. CPF Retirement Top Ups

Topping up your CPF or your loved ones’ CPF funds is perhaps the best and most practical way to reduce your taxes. Under this method, your tax relief is capped at S$16,000 per calendar year – S$8,000 for your account and another S$8,000 tax relief if you make top-ups for your loved ones.

Employers are also allowed to make cash top-ups on their employees’ behalf. In doing so, the employer will receive an equivalent tax deduction for top-ups made and the employee. 

Check out the tax reliefs below as of January 1, 2022:

CPF Top-Up Maximum Amount (S$)
Your CPF – Special Account (SA) 8,000
Your loved ones’ – SA or Retirement Account (RA) 8,000
Your CPF – Medisave Account (MA) 8,000
Deposit in your Supplementary Retirement Scheme (SRS)  account 15,300 (Singapore Citizens)

35,700 (Foreigner)

 

To be eligible for this tax relief, cash top-ups for you and your loved ones’ SA and RA accounts should be within the current Full Retirement Sum (FRS) of S$192,000. The MediSave top-up should be within the basic Healthcare Sum (BHS). Find out other conditions to qualify for this relief here.

Learn more about CPF on our guide to understanding CPF shielding.

men with service tax document and laptop vector illustration

2. Child-Related Tax Reliefs

Under this category are the following tax reliefs that can be claimed by spouses or  working mothers:

  • Qualifying Child Relief (QCR)

You can share this particular tax relief with your spouse based on an agreed apportionment. Claim tax relief up to a maximum of S$4,000 tax relief per child.

  • Parenthood Tax Rebate (PTR)

This relief encourages married couples to have more children. Like the QCR, you can also share this tax relief  with your spouse based on an agreed percentage. You can immediately make a claim for PTR in the year following the child’s birth year.

Child Maximum Tax Relief – PTR (S$)
1st 5,000
2nd 10,000
3rd and subsequent 20,000

 

  • Working Mother’s Child Relief (WMCR)

You can claim a WMCR if you are a mom, are married, and have earned income for the particular assessment year. This relief encourages women to remain in the workforce after having children.  

Child WMCR (% from earned income)
1st 15%
2nd 20%
3rd and subsequent 25%

 

Note, however, that the total cap for the QCR and WMCR combined is at S$50,000 per child.

  • Grandparent Caregiver Relief (GCR)

Working mothers can claim tax relief if their children are being cared for by a non-working:

  • Parent
  • Parent-in-Law
  • Grandparent
  • Grandparent-in-Law

This claim is only available to working mothers who are married and is capped at S$3000 on only one caregiver. Note that the caregivers should be in Singapore and that no one else claims for GCR on the same caregiver.

  • Foreign Domestic Worker Levy (FDWL) Relief 

To claim this relief, you or your spouse have levy paid for a foreign maid for the current tax assessment year. 

Here are current levy rates:

Type Levy Rate 
Per Month Per Year
Normal S$300 S$3,600
Concessionary S$450 S$5,400

 

3. Parent/Handicapped Parent Relief

As the government recognizes the high cost of elderly care, you can also get a tax break from taking care of your parents. Dependants can also include parent-in-law, grandparent, or grandparent-in-law, for as long as they don’t earn more than S$4,000 annually. Click here for a complete list of conditions. 

Relief Amount

Type  Parent Relief Handicapped Parent Relief
(Per dependant)

*taxpayer can claim up to two dependants

Taxpayer lives with dependant S$9,000 S$14,000
Taxpayer does not live with dependant S$5,500 S$10,000

 

You can also claim for  additional tax relief if you care or shelter your handicapped siblings or you low-income spouse. Again, these are all dependent on certain conditions to qualify.

4. Course Fees Relief

Upskilling or taking a course relevant to your profession is also an excellent way to reduce your income tax. The government sees this relief as a remarkable way to encourage them to upgrade their skills and increase their chances of getting a better career.

You may claim for a Course Fee Relief if:

  • You have attended a study, a seminar, or a course during the current  assessment year.
  • You can apply the acquired skill in a vocation or specific industry.
  • The course provider is a Singapore-registered entity with the Accounting & Corporate Regulatory Authority (ACRA).

However, note that some courses are not eligible for this relief. These are 

  • Courses, seminars, or conferences sought for recreation or hobby.
  • Courses, seminars, or conferences acquired for general knowledge such as basic social media or website building and other similar skills.
  • Vacation jobs or internships.

Course fee relief is capped at S$5,500 per year. This amount could include the costs incurred from your registration and examination fees.

5. Tax Relief on Donations Made

There are many organizations in Singapore where you can make donations for a relevant cause. However, to qualify for a donation tax relief, these organizations should be made to the Singapore government and registered charities classified and approved as Institutions of Public Character (IPC).

These donations are also not limited to cash, allowing you to claim tax reliefs of up to 250% of your donation amount. Check the table below for other types and their respective deductibility:

Donation Type Donation Value
Cash 250% of the donated amount
Public Shares (Listed on Singapore Exchange) or unit trust traded in Singapore Value to be determined by IPC based on the current market prices.
Artifacts To be determined by the National Heritage Board (NHB) or the museum to whom the item was donated
Sculptures or Works of Art (under the Public Art Tax Incentive Scheme) Value to be assessed by NHB
Land / Buildings Donors will get the Market Value Appraisal, and the value will be based on the property’s market value as endorsed by IRA. 

*The property’s valuation cost is not tax-deductible. 

 

Popular charities in Singapore approved under the IPC are under the categories:

  • Animal Welfare
  • Environmental Conservation
  • Social Welfare

Charitable donations need not be declared as the IPC involved will automatically submit them to the IRAS for claims. The tax deduction will be applied the following year after making a qualified donation. 

6. Life Insurance Relief

Those who have paid for their personal life insurance policy premiums might be able to claim this tax relief.  However, you have to meet qualifying conditions to be able to do so. 

One condition is for your compulsory or voluntary employee CPF contributions should be under S$5,000. If you qualify and meet all other requirements, you may claim the lower of:

  1. The difference between S$5,000 and your CPF contributions; or
  2. 7% of the insurance value of you or your spouse’s life or  insurance premiums paid

7. Earned Income Relief

Earned Income Relief is for all individuals who earned through employment income, pension, trade, business, or vocation. This relief is based on your age and the taxable income in the previous year.

Age as of Dec. 31 of the previous year Maximum Relief

 (Non-handicapped)

Maximum Relief for Handicapped Persons
(S$)
54 and below 1,000 4,000
55 to 59 6,000 10,000
60 and above 8,000 12,000

 

Income tax deductions on earned income is automatically granted based on eligibility so you do not need to process for this claim. However, handicapped workers who are claiming for first-time must accomplish and submit the Handicapped-Related Tax Relief form.

young couple checking their financial budget

8. NSMen Relief

Singapore’s government also recognizes the services of NSMen of the Singapore Armed Forces through the NSMan relief. Those who have rendered NS duties during the previous year are eligible for this tax relief. 

For Key Appointment Holders (KAHs), the tax relief allowed ranges from S$3,500 to S$5,000. Non-KAHs can enjoy tax relief of up to S$3,000.

Additionally, spouses and parents of eligible NSMen will also automatically receive S$750 tax reliefs for that assessment year.

9. Deductions on Rental Expenses

If you are a landlord, you can also claim incurred expenses in obtaining your rental income. This includes agent fees, maintenance costs, property insurance, and other costs. Generally, the tax relief is calculated as 15% of your rental income + mortgage interests for the year.

10. Business Expenses Deductibles

You can also use your side hustle to claim tax deductions. This tax relief is certainly good news for many business owners as running a business entails a lot of costs. Business tax deductions are also applicable for employed and self-employed business owners.

Examples of tax-deductible expenses may include any of the following: 

  • Advertising costs
  • CPF contributions
  • Book-keeping services
  • Entertainment
  • Insurance Premiums
  • Legal and Professional fees
  • Rental of business premises
  • Staff training
  • Telephone and Utility bills

Conclusion

Many taxpayers would frown at a high tax bill and knowing how to legally reduce one’s personal income tax is a must. Fortunately, there are many legal ways to lower these taxes and save significantly for crucial things like retirement and healthcare.

Key Takeaways

  • Before the assessment year ends, prepare all the documents needed in order to avail of tax reliefs wherein you qualify.
  • Making charitable contributions is one of the most significant ways to get tax relief.
  • Saving for retirement also reduces your taxable income.
  • Financial planning is also a part of knowing how to reduce your income taxes.
  • You can always consult a professional for complex tax laws.

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