PRS Tax Benefits: Maximizing Your Retirement Savings

Unlock Tax Advantages While Securing Your Future

The Private Retirement Scheme (PRS) in Malaysia offers attractive tax benefits to encourage long-term retirement savings. Understanding these tax advantages can help you maximize your contributions and boost your retirement nest egg. This guide will walk you through the various tax benefits associated with PRS, for both individuals and employers.

Individual Tax Relief

One of the most appealing aspects of PRS is the personal tax relief offered to individual contributors.

Personal Tax Relief of Up to RM3,000

• Annual Limit: You can claim up to RM3,000 in tax relief for PRS contributions each year.
• Separate from EPF Relief: This is in addition to the tax relief for EPF contributions, effectively increasing your total retirement savings tax relief.

How It Works

1. Reduction in Taxable Income: Your PRS contributions (up to RM3,000) are deducted from your total taxable income.
2. Tax Savings: The actual amount saved depends on your tax bracket. [Previous content remains the same up to the Example Calculation section]

Example Calculation

The table below illustrates the potential tax savings from a RM3,000 PRS contribution across various income levels, based on the Inland Revenue Board Income Tax Rates for Assessment Year 2023:

Note:

• These tax rates are based on the Inland Revenue Board Income Tax Rates for Assessment Year 2023. Always refer to the latest LHDN guidelines for the most up-to-date tax rates.
• The tax savings shown assume a full RM3,000 PRS contribution for each income bracket. This is the maximum amount eligible for tax relief under the PRS scheme.
• Actual savings may vary based on individual circumstances, other deductions, and reliefs you may be eligible for.

Key Observations:

1. Consistent Contribution: The table assumes a constant RM3,000 PRS contribution across all income levels, which is the maximum amount eligible for PRS tax relief.

2. Progressive Benefits: As income increases, the tax savings from the PRS contribution also increase due to higher tax rates in upper income brackets.

3. Maximum Benefit: The highest tax savings of RM900 is achieved for incomes exceeding RM2,000,000, where the top tax rate of 30% applies.

4. Lower Income Consideration: Even at lower income levels, there are tax savings to be gained, although they are more modest.

Pro Tip: While the tax savings are attractive, especially at higher income levels, remember that the primary goal of PRS is to boost your retirement savings. The tax relief is an added benefit to encourage long-term saving habits.

Maximizing Your Tax Relief

• Consistent Contributions: Consider setting up regular monthly contributions to reach the RM3,000 annual limit.
• Year-End Top-Up: If you haven't reached the limit, consider a year-end top-up to maximize your tax relief.

Youth Incentive

To encourage early retirement planning, the Malaysian government offers an additional incentive for young contributors.

One-Time RM1,000 Incentive

• Eligibility: Malaysian citizens aged 18 to 30 years
• Requirement: Minimum cumulative contribution of RM1,000
• Incentive: One-time RM1,000 boost to your PRS account

Pro Tip: If you're eligible, make sure to contribute at least RM1,000 to your PRS account to receive this additional RM1,000 incentive.

Tax Treatment of Withdrawals

Understanding the tax implications of PRS withdrawals is crucial for effective retirement planning.

Tax-Free Withdrawals

• At Retirement Age: Withdrawals made at the retirement age (currently 55 years) are fully tax-exempt.
• Death or Permanent Disability: Withdrawals due to these circumstances are also tax-free.

Pre-Retirement Withdrawals

• Sub-Account A (70% of contributions):
  • Can only be withdrawn at retirement age, death, or permanent departure from Malaysia
  • Tax-free at retirement age
• Sub-Account B (30% of contributions):
  • Can be withdrawn once a year for any reason
  • Subject to a flat 8% tax penalty if withdrawn before retirement age

Withholding Tax on Early Withdrawals

• Rate: 8% withholding tax on pre-retirement withdrawals from Sub-Account B
• Mechanism: PRS provider deducts the tax before disbursing the withdrawal amount
• Tax Credit: The withheld amount can be claimed as a tax credit in your annual tax return

Corporate Tax Incentives

Employers who contribute to their employees' PRS accounts can also enjoy tax benefits.

Tax Deduction for Employers

• Limit: Up to 19% of employee's remuneration
• Condition: This 19% includes contributions to both EPF and PRS

Benefits for Employers

1. Reduced Corporate Tax: Contributions are tax-deductible, lowering the company's taxable income
2. Employee Retention: Offering PRS can be an attractive benefit for employee retention and recruitment
3. Flexible Implementation: Can be offered to all employees or as a performance incentive

Example Scenario

Scenario: Company A contributes RM2,000 annually to each employee's PRS account

• Number of employees: 100
• Total PRS contribution: RM200,000
• Corporate tax rate: 24%
• Tax savings: RM200,000 * 24% = RM48,000

Frequently Asked Questions

1. Q: Is the RM3,000 tax relief for PRS in addition to the EPF tax relief? A: Yes, the PRS tax relief is separate from and in addition to the EPF tax relief.

2. Q: Can I claim tax relief for contributions made to my spouse's PRS account? A: No, tax relief is only applicable for contributions made to your own PRS account.

3. Q: Are the returns or profits from PRS investments taxable? A: No, the returns or profits generated within your PRS account are not taxable.

Maximize Your PRS Tax Benefits

Ready to make the most of these tax advantages?

• Calculate Your Potential Tax Savings (Interactive Calculator)
• Open a PRS Account
• Increase Your PRS Contributions
• Learn About Employer PRS Programs